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A. Employer-employee relationship

1. Tests to determine existence

The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact. (Marsman & Company, Inc. v. Sta. Rita, G.R. No. 194765, 23 April 2018)

Although no particular form of evidence is required to prove the existence of an employer-employee relationship, and any competent and relevant evidence to prove the relationship may be admitted, a finding that the relationship exists must nonetheless rest on substantial evidence. (South Cotabato Communications Corporation v. Sta. Tomas, G.R. No. 217575, 15 June 2016)

Substantial evidence is such relevant evidence which a reasonable mind might accept as adequate to support a conclusion, even if other minds equally reasonable might conceivably opine differently. (Fajardo v. Corral, G.R. No. 212641, 05 July 2017)

a. Tests to determine employer-employee relationship

1) Control test / Four-fold test

To ascertain the existence of an employer-employee relationship jurisprudence has invariably adhered to the four-fold test, to wit: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-called “control test.” Of these four, the last one is the most important. The so-called “control test” is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end. (Atok Big Wedge Company, Inc. v. Gison, G.R. No. 169510, 08 August 2011)

The use of the control test is not solely limited to the NLRC. The DOLE Secretary, or his or her representatives, can utilize the same test, even in the course of inspection, making use of the same evidence that would have been presented before the NLRC. (People’s Broadcasting Service [Bombo Radyo Phils. Inc.] v. The Secretary of the Department of Labor and Employment, En Banc, G.R. No. 179652, 06 March 2012)

There is no hard and fast rule designed to establish the aforesaid elements. Any competent and relevant evidence to prove the relationship may be admitted. Identification cards, cash vouchers, social security registration, appointment letters or employment contracts, payrolls, organization charts, and personnel lists, serve as evidence of employee status. (Marsman & Company, Inc. v. Sta. Rita, G.R. No. 194765, 23 April 2018)

2) Economic-reality test

Aside from the control test, the Supreme Court has also used the economic reality test in determining whether an employer-employee relationship exists between the parties. Under this test, the economic realities prevailing within the activity or between the parties are examined, taking into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate when, as in this case, there is no written agreement or contract on which to base the relationship. In our jurisdiction, the benchmark of economic reality in analyzing possible employment relationships for purposes of applying the Labor Code ought to be the economic dependence of the worker on his employer. (Reyes v. Glaucoma Research Foundation, Inc., G.R. No. 189255, 17 June 2015)

In certain cases, the control test is not sufficient to give a complete picture of the relationship between the parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are instances when, aside from the employer’s power to control the employee with respect to the means and methods by which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity. (Francisco v. NLRC, G.R. No. 170087, 31 August 2006)

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as: (1) the extent to which the services performed are an integral part of the employer’s business; (2) the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that line of business. (Ibid.)

a) Economic dependency

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. In the United States, the touchstone of economic reality in analyzing possible employment relationships for purposes of the Federal Labor Standards Act is dependency By analogy, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer. (Ibid.)

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation…. It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in the latter’s line of business. (Ibid.)

Petitioner’s main occupation is not as a columnist for respondent [Philippine Daily Inquirer] but as a women’s rights advocate working in various women’s organizations. Likewise, she herself admits that she also contributes articles to other publications. Thus, it cannot be said that petitioner was dependent on respondent PDI for her continued employment in respondent’s line of business…. The inevitable conclusion is that petitioner was not respondent PDI’s employee but an independent contractor, engaged to do independent work. (Orozco v. CA, Philippine Daily Inquirer, G.R. No. 155207, 13 August 2008)

b. Specific cases

1) Jeepney drivers under boundary system

Doctrine of relationship

The relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-employee and not of lessor-lessee. The fact that the drivers do not receive fixed wages but only get the amount in excess of the so-called “boundary” that they pay to the owner/operator is not sufficient to negate the relationship between them as employer and employee. (Caong, Jr. v. Regualos, G.R. No. 179428, 26 January 2011)

The relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-employee and not of lessor-lessee because in the lease of chattels the lessor loses complete control over the chattel leased although the lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney drivers, the former exercises supervision and control over the latter. The fact that the drivers do not receive fixed wages but get only that in excess of the so-called “boundary” that they pay to the owner/operator is not sufficient to withdraw the relationship between them from that of employer and employee. Thus, the jeepney drivers were employees because they had been engaged to perform activities which were usually necessary or desirable in the usual business or trade of the employer. (Gabriel v. Bilon, G.R. No. 146989, 07 February 2007)

2) Bus conductors

3) Auto-calesa drivers

4) Taxi drivers

The Supreme Court has applied by analogy the abovestated doctrine to the relationships between bus owner/operator and bus conductor, auto-calesa owner/operator and driver, and recently between taxi owners/operators and taxi drivers. Hence, petitioners are undoubtedly employees of private respondent because as taxi drivers they perform activities which are usually necessary or desirable in the usual business or trade of their employer. (Jardin v. NLRC, G.R. No. 119268, 23 February 2000)

5) Truck drivers

Felicilda v. Uy, G.R. No. 221241, 14 September 2016

[Four-fold test applied.]

First. It is undisputed that respondent hired petitioner to work as a truck driver for his private enterprise, GPT.

Second. Petitioner received compensation from respondent for the services he rendered. Contrary to the findings of the CA, while the wages paid was determined on a “per trip” or commission basis, it has been constantly ruled that such does not negate employment relationship. Article 97 (f) of the Labor Code broadly defines the term “wage” as “the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered x x x.” That petitioner was paid on a “per trip” or commission basis is insignificant as this is merely a method of computing compensation and not a basis for determining the existence or absence of an employer­-employee relationship.

Third. Respondent’s power to dismiss was inherent in the selection and engagement of petitioner as truck driver.

Fourth. The presence of the element of control, which is the most important element to determine the existence or absence of employment relationship, can be safely deduced from the fact that: (a) respondent owned the trucks that were assigned to petitioner; (b) the cargoes loaded in the said trucks were exclusively for respondent’s clients; and (c) the schedule and route to be followed by petitioner were exclusively determined by respondent. The latter’s claim that petitioner was permitted to render service to other companies was not substantiated and there was no showing that he indeed worked as truck driver for other companies. Given all these considerations, while petitioner was free to carry out his duties as truck driver, it cannot be pretended that respondent, nonetheless, exercised control over the means and methods by which the former was to accomplish his work. To reiterate, the power of control refers merely to the existence of the power. It is not essential for the employer to actually supervise the performance of duties of the employee, as it is sufficient that the former has a right to wield the power, as in this case. /end

2. Legitimate subcontracting as distinguished from labor-only

a. Legitimate job contracting

Permissible or legitimate job contracting or subcontracting, on the other hand, “refers to an arrangement whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal.” (Petron Corporation v. Caberte, G.R. No. 182255, 15 June 2015)

Contracting and subcontracting arrangements are expressly allowed by law but are subject to regulation for the promotion of employment and the observance of the rights of workers to just and humane conditions of work, security of tenure, self-organization, and collective bargaining. (Manila Water Company, Inc. v. Dalumpines, G.R. No. 175501, 04 October 2010)

b. Labor-only contracting

There is “labor-only” contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. (Paragraph 3, Article 106, Ibid.)

Labor-only contracting, which is totally prohibited refers to an arrangement where:

1) The contractor or subcontractor’s employees recruited and placed are performing activities which are directly related to the main business operation of the principal; AND either:

a) The contractor or subcontractor does not have substantial capital; or

b) The contractor or subcontractor does not have investments in the form of tools, equipment, machineries, supervision, work premises, among others;

– or –

2) The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee. (Section 5, DOLE D.O. 174, Series of 2017)

a. Elements

Permissible contracting or subcontracting shall only be allowed if all of the following circumstances concur:

1) The contractor or subcontractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own responsibility, according to its own manner and method;

2) The contractor or subcontractor has substantial capital to carry out the job farmed out by the principal on his account, manner and method, investment in the form of tools, equipment, machinery and supervision;

3) In performing the work farmed out, the contractor or subcontractor is free from the control and/or direction of the principal in all matters connected with the performance of the work except as to the results thereto; and

4) The Service Agreement ensues compliance with all the rights and benefits for all the employees of the contractor or subcontractor under the labor laws. (Section 8, DOLE D.O. No. 174, Series of 2017)

b. Trilateral relationship

1) Legitimate job contracting

Legitimate job contracting involves a trilateral relationship among the principal or employer, the contractor or subcontractor, and the workers engaged by the contractor or subcontractor. (Diamond Farms, Inc. v. Southern Philippines Federation of Labor [SPFL]-Workers Solidarity of DARBMUPCO/Diamond-SPFL, G.R. No. 173254-55 & 173263, 13 January 2016)

In legitimate contracting, the trilateral relationship between the parties in these arrangements involves the principal which decides to farm out a job or service to a contractor or subcontractor, which has the capacity to independently undertake the performance of the job, work, or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job, work, or service. (Manila Water Company, Inc. v. Dalumpines, supra.)

This trilateral relationship under a legitimate job contracting is different from the relationship in a labor-only contracting situation because in the latter, the contractor simply becomes an agent of the principal; either directly or through the agent, the principal then controls the results as well as the means and manner of achieving the desired results. In other words, the party who would have been the principal in a legitimate job contracting relationship and who has no direct relationship with the contractor’s employees, simply becomes the employer in the labor-only contracting situation with direct supervision and control over the contracted employees. As Azucena astutely observed: in labor-contracting, there is really no contracting and no contractor; there is only the employer’s representative who gathers and supplies people for the employer; labor-contracting is therefore a misnomer. (Ibid.)

2) Independent contractor: bilateral relationship, not trilateral

Jurisprudence has recognized another kind of independent contractor: individuals with unique skills and talents that set them apart from ordinary employees. There is no trilateral relationship in this case because the independent contractor himself or herself performs the work for the principal. In other words, the relationship is bilateral. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, 03 December 2014)

c. Liabilities

a) Solidary liability

(1) Monetary claims

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.(Paragraph 2, Article 106, Ibid.)

(2) Labor Code violations

Every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of [the Labor] Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. (Article 109, Ibid.)

(a) Illegal dismissal, included

NB: The principal may he held liable for illegal dismissal of an employee of a contractor or subcontractor, particularly if there is a finding of labor-only contracting.

2-A. Independent Contractor Added

a. Concept

Jurisprudence has recognized another kind of independent contractor: individuals with unique skills and talents that set them apart from ordinary employees. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, 03 December 2014)

Independent contractors are individuals with unique talents and skills, and there is lack of control over the means and methods in the performance of their work. (Samonte v. La Salle Greenhills, Inc., G.R. No. 199683, 10 February 2016)

Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee. (Sonza v. ABS-CBN Broadcasting Corporation, G.R. No. 138051, 10 June 2004)

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship. (Ibid.)

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press. (Ibid.)

1) Jurisprudence

In Orozco v. Court of Appeals, Wilhelmina Orozco was a columnist for the Philippine Daily Inquirer. This court ruled that she was an independent contractor because of her “talent, skill, experience, and her unique viewpoint as a feminist advocate.” In addition, the Philippine Daily Inquirer did not have the power of control over Orozco, and she worked at her own pleasure. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, supra.)

Semblante v. Court of Appeals involved a masiador and a sentenciador. The Court ruled that “petitioners performed their functions as masiador and sentenciador free from the direction and control of respondents” and that the masiador and sentenciador “relied mainly on their ‘expertise that is characteristic of the cockfight gambling.’”1Hence, no employer-employee relationship existed. (Ibid.)

Bernarte v. Philippine Basketball Association involved a basketball referee. This court ruled that “a referee is an independent contractor, whose special skills and independent judgment are required specifically for such position and cannot possibly be controlled by the hiring party.” (Ibid.)

In these cases, the workers were found to be independent contractors because of their unique skills and talents and the lack of control over the means and methods in the performance of their work. (Ibid.)

b. Bilaleral relationshiop

There is no trilateral relationship in this case because the independent contractor himself or herself performs the work for the principal. In other words, the relationship is bilateral. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, supra.)

c. Test of independent contractorship

The test of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work. (Convoy Marketing Corporation v. Albia, G.R. No. 194969, 07 October 2015)

d. Principal’s liability as an indirect employer

The provisions on legitimate job contracting shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Article 107, Labor Code)

3. Kinds of employment

a. Regular

1) Concept

a) Under the Labor Code

Under Article 295 of the Labor Code, the law provides for two (2) types of regular employees, namely: (a) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer (first category); and (b) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed (second category). (Universal Robina Corporation v. Catapang, G.R. No. 164736, 14 October 2005)

(1) First category

Regular employees are those who have been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer. (Article 295, Ibid.)

(a) Reasonable connection standard

The primary standard, therefore, of determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. The test is whether the former is usually necessary or desirable in the usual business or trade of the employer. The connection can be determined by considering the nature of work performed and its relation to the scheme of the particular business or trade in its entirety. Also, if the employee has been performing the job for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with respect to such activity and while such activity exists. (Universal Robina Corporation v. Catapang, supra.)

(2) Second category

With the exception of project and fixed-term employees, any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. (Paragraph 2, Article 295, Ibid.)

b) By operation of law or those deemed regular due to non-compliance with labor laws and regulations

The law deems the following employees as regular employees for non-compliance with labor laws and regulations:

1) Probationary employees who were permitted or required to render work after the probation period;

2) Probationary employees who were not informed of the standards or criteria for regular employment on/before the first day of work;

3) Casual employees who perform work or service which are not incidental, but rather usually necessary or desirable in the usual trade or business of the employer;

4) Casual employees who were permitted or required to work for more than twelve (12) months;

5) Project employees who were not assigned to any specific project or undertaking;

6) Project employees who were not been informed of the completion or termination of the specific project or undertaking on/before the time of the engagement;

7) Project employees who have been continuously rehired even after the cessation of a project, and the tasks performed are vital, necessary and indispensable to the usual business or trade of the employer (Maraguinot, Jr. v. NLRC, G.R. No. 120969, 22 January 1998)

8) Seasonal employees who were permitted or required to work after the season;

9) Seasonal employees who are repeatedly rehired during a season (resulting in them being regular seasonal employees);

10) Fixed-term employees who entered into such arrangement involuntarily;

11) Fixed-term employees who were not able to deal with the employer on more or less equal terms with no moral dominance being exercised by the employer over the employee on/before the time of engagement.

c) Presumption of regular employment

While the lack of a written contract does not necessarily make one a regular employee, a written contract serves as proof that employees were informed of the duration and scope of their work and their status as project employee at the commencement of their engagement. There being none that was adduced here, the presumption that the employees are regular employees prevails. (Inocentes v. R. Syuco Construction, Inc., G.R. No. 237020, 29 July 2019)

b. Casual

1) Concept

a) Requirements

(1) Incidental work

(2) 12-month period max

There is casual employment where an employee is engaged to perform a job, work or service which is merely incidental to the business of the employer, and such job work or service s for a definite period made known to the employee at the time of engagement. (Section 5[b], Rule I, Book VI, Omnibus Rules Implementing the Labor Code)

Any employee, particularly a casual employee, who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. (Paragraph 2, Article 295, Ibid.)

NB: The 12-month rule does not apply to project employees and fixed-term employees.

On the 12-month criterion, the uncontested fact is that the employee rendered service for more than one year as a casual employee. Hence, under such criterion, she is still eligible to become a regular employee. (Philippine Long Distance Telephone Company, Inc. v. Arceo, G.R. No. 149985, 05 May 2006)

2) When deemed regular

a) Casual employees who perform work or service which are not incidental, but rather usually necessary or desirable in the usual trade or business of the employer.

b) Casual employees who were permitted or required to work for more than twelve (12) months.

c. Contractual

1) Concept

Contractual employees are those whose employment is governed by the contracts they sign everytime they are rehired and their employment is terminated when the contract expires. (Millares v. Lagda, G.R. No. 11054, 28 July 2002)

2) Contractual workers

a) Seafarers

Seafarers are considered contractual employees. They can not be considered as regular employees under Article 280 of the Labor Code. Their employment is governed by the contracts they sign every time they are rehired and their employment is terminated when the contract expires. Their employment is contractually fixed for a certain period of time. They fall under the exception of Article 280 whose employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season. (Ibid.)

3) Workers of legimate job contractors, no longer contractual

Author’s Note: Due to DOLE D.O. 174, Series of 2017, this classification is no longer applicable as co-terminus employment is already prohibited in legitimate job contracting. Meaning, the employment of employees of contractors or subcontractors are no longer tied to that accounts or principals where they are assigned. Otherwise stated, these employees will continue to be employed with the contractor or subcontractor despite the termination of the Service Agreement between with a principal where these employees where assigned.

d. Project

1) Concept

a) Requirements

(1) Engaged for a specific project or undertaking

(2) Completion or termination determined at the time of engagement

Project employees are those who have been engaged for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee. (Article 295, Labor Code)

A project employee is assigned to a project which begins and ends at determined or determinable times. Unlike regular employees who may only be dismissed for just and/or authorized causes under the Labor Code, the services of employees who are hired as “project[-based] employees” may be lawfully terminated at the completion of the project. (Gadia v. Sykes Asia, Inc., G.R. No. 209499, 28 January 2015)

2) When deemed regular

1) Project employees who were not assigned to any specific project or undertaking.

2) Project employees who were not been informed of the completion or termination of the specific project or undertaking on/before the time of the engagement.

3) Project employees who have been continuously rehired even after the cessation of a project, and the tasks performed are vital, necessary and indispensable to the usual business or trade of the employer. (Maraguinot, Jr. v. NLRC, G.R. No. 120969, 22 January 1998)

3) Length of time, not controlling

However, the length of time during which the employee was continuously re-hired is not controlling, but merely serves as a badge of regular employment. (Maraguinot, Jr. v. NLRC, supra.)

4) Employment is co-terminus with project

The services of project-based employees are co-terminous with the project and may be terminated upon the end or completion of the project or a phase thereof for which they were hired. (Herma Shipyard, Inc. v. Oliveros, G.R. No. 208936, 17 April 2017)

Project employment contracts, which fix the employment for a specific project or undertaking, are valid under the law. By entering into such a contract, an employee is deemed to understand that his employment is coterminous with the project. He may no longer be employed after the completion of the project for which he was hired. But project employment contracts are not lopsided agreements in favor of only one party. The employer’s interest is equally important as that of the employees’. While it may be true that it is the employer who drafts project employment contracts with its business interest as overriding consideration, such contracts must not prejudice the employee. (Innodata Knowledge Services, Inc. v. Intiing, G.R. No. 211892, 06 December 2017)

5) Project employees v. Regular employees

Article 295 of the Labor Code, as amended and renumbered, defines a regular employee as (a) one that has been engaged to perform tasks usually necessary or desirable in the employer’s usual business or trade — without falling within the category of either a fixed, a project, or a seasonal employee; or (b) one that has been engaged for a least a year, with respect to the activity he or she is engaged, and the work of the employee remains while such activity exists. On the other hand, a project employee is one whose employment has been fixed for a specified project or undertaking, the completion or termination of which is made known at the time of the engagement of the employee. (Innocentes v. R. Syjuco Construction, Inc., G.R. No. 237020, 29 July 2019)

a) May perform work usually necessary or desirable

NB: The rule on “usually necessary or desirable” does not apply to project employees. Otherwise stated, project employees may perform work or service which are usually necessary or desirable in the usual business or trade of the employer: Provided, That there is such a project and the duration thereof is determined.

b) Test of project employment

The principal test in determining whether particular employees were engaged as project-based employees, as distinguished from regular employees, is whether they were assigned to carry out a specific project or undertaking, the duration and scope of which was specified at, and made known to them, at the time of their engagement. It is crucial that the employees were informed of their status as project employees at the time of hiring and that the period of their employment must be knowingly and voluntarily agreed upon by the parties, without any force, duress, or improper pressure being brought to bear upon the employees or any other circumstances vitiating their consent. (Herma Shipyard, Inc. v. Oliveros, G.R. No. 208936, 17 April 2017)

The project for which project employees are hired would ordinarily have some relationship to the usual business of the employer. There should be no difficulty in distinguishing the employees for a certain project from ordinary or regular employees, as long as the duration and scope of the project were determined or specified at the time of engagement of said project employees. (Innodata Knowledge Services, Inc. v. Intiing, supra.)

In order to safeguard the rights of workers against the arbitrary use of the word “project” which prevents them from attaining regular status, employers claiming that their workers are project employees have the burden of showing that:

1) the duration and scope of the employment was specified at the time they were engaged; and

2) there was indeed a project. (Ibid.)

Therefore, as evident in Article 295, the litmus test for determining whether particular employees are properly characterized as project employees, as distinguished from regular employees, is whether or not the employees were assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time the employees were engaged for that project. (Ibid.)

c) Test of project employment

The employer has the burden to prove that the employee is indeed a project employee. (Innocentes v. R. Syjuco Construction, Inc., supra.)

e. Seasonal

1) Concept

Seasonal employees are those whose work or service is seasonal in nature and the employment is for the duration of the season. (Article 295, Labor Code)

2) When deemed regular

1) Seasonal employees who were permitted or required to work after the season.

2) Seasonal employees who are repeatedly rehired during a season (resulting in them being regular seasonal employees).

3) Regular seasonal employees

The employees were regularly and repeatedly hired to perform the same tasks year after year. This regular and repeated hiring of the same workers (two different sets) for two separate seasons has put in place, principally through jurisprudence, the system of regular seasonal employment in the sugar industry and other industries with a similar nature of operations. (Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, 15 January 2014)

Under the system, the plantation workers or the mill employees do not work continuously for one whole year but only for the duration of the growing of the sugarcane or the milling season. Their seasonal work, however, does not detract from considering them in regular employment since in a litany of cases, this Court has already settled that seasonal workers who are called to work from time to time and are temporarily laid off during the off-season are not separated from the service in said period, but are merely considered on leave until re-employment. Be this as it may, regular seasonal employees, like the respondents in this case, should not be confused with the regular employees of the sugar mill such as the administrative or office personnel who perform their tasks for the entire year regardless of the season. (Ibid.)

f. Fixed-term

1) Concept

Fixed-term employment contracts refer to an arrangement where a fixed period of employment was agreed upon knowingly and voluntarily by the parties. (Brent School, Inc. v. Zamora, G.R. No. L-48494, 05 February 1990)

a) Requisites to be valid

For a fixed-term employment contract to be valid:

1) It should be shown that the fixed period was knowingly and voluntarily agreed upon by the parties. There should have been no force, duress or improper pressure brought to bear upon the employee; neither should there be any other circumstance that vitiates the employee’s consent.

2) It should satisfactorily appear that the employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised by the employer over the employee. (Dumpit-Murillo v. CA, G.R. No. 164652, 08 June 2007)

Moreover, fixed-term employment will not be considered valid where, from the circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee.

2) When deemed regular

Citing Dumpit-Murillo v. Court of Appeals and Philips Semiconductors, Inc. v. Fadriquela, we declared in Fuji that the repeated engagement under contract of hire is indicative of the necessity and desirability of the [employee’s] work in respondent’s business and where employee’s contract has been continuously extended or renewed to the same position, with the same duties and remained in the employ without any interruption, then such employee is a regular employee. (Samonte v. La Salle Greenhills, Inc., G.R. No. 199683, 10 February 2016)

g. Probationary; private school teachers

1) Concept

A probationary employee is one who has been engaged under a probationary employment not exceeding six (6) months and the standards or criteria for regular employment have been made known on/before the engagement. (Article 296, Labor Code)

A probationary employee is defined as one who is on trial by an employer during which the employer determines whether or not he is qualified for permanent employment. (PNOC v. Buenviaje, G.R. No. 183200-01, 29 June 2016)

a) Requisites to be valid

(1) 6-month probation

In general, probationary employment cannot exceed six (6) months, otherwise the employee concerned shall be considered a regular employee. (Ibid.)

(a) Unless an apprenticeship agreement

Probationary employment shall not exceed six (6) months from the date the employee started working, unless it is covered by an apprenticeship agreement stipulating a longer period. (Article 296, Labor Code)

(b) Reasonable standards made known on/before the engagement

It is also indispensable in probationary employment that the employer informs the employee of the reasonable standards that will be used as a basis for his or her regularization at the time of his or her engagement. If the employer fails to comply with this, then the employee is considered a regular employee. (PNOC v. Buenviaje, supra.)

2) When deemed regular

An employee who is allowed to work after a probationary period shall be considered a regular employee. (Article 296, Labor Code)

A probationary employee who was not informed of the reasonable standards that will be used as a basis for his or her regularization at the time of his or her engagement is considered a regular employee from the start of his employment. (PNOC v. Buenviaje, supra.)

3) Security of tenure

A probationary employee, like a regular employee, enjoys security of tenure. However, in cases of probationary employment, aside from just or authorized causes of termination, an additional ground is provided under Article 281 of the Labor Code, i.e., the probationary employee may also be terminated for failure to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the time of the engagement. (Carvajal v. Luzon Development Bank, G.R. No. 186169, 01 August 2012)

Thus, the services of an employee who has been engaged on probationary basis may be terminated for any of the following: (1) a just or (2) an authorized cause and (3) when he fails to qualify as a regular employee in accordance with reasonable standards prescribed by the employer. (Ibid.)

4) Private school teachers

a) Manual of Regulations for Private Schools

Cases dealing with employment on probationary status of teaching personnel are not governed solely by the Labor Code as the law is supplemented, with respect to the period of probation, by special rules found in the Manual of Regulations for Private Schools (the Manual). (Colegio Del Santisimo Rosario v. Rojo, G.R. No. 170388, 04 September 2013)

Section 92. Probationary Period. – Subject in all instances to compliance with the Department and school requirements, the probationary period for academic personnel shall not be more than three (3) consecutive years of satisfactory service for those in the elementary and secondary levels, six (6) consecutive regular semesters of satisfactory service for those in the tertiary level, and nine (9) consecutive trimesters of satisfactory service for those in the tertiary level where collegiate courses are offered on a trimester basis. (1992 Manual of Regulations for Private Schools)

b) Modified probation with fixed-term employment contracts

The common practice is for the employer and the teacher to enter into a contract, effective for one school year. At the end of the school year, the employer has the option not to renew the contract, particularly considering the teacher’s performance. If the contract is not renewed, the employment relationship terminates. If the contract is renewed, usually for another school year, the probationary employment continues. Again, at the end of that period, the parties may opt to renew or not to renew the contract. If renewed, this second renewal of the contract for another school year would then be the last year – since it would be the third school year – of probationary employment. At the end of this third year, the employer may now decide whether to extend a permanent appointment to the employee, primarily on the basis of the employee having met the reasonable standards of competence and efficiency set by the employer. For the entire duration of this three-year period, the teacher remains under probation. (Magis Young Achivers’ Learning Center, G.R. No. 178835, 13 February 2009)

Upon the expiration of his contract of employment, being simply on probation, he cannot automatically claim security of tenure and compel the employer to renew his employment contract. It is when the yearly contract is renewed for the third time that Section 93 of the Manual becomes operative, and the teacher then is entitled to regular or permanent employment status. (Ibid.)

c) Specify period or term of effectivity

It is important that the contract of probationary employment specify the period or term of its effectivity. The failure to stipulate its precise duration could lead to the inference that the contract is binding for the full three-year probationary period. (Ibid.)

d) Probation may be reduced by employer

All this does not mean that academic personnel cannot acquire permanent employment status earlier than after the lapse of three years. The period of probation may be reduced if the employer, convinced of the fitness and efficiency of a probationary employee, voluntarily extends a permanent appointment even before the three-year period ends. Conversely, if the purpose sought by the employer is neither attained nor attainable within the said period, the law does not preclude the employer from terminating the probationary employment on justifiable ground; or, a shorter probationary period may be incorporated in a collective bargaining agreement. But absent any circumstances which unmistakably show that an abbreviated probationary period has been agreed upon, the three-year probationary term governs. (Ibid.)

e) Security of tenure

Be that as it may, teachers on probationary employment enjoy security of tenure. (Ibid.)

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