Employment Status and Control Test in Illegal Dismissal Cases: A Guide

The line between being an employee and an independent contractor—or even a corporate officer—can be confusing. This distinction matters greatly in illegal dismissal cases because it determines which court has jurisdiction and whether labor laws apply at all. In Loreche-Amit v. Cagayan De Oro Medical Center, Inc. (G.R. No. 216635, June 3, 2019), the Supreme Court clarified how to determine employment status and why the power of control is the most significant factor.

The Case: A Pathologist's Dismissal

Dr. Mary Jean P. Loreche-Amit worked as a pathologist at Cagayan De Oro Medical Center, Inc. (CDMC) starting in 1996. She was initially engaged by the late Dr. Jose N. Gaerlan as Associate Pathologist. After Dr. Gaerlan's death, CDMC's Board of Directors formally appointed her as Chief Pathologist for five years, until May 2011.

In 2007, the Board passed a resolution recalling her appointment. Dr. Loreche-Amit filed a complaint for illegal dismissal, claiming she was removed without just cause and due process. She alleged that her refusal to help a director's daughter pass the clinical pathology examination triggered efforts to oust her.

The Jurisdictional Question

The Labor Arbiter dismissed the case for lack of jurisdiction, ruling that Dr. Loreche-Amit was a corporate officer because she was appointed through a Board resolution. Under the Securities Regulation Code, disputes involving corporate officers fall under the jurisdiction of the Regional Trial Court, not labor tribunals. The NLRC and Court of Appeals affirmed this ruling.

The Supreme Court partially agreed and partially disagreed. The Court ruled that Dr. Loreche-Amit was not a corporate officer, but still found no employer-employee relationship existed.

When Is a Person a Corporate Officer?

Under Section 25 of the Corporation Code, corporate officers are the president, secretary, treasurer, and such other officers as may be provided in the by-laws. The Court emphasized that a position must be either provided by the Corporation Code or the corporation's by-laws for the holder to be considered a corporate officer.

An appointment through a Board resolution alone does not make someone a corporate officer. In this case, CDMC's by-laws were not presented in the records. Since the position of Pathologist was not shown to be among the offices provided in the by-laws, Dr. Loreche-Amit could not be considered a corporate officer. Therefore, the case was not an intra-corporate controversy, and the RTC did not have jurisdiction.

The Four-Fold Test and the Control Test

The Court then applied the four-fold test to determine if an employer-employee relationship existed:

1. Selection and engagement of the employee
2. Payment of wages
3. Power of dismissal
4. Power to control the employee's conduct

The first three elements appeared present. CDMC selected and appointed Dr. Loreche-Amit, paid her compensation (4% of the gross receipts of the Clinical Section), and had the power to dismiss her. However, the fourth element—control—was missing.

The control test asks whether the employer reserves the right to control both the result of the work and the manner and means used to achieve it. The evidence showed that Dr. Loreche-Amit worked for two other hospitals simultaneously and took on work at other hospitals when needed. She controlled her own working hours and received her full 4% share regardless of how many hours she worked.

The Court also applied the economic reality test, which examines whether the worker is economically dependent on the employer. Because Dr. Loreche-Amit worked for multiple hospitals and was not wholly dependent on CDMC, no employer-employee relationship existed.

The memorandum about her behavior was administrative in nature and did not relate to the manner and method of her work, so it did not establish control.

Practical Takeaways

• Board appointment alone does not create corporate officer status. The position must be provided in the Corporation Code or the company's by-laws. If it is not, the dispute may still fall under labor jurisdiction.

• The control test is the most important factor. Even if a company selects, pays, and can dismiss a worker, the absence of control over how the work is performed can defeat an employment claim.

• Working for multiple clients or employers weakens an employment claim. If a worker manages their own schedule and serves several entities, the economic reality test may show independence rather than employment.

• Compensation structure matters. Payment based on results or a share of receipts—rather than hours worked—suggests an independent contractor relationship.

• Jurisdiction depends on employment status. If no employer-employee relationship exists, labor tribunals may lack jurisdiction, and the remedy may lie elsewhere.

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