G.R. No. 171482, March 12, 2014
Ashmor M. Tesoro, Pedro Ang and Gregorio Sharp v. Metro Manila Retreaders, Inc. (BANDAG) and/or Northern Luzon Retreaders, Inc (BANDAG) and/or Power Tire and Rubber Corp. (BANDAG)

FACTS

Petitioners Ashmor M. Tesoro, Pedro Ang, and Gregorio Sharp were formerly salesmen for respondent companies (collectively “Bandag”), which offered tire repair and retreading services. In 1998, Bandag introduced a franchising scheme. Petitioners resigned from their positions and entered into separate Service Franchise Agreements (SFAs) with Bandag to operate their own franchise branches. Under the SFAs, Bandag provided funding support subject to periodic liquidation of revolving funds; petitioners’ incomes were derived from profits after deducting expenses from sales. After operating their franchises for several months to over a year, petitioners defaulted on their obligations to liquidate operational expenses, leading Bandag to terminate the SFAs. Petitioners filed a complaint for constructive dismissal, non-payment of wages, and other benefits before the National Labor Relations Commission (NLRC), arguing that the SFAs were a circumvention of their status as regular employees. Bandag contended that petitioners voluntarily resigned to become independent franchisees, and no employer-employee relationship existed. The Labor Arbiter dismissed the complaint, a decision affirmed by the NLRC and the Court of Appeals.

ISSUE

Whether petitioners remained employees of Bandag under the franchise scheme, thereby constituting constructive dismissal.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ decision, holding that no employer-employee relationship existed between the parties after the execution of the SFAs. The Court applied the four-fold test for employer-employee relationships, emphasizing the “control test” as the most significant element. It found that the control exercised by Bandag under the SFAs—such as setting price rates, imposing minimum processed tire requirements, regulating credit applications, and suspending services for failure to meet standards—pertained to franchise system standards aimed at maintaining uniformity, quality, and business reputation, not control over the means and methods of work. This level of control is inherent in franchising to protect the business model and does not equate to the day-to-day supervisory control indicative of an employment relationship. Petitioners’ shift from salaried salesmen to profit-dependent franchisees, their voluntary resignation, and their operation of independent branches demonstrated a fundamental change in their relationship with Bandag. The revolving funds provided were capital advances, not wages. The Court deferred to the consistent findings of the Labor Arbiter, NLRC, and Court of Appeals, noting that factual findings of quasi-judicial bodies, when supported by substantial evidence and upheld by the CA, are accorded respect and finality. Thus, petitioners were independent franchisees, not employees, and their claim of constructive dismissal failed.