Published 21 October 2019, The Daily Tribune
At times, employers can save a fortune by hiring consultants instead of full-time employees. While their fees are typically higher than employees’ salaries, over time, it makes good economic sense to hire consultants.
For one, due to their vast experience and relevant training, consultants bring innovative ideas that employers probably would not have been able to see on their own. For another, they basically serve as highly skilled independent contractors who may temporarily fill in the gaps of the company when they are burdened with overwhelming projects. Not least important, they are not entitled to retirement benefits, overtime pay and other monetary benefits associated with regular employment. Their engagement can be term-fixed, too, unlike regular employees who are constitutionally guaranteed of security of tenure and cannot be removed without just or authorized causes.
While companies have many legitimate reasons for hiring consultants instead of employees, one must understand the differences to avoid potential unwanted liabilities. So, when are consultants deemed as employees?
The first thing to keep in mind is, the nomenclature of employment contracts does not define the employment status of a person. The same is defined and prescribed by law and not by what the parties say it should be. Hence, in our jurisdiction, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists.
This now begs the question: May a company just repetitively renew consultancy agreements regularly (annual or longer term) to avoid the consultants from being considered as regular employees?
No, they cannot. To stress, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee. Note that no declaration or appointment paper is necessary to make one a regular employee.
Second, in determining whether employer-employee relationship exists, jurisprudence has consistently adhered to the so-called four-fold test. The four-fold test takes into account the following factors: (a) the manner of selection and engagement of the putative employee; (b) the mode of payment of wages; (c) the presence or absence of power of dismissal; and (d) the presence or absence of control of the putative employee’s conduct.
Payment of government assistance benefits could be construed as indicative of the second factor, that is, the payment of wages. Wages have been construed by the Supreme Court as encompassing not only the salary of the employees, but also the payment of government-mandated benefits, such as SSS, PhilHealth and Pag-IBIG.
Third, in relation to the four-fold test, providing office tools and allocating office spaces to the consultants may indicate “control” (fourth factor of the four-fold test) that would in turn prove the existence of an employer-employee relationship.
The “control test” is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. This test is premised on whether the person for whom the services are performed reserves the right to control both the end achieved and the manner and means used to achieve that end. Thus, furnishing office supplies and spaces may be tantamount to controlling the manner and means to be used by the consultants in reaching the end/work to be done.
Last, granting the consultants allowable leaves is incompatible with the idea of giving them the freedom to accomplish the tasks using their own means and methods.
Generally, consultants are not bound to follow the usual work schedules of employees. Instead, they are expected to accomplish their tasks in accordance with their self-imposed deadlines, taking into account the timeliness of the company. Therefore, consultants must not be required to report every day in their allocated office spaces during regular office hours.
All said, it is always prudent to know the differences or distinctions between consultants and employees because misclassifying them may result in costly legal consequences that can be detrimental to one’s business.
For comments and questions, please send an email to cabdo@divinalaw.com.
