The determination of whether employer-employee relation exists between the parties is very important. For one, entitlement to labor standards benefits such as minimum wages, hours of work, overtime pay, etc., or to social benefits under laws such as social security law, workmen’s compensation law, etc., or to termination pay, or to unionism and other labor relations provisions under the Labor Code, are largely dependent on the existence of employer-employee relationship between the parties.

Another thing is that the existence of employer-employee relationship between the parties will determine whether the controversy should fall within the exclusive jurisdiction of labor agencies or not. If for example the parties are not employer-employee of each other, respectively, but perhaps partners or associates, then any dispute between them will be not be covered by the jurisdiction of labor agencies but by regular courts.

Three test to determine employer-employee relationship

There are three test commonly used to determine the existence of employer-employee relationship, viz.:

  1. Four-fold test
  2. Economic reality test
  3. Two-tiered test (or Multi-factor test)

Four-fold test elements

The usual test used to determine the existence of employer-employer relationship is the so-called four-fold test. In applying this test, the following elements are generally considered:

  1. Right to hire or to the selection and engagement of the employee.
  2. Payment of wages and salaries for services.
  3. Power of dismissal or the power to impose disciplinary actions.
  4. Power to control the employee with respect to the means and methods by which the work is to be accomplished. This is known as the right-of-control test.

Right of control test is considered as the most important element in determining the existence of employment relation.
Of the above-mentioned elements, the right of control test is considered as the most important element in determining the existence of employment relation. The control test initially found application in the case of Viaña vs. Al-Lagadan and Piga, where the court held that there is an employer-employee relationship when the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end.

Control test thus refers to the employer’s power to control the employee’s conduct not only as to the result of the work to be done but also with respect to the means and methods by which the work is to be accomplished.

In applying this test, it is the existence of the right, and not the actual exercise thereof, that is important.

Economic reality test

In view of today’s highly specialized workforce, the court are often faced with situations where the right-of-control-test alone can no longer adequately determine the existence of employer-employer relationship. Subsequently, another test has been devised to fill the gap, known as the economic reality test.

In Sevilla v. Court of Appeals, the Court observed the need to consider the existing economic conditions prevailing between the parties, in addition to the standard of right-of-control, to give a clearer picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic circumstances of the worker.

Economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.

Under economic reality test, the benchmark in analyzing whether employment relation exists between the parties is the economic dependence of the worker on his employer. That is, whether the worker is dependent on the alleged employer for his continued employment in the latter’s line of business.

Applying this test, if the putative employee is economically dependent on putative employer for his continued employment in the latter’s line of business, there is employer-employee relationship between them. Otherwise, there is none.

Two-tiered test (or Multi-factor test)

The economic reality test is not meant to replace the right of control test. Rather, these two test are often use in conjunction with each other to determine the existence of employment relation between the parties. This is known as the two-tiered test, or multi-factor test. This two-tiered test involves the following tests:

  • The putative employer’s power to control the employee with respect to the means and methods by which the work is to be accomplished; and
  • The underlying economic realities of the activity or relationship.
  • References

    1. Francisco vs. NLRC, G.R. No. 170087 August 31, 2006
    2. Religious of the Virgin Mary vs. NLRC, G.R. No. 103606, October 13, 1999
    3. Viaña vs. Al-Lagadan and Piga, 99 Phil. 408 (1956).

    4. Sevilla v. Court of Appeals, G.R. Nos. L-41182-3, April 15, 1988.

    Last Edited: Sunday, March 20, 2011

    Caveat: Subsequent court and administrative rulings, or changes to, or repeal of, laws, rules and regulations may have rendered the whole or part of this article inaccurate or obsolete.
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    3 comments

    1. mary joy embiado Comment:
      November 9th, 2014 at 03:21 pm

      We can say then that there is an employer-employee relationship between a jeepney driver and jeepney owner.? Based on the facts mentioned above

      [Reply]

    2. Jen Benedicto Comment:
      January 11th, 2015 at 09:55 am

      We have been working under no employer-employee relationship for more than 15 years, meaning we are still contractual is that illegal? We are never recommended for a regular position but were only given false hopes. We were constantly threatened by the employer to perform extra duties in favor of them. Is this under DOLE or CSC or a local court? By the way, we are under a city government, but according to the contract, we have no employer-employee relations and our work can never be considered as government service

      [Reply]

    3. Celeste Legaspi Comment:
      October 9th, 2015 at 12:14 pm

      “Right of control test is considered as the most important element in determining the existence of employment relation.” Can you explain this statement further?

      we are JOs personnel(under no employee-employer relationship contract) under a government agency yet our immediate supervisors are treating as if they are in full control of us, and if we perform poorly we were given a threat that our contracts will not be renewed

      [Reply]

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