When Cooperative Members Are Employees: SSS Coverage and the Four-Fold Test

The Supreme Court's 2007 ruling in Republic v. Asiapro Cooperative (G.R. No. 172101) settled a question that affects many cooperatives and their members: can a person be both an owner-member of a cooperative and its employee for purposes of Social Security System (SSS) coverage? The answer is yes. The case clarifies that membership in a cooperative does not automatically negate an employer-employee relationship, and that the Social Security Commission (SSC) has jurisdiction to determine this issue.

The Dispute: Who Are the "Owners-Members"?

Asiapro Cooperative entered into service contracts with Stanfilco, a division of DOLE Philippines. Under these contracts, Asiapro's owner-members rendered services at Stanfilco's facilities. Instead of wages, the members received "shares in the service surplus"—amounts that, by contract, could not be lower than prevailing wage rates.

The members initially registered with the SSS as self-employed individuals. But the SSS later took the position that Asiapro was actually a manpower contractor supplying employees to Stanfilco. The SSS demanded that Asiapro register as an employer and remit contributions for its members as employees. Asiapro refused, arguing that its owner-members were the cooperative itself—it could not be its own employer.

The Issue: Jurisdiction and the Existence of Employment

The case reached the Supreme Court on two main questions: (1) whether the SSC had jurisdiction over the SSS's petition, and (2) whether an employer-employee relationship existed between the cooperative and its owner-members.

The Court of Appeals had ruled that no such relationship existed and that the SSC lacked jurisdiction. The Supreme Court reversed.

The Ruling: Membership Does Not Bar Employment

The Supreme Court held that the SSC has exclusive jurisdiction over disputes involving SSS coverage, contributions, and benefits under Section 5 of Republic Act No. 8282 (the Social Security Act of 1997). The Court also ruled that the SSC may determine the existence of an employer-employee relationship as an incident to resolving coverage issues—this question is not exclusively reserved for the National Labor Relations Commission.

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

• Selection and engagement: The service contracts gave Asiapro exclusive discretion in selecting and engaging its owner-members and team leaders.
• Payment of wages: The "shares in the service surplus" were, in reality, wages—compensation for services rendered, set at rates not lower than legal minimums.
• Power of dismissal: Asiapro had the power to investigate, discipline, and remove its members.
• Power of control: Asiapro had sole control over the manner and means of performing services—the most important element.

The Court rejected the contract provision stating that no employer-employee relationship existed. Employment status is defined by law, not by what parties declare in a contract. The provision was struck down as contrary to law and public policy, being used to circumvent compulsory SSS coverage.

The Court also distinguished its earlier ruling in Cooperative Rural Bank of Davao City v. Ferrer-Calleja, which dealt with collective bargaining rights. That case, the Court explained, actually recognized that an owner-member can be an employee of a cooperative. Because a cooperative has a juridical personality separate from its members—managed by a board of directors—it can enter into employment with its own members.

Practical Takeaways

• Membership is not a shield. Being an owner-member of a cooperative does not automatically prevent an employer-employee relationship from arising, especially where the cooperative exercises control over the member's work.
• Labels do not control. Contract provisions denying an employment relationship will not prevail where the four-fold test shows one actually exists. Substance prevails over form.
• The SSC has jurisdiction. Disputes over SSS coverage, including the preliminary question of whether an employment relationship exists, belong to the Social Security Commission, not the NLRC.
• "Service surplus" may be wages. Payments to cooperative members for services rendered—even if labeled as profit shares—can be treated as wages for purposes of SSS coverage if they are compensation for work done.

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