G.R. No. L-23483 February 24, 1971
SOCIAL SECURITY SYSTEM, petitioner, vs. HON. COURT OF APPEALS, and SHRIRO (PHILIPPINES) INC., respondents.

FACTS

The Social Security System (SSS) informed Shriro (Philippines), Inc., the exclusive distributor of “Regal” sewing machines, that its commission sales agents were considered “employees” under the Social Security Act, making premium contributions due. Shriro contested this, leading to a ruling by the Social Security Commission that, except for independent dealers with their own stores, the agents were employees subject to compulsory coverage. The Court of Appeals reversed this decision, prompting the SSS to appeal to the Supreme Court via certiorari.
The undisputed facts show Shriro hires sales agents under a fixed-term contract labeled as a non-employment agreement. The agents operate independently: they set their own hours, can work for other companies, are paid solely on commission (P26 or P36 per machine sold), bear their own expenses unless delivery is from Shriro’s store, and are not supervised in their sales methods. However, Shriro retains control by requiring credit approval for all sales and reserving the right to revoke the authority at any time. Many agents transact no sales, and they are not allowed to stay in Shriro’s showroom except when accompanying prospects.

ISSUE

Whether Shriro’s commission sales agents are “employees” subject to compulsory coverage under the Social Security Act.

RULING

No, the sales agents are not employees but independent contractors, and thus are not compulsorily covered. The Supreme Court affirmed the Court of Appeals’ decision. The legal logic hinges on the “control test” to determine the existence of an employer-employee relationship. While the Social Security Act defines “employment” broadly as any service performed for compensation, the Court emphasized that the common-law “control test” remains the primary criterion. The test examines whether the employer controls both the end to be achieved and the means and methods to accomplish it.
Applying this test, the Court found the degree of control exercised by Shriro over its agents was insufficient to establish an employer-employee relationship. The agents were free to adopt their own selling methods, set their own working hours, and engage with other businesses. Their compensation was purely commission-based with no salary or allowances, and they operated without the typical supervision of regular employees. The requirement for credit approval pertained merely to the consummation of the sale, a legitimate business safeguard, and did not constitute control over the agents’ manner of performance. The contractual stipulation labeling the relationship as non-employment, while not conclusive, was consistent with the operational realities. Consequently, the agents were independent contractors, and their services fell under an exception to compulsory coverage, specifically as “services performed by an independent contractor.” The SSS’s broad interpretation of the statutory definition was rejected in favor of the established control test.