Regular Employment vs Cooperative Membership: Protecting Workers' Rights

The Supreme Court has long protected workers from schemes that disguise employment relationships to avoid labor law obligations. In Perpetual Help Credit Cooperative, Inc. v. Faburada (G.R. No. 121948, October 8, 2001), the Court ruled that being a member and co-owner of a cooperative does not automatically strip a person of the status of a regular employee. The decision affirms that cooperatives, like any employer, must respect the security of tenure and due process rights of their workers.

The Case: Workers Dismissed as "Volunteers"

Four individuals—Benedicto Faburada, Sisinita Vilar, Imelda Tamayo, and Harold Catipay—filed a complaint for illegal dismissal against the Perpetual Help Credit Cooperative, Inc. (PHCCI). They had worked for the cooperative as a computer programmer/operator and clerks, performing bookkeeping, accounting, and other day-to-day tasks. They were paid regular wages, followed fixed work schedules, and were under the supervision of the cooperative manager.

On January 2, 1990, they received a memorandum terminating their services effective December 29, 1989. The cooperative argued that no employer-employee relationship existed because the workers were members and co-owners of the cooperative, working as "volunteers." It also claimed that the workers failed to exhaust internal remedies under cooperative law.

The Issue: Does Cooperative Membership Bar Employee Status?

The central question was whether an employer-employee relationship existed between the cooperative and its worker-members. The cooperative insisted that its members could not be its employees, and that labor tribunals had no jurisdiction over the dispute.

The Ruling: Membership Does Not Negate Employment

The Supreme Court denied the cooperative's petition and affirmed the NLRC's finding of illegal dismissal. The Court applied the standard four-fold test for determining an employer-employee relationship: (1) the power to hire; (2) the power to dismiss; (3) the payment of wages; and (4) the power to control the worker's conduct, with the last element being the most important.

All four elements were present. The cooperative hired the workers, assigned them specific duties, paid them regular wages, required them to accomplish daily time records, and supervised their work. The Court found no evidence that the workers were mere volunteers.

Regular Employment and Security of Tenure

The Court then applied the Labor Code provision on regular employment. Under the law, workers are regular employees if they perform activities usually necessary or desirable in the usual trade or business of the employer. The workers' services were undeniably essential to the cooperative's daily operations, making them regular employees.

The Court also clarified that part-time work does not defeat regular employment. Faburada, who worked part-time, was still a regular employee because regularity is determined by the nature and length of service, not the number of hours worked.

As regular employees, the workers enjoyed security of tenure. They could only be dismissed for just or authorized causes under the Labor Code, and only after observing procedural due process—which requires two written notices: one informing the employee of the charges, and another informing them of the decision to dismiss. The cooperative served only one memorandum, violating the twin-notice rule.

Jurisdiction: Labor Arbiter, Not Cooperative Machinery

The cooperative also argued that the workers should have first submitted their dispute to cooperative conciliation or mediation under the Cooperative Code (R.A. No. 6938) and the Cooperative Development Authority Law (R.A. No. 6939). The Court rejected this argument. Those provisions apply to disputes among members, officers, and directors within a cooperative. Here, the dispute involved payment of wages, overtime pay, rest day, and termination of employment—matters falling under Article 217 of the Labor Code, which vests original and exclusive jurisdiction in the Labor Arbiter.

Practical Takeaways

• Membership is not a shield. A cooperative cannot evade labor law obligations simply by classifying its workers as "members" or "volunteers." The four-fold test governs.
• Regular employment depends on the work, not the label. Workers performing tasks necessary to the employer's business are regular employees, regardless of part-time status or cooperative membership.
• Security of tenure applies to all regular employees. Dismissal requires a just or authorized cause under the Labor Code and compliance with the two-notice rule.
• Labor tribunals have jurisdiction over labor disputes. Claims for wages, overtime, and illegal dismissal belong to the Labor Arbiter, not cooperative grievance machinery.
• Full backwages are available. For dismissals after March 21, 1989, illegally dismissed employees are entitled to full backwages without deduction of earnings from other employment.

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