Technological advances have allowed companies to undertake cross-border operations and engage individuals around the world without the need for relocation. The Philippines is an international business hub, so it is not unusual for foreign establishments to engage with Filipino professionals. There is, in fact, an ongoing trend in hiring Filipino workers either through direct employment or independent contracts on an individual basis.

These two modes of worker acquisition are fundamentally different. Direct employment means that employer obligations are automatically applicable. In The Philippines, this includes compliance with the statutory terms and conditions of employment, and upholding the worker's right to security of tenure. Employment relationships are governed by the Labour Code and other local labour laws.

On the other hand, parties to independent individual contracts are given more leeway to dictate the terms of their engagement. Parties in this relationship are within the purview of provisions of the Civil Code. This relationship is often perceived as a more attractive option as it avoids obligations that are associated with employment.

Misclassification arises when a worker who was initially engaged as an independent individual contractor is later determined to be an employee. In such cases, the relevant employer obligations automatically apply. Naturally, this involves a lot of administrative and fiscal responsibilities in connection with the employee. The best way to address the issue of misclassification is to implement preventative measures.

An individual independent contractor is characterised by two distinguishing traits:

  • they must possess unique skills and talents that set them apart from employees in general; and
  • they must perform work in accordance with their own means and methods, free from the control of corporate leadership.(1)

Thus, an engagement that is characterised by an individual independent contract must conform with these requirements, so that the parties avoid the risk of misclassification.

When engaging individual independent contractors, it is also imperative that the scope of control is limited only to the result of the contractor's work. Control that encompasses the means and methods of the work is indicative of direct employment.

The complication lies in what can be considered as "unique skills or talents". Jurisprudence provides examples such as columnists,(2) broadcasters,(3) cockpit masiadors and sentenciadors,(4) and basketball referees,(5) which were all decided during the mid- to late 2000s when advances in technology were not as they are today. For now, care should be taken to determine what is unique as regards skills and talents, as these will vary across different industries.

For further information on this topic please contact Alejandro Alfonso E Navarro, Rashel Ann C. Pomoy or Lawrence Ivan Manalo at Villaraza & Angangco by telephone (+63 8 988 6088‚Äč) or email ([email protected], [email protected] or [email protected]). The Villaraza & Angangco website can be accessed at www.thefirmva.com.

Endnotes

(1) Fuji Television Inc v Espiritu, 744 SCRA 31 (2014).

(2) Orozco v Court of Appeals, 457 SCRA 700, 13 August 2008.

(3) Sonza v ABS-CBN, 431 SCRA 583 (2004).

(4) Semblante v Court of Appeals, 655 SCR 444 (2011).

(5) Bernarte v Philippine Basketball Association, 657 SCRA 745 (2011).