CASE DIGEST: Tesoro v. Metro Manila Retreaders, et al.

G.R. No. 171482 March 12, 2014




Petitioners quit their jobs as salesmen and entered into separate Service Franchise Agreements (SFAs) with Bandag for the operation of their respective franchises. Under the SFAs, Bandag would provide funding support to the petitioners subject to a regular or periodic liquidation of their revolving funds. At first, petitioners managed and operated their respective franchises without any problem. After a length of time, however, they began to default on their obligations to submit periodic liquidations of their operational expenses in relation to the revolving funds Bandag provided them. Consequently, Bandag terminated their respective SFA.

Aggrieved, petitioners filed a complaint for constructive dismissal, non-payment of wages, incentive pay, 13th month pay and damages against Bandag with the National Labor Relations Commission (NLRC). Petitioners contend that, notwithstanding the execution of the SFAs, they remained to be Bandags employees, the SFAs being but a circumvention of their status as regular employees.

For its part, Bandag pointed out that petitioners freely resigned from their employment and decided to avail themselves of the opportunity to be independent entrepreneurs under the franchise scheme that Bandag had. Thus, no employer-employee relationship existed between petitioners and Bandag.

LA, NLRC and CA ruled that there is no employer-employee relationship.

ISSUE: Whether or not there is employer-employee relationship

HELD: No. CA decision affirmed.

Labor Law - test of employer- employee relationship

In this case, Bandags SFAs created on their faces an arrangement that gave petitioners the privilege to operate and maintain Bandag branches in the way of franchises, providing tire repair and retreading services, with petitioners earning profits based on the performance of their branches.

The tests for determining employer- employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employee with respect to the means and methods by which the work is to be accomplished. The last is called the control test, the most important element.

When petitioners agreed to operate Bandags franchise branches in different parts of the country, they knew that this substantially changed their former relationships. It is pointed out that Bandag continued, like an employer, to exercise control over petitioners work. It points out that Bandag: (a) retained the right to adjust the price rates of products and services; (b) imposed minimum processed tire requirement (MPR); (c) reviewed and regulated credit applications; and (d) retained the power to suspend petitioners services for failure to meet service standards.

But uniformity in prices, quality of services, and good business practices are the essence of all franchises. A franchisee will damage the franchisors business if he sells at different prices, renders different or inferior services, or engages in bad business practices. These business constraints are needed to maintain collective responsibility for faultless and reliable service to the same class of customers for the same prices.

This is not the control contemplated in employer-employee relationships. Control in such relationships addresses the details of day to day work like assigning the particular task that has to be done, monitoring the way tasks are done and their results, and determining the time during which the employee must report for work or accomplish his assigned task.

Franchising involves the use of an established business expertise, trademark, knowledge, and training. As such, the franchisee is required to follow a certain established system. Accordingly, the franchisors may impose guidelines that somehow restrict the petitioners conduct which do not necessarily indicate control. The important factor to consider is still the element of control over how the work itself is done, not just its end result.

Petitioners cannot use the revolving funds feature of the SFAs as evidence of their employer-employee relationship with Bandag. These funds do not represent wages. They are more in the nature of capital advances for operations that Bandag conceptualized to attract prospective franchisees. Petitioners incomes depended on the profits they make, controlled by their individual abilities to increase sales and reduce operating costs.