Tests of Employment Relations

The determination of whether employer-employee relation exists between the parties

is very important. For one, entitlement to labor standards benefits such as minimum
wages, hours of work, overtime pay, etc., or to social benefits under laws such as
social security law, workmen’s compensation law, etc., or to termination pay, or to
unionism and other labor relations provisions under the Labor Code, are largely
dependent on the existence of employer-employee relationship between the parties.

Another thing is that the existence of employer-employee relationship between the

parties will determine whether the controversy should fall within the exclusive
jurisdiction of labor agencies or not. If for example the parties are not employer-
employee of each other, respectively, but perhaps partners or associates, then any
dispute between them will be not be covered by the jurisdiction of labor agencies but
by regular courts.

Three test to determine employer-employee relationship

There are three test commonly used to determine the existence of employer-employee
relationship, viz.:

1. Four-fold test
2. Economic reality test
3. Two-tiered test (or Multi-factor test)

Four-fold test elements

The usual test used to determine the existence of employer-employer relationship is

the so-called four-fold test. In applying this test, the following elements are generally
considered:

1. Right to hire or to the selection and engagement of the employee.

2. Payment of wages and salaries for services.
3. Power of dismissal or the power to impose disciplinary actions.
4. Power to control the employee with respect to the means and methods by
which the work is to be accomplished. This is known as the right-of-control
test.

Right of control test is considered as the most important element in determining the
existence of employment relation.
Of the above-mentioned elements, the right of control test is considered as the most
important element in determining the existence of employment relation. The control
test initially found application in the case of Viaña vs. Al-Lagadan and Piga, where
the court held that there is an employer-employee relationship when the person for
whom the services are performed reserves the right to control not only the end
achieved but also the manner and means used to achieve that end.

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Control test thus refers to the employer’s power to control the employee’s conduct not
only as to the result of the work to be done but also with respect to the means and
methods by which the work is to be accomplished.

In applying this test, it is the existence of the right, and not the actual exercise thereof,
that is important.

Economic reality test

In view of today’s highly specialized workforce, the court are often faced with
situations where the right-of-control-test alone can no longer adequately determine the
existence of employer-employer relationship. Subsequently, another test has been
devised to fill the gap, known as the economic reality test.

In Sevilla v. Court of Appeals, the Court observed the need to consider the existing
economic conditions prevailing between the parties, in addition to the standard of
right-of-control, to give a clearer picture in determining the existence of an employer-
employee relationship based on an analysis of the totality of economic circumstances
of the worker.

Economic realities of the employment relations help provide a comprehensive

analysis of the true classification of the individual, whether as employee, independent
contractor, corporate officer or some other capacity.

Under economic reality test, the benchmark in analyzing whether employment

relation exists between the parties is the economic dependence of the worker on his
employer. That is, whether the worker is dependent on the alleged employer for his
continued employment in the latter’s line of business.

Applying this test, if the putative employee is economically dependent on putative

employer for his continued employment in the latter’s line of business, there is
employer-employee relationship between them. Otherwise, there is none.

Two-tiered test (or Multi-factor test)

The economic reality test is not meant to replace the right of control test. Rather, these
two test are often use in conjunction with each other to determine the existence of
employment relation between the parties. This is known as the two-tiered test, or
multi-factor test. This two-tiered test involves the following tests:

 The putative employer’s power to control the employee with respect to the means
and methods by which the work is to be accomplished; and
 The underlying economic realities of the activity or relationship.