Title
Insular Life Assurance Co., Ltd. vs. National Labor Relations Commission
Case
G.R. No. 84484
Decision Date
Nov 15, 1989
Insular Life terminated Basiao's contract, denying unpaid commissions. SC ruled Basiao an independent contractor, not an employee, dismissing labor complaint for lack of jurisdiction.
unpaid commissions
independent contractor
employee
A

Case Summary (G.R. No. 84484)

Factual Background

On July 2, 1968, Insular Life Assurance Co., Ltd. and Melecio T. Basiao executed an underwriting agency agreement authorizing Basiao to solicit insurance applications in the Philippines and to receive commissions in accordance with a schedule of commissions incorporated in the contract. The agreement expressly provided that the agent was “free to exercise his own judgment as to time, place and means of soliciting insurance” and that “nothing herein contained shall therefore be construed to create the relationship of employee and employer.” The contract also incorporated the Company’s Rate Book, Agent’s Manual, circulars and any rules the Company might promulgate; it contained provisions on prohibited acts, termination, and assignment of commissions. In April 1972 the parties entered into an Agency Manager’s Contract under which Basiao organized an agency named M. Basiao and Associates. In May 1979 the Company terminated the Agency Manager’s Contract. Basiao thereafter alleged that the Company also terminated the July 2, 1968 contract and stopped paying commissions as of April 1, 1980.

Procedural History

Basiao filed a complaint with the Ministry of Labor seeking unpaid commissions and attorney’s fees. The Company contested the Ministry’s jurisdiction, asserting that Basiao was an independent contractor and not an employee. The Labor Arbiter found that the underwriting agreement had created an employer-employee relationship and ordered payment of unpaid commissions equivalent to the balance of the first year’s premiums remaining unpaid at the time of termination, plus ten percent attorney’s fees. On appeal, the National Labor Relations Commission affirmed the Arbiter’s decision. The Company then filed the present petition for certiorari and prohibition before the Supreme Court.

Issue

Whether the Labor Arbiter and the NLRC had jurisdiction under Section 217 of the Labor Code to adjudicate Basiao’s claim for unpaid commissions by virtue of an employer-employee relationship arising from the July 2, 1968 contract, or whether Basiao was a commission agent and independent contractor whose claim was cognizable only in an ordinary civil action.

Parties’ Contentions

The Company argued that the contractual terms left Basiao free to determine time, place and means of solicitation, imposed no fixed working hours or quotas, compensated on a commission basis, and thereby established an independent contractor relationship. The respondents countered that the critical test is control and that the contract’s clause requiring Basiao to “observe and conform to all rules and regulations which the Company may from time to time prescribe,” together with the Company’s role in prescribing applicant qualifications, processing applications and determining policy terms, manifested sufficient control to establish an employer-employee relationship.

Labor Arbiter and NLRC Rulings

The Labor Arbiter concluded that the underwriting agreement created an employer-employee relationship and therefore that the Ministry of Labor had jurisdiction. The Arbiter awarded unpaid commissions as specified and ten percent attorney’s fees. The NLRC affirmed that decision on appeal, maintaining that the arbiter properly exercised jurisdiction and that Basiao was an employee under the contract.

Legal Basis and Reasoning

The Court acknowledged the validity of the traditional “control test” as expressed in Viana v. Alejo Al-Lagadan and subsequent precedents, which consider selection, payment, power of dismissal and, most importantly, the power to control the employee’s conduct. The Court explained that not every reserved control suffices to convert an independent contractor into an employee. It drew a distinction between rules that serve merely as guidelines to achieve a result and rules that dictate the means and methodology of performance; only the latter establish the necessary control to create an employer-employee relationship. The Court emphasized that the insurance business is heavily regulated under the Insurance Code and by the Insurance Commissioner, and that it is customary and proper for an insurer to promulgate rules governing solicitation, qualifications for insurance, processing of applications and premium schedules without thereby converting agents into employees. The Court surveyed controlling authorities, including Mafinco Trading Corporation v. Ople, Investment Planning Corporation of the Philippines v. Social Security System, and Sara v. NLRC, which treated commission sellers and agents with similar contractual terms as independent contractors. The Court found no evidence that the Company had promulgated rules that in fact controlled or restricted Basiao’s choice of methods of solicitation. The Court rejected reliance on the length of associat

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