The Supreme Court ruled that an employer-employee relationship can exist between a cooperative and its owner-members, making the cooperative responsible for Social Security System (SSS) contributions. This decision clarifies that despite being owners, members who provide services to the cooperative can be considered employees under the Social Security Law, entitling them to SSS coverage and benefits. This ruling ensures that cooperative members are not deprived of social security protection simply by virtue of their ownership status within the cooperative, underscoring the importance of protecting workers’ rights regardless of organizational structure.

Navigating Cooperative Waters: Can Owners Also Be Employees?

This case revolves around the Republic of the Philippines, represented by the Social Security Commission (SSC) and Social Security System (SSS), and Asiapro Cooperative, a multi-purpose cooperative. The core issue is whether Asiapro Cooperative should register with the SSS as an employer and remit contributions for its owner-members, who were providing services to Stanfilco, a division of DOLE Philippines, Inc. The SSS argued that Asiapro acted as a manpower contractor, making it an employer, while Asiapro contended that its owner-members were the cooperative itself and, therefore, could not be its employees. The Supreme Court had to determine if an employer-employee relationship could exist in this context and, if so, whether the SSC had jurisdiction over the dispute.

The Social Security Act of 1997, specifically Section 5, empowers the SSC to resolve disputes regarding SSS coverage, benefits, and contributions. Similarly, Rule III, Section 1 of the 1997 SSS Revised Rules of Procedure affirms this authority. These provisions underscore that the SSC has jurisdiction over compulsory SSS coverage issues. Mandatory coverage, however, hinges on the presence of an employer-employee relationship, except in cases of self-employed individuals. This relationship is pivotal in determining whether Asiapro Cooperative was obligated to register its owner-members with the SSS.

Jurisdiction is typically determined by the allegations in the complaint, not the defenses raised in the answer or motion to dismiss. Therefore, even though Asiapro challenged the SSC’s jurisdiction by arguing the absence of an employer-employee relationship, this challenge alone does not strip the SSC of its authority. Consequently, the SSC rightly assumed jurisdiction over the SSS petition. Once jurisdiction is established, it continues until the case is fully resolved, a principle applicable to quasi-judicial bodies like the SSC.

The Labor Code, particularly Article 217, defines the jurisdiction of Labor Arbiters and the National Labor Relations Commission (NLRC), excluding claims for Social Security and related benefits from the NLRC’s purview. The question of employer-employee relationship, therefore, for SSS coverage purposes, falls squarely within the SSC’s jurisdiction. Since the SSS petition directly concerned the compulsory coverage of Asiapro’s owner-members, the SSC was entitled to inquire into the existence of an employer-employee relationship to determine coverage without deferring to the NLRC. This division of authority reinforces the SSC’s specialized role in social security matters.

The existence of an employer-employee relationship is determined using a four-fold test: (1) selection and engagement of the workers, (2) payment of wages, (3) power of dismissal, and (4) the power to control the worker’s conduct. The control test, which emphasizes the employer’s authority over the means and methods of work, is the most crucial. The Supreme Court found all four elements present in Asiapro’s case. The cooperative had exclusive discretion over selecting and engaging its members, paid them stipends or shares in service surplus that were effectively wages, had the power to discipline and remove them, and exercised control over how they performed services for Stanfilco.

The explicit disavowal of an employer-employee relationship in the service contracts between Asiapro and Stanfilco was deemed ineffective. An employment relationship cannot be negated merely by contractual statements, especially when the actual terms and circumstances indicate otherwise. The law defines employment status, not the parties’ declarations. Contractual terms contrary to law, morals, or public policy are invalid. The provision in question circumvented the compulsory SSS coverage, contradicting both legal principles and public welfare.

In Cooperative Rural Bank of Davao City, Inc. v. Ferrer-Calleja, the Supreme Court previously stated that a cooperative member-owner could not bargain collectively with the cooperative. That situation differed substantially because it involved bargaining rights and did not negate the possibility of an employment relationship within a cooperative setting. Here, Asiapro had registered with the Cooperative Development Authority, acquiring a distinct juridical personality. A board of directors managed its affairs, making it akin to a corporation separate from its owners. This separation allows the cooperative, acting through its board, to enter into employment agreements with its members. Because an employment relationship exists between Asiapro Cooperative and its owner-members, the SSC maintains jurisdiction over the SSS Petition.

FAQs

What was the key issue in this case?	The key issue was whether an employer-employee relationship can exist between a cooperative and its owner-members for purposes of SSS coverage.
What did the Supreme Court decide?	The Supreme Court decided that an employer-employee relationship can exist, making the cooperative responsible for SSS contributions for its owner-members.
What is the four-fold test used to determine the existence of an employer-employee relationship?	The four-fold test considers the selection and engagement of the workers, payment of wages, power of dismissal, and the power to control the worker’s conduct.
Which element of the four-fold test is considered the most important?	The power to control the worker’s conduct is considered the most important element, particularly the control over the means and methods of work.
Can a contract stating no employer-employee relationship negate the existence of such a relationship?	No, the existence of an employer-employee relationship is defined by law and cannot be negated by contractual statements, especially when the terms and circumstances indicate otherwise.
Does the SSC have jurisdiction over disputes involving SSS coverage of cooperative members?	Yes, the SSC has jurisdiction over disputes regarding SSS coverage, benefits, and contributions, including those involving cooperatives and their members.
What is the significance of a cooperative’s registration with the Cooperative Development Authority?	Registration gives the cooperative a distinct juridical personality, allowing it to enter into employment agreements with its members in the same way a corporation can.
How are the ‘wages’ defined in the context of this case?	Wages are defined as remuneration or earnings payable by an employer to an employee for work done or services rendered, which in this case, referred to the share in service surplus received by owner-members.

In conclusion, the Supreme Court’s decision reinforces the importance of ensuring social security coverage for workers, regardless of their membership status in a cooperative. This ruling has far-reaching implications for cooperatives, emphasizing their responsibilities as employers to provide social security benefits to their owner-members. It underscores that the substance of the relationship prevails over contractual disclaimers.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Republic of the Philippines vs. Asiapro Cooperative, G.R. No. 172101, November 23, 2007