G.R. No. 266552 – RICO B. ESCAURIAGA, CRISTINE DELA CRUZ, RENE B. SEVERINO, RALPH ERROL MERCADO, and GERALDINE GUEVARRA, petitioners, vs. FITNESS FIRST, PHIL., INC., and LIBERTY CRUZ, respondents.

LAZARO-JAVIER, J.

Rule Synopsis

An independent contractor enjoys independence and freedom from the control and supervision of his or her principal as opposed to an employee who is subject to the employer’s power to control the means and methods by which the employee’s work is to be performed and accomplished.

Facts

Fitness First Phil., Inc. (Fitness First) engaged Rico Escauriaga (Escauriaga) and six (6) others (petitioners) as fitness trainers. Their tasks included selling and marketing physical health training programs and packages and conducting training sessions for their clients. They were paid fixed monthly salaries, 13th-month pay, and commissions.

However, on different dates, they were reclassified as freelance trainers where they were paid their salaries but not the other labor benefits, i.e., 13th month, overtime, holiday, and rest day pay. They were allowed to work on their own time but were required to render at least 90 hours per month and PHP80,000.00 worth of physical training program or package. Failure to meet quota translated to salary deduction or disciplinary action. Such repeated failure may subject them to warning, suspension, and even termination of employment.

In 2017, Fitness First offered a 3% increase in commission for those who will register their freelance business with the BIR. Those who fail to register shall suffer termination or non-renewal of their agreement. Petitioners did not register, thus, Fitness First revoked its offer of higher commission and offered petitioners to revert to being instructors. Petitioners, however, would want to enjoy the benefits of both an instructor and a freelance trainer. Hence, they filed a Complaint against Fitness First and its Senior Human Resource Manager Liberty Cruz (Cruz) for illegal dismissal, regularization, and other monetary claims.

The Labor Arbiter declared petitioners as independent contractors. The National Labor Relations Commission (NLRC) affirmed. Per the Entry of Judgement dated May 23, 2019, the Decision lapsed into finality on April 12, 2019.

On August 27, 2019, petitioners filed a Petition for Relief from Judgment with NLRC, which the latter denied. The NLRC also denied the Motion for Reconsideration. The Court of Appeals (CA) affirmed and denied the petitioners’ Motion for Reconsideration.

Issues

1. Were respondents able to sufficiently prove that petitioners were independent contractors?
2. What award were the petitioners entitled to?
3. Should Respondent Liberty Cruz be held solidarily liable with Fitness First?

Ruling and Discussion

1. No. Respondents were not able to sufficiently prove that petitioners were independent contractors.
   
   The employment status of a person is not defined by what the parties say it should be. Rather, the same is prescribed by law. There is no inflexible rule to determine if one is an employee or an independent contractor; thus, the characterization of the relationship must be made based on the circumstances of each case. When the status of the employment is in dispute, the employer bears the burden to prove that the person whose service it pays for is an independent contractor rather than a regular employee.
   
   An independent contractor enjoys independence and freedom from the control and supervision of his or her principal as opposed to an employee who is subject to the employer’s power to control the means and methods by which the employee’s work is to be performed and accomplished.
   
   In the resolution of the issue, the Court employed a two-tiered test: the four-fold test and the economic dependence test.
   
   Under the four-fold test, to establish an employer-employee relationship, four factors must be proven: (a)the employer’s selection and engagement of the employee; (b) the payment of wages; (c) the power to dismiss; and (d) the power to control the employee’s conduct. The power of control is the most significant factor in the four-fold test.
   
   Under the four-fold test, there is an employer-employee relationship between the parties:
   
   (a) Fitness First did not dispute that it engaged the petitioners. That they were engaged based on their talents and skills does not necessarily prevent a regular employment status. More so, Fitness First repeatedly engaged petitioners as independent contractors on a fixed one-year term. The Court construes this as an effort to circumvent the security of tenure, which should be struck down for being contrary to law, morals, good customs, public order, or public policy.
   
   (b) The Freelance Personal Trainer Agreement (Agreement) specifically mentioned that petitioners were paid on a commission basis, which the Labor Code specifically mentions as one of the forms of paying wages.
   
   (c) Though the Agreement provided that the parties may voluntarily terminate the same with or without cause, Fitness First had the power to dismiss. It may dismiss the trainer if it becomes manifest that the latter was unqualified or unfit to discharge his or her duties. Further, the petitioners’ failure to comply with the monthly Minimum Performance Standards is also a ground for termination.
   
   (d) Contrary to Fitness First’s claim, petitioners did not perform their tasks at their pleasure and in the manner they saw fit. First, the petitioners performed tasks necessary and desirable to Fitness First’s principal business. Second, petitioners were required to attend all educational training sessions and other events of Fitness First Department. As indicated in the Agreement: First, petitioners were bound to abide by Minimum Performance Standards. Second, they were required to guarantee monthly sales and conduct physical training programs/packages. That petitioners were required to conduct physical training for a number of hours is contrary to the nature of independent contractors who is not supposed to be subjected to definite hours or conditions of work. Third, Fitness First reserved the right to unilaterally revise the Minimum Performance Standards even without notice. Last, Fitness First also has the right to assign petitioners to any of its managed health clubs as it may deem necessary.
   
   Under the economic dependence test, the same conclusion is arrived at.
   
   (a) In the performance of their tasks, petitioners were guided by the packages offered by Fitness First. The performance of these acts is integral to Fitness First’s business of offering various physical health training programs/packages.
   
   (b) Petitioners were wholly dependent upon Fitness First for their continued employment in this line of business. Per the Agreement, they prohibited from providing training outside of the club.
2. Petitioners are entitled to backwages, separation pay, pro-rata 13th month pay, and attorney’s fees.
   
   Finding that petitioners are regular employees of Fitness First. Consequently, petitioners should be reinstated to their respective positions with full backwages computed from the time of dismissal up to the time of actual reinstatement, including salary for holiday pay and other labor benefits withheld. If reinstatement is no longer feasible, they should be given separation pay in addition to full backwages. They should also be paid attorney’s fees equivalent to 10% of the total monetary award.
3. No. Respondent Liberty Cruz should not be held solidarily liable with Fitness First.
   
   To be held solidarily liable with the corporation in labor cases, directors, officers, and human resource managers must have acted with malice or bad faith.
   
   Here, other than the fact that Cruz held the position of human resource Manager, petitioners failed to demonstrate how she abused her position to get petitioners in the situation they found themselves in. Bad faith, therefore, may not be attributed to make her solidarily liable with respondent Fitness First.

dispositive

Petition granted. Decision and Resolution of the CA reversed.