The contractual relationship between Tongko and Manulife had two basic phases.

The
first or initial phase began on July 1, 1977, under a Career Agent’s
Agreement that provided:

It is understood and agreed that the Agent is an independent contractor and nothing
contained herein shall be construed or interpreted as creating an employer-employee
relationship between the Company and the Agent.
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies
and other products offered by the Company, and collect, in exchange for provisional
receipts issued by the Agent, money due to or become due to the Company in respect of
applications or policies obtained by or through the Agent or from policyholders allotted
by the Company to the Agent for servicing, subject to subsequent confirmation of receipt
of payment by the Company as evidenced by an Official Receipt issued by the Company
directly to the policyholder.
The Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within fifteen (15)
days from the time of the discovery of the breach. No waiver, extinguishment,
abandonment, withdrawal or cancellation of the right to terminate this Agreement by the
Company shall be construed for any previous failure to exercise its right under any
provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without
cause, by giving to the other party fifteen (15) days notice in writing.

Tongko additionally agreed (1) to comply with all regulations and requirements of
Manulife, and (2) to maintain a standard of knowledge and competency in the sale of
Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the
new business, required by his Production Club membership.

The second phase started in 1983 when Tongko was named Unit Manager in
Manulife’s Sales Agency Organization. In 1990, he became a Branch Manager. Six years
later, Tongko became a Regional Sales Manager.

Tongko’s gross earnings consisted of commissions, persistency income, and management

overrides. Since the beginning, Tongko consistently declared himself self-employed in
his income tax returns. Thus, under oath, he declared his gross business income and
deducted his business expenses to arrive at his taxable business income. Manulife
withheld the corresponding 10% tax on Tongko’s earnings.

De Dios addressed a letter to Tongko stating that the former found the latter’s views and
comments unaligned with the directions the company was taking. The allegations stated
that some Managers were unhappy with their earnings. However, no Managers confirmed
the said allegations. De Dios worried about Tongko’s inability to push for the company’s
development and growth.
Subsequently, de Dios wrote Tongko another letter terminating Tongko’s services.
Tongko responded by filing an illegal dismissal complaint with the NLRC Arbitration
Branch. He essentially alleged – despite the clear terms of the letter terminating his
Agency Agreement – that he was Manulife’s employee before he was illegally dismissed.

Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding
₱50,000.00, regardless of production levels attained and exclusive of commissions and
bonuses. He also claimed that as Regional Sales Manager, he was given a travel and
entertainment allowance of ₱36,000.00 per year in addition to his overriding
commissions; he was tasked with numerous administrative functions and supervisory
authority over Manulife’s employees, aside from merely selling policies and recruiting
agents for Manulife; and he recommended and recruited insurance agents subject to
vetting and approval by Manulife. He further alleges that he was assigned a definite place
in the Manulife offices when he was not in the field for which he never paid any rental.
Manulife provided the office equipment he used, and paid for the electricity, water and
telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was
required to follow at least three codes of conduct.

Manulife argues that Tongko had no fixed wage or salary. Under the Agreement,
Tongko was paid commissions of varying amounts, computed based on the premium paid
in full and actually received by Manulife on policies obtained through an agent. As sales
manager, Tongko was paid overriding sales commission derived from sales made by
agents under his unit/structure/branch/region. Manulife also points out that it deducted
and withheld a 10% tax from all commissions Tongko received; Tongko even declared
himself to be self-employed and consistently paid taxes as such—i.e., he availed of tax
deductions such as ordinary and necessary trade, business and professional expenses to
which a business is entitled.

Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he
was not its employee as characterized in the four-fold test.

The labor arbiter decreed that no employer-employee relationship existed between

the parties. However, the NLRC reversed the labor arbiter’s decision on appeal; it
found the existence of an employer-employee relationship and concluded that Tongko
had been illegally dismissed. In the petition for certiorari with the CA, the appellate court
found that the NLRC gravely abused its discretion in its ruling and reverted to the labor
arbiter’s decision that no employer-employee relationship existed between Tongko and
Manulife.

In the Supreme Court’s Decision of November 7, 2008, the Court reversed the CA ruling
and found that an employment relationship existed between Tongko and Manulife for the
following reasons:
1. Our ruling in the first Insular case did not foreclose the possibility of an insurance
agent becoming an employee of an insurance company; if evidence exists showing that
the company promulgated rules or regulations that effectively controlled or restricted an
insurance agent’s choice of methods or the methods themselves in selling insurance, an
employer-employee relationship would be present. The determination of the existence of
an employer-employee relationship is thus on a case-to-case basis depending on the
evidence on record.

2. Manulife had the power of control over Tongko, sufficient to characterize him as an
employee, as shown by the following indicators:

2.1 Tongko undertook to comply with Manulife’s rules, regulations and other
requirements, i.e., the different codes of conduct such as the Agent Code of Conduct, the
Manulife Financial Code of Conduct, and the Financial Code of Conduct Agreement;

2.2 The various affidavits of Manulife’s insurance agents and managers, who occupied
similar positions as Tongko, showed that they performed administrative duties that
established employment with Manulife;12 and

2.3 Tongko was tasked to recruit some agents in addition to his other administrative
functions. De Dios’ letter harped on the direction Manulife intended to take, viz., greater
agency recruitment as the primary means to sell more policies; Tongko’s alleged failure
to follow this directive led to the termination of his employment with Manulife.

Manulife disagreed filed the present motion for reconsideration for the following
grounds:
1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a)
confining the review only to the issue of "control" and utterly disregarding all the other
issues that had been joined in this case; (b) mischaracterizing the divergence of
conclusions between the CA and the NLRC decisions as confined only to that on
"control"; (c) grossly failing to consider the findings and conclusions of the CA on the
majority of the material evidence, especially [Tongko’s] declaration in his income tax
returns that he was a "business person" or "self-employed"; and (d) allowing [Tongko] to
repudiate his sworn statement in a public document.

2. The November 7[, 2008] Decision contravenes settled rules in contract law and
agency, distorts not only the legal relationships of agencies to sell but also distributorship
and franchising, and ignores the constitutional and policy context of contract law vis-à-
vis labor law.

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements
of the four-fold test other than the "control" test, reverses well-settled doctrines of law on
employer-employee relationships, and grossly misapplies the "control test," by selecting,
without basis, a few items of evidence to the exclusion of more material evidence to
support its conclusion that there is "control."

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized
by Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under
Article VIII, Section 1 of the Constitution and contravenes through judicial legislation,
the constitutional prohibition against impairment of contracts under Article III, Section
10 of the Constitution.

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and
reversible errors, which should be corrected, in concluding that Respondent Manulife and
Petitioner had an employer-employee relationship, that Respondent Manulife illegally
dismissed Petitioner, and for consequently ordering Respondent Manulife to pay
Petitioner backwages, separation pay, nominal damages and attorney’s fees.

Issue:
Whether or not there is an existing employer-employee relationship.

Held:
The primary evidence in the present case is the July 1, 1977 Agreement that governed
and defined the parties’ relations until the Agreement’s termination in 2001. This
Agreement stood for more than two decades and, based on the records of the case, was
never modified or novated. It assumes primacy because it directly dealt with the nature of
the parties’ relationship up to the very end; moreover, both parties never disputed its
authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife,
not as an employee. To be sure, the Agreement’s legal characterization of the nature of
the relationship cannot be conclusive and binding on the courts; the characterization of
the juridical relationship the Agreement embodied is a matter of law that is for the courts
to determine. At the same time, though, the characterization the parties gave to their
relationship in the Agreement cannot simply be brushed aside because it embodies their
intent at the time they entered the Agreement, and they were governed by this
understanding throughout their relationship. At the very least, the provision on the
absence of employer-employee relationship between the parties can be an aid in
considering the Agreement and its implementation, and in appreciating the other evidence
on record.

Evidence shows that Tongko’s role as an insurance agent never changed during his
relationship with Manulife. If changes occurred at all, the changes did not appear to be in
the nature of their core relationship. Tongko essentially remained an agent, but moved up
in this role through Manulife’s recognition that he could use other agents approved by
Manulife, but operating under his guidance and in whose commissions he had a share.
For want of a better term, Tongko perhaps could be labeled as a "lead agent" who guided
under his wing other Manulife agents similarly tasked with the selling of Manulife
insurance.
Evidence suggests that these other agents operated under their own agency agreements.
Thus, if Tongko’s compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in the
commissions the agents under his wing generated. As an agent who was recruiting and
guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement
of expenses he incurred in the course of his lead agency, a prerogative he enjoyed
pursuant to Article 1912 of the Civil Code. Thus, Tongko received greater
reimbursements for his expenses and was even allowed to use Manulife facilities in his
interactions with the agents, all of whom were, in the strict sense, Manulife agents
approved and certified as such by Manulife with the Insurance Commission.

There case is the lack of evidence on record showing that Manulife ever exercised means-
and-manner control, even to a limited extent, over Tongko during his ascent in
Manulife’s sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably,
Tongko never bothered to present any evidence at all on what this designation meant.
This also holds true for Tongko’s appointment as branch manager in 1990, and as
Regional Sales Manager in 1996. The best evidence of control – the agreement or
directive relating to Tongko’s duties and responsibilities – was never introduced as part
of the records of the case. The reality is, prior to de Dios’ letter, Manulife had practically
left Tongko alone not only in doing the business of selling insurance, but also in guiding
the agents under his wing.

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.

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.

According to the Insular Life case, 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," as the first Insular Life case tells us, 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.

Aside from these affidavits however, no other evidence exists regarding the effects of
Tongko’s additional roles in Manulife’s sales operations on the contractual relationship
between them.

A "coordinative" standard for a manager cannot be indicative of control; the standard

only essentially describes what a Branch Manager is – the person in the lead who
orchestrates activities within the group. To "coordinate," and thereby to lead and to
orchestrate, is not so much a matter of control by Manulife; it is simply a statement of a
branch manager’s role in relation with his agents from the point of view of Manulife
whose business Tongko’s sales group carries.

The following portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of November 7,
2008, while the other portions suggesting labor law control were highlighted.
Specifically, the following portions of the affidavits were not brought out:
1.a. I have no fixed wages or salary since my services are compensated by way of
commissions based on the computed premiums paid in full on the policies obtained
thereat;

1.b. I have no fixed working hours and employ my own method in soliticing insurance at
a time and place I see fit;

1.c. I have my own assistant and messenger who handle my daily work load;

1.d. I use my own facilities, tools, materials and supplies in carrying out my business of
selling insurance;

xxxx

6. I have my own staff that handles the day to day operations of my office;

7. My staff are my own employees and received salaries from me;

xxxx

9. My commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10) percent
creditable withholding tax. I also remit monthly for professionals.

These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employer-
employee relationship existed between Manulife and Tongko.
Even de Dios’ letter is not determinative of control as it indicates the least amount of
intrusion into Tongko’s exercise of his role as manager in guiding the sales agents.
Strictly viewed, de Dios’ directives are merely operational guidelines on how Tongko
could align his operations with Manulife’s re-directed goal of being a "big league player."
The method is to expand coverage through the use of more agents. This requirement for
the recruitment of more agents is not a means-and-method control as it relates, more than
anything else, and is directly relevant, to Manulife’s objective of expanded business
operations through the use of a bigger sales force whose members are all on a principal-
agent relationship. Tongko was not supervising regular full-time employees of Manulife
engaged in the running of the insurance business; Tongko was effectively guiding his
corps of sales agents, who are bound to Manulife through the same Agreement that he
had with Manulife, all the while sharing in these agents’ commissions through his
overrides. This is the lead agent concept mentioned above for want of a more appropriate
term, since the title of Branch Manager used by the parties is really a misnomer given
that what is involved is not a specific regular branch of the company but a corps of non-
employed agents, defined in terms of covered territory, through which the company sells
insurance. Tongko was not even setting policies in the way a regular company manager
does; company aims and objectives were simply relayed to him with suggestions on how
these objectives can be reached through the expansion of a non-employee sales force.

What happened in Tongko’s case was the grant of an expanded sales agency role that
recognized him as leader amongst agents in an area that Manulife defined.

Under this legal situation, the only conclusion that can be made is that the absence of
evidence showing Manulife’s control over Tongko’s contractual duties points to the
absence of any employer-employee relationship between Tongko and Manulife. In the
context of the established evidence, Tongko remained an agent all along; although his
subsequent duties made him a lead agent with leadership role, he was nevertheless only
an agent whose basic contract yields no evidence of means-and-manner control.

The the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’ letter,
as a ground for termination of Tongko’s agency, is a matter that the labor tribunals cannot
rule upon in the absence of an employer-employee relationship. Jurisdiction over the
matter belongs to the courts applying the laws of insurance, agency and contracts.