There is employer-employee relationship in boundary system

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The owner of a sole proprietorship, which assembled passenger jeepneys, engaged a driver in 1997 to drive one of his jeepneys. A boundary system contract was entered into, wherein the driver would remit to the owner P450.00 per day as boundary and keep the remaining earnings for himself. The agreement included detailed instructions on the execution of the driver’s driving such as the route, working attire, usage and maintenance of the vehicle, and customer service guidelines. An agreement to buy the jeepney was also entered into. The driver made a downpayment of P10,000.00 and promised to give a daily installment of P550.00 for a period of four years.

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Although the driver failed to pay the daily installments, he was allowed to continue driving the jeepney until the owner decided to enforce contract penalties in January 2000. As a consequence of the breach, the owner got the jeepney and barred the driver from driving it.

Following this, the driver filled a complaint for illegal dismissal against the owner. According to the driver, the contract with the owner of the jeepney was an employee-employer relationship, which had been wrongfully terminated as there were no sufficient grounds for dismissal. The owner denied the existence of an employer-employee relationship and argued that the relationship between the two was solely a leasing relationship.

The National Labor Relations Commission dismissed the case for lack of merit. The Court of Appeals (CA) however ruled that the relationship between the two was that of an employer and employee. The fundamental prerequisite of an employer-employee relationship is not dependent on the possibility of dismissal or form of payment. Rather, its existence can be solely based on the presence of control over the means and method of the employee’s work. In a boundary system, the directives given to the drivers were such a means of control.

The Supreme Court (SC) affirmed the CA ruling that an employer-employee relationship existed and explained the mechanisms behind a boundary system –

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a common carrier to primarily govern the compensation of the driver, that is, the latter’s daily earnings are remitted to the owner/operator less the excess of the boundary which represents the driver’s compensation. Under this system, the owner/operator exercises control and supervision over the driver. It is unlike a lease of chattels where the lessor loses complete control over the chattel leased but the lessee is still ultimately responsible for the consequences of its use. The management of the business is still in the hands of the owner/operator, who, being the holder of the certificate of the public convenience, must see to it that the driver follows the route prescribed by the franchising and regulatory authority, and the rules promulgated with regard to the business operations. The fact that the driver does not receive fixed wages but only the excess of the “boundary” given to the owner/operator is not sufficient to change the relationship between them. Indubitably, the driver performs activities which are usually necessary or desirable in the usual business or trade of the owner/operator.

The SC reiterated National Labor Union v. Dinglasan which distinctly identifies the boundary system to be an employer-employee relationship as opposed to a lessor-lessee relationship. It also provided other supporting analogies, found in Magboo v. Bernardo and Lantaco, Sr. v. Llamas, to highlight that an employer-employee relationship likewise existed in relationships between an auto-calesa owner/operator and driver, a bus owner/operator and conductor, and a taxi owner/operator and driver (Villamaria v. CA, G.R. No. 165881, 19 April 2006, J. Callejo, Sr.).

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1 Comment

  1. Since there exists an employer-employee relationship in a “boundary system”, does it follow that they are entitled to 13th month pay and Service Incentive Leave?