Can a Cooperative Be an Employer of Its Own Members? SSS Coverage Ruling

The Supreme Court has settled an important question for cooperatives and their members: can a cooperative be considered an employer of its own owner-members for purposes of Social Security System (SSS) coverage? In Republic of the Philippines v. Asiapro Cooperative (G.R. No. 172101, November 23, 2007), the Court ruled yes — and in doing so, clarified the boundaries between cooperative membership and employment.

The case matters because cooperatives are increasingly used as manpower contractors. The ruling affirms that labeling payments as shares in service surplus instead of wages does not defeat the compulsory coverage mandated by the Social Security Act of 1997 (Republic Act No. 8282).

The Facts of the Case

Asiapro Cooperative is a multi-purpose cooperative registered with the Cooperative Development Authority. Its primary objectives included providing savings and credit facilities and developing livelihood services for its owner-members. Asiapro entered into Service Contracts with Stanfilco, a division of DOLE Philippines, Inc., to supply workers.

Under these contracts, Asiapro's owner-members rendered services at Stanfilco. They did not receive wages or compensation from Asiapro. Instead, they received shares in the service surplus — amounts determined by Asiapro's Board of Directors based on the quality and amount of services rendered. These amounts were not lower than prevailing wage rates.

The owner-members requested Stanfilco to register them with the SSS as self-employed and to remit contributions as such. They paid both the employer and employee shares of contributions.

In 2002, the SSS sent letters to Asiapro demanding that it register as an employer and report its owner-members as employees for compulsory SSS coverage. Asiapro refused, arguing that its owner-members were the cooperative itself, so it could not be its own employer.

The SSS filed a petition before the Social Security Commission (SSC) seeking to compel Asiapro to register as an employer. The SSC denied Asiapro's motion to dismiss, but the Court of Appeals reversed, ruling that no employer-employee relationship existed. The SSS appealed to the Supreme Court.

The Issue

The central issue was whether the SSC had jurisdiction over the case and whether an employer-employee relationship existed between Asiapro and its owner-members.

The Ruling

The Supreme Court reversed the Court of Appeals and reinstated the SSC's orders. The Court held that the SSC had jurisdiction and that an employer-employee relationship did exist between Asiapro and its owner-members.

SSC Has Jurisdiction Over Coverage Disputes

Section 5 of Republic Act No. 8282 gives the SSC jurisdiction over any dispute arising under the Social Security Act with respect to coverage, benefits, contributions and penalties thereon or any other matter related thereto. The Court noted that jurisdiction is determined by the allegations in the complaint, not the defenses in the answer. Since the SSS alleged that the owner-members were employees subject to compulsory coverage, the case fell within the SSC's jurisdiction.

The Court also clarified that the question of whether an employer-employee relationship exists for purposes of SSS coverage is not exclusively for the National Labor Relations Commission (NLRC). Article 217 of the Labor Code expressly excludes claims for Social Security from the NLRC's jurisdiction. The SSC may inquire into the existence of an employer-employee relationship as an incident to determining compulsory coverage.

The Four-Fold Test Was Satisfied

Applying the standard four-fold test for employment, the Court found all elements present:

1. Selection and engagement — The Service Contracts gave Asiapro exclusive discretion in selecting and engaging its owner-members and team leaders assigned to Stanfilco.
2. Payment of wages — The shares in the service surplus were in reality wages. They were given as compensation for services rendered and were not lower than prevailing wage rates.
3. Power of dismissal — Asiapro had the power to investigate, discipline, and remove owner-members rendering services at Stanfilco.
4. Power of control — Asiapro had sole control over the manner and means of performing services under the contracts. This is the most important element.

Contract Stipulations Cannot Defeat the Law

The Service Contracts expressly stated that no employer-employee relationship existed between Asiapro and its owner-members. The Court refused to give this provision effect. The existence of an employment relationship is defined by law, not by what the parties declare in a contract. The provision was struck down as contrary to law and public policy because it was used to circumvent the compulsory SSS coverage of employees.

A Cooperative Is a Separate Juridical Person

The Court distinguished its earlier ruling in Cooperative Rural Bank of Davao City, Inc. v. Ferrer-Calleja. That case dealt with the right of owner-members to bargain collectively with their cooperative — an owner cannot bargain with himself. But the present case concerned whether an employment relationship can exist at all.

A cooperative acquires juridical personality upon registration with the Cooperative Development Authority. Its Board of Directors manages its affairs. Like a corporation, a cooperative has a personality separate and distinct from its members. Consequently, an owner-member can be an employee of the cooperative.

Practical Takeaways

• Cooperatives can be employers. Merely calling workers "owner-members" does not negate an employment relationship if the elements of employment are present.
• Labels do not control. Payments called shares in service surplus may be treated as wages if they compensate services rendered and are not lower than prevailing rates.
• Contract stipulations cannot circumvent the law. A contract provision stating that no employer-employee relationship exists is void if the actual relationship shows otherwise.
• The SSC, not the NLRC, decides SSS coverage disputes. The SSC may determine the existence of an employment relationship as an incident to resolving coverage issues.
• For cooperatives and manpower contractors: Review service contracts and worker arrangements carefully. If the cooperative selects, pays, disciplines, and controls workers, it is likely an employer for SSS purposes and must register and remit contributions.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.