G.R. No. L-55764 February 16, 1982
SOCIAL SECURITY SYSTEM, petitioner, vs. COURT OF APPEALS and MANILA COSMOS AERATED WATER FACTORY, INC., respondents.

FACTS

The Social Security System (SSS) filed a petition before the Social Security Commission (SSC) seeking a declaration that certain individuals, operating under an “Agreement to Peddle Soft Drinks” with Manila Cosmos Aerated Water Factory, Inc. (Cosmos), were employees and not independent contractors. The contract stipulated that Cosmos would provide a delivery truck, but the peddler would operate it under his own responsibility, employ and pay his own driver and helpers, bear all sales expenses and licenses, and purchase soft drinks at a set factory price with a volume discount. The peddler was required to post a cash bond, liquidate accounts daily, and the agreement was terminable by either party upon seven days’ notice. The SSS sought to compel Cosmos to pay employer premium contributions for these individuals.
The SSC initially ruled in favor of the SSS, finding an employer-employee relationship. The Court of Appeals first affirmed this but, upon reconsideration, reversed the SSC’s resolution. Only the SSS appealed this reversal to the Supreme Court; the individual peddlers did not join the appeal.

ISSUE

Whether the individuals operating under the peddling contract with Cosmos are employees of the company or independent contractors.

RULING

The Supreme Court affirmed the decision of the Court of Appeals, ruling that the peddlers were independent contractors. The Court applied the precedent set in Mafinco Trading Corporation vs. Ople, which involved an almost identical peddling contract. The legal logic hinges on the absence of the fundamental elements of an employer-employee relationship, particularly the employer’s power of control over the means and methods of the work.
Analyzing the contract’s provisions, the Court found that Cosmos did not exercise control over how the peddlers performed their selling and delivery functions. The peddlers operated independently: they managed their own helpers, bore their own operating expenses and licenses, assumed liability for damages, and their compensation was effectively the profit margin from their sales, not wages. The contractual right to terminate upon notice, without cause, was deemed a stipulation between independent parties, not an employer’s power of dismissal indicative of control. The Court characterized this as a “penumbral” case on the borderline, but concluded the totality of the contractual terms established an independent business undertaking, not employment. The indifference of the individual peddlers to the appeal further supported this conclusion.