Maraguinot, Jr. et. Al., v.

NLRC and Viva Films

Facts:

Petitioner Maraguinot maintains that he was employed by respondents as part of the filming
crew. He was later promoted as an electrician.
Petitioner Paulino Enero, on his part, claims that private respondents employed him in June
1990 as a member of the shooting crew.

Petitioners' tasks consisted of loading, unloading and arranging movie equipment in the
shooting area as instructed by the cameraman, returning the equipment to Viva Films'
warehouse, assisting in the "fixing" of the lighting system, and performing other tasks that the
cameraman and/or director may assign.

Petitioners sought the assistance of their supervisor, Cesario, to facilitate their request that
respondents adjust their salary in accordance with the minimum wage law.

The supervisor informed petitioners that del Rosario would agree to increase their salary only
if they signed a blank employment contract.

As petitioner refused to sign, respondents forced Enero (the other petitioner who worked as a
crew member) to go on leave.

Maraguinot was dropped from the company payroll and was subsequently returned. He was
asked again to sign a black employment contract, and when he still refused, respondent’s
terminated his services. Petitioners thus sued for illegal dismissal.

VIVA Contention:
Private respondents assert that they contract persons called producers to produce or make
movies for private respondents and contend that petitioners are project employees of the
associate producers, who act as independent contractors. Thus, there is no employer-
employee relationship.

However, petitioners cited that their performance of activities is necessary in the usual trade
or business of respondents and their work in continuous. After one project was completed
they were assigned to another project.

Del Rosario is necessarily engaged in such business as he finances the production of movies.
VIVA, on the other hand, alleges that it does not "make" movies, but merely distributes and
exhibits motion pictures.

Enero was employed for a total of two (2) years and engaged in at least eighteen (18)
projects, while petitioner Maraguinot was employed for some three (3) years and worked on
at least twenty-three (23) projects.

Issue/s: Whether or not employer-employee relationship exists between the petitioners and
VIVA Films. [YES]

Held:

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following
conditions are met:

(1) The contractor carries on an independent business and undertakes the contract work on
his own account under his own responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business.

Art. 106. Contractor or subcontractor. — . . .

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 persons 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.

The relationship between VIVA and its producers or associate producers seems to be that of
agency, as the latter make movies on behalf of VIVA, whose business is to "make" movies.
As such, the employment relationship between petitioners and producers is actually
one between petitioners and VIVA, with the latter being the direct employer.

The associate producers in this case have none of these. The movie-making equipment are
supplied to the producers and owned by VIVA. Thus, it is clear that the associate producer
merely leases the equipment from VIVA.

The associate producers of VIVA cannot be considered labor-only contractors as they did not
supply, recruit nor hire the workers. In the instant case, it was Juanita Cesario, Shooting Unit
Supervisor and an employee of VIVA, who recruited crew members from an "available group
of free-lance workers which includes the complainants Maraguinot and Enero."

VIVA's control is evident in its mandate that the end result must be a "quality film acceptable
to the company." The means and methods to accomplish the result are likewise controlled by
VIVA, viz., the movie project must be finished within schedule without exceeding the budget,
and additional expenses must be justified; certain scenes are subject to change to suit the
taste of the company; and the Supervising Producer, the "eyes and ears" of VIVA and del
Rosario, intervenes in the movie-making process by assisting the associate producer in
solving problems encountered in making the film.

They are not under the control of the director. The director merely instructs the petitioners on
how to better comply with VIVA’s requirements to ensure that a quality film is completed
within schedule and without exceeding the budget

A project employee or a member of a work pool may acquire the status of a regular
employee when the following concur:
1) There is a continuous rehiring of project employees even after cessation of a
project;32 and
2) The tasks performed by the alleged "project employee" are vital, necessary and
indispensable to the usual business or trade of the employer.

Control Test

(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 of the employee's conduct, the most important element is
the employer's control of the employee's conduct, not only as to the result of the work to be
done but also as to the means and methods to accomplish the same
Tomas Lao Construction, et. al v. NLRC, et. al.

Facts:

From October to December 1990 private respondents individually filed complaints for illegal
dismissal against petitioners.

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 P260.00/day;
(d) Ernesto Bagatsolon leadman/checker, from June 1982 to October 1990 at P2,800/month;
(e) Salvador Babon, clerk/timekeeper/paymaster, from June 1982 to October 1990 at
P3,200/month;
(f) Paterno Bisnar, road grader operator, from January 1979 to October 1990 at 105/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 on-going 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.

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 Gomez 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
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.

Issue/s: Whether or not employees were project employees. [NO]

Held:

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.

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. Although primarily
applicable to regular seasonal workers, this set-up can likewise be applied to project workers
insofar as the effect of temporary cessation of work is concerned. This is beneficial to both the
employer and employee for it prevents the unjust situation of "coddling labor at the expense of
capital" and at the same time enables the workers to attain the status of regular employees.
Clearly, the continuous rehiring of the same set of employees within the framework of the Lao
Group of Companies is strongly indicative that private respondents were an integral part of a
work pool from which petitioners drew its workers for its various projects.

Moreover, if private respondents were indeed employed as "project employees," petitioners

should have submitted a report of termination to the nearest public employment office every
time their employment was terminated due to completion of each construction project. The
records show that they did not. We have consistently held that failure of the employer to
file termination reports after every project completion proves that the employees are
not project employees.

DP: WHEREFORE, the petition is DENIED and the decision of the National Labor Relations
Commission dated 05 August 1994 is AFFIRMED. Petitioners are ordered to reinstate private
respondents to their former positions without loss of seniority rights and other privileges with
full back wages.
Brent School Inc. v. Ronaldo Zamora

Facts:

The root of the controversy at bar is an employment contract in virtue of which Doroteo R.
Alegre was engaged as athletic director by 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.

Some three months before the expiration of the stipulated period, or more precisely 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." And a month or so later, on May 26, 1976, 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."

However, at the investigation conducted by a Labor Conciliator of said report of termination of

his services, Alegre protested the announced termination of his employment. He argued that
although his contract did stipulate that the same would terminate on July 17, 1976, since his
services were necessary and desirable in the usual business of his employer, and his
employment had lasted for five years, he had acquired the status of a regular employee
and could not be removed except for valid cause. 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. The Director
pronounced "the ground relied upon by the respondent (Brent) in terminating the services of
the complainant (Alegre) . . . (as) not sanctioned by P.D. 442," and, quite oddly, as prohibited
by Circular No. 8, series of 1969, of the Bureau of Private Schools.

Brent School filed a motion for reconsideration. The Regional Director denied the motion and
forwarded the case to the Secretary of Labor for review. The latter sustained the Regional
Director. Brent appealed to the Office of the President. Again it was rebuffed. That Office
dismissed its appeal for lack of merit and affirmed the Labor Secretary's decision, ruling that
Alegre was a permanent employee who could not be dismissed except for just cause, and
expiration of the employment contract was not one of the just causes provided in the Labor
Code for termination of services.

The School is now before this Court in a last attempt at vindication. That it will get here.

Issue/s:

Whether or not the provisions of the Labor Code, as amended, have anathematized "fixed
period employment" or employment for a term. [NO]

Whether or not Alegre should be treated as a regular employee. [NO]

Held:

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.
Indeed, the Code did not come into effect until November 1, 1974, some three years after the
perfection of the employment contract, and rights and obligations thereunder had arisen and
been mutually observed and enforced.

At that time, i.e., before the advent of the Labor Code, there was no doubt whatever about the
validity of term employment. It was impliedly but nonetheless clearly recognized by the
Termination Pay Law, R.A. 1052, as amended by R.A. 1787. Basically, this statute provided
that—

In cases of employment, without a definite period, in a commercial, industrial, or agricultural

establishment or enterprise, the employer or the employee may terminate at any time the
employment with just cause; or without just cause in the case of an employee by serving
written notice on the employer at least one month in advance, or in the case of an employer,
by serving such notice to the employee at least one month in advance or one-half month for
every year of service of the employee, whichever is longer, a fraction of at least six months
being considered as one whole year.

The employer, upon whom no such notice was served in case of termination of employment
without just cause, may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of employment
without just cause, shall be entitled to compensation from the date of termination of his
employment in an amount equivalent to his salaries or wages corresponding to the required
period of notice.

There was, to repeat, clear albeit implied recognition of the licitness of term employment. RA
1787 also enumerated what it considered to be just causes for terminating an
employment without a definite period, either by the employer or by the employee without
incurring any liability therefor.

Prior, thereto, it was the Code of Commerce which governed employment without a fixed
period, and also implicitly acknowledged the propriety of employment with a fixed period. Its
Article 302 provided that —

In cases in which the contract of employment does not have a fixed period, any of the parties
may terminate it, notifying the other thereof one month in advance.

The factor or shop clerk shall have a right, in this case, to the salary corresponding to said
month.

The salary for the month directed to be given by the said Article 302 of the Code of
Commerce to the factor or shop clerk, was known as the mesada (from mes, Spanish for
"month"). When Article 302 (together with many other provisions of the Code of Commerce)
was repealed by the Civil Code of the Philippines, Republic Act No. 1052 was enacted
avowedly for the precise purpose of reinstating the mesada.

Now, 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 in section 2, Chapter 3,
Title I, Book IV; and with contracts of labor and for a piece of work, in Sections 2 and 3,
Chapter 3, Title VIII, respectively, of Book IV. 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 on July 18, 1971, 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 Thompson case involved an executive who had been engaged for a fixed period of
three (3) years. Biboso involved teachers in a private school as regards whom, the following
pronouncement was made:
What is decisive is that petitioners (teachers) were well aware an the time that their tenure
was for a limited duration. Upon its termination, both parties to the employment relationship
were free to renew it or to let it lapse. (p. 254)

Under American law 15 the principle is the same. "Where a contract specifies the period of its
duration, it terminates on the expiration of such period." 16 "A contract of employment for a
definite period terminates by its own terms at the end of such period." 17

The status of legitimacy continued to be enjoyed by fixed-period employment

contracts under the Labor Code (Presidential Decree No. 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, entitled "Probationary and fixed period employment," 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." The
asserted objective to was "prevent the circumvention of the right of the employee to be
secured in their employment as provided . . . (in the Code)."

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:

An employment shall be deemed to be without a definite period for purposes of this Chapter
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.

The question immediately provoked by a reading of Article 319 is whether or not a voluntary
agreement on a fixed term or period would be valid where the employee "has been
engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer." The definition seems a non sequitur. From the premise
— that the duties of an employee entail "activities which are usually necessary or desirable in
the usual business or trade of the employer the" — conclusion does not necessarily follow
that the employer and employee should be forbidden to stipulate any period of time for the
performance of those activities. There is nothing essentially contradictory between a definite
period of an employment contract and the nature of the employee's duties set down in that
contract as being "usually necessary or desirable in the usual business or trade of the
employer." The concept of the employee's duties as being "usually necessary or desirable
in the usual business or trade of the employer" is not synonymous with or identical to
employment with a fixed term. Logically, the decisive determinant in term employment
should not be the activities that the employee is called upon to perform, but 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." Seasonal employment, and employment for a
particular project are merely instances employment in which a period, where not expressly set
down, necessarily implied.

Of course, the term — period has a definite and settled signification. It means, "Length of
existence; duration. A point of time marking a termination as of a cause or an activity; an end,
a limit, a bound; conclusion; termination. A series of years, months or days in which
something is completed. A time of definite length. . . . the period from one fixed date to
another fixed date . . ." 20 It connotes a "space of time which has an influence on an obligation
as a result of a juridical act, and either suspends its demandableness or produces its
extinguishment." 21 It should be apparent that this settled and familiar notion of a period, in the
context of a contract of employment, takes no account at all of the nature of the duties of the
employee; it has absolutely no relevance to the character of his duties as being "usually
necessary or desirable to the usual business of the employer," or not.

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). The article 22 now reads:

. . . Probationary employment.—Probationary employment shall not exceed six months from

the date the employee started working, unless it is covered by an apprenticeship agreement
stipulating a longer period. The services of an employee who has been engaged in a
probationary basis may be terminated for a just cause or when he fails to qualify as a regular
employee in accordance with reasonable standards made known by the employer to the
employee at the time of his engagement. An employee who is allowed to work after a
probationary period shall be considered a regular employee.

Also amended by PD 850 was Article 319 (entitled "Employment with a fixed period," supra)
by (a) deleting mention of employment with a fixed or definite period, (b) adding a general
exclusion clause declaring irrelevant written or oral agreements "to the contrary," and (c)
making the provision treat exclusively of "regular" and "casual" employment. As revised, said
article, renumbered 270, now reads:

. . . Regular and Casual Employment.—The provisions of written agreement to the contrary

notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular 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 employed is seasonal in nature and the employment is for the
duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: provided, that, 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
actually exists.

The first paragraph is identical to Article 319 except that, as just mentioned, a clause has
been added, to wit: "The provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreements of the parties . . ." The clause would appear to be
addressed inter alia to agreements fixing a definite period for employment. There is withal no
clear indication of the intent to deny validity to employment for a definite period. Indeed, not
only is the concept of regular employment not essentially inconsistent with employment for a
fixed term, as above pointed out, Article 272 of the Labor Code, as amended by said PD 850,
still impliedly acknowledged the propriety of term employment: it listed the "just causes" for
which "an employer may terminate employment without a definite period," thus giving
rise to the inference that if the employment be with a definite period, there need be no just
cause for termination thereof if the ground be precisely the expiration of the term agreed upon
by the parties for the duration of such employment.

Still later, however, said Article 272 (formerly Article 321) was further amended by Batas
Pambansa Bilang 130, 24 to eliminate altogether reference to employment without a definite
period. As lastly amended, the opening lines of the article (renumbered 283), now pertinently
read: "An employer may terminate an employment for any of the following just causes: .
. . " BP 130 thus completed the elimination of every reference in the Labor Code, express or
implied, to employment with a fixed or definite period or term.

It is in the light of the foregoing description of the development of the provisions of the Labor
Code bearing on term or fixed-period employment that the question posed in the opening
paragraph of this opinion should now be addressed. Is it then the legislative intention to
outlaw stipulations in employment contracts laying down a definite period therefor?
Are such stipulations in essence contrary to public policy and should not on this
account be accorded legitimacy?

On the one hand, there is the gradual and progressive elimination of references to term or
fixed-period employment in the Labor Code, and the specific statement of the rule 25 that—

. . . Regular and Casual Employment.— The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be
deemed to be regular 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 employed is seasonal in nature and the employment is for the
duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: provided, that, 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
actually exists.

There is, on the other hand, the Civil Code, which has always recognized, and continues to
recognize, the validity and propriety of contracts and obligations with a fixed or definite period,
and imposes no restraints on the freedom of the parties to fix the duration of a contract,
whatever its object, be it specie, goods or services, except the general admonition against
stipulations contrary to law, morals, good customs, public order or public policy. 26 Under the
Civil Code, therefore, and as a general proposition, 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 pre-determined dates of completion; they also include those to which the parties
by free choice have assigned a specific date of termination.

Some familiar examples may be cited of employment contracts which may be neither for
seasonal work nor for specific projects, but to which a fixed term is an essential and natural
appurtenance: overseas employment contracts, for one, to which, whatever the nature of
the engagement, the concept of regular employment will all that it implies does not appear
ever to have been applied, Article 280 of the Labor Code not withstanding; also
appointments to the positions of dean, assistant dean, college secretary, principal, and
other administrative offices in educational institutions, which are by practice or tradition
rotated among the faculty members, and where fixed terms are a necessity, without which
no reasonable rotation would be possible. Similarly, despite the provisions of Article 280,
Policy, Instructions No. 8 of the Minister of Labor 27 implicitly recognize that certain company
officials may be elected for what would amount to fixed periods, at the expiration of which
they would have to stand down, in providing that these officials," . . . may lose their jobs as
president, executive vice-president or vice-president, etc. because the stockholders or the
board of directors for one reason or another did not re-elect them."

There can of course be no quarrel with the proposition that where from the circumstances it is
apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as contrary to public policy, morals, etc.
But where no such intent to circumvent the law is shown, or stated otherwise, where the
reason for the law does not exist, e.g., where it is indeed the employee himself who insists
upon a period or where the nature of the engagement is such that, without being seasonal or
for a specific project, a definite date of termination is a sine qua non, would an agreement
fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement
come within the scope of Article 280 which admittedly was enacted "to prevent the
circumvention of the right of the employee to be secured in . . . (his) employment?"

As it is evident from even only the three examples already given 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.

It is a salutary principle in statutory construction that there exists a valid presumption that
undesirable consequences were never intended by a legislative measure, and that a
construction of which the statute is fairly susceptible is favored, which will avoid all
objectionable mischievous, undefensible, wrongful, evil and injurious consequences. 28

Nothing is better settled than that courts are not to give words a meaning which would
lead to absurd or unreasonable consequences. That is a principle that does back to In re
Allen decided oil October 27, 1903, where it was held that a literal interpretation is to be
rejected if it would be unjust or lead to absurd results. That is a strong argument against
its adoption. The words of Justice Laurel are particularly apt. Thus: "The fact that the
construction placed upon the statute by the appellants would lead to an absurdity is another
argument for rejecting it. . . ." 29

. . . We have, here, then a case where the true intent of the law is clear that calls for the
application of the cardinal rule of statutory construction that such intent of spirit must prevail
over the letter thereof, for whatever is within the spirit of a statute is within the statute, since
adherence to the letter would result in absurdity, injustice and contradictions and would defeat
the plain and vital purpose of the statute. 30

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.

WHEREFORE, the public respondent's Decision complained of is REVERSED and SET

ASIDE. 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 and the other relief awarded and confirmed on appeal in
the proceedings below. No pronouncement as to costs.
Cherry J. Price, et al. v. INNODATA Phils. Inc., et al.

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, to wit:

“The EMPLOYER hereby employs, engages and hires the EMPLOYEE and the EMPLOYEE
hereby accepts such appointment as FORMATTER effective FEB. 16, 1999 to FEB. 16, 2000
a period of ONE YEAR.”

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. Petitioners finally argued that they could
not be considered project employees considering that their employment was not coterminous
with any project or undertaking, the termination of which was predetermined.

RESPONDENT: explained that INNODATA was engaged in the business of data processing,
typesetting, indexing, and abstracting for its foreign clients. Due to the wide range of services
rendered to its clients, INNODATA was constrained to hire new employees for a fixed period
of not more than one year. Respondents asserted that petitioners were not illegally dismissed,
for their employment was terminated due to the expiration of their terms of employment.
Respondents further argued that petitioners were estopped from asserting a position contrary
to the contracts which they had knowingly, voluntarily, and willfully agreed to or entered into.
There being no illegal dismissal, respondents likewise maintained that petitioners were not
entitled to reinstatement and backwages.

1st ISSUE: Whether or not the petitioners are regular employees hence illegally dismissed

HELD: YES

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.
The following employees are accorded regular status according to Article 280 of the Labor
Code: (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.

Undoubtedly, petitioners belong to the first type of regular employees.

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.

2nd ISSUE: Whether or not the contract entered into by petitioners with INNODATA was a
valid fixed-term employment contract

HELD: NO

While this Court has recognized the validity of fixed-term 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. In Brent, the very same
case invoked by respondents, the Court identified several circumstances wherein a fixed-
term is an essential and natural appurtenance, to wit:

Some familiar examples may be cited of employment contracts which may be neither for
seasonal work nor for specific projects, but to which a fixed term is an essential and natural
appurtenance: overseas employment contracts, also appointments to the positions of dean,
assistant dean, college secretary, principal, and other administrative offices in educational
institutions. Similarly, despite the provisions of Article 280, Policy Instructions No. 8 of the
Minister of Labor implicitly recognize that certain company officials may be elected for what
would amount to fixed periods, at the expiration of which they would have to stand down, in
providing that these officials, "x x may lose their jobs as president, executive vice-president or
vice president, etc. because the stockholders or the board of directors for one reason or
another did not reelect them."

After considering petitioners’ contracts in their entirety, as well as the circumstances

surrounding petitioners’ employment at INNODATA, the Court is convinced that the terms
fixed therein were meant only to circumvent petitioners’ right to security of tenure and are,
therefore, invalid.

Nonetheless, the Court emphasizes that it has already found that petitioners should be
considered regular employees of INNODATA by the nature of the work they performed as
formatters, which was necessary in the business or trade of INNODATA. Hence, the total
period of their employment becomes irrelevant.

3rd ISSUE: Whether or not petitioners were project employees

HELD: NO
The Court defined "project employees" as 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.

Scrutinizing petitioners’ employment contracts with INNODATA, however, failed to reveal any
mention therein of what specific project or undertaking petitioners were hired for. Although the
contracts made general references to a "project," such project was neither named nor
described at all therein. The one-year period for which petitioners were hired was simply fixed
in the employment contracts without reference or connection to the period required for the
completion of a project. More importantly, there is also a dearth of evidence that such project
or undertaking had already been completed or terminated to justify the dismissal of
petitioners. In fact, petitioners alleged - and respondents failed to dispute that petitioners did
not work on just one project, but continuously worked for a series of projects for various
clients of INNODATA.

4th ISSUE: Whether or not respondent violated the petitioner’s security of tenure

HELD: YES

Pursuant to the contract, petitioners have no right at all to expect security of tenure, even for
the supposedly one-year period of employment provided in their contracts, because they can
still be pre-terminated (1) upon the completion of an unspecified project; or (2) with or without
cause, for as long as they are given a three-day notice. Such contract provisions are
repugnant to the basic tenet in labor law that no employee may be terminated except for just
or authorized cause.

Under Section 3, Article XVI of the Constitution, it is the policy of the State to assure the
workers of security of tenure and free them from the bondage of uncertainty of tenure woven
by some employers into their contracts of employment. This was exactly the purpose of the
legislators in drafting Article 280 of the Labor Code – to prevent the circumvention by
unscrupulous employers of the employee’s right to be secure in his tenure by indiscriminately
and completely ruling out all written and oral agreements inconsistent with the concept of
regular employment.

By virtue of the foregoing, an illegally dismissed employee is entitled to reinstatement without

loss of seniority rights and other privileges, with full back wages computed from the time of
dismissal up to the time of actual reinstatement.

Considering that reinstatement is no longer possible on the ground that INNODATA had
ceased its operations in June 2002 due to business losses, the proper award is separation
pay equivalent to one month pay for every year of service, to be computed from the
commencement of their employment up to the closure of INNODATA.

DP: WHEREFORE, the Petition for Review on Certiorari is GRANTED. The Decision dated 25
September 2006 and Resolution dated 15 June 2007 of the Court of Appeals in CA-G.R. SP
No. 72795are hereby REVERSED and SET ASIDE. RespondentInnodata Philippines,
Inc./Innodata Corporation is ORDERED to pay petitioners Cherry J. Price, Stephanie G.
Domingo, and Lolita Arbilera: (a) separation pay, in lieu of reinstatement, equivalent to one
month pay for every year of service, to be computed from the commencement of their
employment up to the date respondent Innodata Philippines, Inc./Innodata Corporation
ceased operations; (b) full backwages, computed from the time petitioners’ compensation was
withheld from them up to the time respondent Innodata Philippines, Inc./Innodata Corporation
ceased operations; and (3) 10% of the total monetary award as attorney’s fees. Costs against
respondent Innodata Philippines, Inc./Innodata Corporation.
Lynvil Fishing Enterprises Inc. v. Ariola

Facts:

The version of the petitioners follows:

1. Lynvil Fishing Enterprises, Inc. (Lynvil) is a company engaged in deep-sea fishing,

operating along the shores of Palawan and other outlying islands of the Philippines. It is
operated and managed by Rosendo S. de Borja.

2. On 1 August 1998, Lynvil received a report from Romanito Clarido, one of its employees,
that on 31 July 1998, he witnessed that while on board the company vessel Analyn VIII, Lynvil
employees conspired with one another and stole eight (8) tubs of "pampano" and "tangigue"
fish and delivered them to another vessel, to the prejudice of Lynvil.

3. The said employees were engaged on a per trip basis or "por viaje" which terminates at the
end of each trip. Ariola, Alcovendas and Calinao were managerial field personnel while the
rest of the crew were field personnel.

4. By reason of the report and after initial investigation, Lynvil’s General Manager Rosendo S.
De Borja (De Borja) summoned respondents to explain within five (5) days why they should
not be dismissed from service. However, except for Alcovendas and Bañez,7 the respondents
refused to sign the receipt of the notice.

5. Failing to explain as required, respondents’ employment was terminated.

7. On 12 November 1998, First Assistant City Prosecutor Rosauro Silverio found probable
cause for the indictment of the dismissed employees for the crime of qualified theft under the
Revised Penal Code.

On the other hand, the story of the defense is:

The following day, the private respondents reported back to Lynvil office to inquire about their
new job assignment but were told to wait for further advice. They were not allowed to board
any vessel.

3. On 5 August 1998, only Alcovendas and Bañez received a memorandum from De Borja
ordering them to explain the incident that happened on 31 July 1998. Upon being informed
about this, Ariola, Calinao, Nubla and Sebullen went to the Lynvil office. However, they were
told that their employments were already terminated.

Aggrieved, the employees filed with the Arbitration Branch of the National Labor Relations
Commission-National Capital Region on 25 August 1998 a complaint for illegal dismissal with
claims for backwages, salary differential reinstatement, service incentive leave, holiday pay
and its premium and 13th month pay from 1996 to 1998. They also claimed for moral,
exemplary damages and attorney’s fees for their dismissal with bad faith.14

They added that the unwarranted accusation of theft stemmed from their oral demand of
increase of salaries three months earlier and their request that they should not be required to
sign a blank payroll and vouchers.

On 5 June 2002, Labor Arbiter Ramon Valentin C. Reyes found merit in complainants’ charge
of illegal dismissal.
Lynvil contends that the filing of a criminal case before the Office of the Prosecutor is
sufficient basis for a valid termination of employment based on serious misconduct and/or
loss of trust and confidence.

Issue/s: Whether or not the respondents were illegally dismissed. [NO]

Held:

Lynvil cannot argue that since the Office of the Prosecutor found probable cause for theft the
Labor Arbiter must follow the finding as a valid reason for the termination of respondents’
employment. The proof required for purposes that differ from one and the other are likewise
different.

Nonetheless, even without reliance on the prosecutor’s finding, we find that there was
valid cause for respondents’ dismissal.

In illegal dismissal cases, the employer bears the burden of proving that the termination was
for a valid or authorized cause.

Just cause is required for a valid dismissal. The Labor Code35 provides that an employer may
terminate an employment based on fraud or willful breach of the trust reposed on the
employee. Such breach is considered willful if it is done intentionally, knowingly, and
purposely, without justifiable excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently. It must also be based on substantial evidence and
not on the employer’s whims or caprices or suspicions otherwise, the employee would
eternally remain at the mercy of the employer. Loss of confidence must not be
indiscriminately used as a shield by the employer against a claim that the dismissal of an
employee was arbitrary. And, in order to constitute a just cause for dismissal, the act
complained of must be work-related and shows that the employee concerned is unfit to
continue working for the employer. In addition, loss of confidence as a just cause for
termination of employment is premised on the fact that the employee concerned holds a
position of responsibility, trust and confidence or that the employee concerned is entrusted
with confidence with respect to delicate matters, such as the handling or care and protection
of the property and assets of the employer. The betrayal of this trust is the essence of the
offense for which an employee is penalized.36

Breach of trust is present in this case.

We agree with the ruling of the Labor Arbiter and Court of Appeals that the quantity of tubs
expected to be received was the same as that which was loaded. However, what is material is
the kind of fish loaded and then unloaded. Sameness is likewise needed.

We cannot close our eyes to the positive and clear narration of facts of the three witnesses to
the commission of qualified theft. Jonathan Distajo, a crew member of the Analyn VIII, stated
in his letter addressed to De Borja37 dated 8 August 1998, that while the vessel was traversing
San Nicolas, Cavite, he saw a small boat approach them. When the boat was next to their
vessel, Alcovendas went inside the stockroom while Sebullen pushed an estimated four tubs
of fish away from it. Ariola, on the other hand, served as the lookout and negotiator of the
transaction.

The second to the fifth assignment of errors interconnect.

Lynvil contends that it cannot be guilty of illegal dismissal because the private respondents
were employed under a fixed-term contract which expired at the end of the voyage.

Lynvil insists on the applicability of the case of Brent School.

Contrarily, the private respondents contend that they became regular employees by reason of
their continuous hiring and performance of tasks necessary and desirable in the usual trade
and business of Lynvil.

Jurisprudence,42 laid two conditions for the validity of a fixed-contract agreement between the
employer and employee:

First, the fixed period of employment was knowingly and voluntarily agreed upon by the
parties without any force, duress, or improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating his consent; or

Second, it satisfactorily appears that the employer and the employee dealt with each other on
more or less equal terms with no moral dominance exercised by the former or the latter.43

Textually, the provision that: "NA ako ay sumasang-ayon na maglingkod at gumawa ng mga
gawain sang-ayon sa patakarang "por viaje" na magmumula sa pagalis sa Navotas papunta
sa pangisdaan at pagbabalik sa pondohan ng lantsa sa Navotas, Metro Manila" is for a fixed
period of employment. In the context, however, of the facts that: (1) the respondents were
doing tasks necessarily to Lynvil’s fishing business with positions ranging from captain of the
vessel to bodegero; (2) after the end of a trip, they will again be hired for another trip with new
contracts; and (3) this arrangement continued for more than ten years, the clear intention is to
go around the security of tenure of the respondents as regular employees.

Having found that respondents are regular employees who may be, however, dismissed
for cause as we have so found in this case, there is a need to look into the procedural
requirement of due process in Section 2, Rule XXIII, Book V of the Rules Implementing the
Labor Code. It is required that the employer furnish the employee with two written notices: (1)
a written notice served on the employee specifying the ground or grounds for termination, and
giving to said employee reasonable opportunity within which to explain his side; and (2) a
written notice of termination served on the employee indicating that upon due consideration of
all the circumstances, grounds have been established to justify his termination.

From the records, there was only one written notice which required respondents to explain
within five (5) days why they should not be dismissed from the service. What is clear is that
no final written notice or notices of termination were sent to the employees.

The twin requirements of notice and hearing constitute the elements of [due] process in cases
of employee's dismissal. The requirement of notice is intended to inform the employee
concerned of the employer's intent to dismiss and the reason for the proposed dismissal.
Upon the other hand, the requirement of hearing affords the employee an opportunity to
answer his employer's charges against him and accordingly, to defend himself therefrom
before dismissal is effected.44 Obviously, the second written notice, as indispensable as the
first, is intended to ensure the observance of due process.

Applying the rule to the facts at hand, we grant a monetary award of ₱50,000.00 as nominal
damages.

Given the fact that their dismissal was for just cause, we cannot grant backwages and
separation pay to respondents. However, following the findings of the Labor Arbiter who
with the expertise presided over the proceedings below, which findings were affirmed by the
Court of Appeals, we grant the 13th month pay and salary differential of the dismissed
employees.

DP: WHEREFORE, the petition is partially GRANTED. The 10 September 2007 Decision of
the Court of Appeals in CA-G.R. SP No. 95094 reversing the Resolution dated 31 March 2004
of the National Labor Relations Commission is hereby MODIFIED. The Court hereby rules
that the employees were dismissed for just cause by Lynvil Fishing Enterprises, Inc. and
Rosendo S. De Borja, hence, the reversal of the award for backwages and separation pay.
However, we affirm the award for 13th month pay, salary differential and grant an additional
₱50,000.00 in favor of the employees representing nominal damages for petitioners’ non-
compliance with statutory due process. No cost.
Pure Foods Corporation v. National Labor Relations Commission, et al.

Article 280 of the Labor Code defines regular and casual employment as follows:

Art. 280. Regular and Casual Employment. — The provisions of written agreement to
the contrary notwithstanding and regardless of the oral argument of the parties, an
employment shall be deemed to be regular 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 services to be
performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph; Provided, That, 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.

Brent ruling also laid down the criteria under which term employment cannot be said to be in
circumvention of the law on security of tenure:

1) The fixed period of employment was knowingly and voluntarily agreed upon by the parties
without any force, duress, or improper pressure being brought to bear upon the employee and
absent any other circumstances vitiating his consent; or

2) It satisfactorily appears that the employer and the employee dealt with each other on more
or less equal terms with no moral dominance exercised by the former over the latter.

Facts:

The private respondents (numbering 906) were hired by petitioner Pure Foods Corporation to
work for a fixed period of five months at its tuna cannery plant.

After the expiration of their respective contracts, their services were terminated. They
forthwith executed a "Release and Quitclaim" stating that they had no claim whatsoever
against the petitioner.

Private respondents then filed before the NLRC a complaint for illegal dismissal against the
petitioner.

The Labor Arbiter dismissed the complaint on the basis that private respondents were mere
contractual workers, and not regular employees; hence, they could not avail of the law
on security of tenure. Termination of their services by reason of the expiration of their
contracts was justified. Further, by executing a "Release and Quitclaim," the private
respondents had waived and relinquished whatever right they might have against the
petitioner.

Private respondents appealed the decision to the NLRC. LA’s decision was affirmed.

On motion for reconsideration, NLRC reversed their decision and held that private
respondents were regular employees. It declared that the contract of employment for five
months was a "clandestine scheme employed by [the petitioner] to stifle [private respondents']
right to security of tenure" and should therefore be struck down and disregarded for being
contrary to law, public policy, and morals. Hence, their dismissal on account of the expiration
of their respective contracts was illegal.
The NLRC ordered the petitioner to reinstate the private respondents to their former position
without loss of seniority rights and other privileges, with full back wages; and in case their
reinstatement would no longer be feasible, the petitioner should pay them separation pay
equivalent to one-month pay or one-half-month pay for every year of service, whichever is
higher, with back wages and 10% of the monetary award as attorney's fees.

Pure Foods Corp filed a motion for reconsideration but it was denied. Thus, this petition for
certiorari imputing that NLRC committed grave abuse of discretion in reversing the decision of
the LA

Pure Food Corps position: Private respondents are estopped from questioning their
separation in view of their express conformity with the five-month duration of their
employment contracts. Besides, they fall within the exception provided in Article 280 of
the Labor Code which reads: "[E]xcept 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." Moreover, the first
paragraph of the said article must be read and interpreted in conjunction with the proviso in
the second paragraph, which reads: "Provided that 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 . . ." In
the instant case, the private respondents were employed for a period of five months
only. In any event, private respondents' prayer for reinstatement is well within the purview of
the "Release and Quitclaim" they had executed wherein they unconditionally released the
petitioner from any and all other claims which might have arisen from their past employment
with the petitioner.

OSG’s contention: Private respondents were regular employees, since they performed
activities necessary and desirable in the business or trade of the petitioner. The period
of employment stipulated in the contracts of employment was null and void for being contrary
to law and public policy, as its purpose was to circumvent the law on security of tenure. The
expiration of the contract did not, therefore, justify the termination of their employment.

Issue/s: Whether or not the employees should be treated as regular employees. [YES]

Held:

Private employees are regular employees.

Thus, the two kinds of regular employees are (1) those who are engaged to perform
activities which are necessary or desirable in the usual business or trade of the employer; and
(2) those casual employees who have rendered at least one year of service, whether
continuous or broken, with respect to the activity in which they are employed.

Private respondents' activities (receiving, skinning, loining, packing, and casing-up of tuna
fish) were necessary and desirable in petitioner's business or trade.

Private respondents could not be regarded as having been hired for a specific project or
undertaking. The term "specific project or undertaking" under Article 280 contemplates an
activity which is not commonly or habitually performed or such type of work which is
not done on a daily basis but only for a specific duration of time or until completion;
the services employed are then necessary and desirable in the employer's usual business
only for the period of time it takes to complete the project.

The fact that the petitioner repeatedly and continuously hired workers to do the same kind of
work as that performed by those whose contracts had expired negates petitioner's contention
that those workers were hired for a specific project or undertaking only.

On the legality of the 5 month contract

In Brent School, Inc. v. Zamora, this Court has upheld the legality of fixed-term employment. It
ruled that the decisive determinant in term employment should not be the activities that
the employee is called upon to perform but the day certain agreed upon by the parties for
the commencement and termination of their employment relationship. However, where
from the circumstances it is apparent that the periods have been imposed to preclude
acquisition of tenurial security by the employee, they should be struck down or
disregarded as contrary to public policy and morals.

None of these criteria had been met in the present case. As pointed out by the private
respondents:

[I]t could not be supposed that private respondents and all other so-called "casual"
workers of [the petitioner] KNOWINGLY and VOLUNTARILY agreed to the 5-month
employment contract. Cannery workers are never on equal terms with their
employers. Almost always, they agree to any terms of an employment contract just to
get employed considering that it is difficult to find work given their ordinary
qualifications. Their freedom to contract is empty and hollow because theirs is the
freedom to starve if they refuse to work as casual or contractual workers. Indeed, to
the unemployed, security of tenure has no value. It could not then be said that
petitioner and private respondents "dealt with each other on more or less equal terms
with no moral dominance whatever being exercised by the former over the latter.

The petitioner does not deny or rebut private respondents' averments (1) that the main bulk of
its workforce consisted of its so-called "casual" employees; (2) that as of July 1991, "casual"
workers numbered 1,835; and regular employee, 263; (3) that the company hired "casual"
every month for the duration of five months, after which their services were terminated and
they were replaced by other "casual" employees on the same five-month duration; and (4)
that these "casual" employees were actually doing work that were necessary and desirable in
petitioner's usual business.

It was really the practice of the company to hire workers on a uniformly fixed contract
basis and replace them upon the expiration of their contracts.

This scheme of the petitioner was apparently designed to prevent the private respondents
and the other "casual" employees from attaining the status of a regular employee. It was a
clear circumvention of the employees' right to security of tenure and to other benefits
like minimum wage, cost-of-living allowance, sick leave, holiday pay, and 13th month pay.

The five-month period specified in private respondents' employment contracts having been
imposed precisely to circumvent the constitutional guarantee on security of tenure should,
therefore, be struck down or disregarded as contrary to public policy or morals.

Effect of Release and Quitclaim

The execution by the private respondents of a "Release and Quitclaim" did not preclude them
from questioning the termination of their services. Generally, quitclaims by laborers are
frowned upon as contrary to public policy and are held to be ineffective to bar recovery
for the full measure of the workers' rights. The reason for the rule is that the employer and
the employee do not stand on the same footing.

DP: WHEREFORE, for lack of merit, the instant petition is DISMISSED and the challenged
decision of 30 January 1995 of the National Labor Relations Commission in NLRC CA No. N-
001323-93 is hereby AFFIRMED subject to the above modification on the computation of the
separation pay and back wages.
Universal Robina Sugar Milling Corporation and Rene Cabati v. Acibo

Facts:

URSUMCO is a domestic corporation engaged in the sugar cane milling business; Cabati is
URSUMCO’s Business Unit General Manager.

The complainants were employees of URSUMCO. They were hired on various dates
(between February 1988 and April 1996) and on different capacities, i.e., drivers, crane
operators, bucket hookers, welders, mechanics, laboratory attendants and aides, steel
workers, laborers, carpenters and masons, among others. At the start of their respective
engagements, the complainants signed contracts of employment for a period of one (1) month
or for a given season. URSUMCO repeatedly hired the complainants to perform the same
duties and, for every engagement, required the latter to sign new employment contracts for
the same duration of one month or a given season.

On August 23, 2002, the complainants filed before the LA complaints for regularization,
entitlement to the benefits under the existing Collective Bargaining Agreement (CBA), and
attorney’s fees.

The Ruling of the CA

In its November 29, 2007 decision,14 the CA granted in part the petition; it affirmed the
NLRC’s ruling finding the complainants to be regular employees of URSUMCO, but deleted
the grant of monetary benefits under the CBA.

Hence, this petition. The petitioners maintain that the respondents are contractual or
project/seasonal workers and not regular employees of URSUMCO. They thus argue that the
CA erred in applying the legal parameters and guidelines for regular employment to the
respondents’ case. They contend that the legal standards – length of the employee’s
engagement and the desirability or necessity of the employee’s work in the usual trade or
business of the employer – apply only to regular employees under paragraph 1, Article 280 of
the Labor Code, and, under paragraph 2 of the same article, to casual employees who are
deemed regular by their length of service.

The respondents, the petitioners point out, were specifically engaged for a fixed and
predetermined duration of, on the average, one (1) month at a time that coincides with a
particular phase of the company’s business operations or sugar milling season. By the nature
of their engagement, the respondents’ employment legally ends upon the end of the
predetermined period; thus, URSUMCO was under no legal obligation to rehire the
respondents.

In their comment,18 the respondents maintain that they are regular employees of URSUMCO.
Relying on the NLRC and the CA rulings, they point out that they have been continuously
working for URSUMCO for more than one year, performing tasks which were necessary and
desirable to URSUMCO’s business. Hence, under the above-stated legal parameters, they
are regular employees.

Issue/s:

Whether or not the respondents are contractual or project/seasonal employees. [NO; They
are regular seasonal employees.]

Whether or not they are entitled to the CBA benefits. [NO]

Held:
We resolve to partially GRANT the petition.

On the issue of the status of the respondents’ employment

We disagree with the petitioners’ position. We find the respondents to be regular seasonal
employees of URSUMCO.

Where the circumstances evidently show that the employer imposed the period precisely to
preclude the employee from acquiring tenurial security, the law and this Court will not hesitate
to strike down or disregard the period as contrary to public policy, morals, etc. In such a case,
the general restrictive rule under Article 280 of the Labor Code will apply and the employee
shall be deemed regular.

Clearly, therefore, the nature of the employment does not depend solely on the will or word of
the employer or on the procedure for hiring and the manner of designating the employee.
Rather, the nature of the employment depends on the nature of the activities to be performed
by the employee, considering the nature of the employer’s business, the duration and scope
to be done, and, in some cases, even the length of time of the performance and its continued
existence.

In light of the above legal parameters laid down by the law and applicable jurisprudence, the
respondents are neither project, seasonal nor fixed-term employees, but regular
seasonal workers of URSUMCO. The following factual considerations from the records
support this conclusion:

First, the respondents were made to perform various tasks that did not at all pertain to any
specific phase of URSUMCO’s strict milling operations that would ultimately cease upon
completion of a particular phase in the milling of sugar; rather, they were tasked to perform
duties regularly and habitually needed in URSUMCO’s operations during the milling
season. The respondents’ duties as loader operators, hookers, crane operators and drivers
were necessary to haul and transport the sugarcane from the plantation to the mill; laboratory
attendants, workers and laborers to mill the sugar; and welders, carpenters and utility workers
to ensure the smooth and continuous operation of the mill for the duration of the milling
season, as distinguished from the production of the sugarcane which involves the planting
and raising of the sugarcane until it ripens for milling. The production of sugarcane, it must be
emphasized, requires a different set of workers who are experienced in farm or agricultural
work. Needless to say, they perform the activities that are necessary and desirable in
sugarcane production. As in the milling of sugarcane, the plantation workers perform their
duties only during the planting season.

Second, the respondents 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.

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.34 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. The NLRC, therefore, gravely erred when it
declared the respondents regular employees of URSUMCO without qualification and that they
were entitled to the benefits granted, under the CBA, to URSUMCO’S regular employees.
Third, while the petitioners assert that the respondents were free to work elsewhere
during the off-season, the records do not support this assertion. There is no evidence
on record showing that after the completion of their tasks at URSUMCO, the respondents
sought and obtained employment elsewhere.

Contrary to the petitioners’ position, Mercado, Sr. v. NLRC, 3rd Div. is not applicable to the
respondents as this case was resolved based on different factual considerations. In Mercado,
the workers were hired to perform phases of the agricultural work in their employer’s farm for
a definite period of time; afterwards, they were free to offer their services to any other farm
owner. The workers were not hired regularly and repeatedly for the same phase(s) of
agricultural work, but only intermittently for any single phase. And, more importantly, the
employer in Mercado sufficiently proved these factual circumstances. The Court reiterated
these same observations in Hda. Fatima v. Nat’l Fed. of Sugarcane Workers-Food and Gen.
Trade36 and Hacienda Bino/Hortencia Starke, Inc. v. Cuenca.37

To reiterate, the respondents are regular seasonal employees, as the CA itself opined when it
declared that "private respondents who are regular workers with respect to their
seasonal tasks or activities and while such activities exist, cannot automatically be
governed by the CBA between petitioner URSUMCO and the authorized bargaining
representative of the regular and permanent employees."44 Citing jurisprudential
standards,45 it then proceeded to explain that the respondents cannot be lumped with the
regular employees due to the differences in the nature of their duties and the duration of their
work vis-a-vis the operations of the company.

The NLRC was well aware of these distinctions as it acknowledged that the respondents
worked only during the milling season, yet it ignored the distinctions and declared them
regular employees, a marked departure from existing jurisprudence. This, to us, is grave
abuse of discretion, as it gave no reason for disturbing the system of regular seasonal
employment already in place in the sugar industry and other industries with similar seasonal
operations. For upholding the NLRC’s flawed decision on the respondents’ employment
status, the CA committed a reversible error of judgment.

In sum, we find the complaint to be devoid of merit. The issue of granting affirmative relief to
the complainants who did not appeal the CA ruling has become academic.

DP: WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. Except for
the denial of the respondents' claim for CBA benefits, the November 29, 2007 decision and
the January 22, 2009 resolution of the Court of Appeals are SET ASIDE. The complaint is
DISMISSED for lack of merit.
Fuji Television Network Inc. V. Espiritu

It is the burden of the employer to prove that a person whose services it pays for is an
independent contractor rather than a regular employee with or without a fixed term. That a
person has a disease does not per se entitle the employer to terminate his or her services.
Termination is the last resort. At the very least, a competent public health authority must
certify that the disease cannot be cured within six ( 6) months, even with appropriate
treatment.

Facts:

In 2005, Arlene S. Espiritu ("Arlene") was engaged by Fuji Television Network, Inc. ("Fuji") as
a news correspondent/producer "tasked to report Philippine news to Fuji through its Manila
Bureau field office."5 Arlene’s employment contract initially provided for a term of one (1) year
but was successively renewed on a yearly basis with salary adjustment upon every
renewal.6 Sometime in January 2009, Arlene was diagnosed with lung cancer.7 She informed
Fuji about her condition. In turn, the Chief of News Agency of Fuji, Yoshiki Aoki, informed
Arlene "that the company will have a problem renewing her contract" since it would be difficult
for her to perform her job. She "insisted that she was still fit to work as certified by her
attending physician."

After several verbal and written communications, 11 Arlene and Fuji signed a non-renewal
contract on May 5, 2009 where it was stipulated that her contract would no longer be renewed
after its expiration on May 31, 2009. The contract also provided that the parties release each
other from liabilities and responsibilities under the employment contract.12

On May 6, 2009, the day after Arlene signed the non-renewal contract, she filed a complaint
for illegal dismissal and attorney’s fees with the National Capital Region Arbitration Branch of
the National Labor Relations Commission. She alleged that she was forced to sign the
nonrenewal contract when Fuji came to know of her illness and that Fuji withheld her salaries
and other benefits for March and April 2009 when she refused to sign.

Arlene claimed that she was left with no other recourse but to sign the non-renewal contract,
and it was only upon signing that she was given her salaries and bonuses, in addition to
separation pay equivalent to four (4) years.

In the decision17 dated September 10, 2009, Labor Arbiter Corazon C. Borbolla dismissed
Arlene’s complaint.18 Citing Sonza v. ABS-CBN19 and applying the four-fold test, the Labor
Arbiter held that Arlene was not Fuji’s employee but an independent contractor.20

Arlene appealed before the National Labor Relations Commission. In its decision dated March
5, 2010, the National Labor Relations Commission reversed the Labor Arbiter’s decision.21 It
held that Arlene was a regular employee with respect to the activities for which she was
employed since she continuously rendered services that were deemed necessary and
desirable to Fuji’s business. The National Labor Relations Commission ordered Fuji to pay
Arlene backwages, computed from the date of her illegal dismissal.

CA affirmed the decision of NLRC. Hence, this petition.

In this case, there is no question that Arlene rendered services to Fuji. However, Fuji alleges
that Arlene was an independent contractor, while Arlene alleges that she was a regular
employee.

Fuji alleges that Arlene was an independent contractor, citing Sonza v. ABS-CBN and relying
on the following facts: (1) she was hired because of her skills; (2) her salary was
US$1,900.00, which is higher than the normal rate; (3) she had the power to bargain with her
employer; and (4) her contract was for a fixed term. According to Fuji, the Court of Appeals
erred when it ruled that Arlene was forced to sign the non-renewal agreement, considering
that she sent an email with another version of the non-renewal agreement. 140 Further, she is
not entitled to moral damages and attorney’s fees because she acted in bad faith when she
filed a labor complaint against Fuji after receiving US$18,050.00 representing her salary and
other benefits.141

Arlene argues that she was a regular employee because Fuji had control and supervision
over her work. The news events that she covered were all based on the instructions of
Fuji.142 She maintains that the successive renewal of her employment contracts for four (4)
years indicates that her work was necessary and desirable.143 In addition, Fuji’s payment of
separation pay equivalent to one (1) month’s pay per year of service indicates that she was a
regular employee.144 To further support her argument that she was not an independent
contractor, she states that Fuji owns the laptop computer and mini-camera that she used for
work.145 Arlene also argues that Sonza is not applicable because she was a plain reporter for
Fuji, unlike Jay Sonza who was a news anchor, talk show host, and who enjoyed a celebrity
status.146 On her illness, Arlene points out that it was not a ground for her dismissal because
her attending physician certified that she was fit to work.

Issue/s:

Whether or not the employee was illegally dismissed. [YES]

Whether or not she is an independent contractor. [NO; She is a regular employee.]

Held:

The petition should be dismissed.

III

Determination of employment status; burden of proof

To resolve the issue, we ascertain whether an employer-employee relationship existed

between Fuji and Arlene.

This court has often used the four-fold test to determine the existence of an employer-
employee relationship. The elements of the four-fold test are the following: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and
(4) the power of control.

Under the four-fold test, the "control test" is the most important. As to how the elements in the
four-fold test are proven, this court has discussed that:

[t]here 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.135

If the facts of this case vis-à-vis the four-fold test show that an employer-employee
relationship existed, we then determine the status of Arlene’s employment, i.e., whether she
was a regular employee. Relative to this, we shall analyze Arlene’s fixed-term contract and
determine whether it supports her argument that she was a regular employee, or the
argument of Fuji that she was an independent contractor. We shall scrutinize whether the
nature of Arlene’s work was necessary and desirable to Fuji’s business or whether Fuji only
needed the output of her work. If the circumstances show that Arlene’s work was
necessary and desirable to Fuji, then she is presumed to be a regular employee. The
burden of proving that she was an independent contractor lies with Fuji.
In labor cases, the quantum of proof required is substantial evidence.136 "Substantial
evidence" has been defined as "such amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion."

If Arlene was a regular employee, we then determine whether she was illegally dismissed. In
complaints for illegal dismissal, the burden of proof is on the employee to prove the fact of
dismissal.138 Once the employee establishes the fact of dismissal, supported by substantial
evidence, the burden of proof shifts to the employer to show that there was a just or
authorized cause for the dismissal and that due process was observed.139

IV

Whether the Court of Appeals correctly affirmed the National Labor

Relations Commission’s finding that Arlene was a regular employee

Distinctions among fixed-term

employees, independent contractors,
and regular employees

For as long as the guidelines laid down in Brent are satisfied, this court will recognize the
validity of the fixed-term contract.

In view of the "distinct and independent business" of independent contractors, no employer-

employee relationship exists between independent contractors and their principals.
Independent contractors are recognized under Article 106 of the Labor Code:

Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with
another person for the performance of the former’s work, the employees of the contractor and
of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this
Code.

....

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit
the contracting-out of labor to protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate distinctions between labor-only contracting
and job contracting as well as differentiations within these types of contracting and determine
who among the parties involved shall be considered the employer for purposes of this Code,
to prevent any violation or circumvention of any provision of this Code.

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.

In Department Order No. 18-A, Seriesof 2011, of the Department of Labor and Employment, a
contractor is defined as having:

Section 3. . . .

....

(c) . . . an arrangement whereby a principal agrees to put out or farm out with a contractor 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.

This department order also states that there is a trilateral relationship in legitimate job
contracting and subcontracting arrangements among the principal, contractor, and employees
of the contractor. There is no employer-employee relationship between the contractor and
principal who engages the contractor’s services, but there is an employer-employee
relationship between the contractor and workers hired to accomplish the work for the
principal.162

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.

In Orozco v. Court of Appeals,163 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." 164 In addition, the Philippine
Daily Inquirer did not have the power of control over Orozco, and she worked at her own
pleasure.

Bernarte v. Philippine Basketball Association171 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."172

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.

In other words, there are different kinds of independent contractors: those engaged in
legitimate job contracting and those who have unique skills and talents that set them apart
from ordinary employees.

Since no employer-employee relationship exists between independent contractors and

their principals, their contracts are governed by the Civil Code provisions on contracts and
other applicable laws.173

Fuji’s argument that Arlene was an independent contractor under a fixed-term contract
is contradictory. Employees under fixed-term contracts cannot be independent
contractors because in fixed-term contracts, an employer-employee relationship
exists. The test in this kind of contract is not the necessity and desirability of the employee’s
activities, "but the day certain agreed upon by the parties for the commencement and
termination of the employment relationship."179 For regular employees, the necessity and
desirability of their work in the usual course of the employer’s business are the determining
factors. On the other hand, independent contractors do not have employer-employee
relationships with their principals. Hence, before the status of employment can be determined,
the existence of an employer-employee relationship must be established.

The four-fold test180 can be used in determining whether an employeremployee relationship

exists. The elements of the four-fold test are the following: (1) the selection and engagement
of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power of
control, which is the most important element.181

The "power of control" was explained by this court in Corporal, Sr. v. National Labor Relations
Commission:
The power to control refers to the existence of the power and not necessarily to the actual
exercise thereof, nor is it essential for the employer to actually supervise the performance of
duties of the employee. It is enough that the employer has the right to wield that power.

Orozco v. Court of Appeals further elucidated the meaning of "power of control" and stated
the following:

Logically, the line should be drawn between rules that merely serve as 1.) guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that 2.) 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.

In Locsin, et al. v. Philippine Long Distance Telephone Company,185 the "power of control"
was defined as "[the] right to control not only the end to be achieved but also the means to be
used in reaching such end."

Here, the Court of Appeals applied Sonza v. ABS-CBN and Dumpit Murillo v. Court of
Appeals in determining whether Arlene was an independent contractor or a regular employee.

In deciding Sonza and Dumpit-Murillo, this court used the four-fold test. Both cases involved
newscasters and anchors. However, Sonza was held to be an independent contractor, while
Dumpit-Murillo was held to be a regular employee.

Comparison of the Sonza and

Dumpit-Murillo cases using
the four-fold test

Sonza was engaged by ABS-CBN in view of his "unique skills, talent and celebrity status not
possessed by ordinary employees."188 His work was for radio and television programs. 189 On
the other hand, Dumpit-Murillo was hired by ABC as a newscaster and co-
anchor.190 Sonza’s talent fee amounted to ₱317,000.00 per month, which this court found to
be a substantial amount that indicated he was an independent contractor rather than a regular
employee.191 Meanwhile, Dumpit-Murillo’s monthly salary was ₱28,000.00, a very low amount
compared to what Sonza received.192

Sonza was unable to prove that ABS-CBN could terminate his services apart from breach of
contract. There was no indication that he could be terminated based on just or authorized
causes under the Labor Code. In addition, ABS-CBN continued to pay his talent fee under
their agreement, even though his programs were no longer broadcasted. Dumpit-Murillo was
found to have been illegally dismissed by her employer when they did not renew her contract
on her fourth year with ABC.

In Sonza, this court ruled that ABS-CBN did not control how Sonza delivered his lines, how he
appeared on television, or how he sounded on radio. All that Sonza needed was his talent.
Further, "ABS-CBN could not terminate or discipline SONZA even if the means and methods
of performance of his work . . . did not meet ABS-CBN’s approval." 197 In Dumpit-Murillo, the
duties and responsibilities enumerated in her contract was a clear indication that ABC had
control over her work.

Application of the four-fold test

The Court of Appeals did not err when it relied on the ruling in Dumpit-Murillo and affirmed the
ruling of the National Labor Relations Commission finding that Arlene was a regular
employee. Arlene was hired by Fuji as a news producer, but there was no showing that she
was hired because of unique skills that would distinguish her from ordinary employees.
Neither was there any showing that she had a celebrity status. Her monthly salary amounting
to US$1,900.00 appears to be a substantial sum, especially if compared to her salary when
she was still connected with GMA. Indeed, wages may indicate whether one is an
independent contractor. Wages may also indicate that an employee is able to bargain with the
employer for better pay. However, wages should not be the conclusive factor in determining
whether one is an employee or an independent contractor.

Fuji had the power to dismiss Arlene, as provided for in paragraph 5 of her professional
employment contract. Her contract also indicated that Fuji had control over her work
because she was required to work for eight (8) hours from Monday to Friday, although
on flexible time.201 Sonza was not required to work for eight (8) hours, while Dumpit-Murillo
had to be in ABC to do both on-air and off-air tasks.

On the power to control, Arlene alleged that Fuji gave her instructions on what to
report. Even the mode of transportation in carrying out her functions was controlled by Fuji.
Paragraph 6 of her contract states:

6. During the travel to carry out work, if there is change of place or change of place of work,
the train, bus, or public transport shall be used for the trip. If the Employee uses the private
car during the work and there is an accident the Employer shall not be responsible for the
damage, which may be caused to the Employee.

Thus, the Court of Appeals did not err when it upheld the findings of the National Labor
Relations Commission that Arlene was not an independent contractor.

Having established that an employer-employee relationship existed between Fuji and Arlene,
the next questions for resolution are the following: Did the Court of Appeals correctly affirm
the National Labor Relations Commission that Arlene had become a regular employee? Was
the nature of Arlene’s work necessary and desirable for Fuji’s usual course of business?

Arlene was a regular employee

with a fixed-term contract

The test for determining regular employment is whether there is a reasonable connection
between the employee’s activities and the usual business of the employer. Article 280
provides that the nature of work must be "necessary or desirable in the usual business or
trade of the employer" as the test for determining regular employment.

Fuji is engaged in the business of broadcasting, including news programming. It is based in

Japan and has overseas offices to cover international news.

Based on the record, Fuji’s Manila Bureau Office is a small unit and has a few employees.As
such, Arlene had to do all activities related to news gathering. Although Fuji insists that Arlene
was a stringer, it alleges that her designation was "News Talent/Reporter/Producer."

A news producer "plans and supervises newscast . . . [and] work[s] with reporters in the field
planning and gathering information. . . ."Arlene’s tasks included "[m]onitoring and [g]etting
[n]ews [s]tories, [r]eporting interviewing subjects in front of a video camera," "the timely
submission of news and current events reports pertaining to the Philippines[,] and traveling
[sic] to [Fuji’s] regional office in Thailand." She also had to report for work in Fuji’s office in
Manila from Mondays to Fridays, eight (8) hours per day. She had no equipment and had to
use the facilities of Fuji to accomplish her tasks.

The Court of Appeals affirmed the finding of the National Labor Relations Commission that
the successive renewals of Arlene’s contract indicated the necessity and desirability of her
work in the usual course of Fuji’s business. Because of this, Arlene had become a regular
employee with the right to security of tenure.220 The Court of Appeals ruled that:
Here, Espiritu was engaged by Fuji as a stinger [sic] or news producer for its Manila Bureau.
She was hired for the primary purpose of news gathering and reporting to the television
network’s headquarters. Espiritu was not contracted on account of any peculiar ability or
special talent and skill that she may possess which the network desires to make use of.
Parenthetically, if it were true that Espiritu is an independent contractor, as claimed by Fuji,
the fact that everything that she uses to perform her job is owned by the company including
the laptop computer and mini camera discounts the idea of job contracting.

With regard to Fuji’s argument that Arlene’s contract was for a fixed term, the Court of
Appeals cited Philips Semiconductors, Inc. v. Fadriquela and held that where an employee’s
contract "had 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. The continuous renewal is a scheme to prevent
regularization. On this basis, the Court of Appeals ruled in favor of Arlene.

Arlene’s contract indicating a fixed term did not automatically mean that she could never be a
regular employee. This is precisely what Article 280 seeks to avoid. The ruling in Brent
remains as the exception rather than the general rule.

Further, an employee can be a regular employee with a fixed-term contract. The law does not
preclude the possibility that a regular employee may opt to have a fixed-term contract for valid
reasons. This was recognized in Brent: For as long as it was the employee who requested, or
bargained, that the contract have a "definite date of termination," or that the fixed-term
contract be freely entered into by the employer and the employee, then the validity of the
fixed-term contract will be upheld.

Whether the Court of Appeals correctly affirmed

the National Labor Relations Commission’s finding of illegal dismissal

Fuji argues that the Court of Appeals erred when it held that Arlene was illegally dismissed, in
view of the non-renewal contract voluntarily executed by the parties. Fuji also argues that
Arlene’s contract merely expired; hence, she was not illegally dismissed.

Arlene alleges that she had no choice but to sign the non-renewal contract because Fuji
withheld her salary and benefits.

With regard to this issue, the Court of Appeals held:

We cannot subscribe to Fuji’s assertion that Espiritu’s contract merely expired and that she
voluntarily agreed not to renew the same. Even a cursory perusal of the subject Non-Renewal
Contract readily shows that the same was signed by Espiritu under protest. What is apparent
is that the Non-Renewal Contract was crafted merely as a subterfuge to secure Fuji’s position
that it was Espiritu’s choice not to renew her contract.

As a regular employee, Arlene was entitled to security of tenure and could be dismissed only
for just or authorized causes and after the observance of due process.

Article 279 of the Labor Code also provides for the right to security of tenure and states the
following:

Art. 279. Security of tenure. In cases of regular employment, the employer shall not terminate
the services of an employee except for a just cause of when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and other privileges and to his full backwages, inclusive of allowances, and
to his other benefits or their monetary equivalent computed from the time his compensation
was withheld from him up to the time of his actual reinstatement.

Disease as a ground for termination is recognized under Article 284 of the Labor Code:

Art. 284. Disease as ground for termination. An employer may terminate the services of an
employee who has been found to be suffering from any disease and whose continued
employment is prohibited by law or is prejudicial to his health as well as to the health of his
co-employees: Provided, That he is paid separation pay equivalent to at least one (1) month
salary or to one-half (1/2) month salary for every year of service, whichever is greater, a
fraction of at least six (6) months being considered as one (1) whole year.

Book VI, Rule 1, Section 8 of the Omnibus Rules Implementing the Labor Code provides:

Sec. 8. Disease as a ground for dismissal.– Where the employee suffers from a disease and
his continued employment is prohibited by law or prejudicial to his health or to the health of
his co-employees, the employer shall not terminate his employment unless there is a
certification by a competent public health authority that the disease is of such nature or at
such a stage that it cannot be cured within a period of six (6) months even with proper
medical treatment. If the disease or ailment can be cured within the period, the employer shall
not terminate the employee but shall ask the employee to take a leave. The employer shall
reinstate such employee to his former position immediately upon the restoration of his normal
health.

For dismissal under Article 284 to be valid, two requirements must be complied with: (1) the
employee’s disease cannot be cured within six (6) months and his "continued employment is
prohibited by law or prejudicial to his health as well as to the health of his co-employees"; and
(2) certification issued by a competent public health authority that even with proper medical
treatment, the disease cannot be cured within six (6) months. The burden of proving
compliance with these requisites is on the employer. Noncompliance leads to the conclusion
that the dismissal was illegal.

There is no evidence showing that Arlene was accorded due process. After informing her
employer of her lung cancer, she was not given the chance to present medical certificates.
Fuji immediately concluded that Arlene could no longer perform her duties because of
chemotherapy. It did not ask her how her condition would affect her work. Neither did it
suggest for her to take a leave, even though she was entitled to sick leaves. Worse, it did not
present any certificate from a competent public health authority. What Fuji did was to inform
her that her contract would no longer be renewed, and when she did not agree, her salary
was withheld. Thus, the Court of Appeals correctly upheld the finding of the National Labor
Relations Commission that for failure of Fuji to comply with due process, Arlene was illegally
dismissed.

DP: WHEREFORE, the petition is DENIED. The assailed Court of Appeals decision dated
June 25, 2012 is AFFIRMED with the modification that backwages shall be computed from
June 2009. Legal interest shall be computed at the rate of 6% per annum of the total
monetary award from date of finality of this decision until full satisfaction.
Fontera Brands Phils., Inc. v. Leonardo Largado and Teotimo Estrellado

Facts:

Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of Zytron Marketing
and Promotions Corp. (Z)rtron) for the marketing and promotion of its milk and dairy products.
Pursuant to the contract, Zytron provided Fonterra with trade merchandising representatives
(TMRs), including respondents Leonardo Largado (Largado) and Teotimo Estrellado
(Estrellado). The engagement of their services began on September 15, 2003 and May 27,
2002, respectively, and ended on June 6, 2006.

On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions contract, effective
June 5, 2006. Fonterra then entered into an agreement for manpower supply with A.C. Sicat
Marketing and Promotional Services (A.C. Sicat). Desirous of continuing their work as TMRs,
respondents submitted their job applications with A.C. Sicat, which hired them for a term of
five (5) months, beginning June 7, 2006 up to November 6, 2006.

When respondents’ 5-month contracts with A.C. Sicat were about to expire, they allegedly
sought renewal thereof, but were allegedly refused. This prompted respondents to file
complaints for illegal dismissal, regularization, non-payment of service incentive leave and
13th month pay, and actual and moral damages, against petitioner, Zytron, and A.C. Sicat.

The CA ruled that Fonterra is liable to respondents and ordered the reinstatement of
respondents without loss of seniority rights, with full backwages, and other benefits from the
time of their illegal dismissal up to the time of their actual reinstatement.

Zytron and Fonterra moved for reconsideration, but to no avail. Hence, this petition.

Issue/s:

Whether or not Zytron and A.C. Sicat are labor-only contractors, making Fonterra the
employer of herein respondents [NO; Case with Zytron is immaterial; A.C. Sicat is
a job contractor (which is different from a labor-only contractor)]

Whether or not respondents were illegally dismissed. [NO]

Held:

We find merit in the petition.

As regards the CA’s conclusion that Zytron is not a legitimate job contractor, We are of the
view that such is immaterial to the resolution of the illegal dismissal issue for one reason: We
find that respondents voluntarily terminated their employment with Zytron, contrary to their
allegation that their employment with Zytron was illegally terminated.

We do not agree with the CA that respondents’ employment with Zytron was illegally
terminated.

As correctly held by the Labor Arbiter and the NLRC, the termination of respondents’
employment with Zytron was brought about by the cessation of their contracts with the latter.
We give credence to the Labor Arbiter’s conclusion that respondents were the ones who
refused to renew their contracts with Zytron, and the NLRC’s finding that they themselves
acquiesced to their transfer to A.C. Sicat.

As regards respondents’ employment with A.C. Sicat and its termination via non-renewal of
their contracts, considering that in labor-only contracting, the law creates an employer-
employee relationship between the principal and the labor-only contractor’s employee as if
such employees are directly employed by the principal employer, and considers the
contractor as merely the agent of the principal, it is proper to dispose of the issue on A.C.
Sicat’s status as a job contractor first before resolving the issue on the legality of the
cessation of respondents’ employment.

In this regard, We defer to the findings of the CA anent A.C. Sicat’s status as a legitimate job
contractor, seeing that it is consistent with the rules on job contracting and is sufficiently
supported by the evidence on record.

A person is considered engaged in legitimate job contracting or subcontracting if the following

conditions concur:

1.The contractor or subcontractor carries on a distinct and independent business and

undertakes to perform the job, work or service on its own account and under its own
responsibility according to its own manner and method, and free from the control and
direction of the principal in all matters connected with the performance of the work except as
to the results thereof;

2.The contractor or subcontractor has substantial capital or investment; and

3.The agreement between the principal and contractor or subcontractor assures the
contractual employees entitlement to all labor and occupational safety and health standards,
free exercise of the right to self-organization, security of tenure, and social and welfare
benefits.8

On the other hand, contracting is prohibited when the contractor or subcontractor merely
recruits, supplies or places workers to perform a job, work or service for a principal and if any
of the following elements are present, thus:

1.The contractor or subcontractor does not have substantial capital or investment which
relates to the job, work or service to be performed and the employees recruited, supplied or
placed by such contractor or subcontractor are performing activities which are directly related
to the main business of the principal; or

2.The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

The CA correctly found that A.C. Sicat is engaged in legitimate job contracting. It duly noted
that A.C. Sicat was able to prove its status as a legitimate job contractor for having presented
the sufficient evidence.

Furthermore, A.C. Sicat has substantial capital. Too, its Agreement with Fonterra clearly sets
forth that A.C. Sicat shall be liable for the wages and salaries of its employees or workers,
including benefits, premiums, and protection due them, as well as remittance to the proper
government entities of all withholding taxes, Social Security Service, and Medicare premiums,
in accordance with relevant laws.

The appellate court further correctly held that Fonterra’s issuance of Merchandising
Guidelines, stock monitoring and inventory forms, and promo mechanics, for compliance and
use of A.C. Sicat’s employees assigned to them, does not establish that Fonterra exercises
control over A.C. Sicat. We agree with the CA’s conclusion that these were imposed only to
ensure the effectiveness of the promotion services to be rendered by the merchandisers as it
would be risky, if not imprudent, for any company to completely entrust the performance of
the operations it has contracted out.

These sufficiently show that A.C. Sicat carries out its merchandising and promotions
business, independent of Fonterra’s business. Thus, having settled that A.C. Sicat is a
legitimate job contractor, We now determine whether the termination of respondents’
employment with the former is valid.

We agree with the findings of the CA that the termination of respondents’ employment
with the latter was simply brought about by the expiration of their employment
contracts.

Foremost, respondents were fixed-term employees. As previously held by this Court, 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 determining factor of such contracts is not the duty of the employee but the
day certain agreed upon by the parties for the commencement and termination of the
employment relationship.

In the case at bar, it is clear that respondents were employed by A.C. Sicat as project
employees. In their employment contract with the latter, it is clearly stated that "[A.C. Sicat is]
temporarily employing [respondents] as TMR[s] effective June 6[, 2006] under the following
terms and conditions: The need for your service being only for a specific project, your
temporary employment will be for the duration only of said project of our client, namely to
promote FONTERRA BRANDS products x x x which is expected to be finished on or before
Nov. 06, 2006."13

Respondents, by accepting the conditions of the contract with A.C. Sicat, were well aware of
and even acceded to the condition that their employment thereat will end on said pre-
determined date of termination. They cannot now argue that they were illegally dismissed by
the latter when it refused to renew their contracts after its expiration. This is so since the
non-renewal of their contracts by A.C. Sicat is a management prerogative, and failure
of respondents to prove that such was done in bad faith militates against their
contention that they were illegally dismissed. The expiration of their contract with A.C.
Sicat simply caused the natural cessation of their fixed-term employment thereat. We, thus,
see no reason to disturb the ruling of the CA in this respect.

DP: IN VIEW OF THE FOREGOING, the instant Petition for Review is GRANTED. The
assailed Decision of the Court of Appeals dated September 6, 2012 and its January 11, 2013
Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor Relations
Commission dated November 20, 2009 and its Resolution dated March 5, 2010 in NLRC
Case No. RAB IV 12-23927-06-Q are hereby REINSTATED.