The Nexus Between Labor Laws and Workers Cooperatives
Ryan Herman H. Molina
As publicized in
August 19, 2008

Workers cooperatives in the Philippines have gradually developed into traditional self-help communities where members are considered owners of the enterprise and at the same time users of the services and activities.

In the face of fierce global business competition and rapid technological advancement, alternative work arrangements are being tapped as effective mechanisms to keep pace with globalization. One of these work arrangements is the establishment of workers cooperatives.

Workers cooperatives are considered a unique and appropriate medium in the quest for balance between social justice and economic growth. They have economic and social objectives; they are values-driven and community-based; they are people-oriented; and, they develop people-based linkages.

Thus, the Cooperative Development Authority (CDA) reveals that many workers are indeed employed through cooperatives. Statistics from the Bureau of Local Employment (BLE) shows that from only 43 local manpower cooperatives registered as contractors and subcontractors in 2002, the number ballooned to 255 four years after.

Workers cooperatives in the Philippines have gradually developed into traditional self-help communities where members are considered owners of the enterprise and at the same time users of the services and activities. Both members and non-members of cooperatives enter into an employer-employee relationship with the cooperative as a separate and distinct legal person. As in any stage of development, new ideas, concepts and patterns carry with it fresh issues, ambiguities and disputes. Thus, we again look up to the Supreme Court for resolution of these issues.

Workers Cooperatives and the Right to Collective Bargaining. In a case involving some rank-and-file employees of a cooperative bank who filed a petition for certification election, the latter opposed the petition and insisted that its employees are disqualified from forming labor organizations for purposes of collective bargaining, citing an Opinion rendered by then Solicitor General and Minister of Justice Estelito P. Mendoza.

The Court upheld the Opinion which held that an employee of a cooperative who is a member and co-owner thereof cannot invoke the right to collective bargaining. Basing its decision from an obvious practical perspective, the Court said that an owner cannot bargain with himself or his co-owners. However, the Court clarified in this case that employees of cooperatives who are not members co-owners are entitled to exercise the right to organize for purposes of collective bargaining. (Cooperative Rural Bank of Davao City, Inc. vs. Pura Ferrer-Calleja,; G.R. No. 77951; September 26, 1988)

Enunciated in this case was the “fused personality doctrine.” Under this doctrine, an employee-member is said to have two distinct personalities fused into one: first, as an employee of the cooperative and second, as a member co-owner of the cooperative. Thus, said employee co-owner is not entitled to the right to organize for the purpose of collective bargaining. (Cacdac, Hans Leo J. and Chato, Rebecca C. on Should D.O. No. 18-02 Apply to Manpower Cooperatives?, August 2006)

The Court affirmed this doctrine which involved common facts and issues on the cooperative member-employees’ right to organize for the purpose of collective bargaining. (Batangas-I Electric Cooperative Labor Union vs. Romeo Young; G.R. No. 62386; Bulacan II Electric Cooperative, Inc. vs. Peñaflor; G.R. No. 70880; Albay Electric Cooperative I vs. Cresencio B. Trajano; G.R. No. 74560; all dated November 9, 1988; San Jose City Electric Service Cooperative, Inc. known as SAJELCO, vs. Ministry of Labor and Employment; G.R. No. 77231; May 31, 1989)

Workers Cooperatives and Labor Standards Compliance. In another case, credit cooperative employees filed a complaint for illegal dismissal with claims for premium pay on holidays and rest days, separation pay, and wage differential. The credit cooperative sought to dismiss said complaint arguing that the complainants are members and co-owners of the cooperative and thus, there is no employer-employee relationship between the credit cooperative and the complainants. The crux of the issues in this case is whether or not said members co-owners are considered employees and thus covered by the Labor Standards Law.

The Court held that in determining the existence of an employer-employee relationship, the four-fold test is aptly considered: 1) the selection and engagement of the worker or the power to hire; 2) the power to dismiss; 3) the payment of wages by whatever means; and, 4) the power to control the worker’s conduct. Control assumes primacy in the overall consideration. The Court held that all these elements are present in the case.

The Court further explained that although there was no evidence presented to prove that complainants are members co–owners of the cooperative, the complainants by virtue of their being employees are still covered by the Labor Code of the Philippines. They are entitled to minimum wage, overtime pay, rest day, and due process before termination of employment.

In sum, the Court considered membership and ownership in a cooperative as irrelevant to the case. The existence of an employer-employee relationship entitles one to labor standards provided for under the Labor Code. This, in effect, sets aside the “fused personality doctrine” in cases involving labor standards compliance. (Perpetual Help Credit Cooperative, Inc. vs Faburada, et. Al;GR No. 121948; October 8, 2001.)

Manpower Service Cooperatives. Cooperatives in the Philippines now play a new role in the world of contracting or subcontracting. The existence of Asiapro and Staff Search Asia Service Cooperative, among others, shows the metamorphosis of this role. From the traditional organization formed for mutual benefit of its worker-members, workers cooperatives are now engaged in supplying manpower. Some manpower cooperatives supply their own members in their subcontracting business.

Last year, the Court decided a case involving a manpower cooperative. The case involved a shrimp processing company which entered into a contract with a manpower cooperative to provide, among others, messengerial, janitorial, harvesting, sanitation, and washing services. Consequently, members of the cooperative were sent to perform said services to the company.

The members filed a complaint which sought to declare themselves as regular members of the principal. The principal opposed the complaint arguing that the members are employees of the independent cooperative contractor.

The Court held that the contention of the shrimp processing company holds no basis. Using the “substantial capital” doctrine and the “right of control test”, the Court found that the cooperative had no substantial capital in the form of tools, equipment, machineries, work premises and other materials to qualify itself as an independent contractor. In addition, the shrimp processing company was found to have control of the manner and method on how the work was done. Thus, the complainants were deemed employees not of the cooperative but of the shrimp processing company. (San Miguel Corporation vs. Aballa et. al.; G.R. No. 149011; June 28, 2005)

Thus, what the Court tried to impress in this case is that labor laws find application so long as an employer-employee relationship exists, regardless of the nomenclature and nature of its organization, whether as a partnership, corporation, or cooperative.


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