ASHMOR M. TESORO, PEDRO ANG and GREGORIO SHARP, Petitioners, vs. METRO MANILA RETREADERS, INC. (BANDAG) and/or NORTHERN LUZON RETREADERS, INC. (BANDAG) and/or POWER TIRE AND RUBBER CORP. (BANDAG), Respondent.
G.R. No. 171482 March 12, 2014
Facts: On various dates between 1991 and 1998, petitioners Ashmor M. Tesoro, Pedro Ang, and Gregorio Sharp used to work as salesmen for respondents Metro Manila Retreaders, Inc., Northern Luzon Retreaders, Inc., or Power Tire and Rubber Corporation. These are sister companies collectively called “Bandag”. Bandag offered repair and retread services for used tires.
In 1998, however, Bandag developed a franchising scheme that would enable others to operate tire and retreading businesses using its trade name and service system. Petitioners quit their jobs as salesmen and entered into separate Service Franchise Agreements (SFAs) with Bandag for the operation of their respective franchises. Under this SFA, Bandag would provide funding with the petitioners subject to regular liquidation of revolving funds. The expenses of these funds will be deducted from their sale in order to determine their income. After some time, petitioners began to default on their obligations to submit periodic liquidations of their operational expenses in relation to the revolving funds Bandag provided them. Bandag terminated their SFA.
Aggrieved, petitioners filed a complaint for constructive dismissal, non–payment of wages, incentive pay, 13th month pay and damages against Bandag with the National Labor Relations Commission (NLRC). Petitioners contend that despite the SFA, they remained employees of Bandag.
For its part, Bandag pointed out that petitioners freely resigned from their employment and decided to avail themselves of the opportunity to be independent entrepreneurs under the franchise scheme that Bandag had. Thus, no employer–employee relationship existed between petitioners and Bandag.
Issue: Whether or not petitioners remained to be Bandag’s salesmen under the franchise scheme it entered into with them.
Ruling: No, petitioners were no longer employees of Bandag the moment they entered into the SFA. Franchising is a business method of expansion that allows an individual or group of individuals to market a product or a service and to use of the patent, trademark, trade name and the systems prescribed by the owner.
Applying the four-fold test, it is noted that petitioners are not employees. When petitioners agreed to operate Bandag’s franchise branches in different parts of the country, they knew that this substantially changed their former relationships. They were to cease working as Bandag’s salesmen, the positions they occupied before they ventured into running separate Bandag branches. They were to cease receiving salaries or commissions. Their incomes were to depend on the profits they made. Yet, petitioners did not then complain of constructive dismissal. They took their chances, ran their branches, Gregorio Sharp in La Union for several months and Ashmor Tesoro in Baguio and Pedro Ang in Pangasinan for over a year. Clearly, their belated claim of constructive dismissal is quite hollow.
It is pointed out that Bandag continued, like an employer, to exercise control over petitioners’ work. It points out that Bandag: (a) retained the right to adjust the price rates of products and services; (b) imposed minimum processed tire requirement (MPR); (c) reviewed and regulated credit applications; and (d) retained the power to suspend petitioners’ services for failure to meet service standards. But uniformity in prices, quality of services, and good business practices are the essence of all franchises. A franchisee will damage the franchisor’s business if he sells at different prices, renders different or inferior services, or engages in bad business practices. These business constraints are needed to maintain collective responsibility for faultless and reliable service to the same class of customers for the same prices. This is not the “control” contemplated in employer–employee relationships. Control in such relationships addresses the details of day to day work like assigning the particular task that has to be done, monitoring the way tasks are done and their results, and determining the time during which the employee must report for work or accomplish his assigned task. Petitioners cannot use the revolving funds feature of the SFAs as evidence of their employer–employee relationship with Bandag. These funds do not represent wages. They are more in the nature of capital advances for operations that Bandag conceptualized to attract prospective franchisees. Petitioners’ incomes depended on the profits they make, controlled by their individual abilities to increase sales and reduce operating costs.