G.R. No. L-19124 November 18, 1967
Investment Planning Corporation of the Philippines, petitioner-appellant, vs. Social Security System, respondent-appellee.

FACTS

Petitioner Investment Planning Corporation is a domestic corporation engaged in business management and the sale of securities. It has two classes of agents: (1) salaried employees who work under the company’s control and supervision, and (2) registered representatives who work on a commission basis. Petitioner applied to the Social Security Commission for exemption of its registered representatives from compulsory coverage under the Social Security Act. The application was denied, and the denial was affirmed by the Commission. The uncontradicted testimony established that these registered representatives are recruited, trained, and licensed to sell “Filipinos Mutual Fund” shares. They execute an agreement with petitioner, which provides for compensation by commission, payment of commission balances upon death or resignation, subjection to a set of rules, a performance bond requirement, and termination for certain causes. However, the Commission also found that these agents are not required to report for work at any specific time, do not have to work exclusively for petitioner, determine their own time and effort, are not required to account for their time or submit activity records, shoulder their own selling and transportation expenses, and are paid a commission based on a percentage of sales. The commission is directly deducted by the agent from the investor’s payment before remitting the balance to the company. Most agents are regularly employed elsewhere.

ISSUE

Whether petitioner’s registered representatives are “employees” within the meaning of the Social Security Act, which requires the existence of an employer-employee relationship.

RULING

No. The registered representatives are not employees but independent contractors. The Court applied the common-law “control test” to determine the existence of an employer-employee relationship, examining whether the employer controls not only the result of the work but also the means and methods to accomplish it. The facts showed that petitioner did not exercise such control over its agents. The agents worked at their own pleasure, were not subject to definite hours or conditions of work, and were compensated based on the results of their efforts (actual sales) rather than the labor performed. The Court found the agents’ work more akin to that of an independent contractor under Article 1713 of the Civil Code, where compensation is for the result of the work, not the labor itself. The contractual provisions for termination based on sales quotas or conduct detrimental to the company were not related to controlling the means and methods of work. Citing persuasive U.S. jurisprudence on the similarly patterned Federal Social Security Act, which holds commission sales representatives not to be employees, the Court reversed the resolution of the Social Security Commission.