EMPLOYER – EMPLOYEE RELATIONSHIP

1. Insular Life Assurance Co., Ltd. vs. NLRC (1989)

In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (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 conduct—although the latter is the most
important element.

It should, however, be obvious that not every form of control that the hiring party reserves to himself
over the conduct of the party hired in relation to the services rendered may be accorded the effect of
establishing an employer-employee relationship between them in the legal or technical sense of the term.
A line must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether.

Facts:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T.
Basiao entered into a contract1 by which:

1. Basiao was “authorized to solicit within the Philippines applications for insurance policies and
annuities in accordance with the existing rules and regulations” of the Company;
2. he would receive “compensation, in the form of commissions x x as provided in the Schedule of
Commissions” of the contract to “constitute a part of the consideration of x x (said) agreement;”
and
3. the “rules in x x (the Company’s) Rate Book and its Agent’s Manual, as well as all its circulars x x
and those which may from time to time be promulgated by it, x x” were made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the duties
of the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz:

“RELATION WITH THE COMPANY. The Agent shall be free to exercise his own judgment as to time, place
and means of soliciting insurance. Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the Company. However, the Agent shall
observe and conform to all rules and regulations which the Company may from time to time prescribe.

“TERMINATION. The Company may terminate the contract at will, without any previous notice to the
Agent, for or on account of x x (explicitly specified causes). x x

Some four years later, in April 1972, the parties entered into another contract—an Agency Manager’s
Contract— and to implement his end of it Basiao organized an agency or office to which he gave the name
M. Basiao and Associates, while concurrently fulfilling his commitments under the first contract with the
Company,

In May, 1979, the Company terminated the Agency Manager’s Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the
latter to terminate also his engagement under the first contract and to stop payment of his commissions
starting April 1, 1980.

Basiao thereafter filed with the then Ministry of Labor a complaint4 against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney’s fees.

The respondents disputed the Ministry’s jurisdiction over Basiao’s claim, asserting that he was not the
Company’s employee, but an independent contractor and that the Company had no obligation to him for
unpaid commissions under the terms and conditions of his contract.

LA: Basiao Wins

The underwriting agreement had established an employer-employee relationship between him and the
Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his claim.

NLRC: Affirmed LA

Issue:

W/N Basiao was an employee of the company or not.

Held:

NO. He is not an employee.

It is true that the “control test” expressed in the following pronouncement of the Court in the 1956 case
of Viana vs. Alejo Al-Lagadan:

“x x In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (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 employees’ conduct—although the latter is the most
important element (35 Am. Jur. 445). x x,”

has been followed and applied in later cases, some fairly recent.

Indeed, it is without question a valid test of the character of a contract or agreement to render service. It
should, however, be obvious that not every form of control that the hiring party reserves to himself over
the conduct of the party hired in relation to the services rendered may be accorded the effect of
establishing an employer-employee relationship between them in the legal or technical sense of the term.
A line must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed in
attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use
of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it (employer-
employee relationship exists).

Rules and regulations governing the conduct of the business are provided for in the Insurance Code and
enforced by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company
to promulgate a set of rules to guide its commission agents in selling its policies that they may not run
afoul of the law and what it requires or prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications to processing and approval
by the Company, and also reserve to the Company the determination of the premiums to be paid and the
schedules of payment. None of these really invades the agent’s contractual prerogative to adopt his own
selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the company.

There is no dearth of authority holding persons similarly placed as respondent Basiao to be independent
contractors, instead of employees of the parties for whom they worked.

The respondents limit themselves to pointing out that Basiao’s contract with the Company bound him to
observe and conform to such rules and regulations as the latter might from time to time prescribe. No
showing has been made that any such rules or regulations were in fact promulgated, much less that any
rules existed or were issued which effectively controlled or restricted his choice of methods—or the
methods themselves—of selling insurance. Absent such showing, the Court will not speculate that any
exceptions or qualifications were imposed on the express provision of the contract leaving Basiao “x x x
free to exercise his own judgment as to the time, place and means of soliciting insurance.”

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the
petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions
should have been litigated in an ordinary civil action.

2. Insular Life Assurance Co., Ltd. vs. NLRC (4th Division) (1998)

—We reject the submissions of petitioner and hold that respondent NLRC acted appropriately within the
bounds of the law. The records of the case are replete with telltale indicators of an existing employer-
employee relationship between the two parties despite written contractual disavowals.

National Labor Relations Commission was correct in finding that private respondent was an employee of
petitioner, but this holds true only insofar as the management contract is concerned.

Facts:

On 17 June 1994 respondent Labor Arbiter dismissed for lack of jurisdiction NLRC RAB-VII Case No. 03-
0309-94 filed by private respondent Pantaleon de los Reyes against petitioner Insular Life Assurance Co.,
Ltd. (INSULAR LIFE), for illegal dismissal and nonpayment of salaries and back wages after finding no
employer-employee relationship between De los Reyes and petitioner INSULAR LIFE.
On appeal by private respondent, the order of dismissal was reversed by the National Labor Relations
Commission (NLRC) which ruled that respondent De los Reyes was an employee of petitioner.

Petitioner’s motion for reconsideration having been denied, the NLRC remanded the case to the Labor
Arbiter for hearing on the merits.

Seeking relief through this special civil action for certiorari with prayer for a restraining order and/or
preliminary injunction petitioner now comes to us praying for annulment of the decision of respondent
NLRC.

It faults NLRC for acting without jurisdiction and/or with grave abuse of discretion when, contrary to
established facts and pertinent law and jurisprudence, it reversed the decision of the Labor Arbiter and
held instead that the complaint was properly filed as an employer-employee relationship existed between
petitioner and private respondent.

Petitioner reprises the stand it assumed below that it never had any employer-employee relationship with
private respondent, this being an express agreement between them in the agency contracts, particularly
reinforced by the stipulation therein that De los Reyes was allowed discretion to devise ways and means
to fulfill his obligations as agent and would be paid commission fees based on his actual output. It further
insists that the nature of this work status as described in the contracts had already been squarely resolved
by the Court in the earlier case of Insular Life Assurance Co., Ltd. v. NLRC and Basiao where the
complainant therein, Melecio Basiao, was similarly situated as respondent De los Reyes in that he was
appointed first as an agent and then promoted as agency manager, and the contracts under which he was
appointed contained terms and conditions identical to those of De los Reyes.

Petitioner concludes that since Basiao was declared by the Court to be an independent contractor and
not an employee of petitioner, there should be no reason why the status of De los Reyes herein vis-a-vis
petitioner should not be similarly determined.

Issue:

W/N Delos Reyes is an employee of Insular Life?

Held:

YES.

We reject the submissions of petitioner and hold that respondent NLRC acted appropriately within the
bounds of the law. The records of the case are replete with telltale indicators of an existing employer-
employee relationship between the two parties despite written contractual disavowals.

On 1 March 1993 petitioner and private respondent entered into another contract (MANAGEMENT
CONTRACT) where the latter was appointed as Acting Unit Manager under its office—the Cebu DSO V
(157). As such, the duties and responsibilities of De los Reyes included the recruitment, training,
organization and development within his designated territory of a sufficient number of qualified,
competent and trustworthy underwriters, and to supervise and coordinate the sales efforts of the
underwriters in the active solicitation of new business and in the furtherance of the agency’s assigned
goals. It was similarly provided in the management contract that the relation of the acting unit manager
and/or the agents of his unit to the company shall be that of independent contractor. If the
appointment was terminated for any reason other than for cause, the acting unit manager would be
reverted to agent status and assigned to any unit.

Aside from soliciting insurance, De los Reyes was also expressly obliged to participate in the company’s
conservation program, i.e., preservation and maintenance of existing insurance policies, and to accept
moneys duly receipted on agent’s receipts provided the same were turned over to the company. As long
as he was unit manager in an acting capacity, De los Reyes was prohibited from working for other life
insurance companies or with the government. He could not also accept a managerial or supervisory
position in any firm doing business in the Philippines without the written consent of petitioner.

Private respondent worked concurrently as agent and Acting Unit Manager until he was notified by
petitioner on 18 November 1993 that his services were terminated effective 18 December 1993.

Petitioner filed a motion to dismiss the complaint of De los Reyes for lack of jurisdiction, citing the absence
of employer-employee relationship. It reasoned out that based on the criteria for determining the
existence of such relationship or the so-called “four-fold test,” i.e., (a) selection and engagement of
employee, (b) payment of wages, (c) power of dismissal, and, (d) power of control, De los Reyes was
not an employee but an independent contractor.

On 17 June 1994 the motion of petitioner was granted by the Labor Arbiter and the case was dismissed
on the ground that the element of control was not sufficiently established since the rules and guidelines
set by petitioner in its agency agreement with respondent De los Reyes were formulated only to achieve
the desired result without dictating the means or methods of attaining it.

Respondent NLRC however appreciated the evidence from a different perspective. It determined that
respondent De los Reyes was under the effective control of petitioner in the critical and most important
aspects of his work as Unit Manager.

This conclusion was derived from the provisions in the contract which appointed private respondent as
Acting Unit Manager, to wit: (a) De los Reyes was to serve exclusively the company, therefore, he was not
an independent contractor; (b) he was required to meet certain manpower and production quota; and,
(c) petitioner controlled the assignment to and removal of soliciting agents from his unit.

Parenthetically, both petitioner and respondent NLRC treated the agency contract and the management
contract entered into between petitioner and De los Reyes as contracts of agency. We however hold
otherwise.

Unquestionably there exist major distinctions between the two agreements. While the first has the
earmarks of an agency contract, the second is far removed from the concept of agency in that provided
therein are conditionalities that indicate an employer-employee relationship. The NLRC therefore was
correct in finding that private respondent was an employee of petitioner, but this holds true only insofar
as the management contract is concerned. In view thereof, the Labor Arbiter has jurisdiction over the
case.
In determining the status of the management contract, the “four-fold test” on employment earlier
mentioned has to be applied. Petitioner contends that De los Reyes was never required to go through the
pre-employment procedures and that the probationary employment status was reserved only to
employees of petitioner.

On this score, it insists that the first requirement of selection and engagement of the employee was not
met. A look at the provisions of the contract shows that private respondent was appointed as Acting Unit
Manager only upon recommendation of the District Manager.8 This indicates that private respondent was
hired by petitioner because of the favorable endorsement of its duly authorized officer. But, this
approbation could only have been based on the performance of De los Reyes as agent under the agency
contract so that there can be no other conclusion arrived under this premise than the fact that the agency
or underwriter phase of the relationship of De los Reyes with petitioner was nothing more than a trial or
probationary period for his eventual appointment as Acting Unit Manager of petitioner. Then, again, the
very designation of the appointment of private respondent as “acting” unit manager obviously implies a
temporary employment status which may be made permanent only upon compliance with company
standards such as those enumerated under Sec. 6 of the management contract.

On the matter of payment of wages, petitioner points out that respondent was compensated strictly on
commission basis, the amount of which was totally dependent on his total output. But, the manager’s
contract, speaks differently.

The unit manager’s quarterly performance had no bearing at all on his entitlement at least to the free
portion of the UDF which for all intents and purposes comprised the salary regularly paid to him by
petitioner. Thus it cannot be validly claimed that the financial assistance consisting of the free portion of
the UDF was purely dependent on the premium production of the agent.

As to the matter involving the power of dismissal and control by the employer, the latter of which is the
most important of the test, petitioner asserts that its termination of De los Reyes was but an exercise of
its inherent right as principal under the contracts and that the rules and guidelines it set forth in the
contract cannot, by any stretch of the imagination, be deemed as an exercise of control over the private
respondent as these were merely directives that fixed the desired result without dictating the means or
method to be employed in attaining it.

Complainant was to “exclusively” serve respondent company. Thus it is provided: x x x 7..7 Other causes
of Termination: This appointment may likewise be terminated for any of the following causes: x x x 7..7..2.
Your entering the service of the government or another life insurance company; 7..7..3. Your accepting a
managerial or supervisory position in any firm doing business in the Philippines without the written
consent of the Company; x x x

Exclusivity of service, control of assignments and removal of agents under private respondent’s unit,
collection of premiums, furnishing of company facilities and materials as well as capital described as
Unit Development Fund are but hallmarks of the management system in which herein private
respondent worked. This obtaining, there is no escaping the conclusion that private respondent
Pantaleon de los Reyes was an employee of herein petitioner.
 3. Orozco vs. Court of Appeals, Fifth Division (2005)

—By explicit provision of law, an appeal is perfected only upon the posting of a cash or surety bond.

While the requirements for perfecting an appeal must be strictly followed as they are considered
indispensable interdictions against needless delays and for orderly discharge of judicial business, the law
does admit of exceptions when warranted by the circumstances—technicality should not be allowed to
stand in the way of equitably and completely resolving the rights and obligations of the parties.

Facts:

This case arose out of the complaint filed by Orozco against private respondents Philippine Daily Inquirer
(PDI) and Leticia Jimenez-Magsanoc (Magsanoc), the editor-in-chief of the PDI at that time, for illegal
dismissal, underpayment, non-payment of allowance, separation pay, retirement pay, service incentive
leave pay, 13th month pay, moral and exemplary damages, discrimination in pay and for attorney’s fees
with the Arbitration Branch of the NLRC on 1 June 1993.

Orozco was engaged as a columnist by PDI on 8 March 1990. She penned the column “Feminist
Reflections” which appeared in the Lifestyle Section under the editorship of Lolita T. Logarta.

Orozco worked by submitting weekly columns with a per article wage of Two Hundred Fifty Pesos
(P250.00) which was later increased to Three hundred Pesos (P300.00).

Magsanoc as editor-in-chief of PDI discussed how to improve the Lifestyle section of the newspaper with
the Lifestyle editor. They agreed to cut down the number of columnists and for this reason, PDI decided
to drop or terminate Orozco’s column in November 1992.

Orozco’s column thus appeared in PDI for the last time on 7 November 1992. Upon inquiry at the office
of Magsanoc as to why her column was stopped, the secretary told Orozco that it was Eugenia Apostol
(Apostol), the chairperson of PDI, who had decided to stop her column.

LA and NLRC: Same Ruling in favor of Orozco

The PDI raised as primary defense the claim that Orozco was not an employee of the newspaper. However,
in a Decision dated 29 October 1993, Labor Arbiter Arthur L. Amansec ruled that Orozco had been illegally
dismissed, after concluding that Orozco had indeed been an employee of the PDI.

It timely filed a Notice and Memorandum dated 24 December 1993, but it did not lodge a cash or surety
bond in the amount equivalent to the monetary award in the judgment appealed from. PDI adverted to
such failure on its part before the NLRC but justified the same on the ground that the Decision of the Labor
Arbiter did not fix any amount but merely stated that Orozco was entitled to backwages.

The NLRC dismissed the appeal in its Decision dated 23 August 1994. In this Decision, it made note of the
failure of PDI to perfect the appeal by filing the cash or surety bond. Nonetheless, the NLRC ventured to
delve on the merits, and thereupon, affirmed the finding of the Labor Arbiter that Orozco was an
employee of PDI.

CA: Reversal with Denial of MR

The Court of Appeals reversed the decision of the NLRC by holding that Orozco is not an employee of PDI.
The reversal was grounded on factual premises, the appellate court concluding that the NLRC had
misappreciated the facts and rendered a ruling wanting in substantial evidence. It thereby dismissed
Orozco’s complaint for lack of merit.

Issue:

W/N a newspaper columnist is an employee of the newspaper which publishes the columns?

(However, for failure to file the appeal bond required by law, the Court is impelled to defer the settlement
of the above issue until the jurisdictional requirement has been duly complied with.)

Held:

The judgment of the Labor Arbiter in this case merely stated that petitioner was entitled to backwages,
13th month pay and service incentive leave pay without however including a computation of the alleged
amounts.

In the case of NFLU v. Ladrido III, this Court postulated that “private respondents cannot be expected to
post such appeal bond equivalent to the amount of the monetary award when the amount thereof was
not included in the decision of the labor arbiter.”

The computation of the amount awarded to petitioner not having been clearly stated in the decision of
the labor arbiter, private respondents had no basis for determining the amount of the bond to be posted.
Thus, while the requirements for perfecting an appeal must be strictly followed as they are considered
indispensable interdictions against needless delays and for orderly discharge of judicial business, the law
does admit of exceptions when warranted by the circumstances. Technicality should not be allowed to
stand in the way of equitably and completely resolving the rights and obligations of the parties.36 But
while this Court may relax the observance of reglementary periods and technical rules to achieve
substantial justice, it is not prepared to give due course to this petition and make a pronouncement on
the weighty issue obtaining in this case until the law has been duly complied with and the requisite appeal
bond duly paid by private respondents.

DISPOSITIVE PORTION.

WHEREFORE, without giving due course to the petition, the Labor Arbiter is hereby ordered to clarify the
amount of the award due the petitioner. Private respondents are ordered to post the requisite bond in
accordance with Article 223 of the Labor Code, whereupon, the petition will be given due course. No
pronouncement as to costs. SO ORDERED.

4. Sonza vs. ABS-CBN Broadcasting Corporation

—The elements of an employer-employee relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control
the employee on the means and methods by which the work is accomplished. The last element, the so-
called “control test,” is the most important element.
—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. In any
event, the method of selecting and engaging SONZA does not conclusively determine his status. We must
consider all the circumstances of the relationship, with the control test being the most important element.

—All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement.
If SONZA were ABS-CBN’s employee, there would be no need for the parties to stipulate on benefits such
as “SSS, Medicare, x x x and 13th month pay” which the law automatically incorporates into every
employer-employee contract. Whatever benefits SONZA enjoyed arose from contract and not because of
an employer-employee relationship.

—SONZA’s talent fees, amounting to P317,000 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.

—Applying the control test to the present case, we find that SONZA is not an employee but an
independent contractor. The control test is the most important test our courts apply in distinguishing an
employee from an independent contractor. This test is based on the extent of control the hirer exercises
over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is
deemed an employee. The converse holds true as well—the less control the hirer exercises, the more
likely the worker is considered an independent contractor.

— We find that ABS-CBN was not involved in the actual performance that produced the finished product
of SONZA’s work. ABS-CBN did not instruct SONZA how to perform his job. ABSCBN merely reserved the
right to modify the program format and airtime schedule “for more effective programming.” ABS-CBN’s
sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not
exercise control over the means and methods of performance of SONZA’s work.

Facts:

Respondent ABS-CBN Broadcasting Corporation (“ABS-CBN”) signed an Agreement (“Agreement”) with

the Mel and Jay Management and Development Corporation (“MJMDC”). ABS-CBN was represented by
its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and
Carmela Tiangco (“TIANGCO”), as EVP and Treasurer. Referred to in the Agreement as “AGENT,” MJMDC
agreed to provide SONZA’s services exclusively to ABS-CBN as talent for radio and television. The
Agreement listed the services SONZA would render to ABS-CBN, as follows: a. Co-host for Mel & Jay radio
program, 8:00 to 10:00 a.m., Mondays to Fridays; b. Co-host for Mel & Jay television program, 5:30 to
7:00 p.m., Sundays.
ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of P310,000 for the first year and
P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th
and 25th days of the month.

Letter to Eugenio Lopez III:

xxx

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on
behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs
and career. We consider these acts of the station violative of the Agreement and the station as in breach
thereof. In this connection, we hereby serve notice of rescission of said Agreement at our instance
effective as of date.

xxx

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said
Agreement.

SONZA filed a complaint against ABSCBN before the Department of Labor and Employment, National
Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay,
service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the
Employees Stock Option Plan (“ESOP”).

ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed
between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at PCIBank,
Quezon Avenue Branch, Quezon City. In July 1996, ABSCBN opened a new account with the same bank
where ABS-CBN deposited SONZA’s talent fees and other payments due him under the Agreement.

LA: The Labor Arbiter denied the motion to dismiss and directed the parties to file their respective position
papers.

NRLC and CA: The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship
existed between SONZA and ABS-CBN.

Issue:

W/N Jay Sonza was an employee of ABS-CBN.

Held:

The existence of an employer-employee relationship is a question of fact. Appellate courts accord the
factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by
substantial evidence. Substantial evidence means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.16 A party cannot prove the absence of substantial evidence
by simply pointing out that there is contrary evidence on record, direct or circumstantial. The Court does
not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies
or what evidence is credible.

REGULAR OR PROJECT EMPLOYEE

19. ALU-TUCP vs. National Labor Relations Commission

—The basic issue is thus whether or not petitioners are properly characterized as “project employees”
rather than “regular employees” of NSC. This issue relates, of course, to an important consequence: the
services of project employees are coterminous with the project and may be terminated upon the end or
completion of the project for which they were hired. Regular employees, in contrast, are legally entitled
to remain in the service of their employer until that service is terminated by one or another of the
recognized modes of termination of service under the Labor Code.

—Principal test for determining whether particular employees are properly characterized as “project
employees” as distinguished from “regular employees,” is whether or not the “project employees” were
assigned to carry out “specific project or undertaking”, the duration (and scope) of which were specified
at the time the employees were engaged for that project

— “Project” in the realm of business and industry refer to particular job or undertaking that is within the
regular or usual business of employer, but which is distinct and separate, and identifiable as such, from
the undertakings of the company. Such job or undertaking begins and ends at determined or determinable
times.

—The present case therefore strictly falls under the definition of ‘project employees’ on paragraph one
of Article 280 of the Labor Code, as amended. Moreover, it has been held that the length of service of a
project employee is not the controlling test of employment tenure but whether or not ‘the employment
has been fixed for a specific project or undertaking the completion or termination of which has been
determined at the time of the engagement of the employee’. (See Hilario Rada v. NLRC, G.R. No. 96078,
January 9, 1992; and Sandoval Shipping, Inc. v. NLRC, 136 SCRA 674 (1985).”

Facts:

Petitioners plead that they had been employed by respondent NSC in connection with its Five Year
Expansion Program (FAYEP I & II)1 for varying lengths of time when they were separated from NSC’s
service.

Petitioners filed separate complaints for unfair labor practice, regularization and monetary benefits with
the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.

The complaints were consolidated and after hearing, the Labor Arbiter in a Decision dated 7 June 1991,
declared petitioners “regular project employees who shall continue their employment as such for as long
as such [project] activity exists,” but entitled to the salary of a regular employee pursuant to the provisions
in the collective bargaining agreement. It also ordered payment of salary differentials.

Both parties appealed to the NLRC from that decision. Petitioners argued that they were regular, not
project, employees. Private respondent, on the other hand, claimed that petitioners are project
employees as they were employed to undertake a specific project—NSC’s Five Year Expansion Program
(FAYEP I & II).

The NLRC in its questioned resolutions modified the Labor Arbiter’s decision. It affirmed the Labor
Arbiter’s holding that petitioners were project employees since they were hired to perform work in a
specific undertaking—the Five Year Expansion Program, the completion of which had been determined at
the time of their engagement and which operation was not directly related to the business of steel
manufacturing. The NLRC, however, set aside the award to petitioners of the same benefits enjoyed by
regular employees for lack of legal and factual basis.

Issue:

W/N the employees are project or regular employees of NSC?

Held:

Project Employees.

The term “project” could also refer to, secondly, a particular job or undertaking that is not within the
regular business of the corporation. Such a job or undertaking must also be identifiably separate and
distinct from the ordinary or regular business operations of the employer. The job or undertaking also
begins and ends at determined or determinable times. The case at bar presents what appears to our mind
as a typical example of this kind of “project.”

NSC undertook the ambitious Five Year Expansion Program I and II with the ultimate end in view of
expanding the volume and increasing the kinds of products that it may offer for sale to the public. The
Five Year Expansion Program had a number of component projects: e.g., (a) the setting up of a “Cold
Rolling Mill Expansion Project”; (b) the establishment of a “Billet Steel-Making Plant” (BSP); (c) the
acquisition and installation of a “Five Stand TDM”; and (d) the “Cold Mill Peripherals Project.”8 Instead of
contracting out to an outside or independent contractor the tasks of constructing the buildings with
related civil and electrical works that would house the new machinery and equipment, the installation of
the newly acquired mill or plant machinery and equipment and the commissioning of such machinery and
equipment, NSC opted to execute and carry out its Five Year Expansion Projects “in house,” as it were, by
administration. The carrying out of the Five Year Expansion Program (or more precisely, each of its
component projects) constitutes a distinct undertaking identifiable from the ordinary business and activity
of NSC. Each component project, of course, begins and ends at specified times, which had already been
determined by the time petitioners were engaged. We also note that NSC did the work here involved —
the construction of buildings and civil and electrical works, installation of machinery and equipment and
the commissioning of such machinery—only for itself.
Private respondent NSC was not in the business of constructing buildings and installing plant machinery
for the general business community, i.e., for unrelated, third party, corporations. NSC did not hold itself
out to the public as a construction company or as an engineering corporation.

Thus, the particular component projects embraced in the Five Year Expansion Program, to which
petitioners were assigned, were distinguishable from the regular or ordinary business of NSC which, of
course, is the production or making and marketing of steel products. During the time petitioners
rendered services to NSC, their work was limited to one or another of the specific component projects
which made up the FAYEP I and II. There is nothing in the record to show that petitioners were hired for,
or in fact assigned to, other purposes, e.g., for operating or maintaining the old, or previously installed
and commissioned, steel-making machinery and equipment, or for selling the finished steel products.

We, therefore, agree with the basic finding of the NLRC (and the Labor Arbiter) that the petitioners were
indeed “project employees:”

20. Tomas Lao Construction vs. NLRC

—The principal test in determining whether particular employees are “project employees” distinguished
from “regular employees” is whether the “project employees” are assigned to carry out “specific project
or undertaking,” the duration (and scope) of which are specified at the time the employees are engaged
for the project. “Project” in the realm of business and industry refers to a particular job or undertaking
that is within the regular or usual business of employer, but which is distinct and separate and identifiable
as such from the undertakings of the company. Such job or undertaking begins and ends at determined
or determinable times.

—While it may be allowed that in the instant case the workers were initially hired for specific projects or
undertakings of the company and hence can be classified as project employees, the repeated re-hiring
and the continuing need for their services over a long span of time (the shortest, at seven [7] years)
have undeniably made them regular employees. Thus, we held that where the employment of project
employees is extended long after the supposed project has been finished, the employees are removed
from the scope of project employees and considered regular employees.

—While length of time may not be a controlling test for project employment, it can be a strong factor in
determining whether the employee was hired for a specific undertaking or in fact tasked to perform
functions which are vital, necessary and indispensable to the usual business or trade of the employer. In
the case at bar, private respondents had already gone through the status of project employees.

But their employments became non-coterminous with specific projects when they started to be
continuously re-hired due to the demands of petitioners’ business and were re-engaged for many more
projects without interruption.

Facts:

From October to December 1990 private respondents individually filed complaints for illegal dismissal
against petitioners with the National Labor Relations Commission Regional Arbitration Branch No. VIII
(NLRC-RAB VIII), Tacloban City. Alleging that they were hired for various periods as construction workers
in different capacities they described their contractual terms as follows: (a) Roberto Labendia, general
construction foreman, from 1971 to 17 October 1990 at P3,700/month; (b) Narciso Adan, tireman, from
October 1981 to November 1990 at P75.00/day; (c) Florencio Gomez, welder, from July 1983 to July 1990
at P60.00/day; (d) Ernesto Bagatsolon leadman/checker, from June 1982 to October 1990 at
P2,800/month; (e) Salvador Babon, clerk/timekeeper/pay-master, from June 1982 to October 1990 at
P3,200/month; (f) Paterno Bisnar, road grader operator, from January 1979 to October 1990 at P105/day;
(g) Cipriano Bernales, instrument man, from February 1980 to November 1990 at P3,200/month; (h) Angel
Mabulay, Sr., dump truck driver, from August 1974 to October 1990 at P90/day; (i) Leo Surigao, payloader
operator, from March 1975 to January 1978 at P100/day; (j) Mario Labendia, Sr. surveyor/foreman, from
August 1971 to July 1990 at P2,900/month; and, (k) Roque Morillo, company watchman, from August
1983 to October 1990 at P3,200/month.

Within the periods of their respective employments, they alternately worked for petitioners Tomas Lao
Corporation (TLC), Thomas and James Developers (T&J) and LVM Construction Corporation (LVM),
altogether informally referred to as the “Lao Group of Companies,” the three (3) entities comprising a
business conglomerate exclusively controlled and managed by members of the Lao family.

TLC, T&J and LVM are engaged in the construction of public roads and bridges. Under joint venture
agreements they entered into among each other, they would undertake their projects either
simultaneously or successively so that, whenever necessary, they would lease tools and equipment to one
another. Each one would also allow the utilization of their employees by the other two (2). With this
arrangement, workers were transferred whenever necessary to ongoing projects of the same company or
of the others, or were rehired after the completion of the project or project phase to which they were
assigned. Soon after, however, TLC ceased its operations2 while T&J and LVM stayed on.

Sometime in 1989 Andres Lao, Managing Director of LVM and President of T&J,3 issued a memorandum4
requiring all workers and company personnel to sign employment contract forms and clearances which
were issued on 1 July 1989 but antedated 10 January 1989.

These were to be used allegedly for audit purposes pursuant to a joint venture agreement between LVM
and T&J. To ensure compliance with the directive, the company ordered the withholding of the salary of
any employee who refused to sign. Quite notably, the contracts expressly described the construction
workers as project employees whose employments were for a definite period, i.e., upon the expiration of
the contract period or the completion of the project for which the workers was hired.

Except for Florencio Gomez5 all private respondents refused to sign contending that this scheme was
designed by their employer to downgrade their status from regular employees to mere project
employees. Resultantly, their salaries were withheld. They were also required to explain why their services
should not be terminated for violating company rules and warned that failure to satisfactorily explain
would be construed as “disinterest” in continued employment with the company. Since the workers stood
firm in their refusal to comply with the directives their services were terminated.

NLRC RAB VIII: dismissed the complaints lodged before it, finding that private respondents were project
employees whose employments could be terminated upon completion of the projects or project phase
for which they were hired.
The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed on appeal by the Fourth Division of
the National Labor Relations Commission (NLRC) of Cebu City which found that private respondents
were regular employees who were dismissed without just cause and denied due process.

The NLRC also overruled the fixing by the Labor Arbiter of the term of employment of complainants
uniformly at five (5) years since the periods of employment of the construction workers as alleged in their
complaints were never refuted by petitioners. In granting monetary awards to complainants, NLRC
disregarded the veil of corporate fiction and treated the three (3) corporations as forming only one entity
on the basis of the admission of petitioners that “the three (3) operated as one (1), intermingling and
commingling all its resources, including manpower facility.”

Issue:

W/N the respondents in this case were project or regular employees?

Held:

REGULAR EMPLOYEES.

The principal test in determining whether particular employees are “project employees” distinguished
from “regular employees” is whether the “project employees” are assigned to carry out “specific project
or undertaking,” the duration (and scope) of which are specified at the time the employees are engaged
for the project. “Project” in the realm of business and industry refers to a particular job or undertaking
that is within the regular or usual business of employer, but which is distinct and separate and identifiable
as such from the undertakings of the company. Such job or undertaking begins and ends at determined
or determinable times.

While it may be allowed that in the instant case the workers were initially hired for specific projects or
undertakings of the company and hence can be classified as project employees, the repeated re-hiring
and the continuing need for their services over a long span of time (the shortest, at seven [7] years) have
undeniably made them regular employees. Thus, we held that where the employment of project
employees is extended long after the supposed project has been finished, the employees are removed
from the scope of project employees and considered regular employees.

While length of time may not be a controlling test for project employment, it can be a strong factor in
determining whether the employee was hired for a specific undertaking or in fact tasked to perform
functions which are vital, necessary and indispensable to the usual business or trade of the employer. In
the case at bar, private respondents had already gone through the status of project employees. But their
employments became non-coterminous with specific projects when they started to be continuously re-
hired due to the demands of petitioners’ business and were reengaged for many more projects without
interruption.

We note petitioners’ own admission—

[t]hese construction projects have been prosecuted by either of the three petitioners, either individually or
in a joint venture with one another. Likewise, these construction projects have been prosecuted by either
of the three petitioners, either simultaneously, one construction project overlapping another and/or one
project commencing immediately after another project has been completed or terminated. Perhaps
because of their capacity to prosecute government projects and their good record and performance, at
least one of the three petitioners had an ongoing construction project and/or one of the three petitioners’
construction project overlapped that of another.

The denial by petitioners of the existence of a work pool in the company because their projects were not
continuous is amply belied by petitioners themselves who admit that—

All the employees of either of the three petitioners were actually assigned to a particular project to remain
in said project until the completion or termination of that project. However, after the completion of that
particular project or when their services are no longer needed in the project or particular phase of the
project where they were assigned, they were transferred and rehired in another ongoing project.

A work pool may exist although the workers in the pool do not receive salaries and are free to seek other
employment during temporary breaks in the business, provided that the worker shall be available when
called to report for a project.

21. D.M. Consunji, Inc. vs. National Labor Relations Commission

—Project employee is one whose “employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the 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.” This Court has held that the length of service of a project employee is not the
controlling test of employment tenure but whether or not “the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at the time of the
engagement of the employee.”

—At the time of the termination of the private respondents’ employment on March 2, 1993, the
respective periods or terms of employment of private respondents Felipe Barcelona, Consorcio Laspuna
and Rogelio Diaz had already expired. The fact that they were allowed to work for weeks after the
expiration of their contracts would not necessarily show that petitioner had dishonored the contracts.
Indeed, some phases of the project may not have been completed after the estimated one month period
and that their services were still necessary.

Facts:

This case arose from the complaint for illegal dismissal with prayer for reinstatement and payment of full
wages filed by the private respondents.

Private respondents were hired by petitioner as project employees to work on its Cebu Super Block Project
in Cebu City.

Their separate but identical contracts state among others:

You are hired/appointed as project employee as _______________ for an estimated period of

employment for __________________________ in the company’s construction project at Cebu
Superblock.
THE TERMS AND CONDITIONS OF YOUR EMPLOYMENT ARE AS FOLLOWS: The period of employment is
for an estimated period of one month that is for_______________ to ______________ provided that it
shall not extend beyond the duration of the project, or a particular phase thereof, for which you are hired;
subject to the further condition that your services may be sooner terminated should the particular phase
of work for which you are hired be completed earlier or should supervisor find your services unsatisfactory
or for any other justifiable cause. Should there be other construction projects of the company at the time
of your layoff for completion of phase of work, you may request for employment in such other project,
subject to the availability of job vacancy in such other project suited to your skills.

Private respondents’ services were terminated allegedly without regard to the date of termination as
specified in their contracts of employment. Petitioner reported the termination of their services to the
nearest Regional Office of the Department of Labor alleging that the term of the contracts of employment
had expired.

The private respondents then filed their respective complaints for illegal dismissal.

LA: rendered a decision finding the dismissal of the private respondents without just cause and ordering
petitioner to reinstate them to their former positions without loss of benefits and seniority rights and to
pay them as their backwages.

In ruling that the dismissals were illegal, the Labor Arbiter explained that while the private respondents
voluntarily signed the employment contract which fixed the term of their employment, “their dismissal
was not actually based on the expiration of the term of their employment because some of them were
dismissed before the end of the contract and there were those dismissed even long after its expiration.”

The Labor Arbiter, thus, concluded that the contracts of employment of the private respondents should
not be honored because they were made more for breach rather than for observance.

NLRC: The NLRC affirmed the decision of the Labor Arbiter. It ruled that the employment period need not
reach six months in order that the private respondents attain the status of regular employees citing Article
280 of the Labor Code. It agreed with the Labor Arbiter that the private respondents could not be
considered contract workers because they worked even after the expiration of their contracts of
employment.

D.M. Consunji, Inc. appealed to the SC via Rule 65.

Issue:

W/N the respondents were project employees or regular employees?

Held:

PROJECT EMPLOYEES.

Project employee is one whose “employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the 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.”
This Court has held that the length of service of a project employee is not the controlling test of
employment tenure but whether or not “the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the engagement
of the employee.”

Petitioner maintains that the private respondents were project employees since they were hired on a
project-toproject basis. Moreover, private respondents cannot be regular employees because they were
all employed for less than six (6) months such that even assuming that they were not project employees,
they have not attained that status of regular employment.

On the other hand, private respondents claim that they were dismissed from their employment on March
2, 1993 even though the construction project was not yet completed. They also allege that after their
services were terminated, petitioner hired new workers. They argue that their dismissal was effected
without just cause and without due process of law.

We hold that the private respondents are project employees. Their contracts of employment readily show
that the private respondents were employed with respect to a specific project.

The private respondents in this case were workers in a construction project of the petitioner. While
employed with respect to a specific project, the contracts of employment between the private
respondents and the petitioner provide that the former were employed for a term of one (1) month which
was the estimated period for the project to be finished. The private respondents do not even claim to be
regular employees but merely that, as employees at the Cebu Super Block, they were terminated before
the completion of the project without just cause and due process. As project employees, there is no
showing that they were part of the work pool of the petitioner construction company. Hence, in their
memorandum, private respondents admit that “they are not unaware that as project employees their
employment can be terminated upon the completion of the project.”

Examining the standard contracts signed by the private respondents, there are three ways by which their
employment may be terminated: one, the expiration of the one month period, which was the estimated
period for the completion of the project; two, the completion of the project or phase of the project for
which they were engaged prior to the expiration of the one month period; and three, upon the finding of
unsatisfactory services or other just cause. The private respondents admitted before the labor arbiter that
they signed their employment contract voluntarily.16 By this admission, the private respondents
necessarily bound themselves to be employed for a fixed duration knowingly and voluntarily without any
force, duress or improper pressure.

There is no showing that the term fixed was used to preclude acquisition of tenurial security since private
respondents were admittedly employed with respect to a specific project, the Cebu Super Block.
Inescapably, being a valid contract between the private respondents and the petitioner, the provisions
thereof, specifically with respect to the one (1) month period of employment, has the force of law
between the parties.

At the time of the termination of the private respondents’ employment on March 2, 1993, the respective
periods or terms of employment of private respondents Felipe Barcelona, Consorcio Laspuna and Rogelio
Diaz had already expired. The fact that they were allowed to work for weeks after the expiration of their
contracts would not necessarily show that petitioner had dishonored the contracts. Indeed, some phases
of the project may not have been completed after the estimated one month period and that their services
were still necessary.

the other hand, the one month period under the contracts of Alexander Agraviador and Jovencio Mendrez
had not yet expired when their services were terminated on March 2, 1993 considering that the duration
of their contracts was from February 9 to March 9, 1993 with respect to Agraviador, and from February 8
to March 8, 1993 with respect to Mendrez. Petitioner merely claims that all the private respondents were
terminated because of the expiration of the period of the contract.17 Petitioner has not alleged, much
less established, that the premature termination of the services of private respondents Agraviador and
Mendrez was due to the earlier completion of the project or any phase or phases thereof to which they
were assigned/Neither has it been shown that the services of Agraviador and Mendrez were
unsatisfactory. In termination cases, the burden of proving that an employee has been lawfully dismissed
lies with the employer.

REGULAR OR FIXED TERM

26. Price vs. Innodata Phils., Inc.

—After a painstaking review of the arguments and evidences of the parties, the Court finds merit in the
present Petition. There were no valid fixed-term contracts and petitioners were regular employees of the
INNODATA who could not be dismissed except for just or authorized cause. The employment status of a
person is defined and prescribed by law and not by what the parties say it should be.

Equally important to consider is that a contract of employment is impressed with public interest such that
labor contracts must yield to the common good. Thus, provisions of applicable statutes are deemed
written into the contract, and the parties are not at liberty to insulate themselves and their relationships
from the impact of labor laws and regulations by simply contracting with each other.

—Under Article 280 of the Labor Code, the applicable test to determine whether an employment should
be considered regular or non-regular is the reasonable connection between the particular activity
performed by the employee in relation to the usual business or trade of the employer.

In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as formatters. The
primary business of INNODATA is data encoding, and the formatting of the data entered into the
computers is an essential part of the process of data encoding. Formatting organizes the data encoded,
making it easier to understand for the clients and/or the intended end users thereof. Undeniably, the
work performed by petitioners was necessary or desirable in the business or trade of INNODATA.

—Under the Civil Code, fixed-term employment contracts are not limited, as they are under the present
Labor Code, to those by nature seasonal or for specific projects with predetermined dates of completion;
they also include those to which the parties by free choice have assigned a specific date of termination—
the decisive determinant in term employment is the day certain agreed upon by the parties for the
commencement and termination of their employment relationship, a day certain being understood to be
that which must necessarily come, although it may not be known when.

—Fixed-term employment contracts are the exception rather than the general rule.
—Project employees” are those workers hired (1) for a specific project or undertaking, and wherein (2)
the completion or termination of such project has been determined at the time of the engagement of the
employee.

Facts:

Respondent Innodata Philippines, Inc./Innodata Corporation (INNODATA) was a domestic corporation

engaged in the data encoding and data conversion business. It employed encoders, indexers, formatters,
programmers, quality/quantity staff, and others, to maintain its business and accomplish the job orders
of its clients. Respondent Leo Rabang was its Human Resources and Development (HRAD) Manager, while
respondent Jane Navarette was its Project Manager. INNODATA had since ceased operations due to
business losses in June 2002.

Petitioners Cherry J. Price, Stephanie G. Domingo, and Lolita Arbilera were employed as formatters by
INNODATA. The parties executed an employment contract denominated as a “Contract of Employment
for a Fixed Period,” stipulating that the contract shall be for a period of one year.

During their employment as formatters, petitioners were assigned to handle jobs for various clients of
INNODATA, among which were CAS, Retro, Meridian, Adobe, Netlib, PSM, and Earthweb. Once they
finished the job for one client, they were immediately assigned to do a new job for another client.

According to INNODATA, petitioners’ employment already ceased due to the end of their contract.

Petitioners filed a Complaint for illegal dismissal and damages against respondents. Petitioners claimed
that they should be considered regular employees since their positions as formatters were necessary and
desirable to the usual business of INNODATA as an encoding, conversion and data processing company.

LA: issued its Decision finding petitioners’ complaint for illegal dismissal and damages meritorious.

NLRC: The NLRC found that petitioners were not regular employees, but were fixed-term employees as
stipulated in their respective contracts of employment. The NLRC observed that the petitioners freely and
voluntarily entered into the fixed-term employment contracts with INNODATA. Hence, INNODATA was
not guilty of illegal dismissal when it terminated petitioners’ employment upon the expiration of their
contracts on 16 February 2000.

CA: sustained ruling of NLRC not illegal dismissal of employees.

Issue:

W/N petitioners were hired by INNODATA under valid fixed-term employment contracts.

Held:

There were no valid fixed-term contracts and petitioners were regular employees of the INNODATA
who could not be dismissed except for just or authorized cause.
The employment status of a person is defined and prescribed by law and not by what the parties say it
should be. Equally important to consider is that a contract of employment is impressed with public interest
such that labor contracts must yield to the common good. Thus, provisions of applicable statutes are
deemed written into the contract, and the parties are not at liberty to insulate themselves and their
relationships from the impact of labor laws and regulations by simply contracting with each other.

Based on the afore-quoted provision, the following employees are accorded regular status: (1) those who
are engaged to perform activities which are necessary or desirable in the usual business or trade of the
employer, regardless of the length of their employment; and (2) those who were initially hired as casual
employees, but have rendered at least one year of service, whether continuous or broken, with respect
to the activity in which they are employed.

In the case at bar, petitioners were employed by INNODATA on 17 February 1999 as formatters. The
primary business of INNODATA is data encoding, and the formatting of the data entered into the
computers is an essential part of the process of data encoding. Formatting organizes the data encoded,
making it easier to understand for the clients and/or the intended end users thereof. Undeniably, the
work performed by petitioners was necessary or desirable in the business or trade of INNODATA.
However, it is also true that while certain forms of employment require the performance of usual or
desirable functions and exceed one year, these do not necessarily result in regular employment under
Article 280 of the Labor Code.23 Under the Civil Code, fixed-term employment contracts are not limited,
as they are under the present Labor Code, to those by nature seasonal or for specific projects with
predetermined dates of completion; they also include those to which the parties by free choice have
assigned a specific date of termination.

While this Court has recognized the validity of fixedterm employment contracts, it has consistently held
that this is the exception rather than the general rule. More importantly, a fixed-term employment is valid
only under certain circumstances.

27. Brent School vs Zamora

Facts:

Private respondent Doroteo R. Alegre was engaged as athletic director by petitioner Brent School, Inc. at
a yearly compensation of P20,000.00. The contract fixed a specific term for its existence, five (5) years,
i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976. Subsequent subsidiary
agreements dated March 15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms
and conditions, including the expiry date, as those contained in the original contract of July 18, 1971.

On April 20,1976, Alegre was given a copy of the report filed by Brent School with the Department of
Labor advising of the termination of his services effective on July 16, 1976. The stated ground for the
termination was "completion of contract, expiration of the definite period of employment." Although
protesting the announced termination stating that his services were necessary and desirable in the usual
business of his employer, and his employment lasted for 5 years - therefore he had acquired the status of
regular employee - Alegre accepted the amount of P3,177.71, and signed a receipt therefor containing
the phrase, "in full payment of services for the period May 16, to July 17, 1976 as full payment of contract."
The Regional Director considered Brent School's report as an application for clearance to terminate
employment (not a report of termination), and accepting the recommendation of the Labor Conciliator,
refused to give such clearance and instead required the reinstatement of Alegre, as a "permanent
employee," to his former position without loss of seniority rights and with full back wages.

Issue:

Whether or not the provisions of the Labor Code, as amended, have anathematized "fixed period
employment" or employment for a term.

Held:

Respondent Alegre's contract of employment with Brent School having lawfully terminated with and by
reason of the expiration of the agreed term of period thereof, he is declared not entitled to reinstatement.

The employment contract between Brent School and Alegre was executed on July 18, 1971, at a time
when the Labor Code of the Philippines (P.D. 442) had not yet been promulgated. At that time, the validity
of term employment was impliedly recognized by the Termination Pay Law, R.A. 1052, as amended by
R.A. 1787. Prior, thereto, it was the Code of Commerce (Article 302) which governed employment without
a fixed period, and also implicitly acknowledged the propriety of employment with a fixed period. The
Civil Code of the Philippines, which was approved on June 18, 1949 and became effective on August
30,1950, itself deals with obligations with a period. No prohibition against term-or fixed-period
employment is contained in any of its articles or is otherwise deducible therefrom.

It is plain then that when the employment contract was signed between Brent School and Alegre, it was
perfectly legitimate for them to include in it a stipulation fixing the duration thereof Stipulations for a
term were explicitly recognized as valid by this Court.

The status of legitimacy continued to be enjoyed by fixed-period employment contracts under the Labor
Code (PD 442), which went into effect on November 1, 1974. The Code contained explicit references to
fixed period employment, or employment with a fixed or definite period. Nevertheless, obscuration of the
principle of licitness of term employment began to take place at about this time.

Article 320 originally stated that the "termination of employment of probationary employees and those
employed WITH A FIXED PERIOD shall be subject to such regulations as the Secretary of Labor may
prescribe." Article 321 prescribed the just causes for which an employer could terminate "an employment
without a definite period." And Article 319 undertook to define "employment without a fixed period" in
the following manner: …where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except where the employment has
been fixed for a specific project or undertaking the completion or termination of which has been
determined at the time of the engagement of the employee or where the work or service to be performed
is seasonal in nature and the employment is for the duration of the season.
Subsequently, the foregoing articles regarding employment with "a definite period" and "regular"
employment were amended by Presidential Decree No. 850, effective December 16, 1975.

Article 320, dealing with "Probationary and fixed period employment," was altered by eliminating the
reference to persons "employed with a fixed period," and was renumbered (becoming Article 271).

As it is evident that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails
to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly,
but would also appear to restrict, without reasonable distinctions, the right of an employee to freely
stipulate with his employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given a reasonable interpretation, to
preclude absurdity in its application. Outlawing the whole concept of term employment and subverting
to boot the principle of freedom of contract to remedy the evil of employer's using it as a means to prevent
their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more
relevantly, curing a headache by lopping off the head.

Such interpretation puts the seal on Bibiso upon the effect of the expiry of an agreed period of
employment as still good rule—a rule reaffirmed in the recent case of Escudero vs. Office of the President
(G.R. No. 57822, April 26, 1989) where, in the fairly analogous case of a teacher being served by her school
a notice of termination following the expiration of the last of three successive fixed-term employment
contracts, the Court held:
Reyes (the teacher's) argument is not persuasive. It loses sight of the fact that her employment was
probationary, contractual in nature, and one with a definitive period. At the expiration of the period
stipulated in the contract, her appointment was deemed terminated and the letter informing her of the
non-renewal of her contract is not a condition sine qua non before Reyes may be deemed to have ceased
in the employ of petitioner UST. The notice is a mere reminder that Reyes' contract of employment was
due to expire and that the contract would no longer be renewed. It is not a letter of termination.

Paraphrasing Escudero, respondent Alegre's employment was terminated upon the

expiration of his last contract with Brent School on July 16, 1976 without the necessity of any notice. The
advance written advice given the Department of Labor with copy to said petitioner was a mere reminder
of the impending expiration of his contract, not a letter of termination, nor an application for clearance
to terminate which needed the approval of the Department of Labor to make the termination of his
services effective. In any case, such clearance should properly have been given, not denied.

REGULAR OR SEASONAL