Cooperative Membership vs Employment: Defining SSS Coverage Obligations

The Supreme Court's 2007 ruling in Republic v. Asiapro Cooperative settled a critical 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? The answer, under certain circumstances, is yes. The decision clarifies that cooperative membership does not automatically negate an employer-employee relationship, and that the Social Security Commission (SSC) has jurisdiction to determine this issue.

The Facts of the Case

Asiapro Cooperative, a multi-purpose cooperative registered with the Cooperative Development Authority, entered into Service Contracts with Stanfilco, a division of DOLE Philippines. Under these contracts, Asiapro's owner-members rendered services at Stanfilco's premises. Instead of receiving wages, the owner-members received "shares in the service surplus" — amounts determined by Asiapro's Board of Directors, which were not lower than prevailing wage rates.

The owner-members initially requested registration with the SSS as self-employed individuals, paying both employer and employee shares. However, the SSS later took the position that Asiapro was actually a manpower contractor supplying employees to Stanfilco. The SSS ordered Asiapro to register as an employer and remit contributions for its owner-members as employees. Asiapro refused, arguing that its owner-members were the cooperative itself, and it could not be its own employer.

The Issue

The central question was whether the SSC had jurisdiction over the SSS's petition to compel Asiapro to register as an employer and cover its owner-members under compulsory SSS coverage. This required determining whether an employer-employee relationship existed between the cooperative and its owner-members.

The Ruling

The Supreme Court ruled in favor of the SSS, holding that an employer-employee relationship did exist between Asiapro and its owner-members. The Court applied the four-fold test for employment: (1) selection and engagement of workers; (2) payment of wages; (3) power of dismissal; and (4) power to control the worker's conduct.

All four elements were present. The Service Contracts gave Asiapro exclusive discretion in selecting and engaging owner-members. The "shares in the service surplus" were, in reality, wages — compensation for services rendered, set at amounts not lower than prevailing wage rates. Asiapro had the power to investigate, discipline, and remove owner-members. Most importantly, Asiapro had sole control over the manner and means of performing services under the contracts.

The Court rejected the contractual provision stating there was no employer-employee relationship, calling it contrary to law and public policy. As the Court emphasized, "the employment status of a person is defined and prescribed by law and not by what the parties say it should be."

Cooperative Membership Does Not Bar Employment

The Court distinguished its earlier ruling in Cooperative Rural Bank of Davao City v. Ferrer-Calleja, which involved an owner-member's right to collective bargaining. That case recognized that an owner-member of a cooperative can be its own employee. A cooperative, like a corporation, has a juridical personality separate from its members once registered with the CDA. Its Board of Directors manages its affairs. Therefore, a cooperative can enter into an employment relationship with its own members.

Jurisdiction of the Social Security Commission

The Court also clarified that the SSC has jurisdiction to determine the existence of an employer-employee relationship when the issue is incidental to compulsory SSS coverage. Section 5 of Republic Act No. 8282 grants the SSC jurisdiction over disputes regarding coverage, benefits, and contributions. The Court noted that Article 217 of the Labor Code excludes claims for Social Security from the jurisdiction of labor arbiters and the NLRC. Thus, the SSC — not the NLRC — is the proper body to resolve whether a worker is covered by the SSS law.

Practical Takeaways

• Cooperatives cannot avoid SSS obligations simply by labeling payments as "shares in service surplus" instead of wages. If the amounts are compensation for services rendered, they are wages for SSS purposes.
• A contractual provision disclaiming an employer-employee relationship will not defeat SSS coverage when the actual circumstances show that the elements of employment exist.
• Cooperative membership does not automatically prevent an employer-employee relationship. A cooperative is a juridical entity separate from its members, and its Board of Directors can enter into employment contracts with members.
• The SSC has jurisdiction to determine the existence of an employer-employee relationship when necessary to resolve issues of compulsory SSS coverage.
• Cooperatives should review their arrangements with members who render services to clients to ensure compliance with SSS coverage and contribution obligations.

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