Employee vs Independent Contractor
Quick answer
An employee works under the control of the company on how the job is done. An independent contractor is hired for a result and decides how to reach it. Philippine courts tell them apart with the four-fold test, and control weighs the most. The difference matters because Labor Code rights such as security of tenure belong only to employees, and because it decides whether a claim goes to the Labor Arbiter or to the regular courts.
| Aspect | Employee | Independent contractor | Legal basis |
|---|---|---|---|
| The test | All four elements point to employment: the hirer selected and engaged the worker, pays wages, can dismiss him, and controls the means and methods of the work (Sonza v. ABS-CBN, 2004). | The four elements, above all control, point away from employment. The Court weighs each one on the facts. | |
| Control (the most important element) | The hirer controls how the work is done. "The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee" (Sonza). | The hirer's control is limited to the result. In Sonza, the network did not tell the host how to deliver his lines or appear on air. | |
| Rules set by the hirer | Rules that fix the means and methods of the work point to employment. | Rules that only guide the worker toward the desired result do not create an employment relationship (Sonza). | |
| Exclusivity | Working only for one company does not by itself prove employment. | "Even an independent contractor can validly provide his services exclusively to the hiring party" (Sonza). | |
| Who must prove the status | Any competent and relevant evidence may show employment: identification cards, cash vouchers, social security registration, appointment letters or contracts, payrolls, organization charts and personnel lists (Fuji Television Network v. Espiritu, 2014). | "It is the burden of the employer to prove that a person whose services it pays for is an independent contractor" (Fuji, 2014). | |
| Security of tenure and Labor Code benefits | Has them, because they arise from the employer-employee relationship. | Does not have them: security of tenure arises only where there is an employer-employee relationship (Sonza). The rights come from the contract. | |
| Where claims are filed | Labor claims go to DOLE or the Labor Arbiter, depending on the claim (Arts. 129, 224 [217]). | Claims based on the contract are a civil dispute for the regular courts. In Sonza, the Labor Arbiter dismissed the case for lack of jurisdiction. | Article 129, Labor Code, Article 224 [217], Labor Code |
| A third party in between | In labor-only contracting, the supplier is only an agent and the company is responsible to the workers as if it directly employed them (Art. 106, last paragraph). | Legitimate job contracting is allowed; Fuji (2014) also recognizes independent contractors with unique skills and talents. | Article 106, Labor Code |
What is the four-fold test?
In Sonza v. ABS-CBN (2004), the Supreme Court repeated the elements of an employer-employee relationship: "(a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee on the means and methods by which the work is accomplished." It called the last one, "the so-called 'control test'", "the most important element". See four-fold test.
The Court explained control this way: "The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee." The converse is also true: the less control, the more likely the worker is an independent contractor.
How did Sonza apply it?
The host of a radio and television program was engaged through his own management company. When he left, he claimed unpaid pay and benefits before the Labor Arbiter. The Labor Arbiter dismissed the case for lack of jurisdiction, and the Supreme Court agreed that he was an independent contractor:
- Selection: he was chosen for his unique skills, talent and celebrity status.
- Payment: his talent fees and benefits came from a negotiated agreement, far above ordinary salary scales.
- Dismissal: the agreement could be ended only for breach of contract.
- Control: the network did not tell him how to deliver his lines or appear on air; it controlled only the result.
The Court added that "Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN", and that security of tenure arises only where there is an employer-employee relationship. "Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors."
Who must prove the worker's status?
In Fuji Television Network v. Espiritu (2014), a news correspondent hired on yearly contracts was held to be a regular employee who was illegally dismissed. The Court said: "It is the burden of the employer to prove that a person whose services it pays for is an independent contractor rather than a regular employee with or without a fixed term." It also listed the kinds of evidence that may prove employment: identification cards, cash vouchers, social security registration, appointment letters or employment contracts, payrolls, organization charts and personnel lists.
Fuji described two kinds of independent contractors: "those engaged in legitimate job contracting and those who have unique skills and talents that set them apart from ordinary employees."
What if an agency stands in between?
Then the question is whether the agency is a real contractor. The last paragraph of Article 106 defines labor-only contracting:
There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
In Sonza, the host argued that his own management company was a labor-only contractor. The Court disagreed, because the company was owned by the host and his broadcast partner, was headed by the host, and acted as his own agent, not the network's. See endo and labor-only contracting and is the client company liable for unpaid agency wages?
Where do the claims go?
An employee's money claims go to the DOLE Regional Director when they are small and without reinstatement (Article 129), and otherwise to the Labor Arbiter ([Article 224 [217]](/law/labor-code/article-224)). An independent contractor's claims under the contract are a civil case for the regular courts, as in Sonza. See how to file a labor complaint. For the kinds of employees and their rights, see employment status and employee rights.
How does this work in real life?
These are made-up examples to show how the rules work. They are not advice for any real case.
Mara is hired as a graphic artist "per project". The company sets her hours, makes her use its computers in the office, approves every step of her work, and can let her go at any time. Most elements, especially control, point to employment, whatever her contract is called. Under Fuji, the company must prove she is an independent contractor.
Ken, a freelance web developer, agrees to build a website for a fixed fee by a deadline. He uses his own equipment, works when he wants, and the company only checks the finished site. This looks like an independent contractor relationship.
Lito is sent by an agency to work as a packer in a factory. The agency has no equipment or capital of its own, and packing is part of the factory's main business. This may be labor-only contracting, and the factory may be treated as his employer.
When do you need a lawyer?
Talk to a lawyer if your contract calls you a contractor or freelancer but you work like an employee, or if a company denies that it is your employer. Each element of the test is weighed on the evidence, and the answer decides your rights and where your case must be filed. If you cannot afford a lawyer, see Free legal help in the Philippines for the Public Attorney's Office (PAO) and other options.
Which provisions does this answer rest on?
Which Supreme Court rulings are relevant?
Frequently asked questions
How do you know if you are an employee or an independent contractor?
Courts use the four-fold test: who selected and engaged you, who pays your wages, who can dismiss you, and who controls the means and methods of your work. In Sonza v. ABS-CBN (2004), the Supreme Court called control the most important element.
What is the control test?
It asks whether the hirer controls how the work is done, not only the result. In Sonza (2004), the Court said the greater the supervision and control the hirer exercises, the more likely the worker is an employee, and the less control, the more likely an independent contractor.
Who has to prove that a worker is an independent contractor?
The company. In Fuji Television Network v. Espiritu (2014), the Supreme Court said it is the burden of the employer to prove that a person whose services it pays for is an independent contractor rather than a regular employee.
Does working only for one company make you an employee?
Not by itself. In Sonza (2004), the Court said being an exclusive talent does not by itself make a person an employee, because even an independent contractor can provide services exclusively to one hiring party.
What evidence shows an employer-employee relationship?
In Fuji (2014), the Court said any competent and relevant evidence may be admitted, such as identification cards, cash vouchers, social security registration, appointment letters or employment contracts, payrolls, organization charts and personnel lists.
Can an independent contractor file a case with the Labor Arbiter?
If there is no employer-employee relationship, the Labor Arbiter has no jurisdiction over claims based on the contract. In Sonza (2004), the Labor Arbiter dismissed the host's complaint for that reason, and the Supreme Court said his claims were for the regular courts.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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