Puting Ilaw Company grants vacation leave benefits to its workers of thirty (30) days, non-commulative, non-convertible to cash in excess of ten (10) days. In 2018, the company issues a memo requiring employees to use the VL in excess of 10 or it shall be deemed forfeited thereafter.
Ab Sinero, an employee for five years, has used only 15 of his 30-day VL. When the company converted his 10 VL to cash, he is left with only 5 days. He did not use the remaining 5 days hence, it was forfeited by the company on December 31, 2018. Ab Sinero protested arguing that under the Labor Code, leave benefits are convertible to cash.
Question: Is Ab Sinero correct?
When the Labor Code mentions about leave benefits, it pertains to Service Incentive Leave. Vacation leave and sick leave are not found in the Labor Code. However, this does not mean that the grant of VL and SL is not sanctioned by law.
The clear policy of the Labor Code is to grant service incentive leave pay to workers in all establishments, subject to a few exceptions. Section 2, Rule V, Book III of the Implementing Rules and Regulations provides that “every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.”
Service incentive leave is a right which accrues to every employee who has served “within 12 months, whether continuous or broken reckoned from the date the employee started working, including authorized absences and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that provided in the employment contracts, is less than 12 months, in which case said period shall be considered as one year.” (Section 3, Rule V, Book III, Implementing Rules and Regulations of the Labor Code.)
It is also “commutable to its money equivalent if not used or exhausted at the end of the year.” In other words, an employee who has served for one year is entitled to it. He may use it as leave days or he may collect its monetary value.
In this case, Ab Sinero is not correct because the company has already converted ten (10) days of the VL. It is above and beyond the mandated 5-day SIL in Article 95 of the Labor Code.
Ab Sinero is only correct if there is a company policy, CBA or company practice converting all remaining VLs even those in excess of 10 days. There being none in this case, forfeiture of Ab Sinero’s unused 5 days VL in excess of 10 that was converted is legally permissible.
On the contrary, there is a memo expressly stating the forfeiture of unused VLs. Likewise, the conversion of 10 unused VLs is more than the mandated by law of only five (5) days. Hence, the company’s forfeiture is legal.
We know for a fact that an agent is primarily governed by the rules on Agency under the Civil Code while an employee by the Labor Code.
The confusing part lies in the element of control exercised by the principal in an agency agreement and the control that establishes employer-employee relationship. In the light of this dilemma, is an insurance agent an employee of the insurance company or an independent contractor who has no employment relationship with the latter?
This is one of the major issues that the Supreme Court resolved in the case of Gregorio V. Tongko vs. The Manufacturers Life Insurance Co. (Phils.), Inc., G.R. No. 167622, June 29, 2010.
The cited decision is the Court’s ruling on a Motion for Reconsideration filed by the Manulife.
The case arose from a complaint for illegal dismissal with various claims filed by Tongko against Manulife. Tongko alleged that he was an employee of the company since the latter exercised control over him. Of course, Manulife claims otherwise insisting that he was an agent.
The Labor Arbiter dismissed the case not finding any employer-employee relationship. This was reversed by the NLRC. On appeal to the CA, the latter ruled in favor of Manulife finding no employer-employee relationship. Hence, Tongko appealed to the Supreme Court.
THE SUPREME COURT’S ORIGINAL DECISION
Central to the resolution of the Supreme Court in the appeal was the disquisition on the existence of employer-employee relationship. The significance of this finding is that if it is found that no such relationship exists, the labor courts have no jurisdiction over this case. The employer-employee relationship is established by the four-fold test, as follows:
(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employer’s power to control the employee’s conduct.
As foundation for its decision, the Supreme Court held that if the specific rules and regulations that are enforced against insurance agents or managers are such that would directly affect the means and methods by which such agents or managers would achieve the objectives set by the insurance company, they are employees of the insurance company. Applying said standard, the Court held that Tongko was an employee of Manulife since the latter had the power of control over the former.
The Court accorded much weight on the various codes of conduct that Tongko had to observe pursuant to the agency agreement. It held:
“Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of Manulife may already be established. Certainly, these requirements controlled the means and methods by which Tongko was to achieve the company’s goals.
More importantly, Manulife’s evidence establishes the fact that Tongko was tasked to perform administrative duties that establishes his employment with Manulife.”
In short, the Supreme Court ruled in favor of Tongko which prompted Manulife to file its Motion for Reconsideration.
THE MOTION FOR RECONSIDERATION
In disposing of this Motion for Reconsideration, the Supreme Court placed heavy significance on the application of the Civil Code and Insurance provisions on agency. The original Agreement of Tongko with the company dictates that he is an insurance agent. No other documentary evidence was found to support subsequent stipulations as to their relationship that would negate the agency, and not employment, relationship on the original agreement.
It was found by the Court that Tongko declared himself as business or self-employed person in his income tax return. In a sense, an independent contractor. This bolsters the content of the Agreement mentioned above that he was an insurance agent in the context of the Insurance Code and the Civil Code. To the Court, this aspect of the evidence was not considered in its original decision, which had they been given importance, would have changed the decision as it is an admission against interest on the part of Tongko.
Another principle that surfaced here is the concept of estoppel. Tongko’s previous admissions in several years of tax returns as an independent agent, as against his belated claim that he was all along an employee, are too diametrically opposed to be simply dismissed or ignored.
As to the value of the Code of Conduct relied upon by Tongko in claiming that he is an employee, the Court posits:
“What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in the sale of insurance. The mere presentation of codes or of rules and regulations, however, is not per se indicative of labor law control as the law and jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the performance of their respective obligations under the Code, particularly on licenses and their renewals, on the representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies, on the matter of compensation, and on measures to ensure ethical business practice in the industry.
The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of labor law control. Foremost among these are the directives that the principal may impose on the agent to achieve the assigned tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The law likewise obligates the agent to render an account; in this sense, the principal may impose on the agent specific instructions on how an account shall be made, particularly on the matter of expenses and reimbursements. To these extents, control can be imposed through rules and regulations without intruding into the labor law concept of control for purposes of employment.”
The Court further held that a commitment to abide by the rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do guidelines somehow restrictive of the insurance agent’s conduct necessarily indicate “control” as this term is defined in jurisprudence. Guidelines indicative of labor law “control,” should not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or restricting the party hired to the use of these means. In fact, results-wise, the principal can impose production quotas and can determine how many agents, with specific territories, ought to be employed to achieve the company’s objectives. These are management policy decisions that the labor law element of control cannot reach. Thus, as will be shown more fully , Manulife’s codes of conduct, all of which do not intrude into the insurance agents’ means and manner of conducting their sales and only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed between Manulife and Tongko.
Thus, the Court did not see the existence of such relationship and reversed its earlier ruling which granted Tongko millions in backwages and damages, among others.