Letter to Attorney:

Dear Attorney,

I am writing to seek your legal advice regarding a complaint that has been filed against our micro business with the National Labor Relations Commission (NLRC). We operate with a team of eight freelance workers, one of whom has lodged a case alleging illegal dismissal and non-payment of separation pay.

As we understand it, freelancers do not necessarily enjoy the same rights as regular employees, and our relationship with this individual has always been contractual in nature, without the elements that would classify them as an employee under labor law.

We are eager to have this case dismissed as we believe the worker's claims are without merit. Could you kindly provide us with guidance on how we can plead our case and potentially have the complaint dismissed? Specifically, we would appreciate your insights on how to demonstrate to the NLRC that the complainant was never an employee and, therefore, not entitled to the protections under the Labor Code, including separation pay.

Thank you for your time and assistance in this matter. We look forward to your expert legal advice.

Sincerely,

A Concerned Business Owner

Legal Discussion: Understanding the Rights of Freelancers and Independent Contractors in the Context of Illegal Dismissal and Separation Pay Claims

In the Philippine labor context, the distinction between freelancers, independent contractors, and regular employees is critical in understanding the rights and obligations of both the worker and the company. A common concern faced by many businesses, particularly micro-businesses like the one described, is the issue of classification, as improper classification can lead to legal disputes—such as claims of illegal dismissal and non-payment of benefits like separation pay.

1. Freelancers and Independent Contractors vs. Employees

The first point of contention in this case revolves around the complainant's status. Was the worker in question truly a freelancer or independent contractor, or were they, in fact, an employee under the eyes of the law?

In the Philippines, the Labor Code, which governs employer-employee relations, does not apply to independent contractors or freelancers. To understand why this is important, we must revisit the essential elements that determine whether an individual is an employee or an independent contractor.

1.1 The Four-Fold Test for Determining Employment

The Supreme Court of the Philippines has consistently relied on the "Four-Fold Test" to determine the existence of an employer-employee relationship. This test examines the following elements:

Selection and Engagement of the Employee – Who selected or hired the worker?
Payment of Wages – Was the worker paid a salary, and how was the payment structured?
Power of Dismissal – Could the employer terminate the worker at will?
Control Test – This is the most important factor. It determines whether the employer had the power to control not just the results, but also the means and methods by which the worker performed their job.

If these elements, particularly the control test, are present, then the worker is likely classified as an employee. However, if the worker was performing a specific task independently without much supervision, with pay determined by the project rather than regular wages, and the contract did not include the typical employer-employee dynamics, the individual would likely be considered an independent contractor.

In your case, if you engaged the complainant as a freelancer based on specific contractual agreements, where the worker retained control over their working hours and methods, it will be important to emphasize this distinction in your defense.

2. Illegal Dismissal: Can a Freelancer Be Illegally Dismissed?

The concept of illegal dismissal, as defined by the Labor Code, applies strictly to employees. It refers to the termination of employment without just or authorized cause, and without following the due process required under the law.

For an individual to claim illegal dismissal, they must first prove that they were indeed an employee. This ties back to the four-fold test, and you can argue that the complainant was not entitled to this protection because they were never an employee. Therefore, if the worker in question was a freelancer, their contractual relationship does not fall under the purview of labor laws that protect employees from illegal dismissal.

In Republic of the Philippines vs. Asiapro Cooperative (G.R. No. 172101, November 23, 2007), the Supreme Court clarified that an individual who is an independent contractor is not covered by the security of tenure protections that regular employees enjoy. Thus, terminating a contractual or freelance arrangement at the end of the agreed period would not constitute illegal dismissal, as long as the terms of the contract were followed.

To defend against the illegal dismissal claim, you must present evidence that the complainant was hired under a freelance or independent contractor arrangement. This may include the following:

A written contract that outlines the specific scope of work, payment terms, and duration of the engagement.
Proof of project-based or per-task payments, as opposed to regular wage payments.
Lack of direct supervision or control over the complainant’s working hours and methods.

3. Separation Pay: Is a Freelancer Entitled to Separation Pay?

Separation pay is another issue raised in the complaint. Under the Labor Code, separation pay is due to employees who are dismissed for authorized causes, such as redundancy, retrenchment, or the closure of the business. Freelancers and independent contractors, however, are not entitled to this benefit unless such an entitlement is expressly stated in their contract.

The Supreme Court has held that separation pay is due only in cases where an employer-employee relationship exists, and when the dismissal is for authorized causes under Article 298 (formerly 283) and Article 299 (formerly 284) of the Labor Code.

If your business did not explicitly agree to provide separation pay in the freelance contract, and if there was no employer-employee relationship, then the complainant has no legal grounds to demand separation pay. Freelancers, by nature, are bound by the terms of their contract, and separation pay is not typically included unless specifically negotiated.

4. How to Plead Your Case Before the NLRC

4.1 Submission of Evidence

To have the case dismissed, your priority will be to prove that the complainant was not an employee but an independent contractor or freelancer. The following steps may be crucial in pleading your case:

Present the Freelance or Independent Contractor Agreement – The first and most important document you should provide is the contract signed by both parties. This agreement should clearly outline the nature of the relationship, the scope of the work, the manner of payment (project-based or task-based), and the lack of employer control over the working hours or methods.
Document the Project or Task-Based Payments – Evidence showing that the complainant was paid based on completed tasks or deliverables (rather than a regular salary) will help establish their status as a freelancer.
Highlight the Lack of Supervision or Control – If the complainant had significant discretion over how and when they completed their tasks, this is a key factor in proving that they were an independent contractor. Statements from managers or supervisors, emails, and other communications that illustrate the absence of strict control can be vital in this aspect.
Raise Objections to Jurisdiction – You may also argue that the NLRC does not have jurisdiction over this case, as it pertains to a freelance or contractual arrangement that falls outside the scope of labor law. Freelancers generally resolve disputes through civil suits based on breach of contract, not labor complaints.

4.2 Possible Outcomes and Risks

If the NLRC is convinced by the evidence that the worker was a freelancer and not an employee, it is likely that the case will be dismissed. However, there are risks to consider. If the complainant can present sufficient evidence to challenge their classification as a freelancer, such as proof of employer control or regular wage payments, the case may proceed, and you may face liability for illegal dismissal and non-payment of separation pay.

5. Conclusion: Importance of Proper Worker Classification

In conclusion, the key to your defense lies in clearly establishing the nature of your relationship with the complainant. If the individual was truly a freelancer or independent contractor, their claims of illegal dismissal and non-payment of separation pay are without merit. By providing thorough documentation and evidence of the freelance arrangement, you can argue that the Labor Code protections do not apply, and the case should be dismissed by the NLRC.

Worker classification remains a critical issue for businesses in the Philippines. It is always advisable to consult a legal expert when drafting contracts with freelancers and independent contractors to avoid misclassification, which could lead to labor disputes. If there is any ambiguity in your arrangement, rectifying it early through proper documentation can help mitigate future legal risks.