When Length of Service Trumps Contract: Establishing Regular Employment Status

G.R. No. 109224, June 19, 1997

Imagine a long-serving gardener, diligently tending to the grounds of a large corporation for over a decade. One day, the corporation terminates its contract with the landscaping company, and the gardener is out of a job. Is this a simple end to a project, or does the gardener deserve more? This scenario highlights the complexities surrounding employment status, particularly the distinction between regular and project employees in the Philippines. This case clarifies that even if an employee is initially hired for a specific project, continuous service can lead to regular employment status, entitling them to separation pay upon termination.

Understanding Regular vs. Project Employment in the Philippines

Philippine labor law distinguishes between regular and project employees. This distinction is crucial, as it determines an employee’s rights and entitlements, especially upon termination of employment. Regular employees enjoy greater job security and are entitled to separation pay if terminated for reasons other than just cause or authorized causes.

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

“ART. 280. 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 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 actually exists.”

In essence, if an employee performs tasks essential to the employer’s business for more than a year, they can be considered a regular employee, regardless of any initial agreement stating otherwise. Project employees, on the other hand, are hired for a specific project with a predetermined completion date.

For example, a construction worker hired specifically for building a bridge is a project employee. Once the bridge is completed, their employment ends. However, if a company continuously hires the same construction worker for various projects over several years, that worker could potentially argue for regular employment status.

The Case of Megascope General Services: From Gardeners to Regular Employees

Megascope General Services, a company providing general services, contracted with System and Structures, Inc. (SSI) for landscaping work related to the National Power Corporation (NPC) Housing Village. They hired nineteen individuals as gardeners, helpers, and maintenance workers, deploying them to NPC. The workers’ employment spanned from 1977 to 1991, with some employed for over a decade. When the contract between Megascope and NPC ended, the workers were terminated.

The workers filed a complaint for illegal dismissal, underpayment of salaries, and other monetary claims. Megascope argued that the workers were hired for a definite period tied to the NPC contract. The Labor Arbiter initially ruled that while the workers were initially contractual, their length of service had granted them the status of “regular contractual employees,” entitling them to separation pay. The National Labor Relations Commission (NLRC) affirmed this decision.

The Supreme Court, in its decision, focused on the existence of an employer-employee relationship and the regular status of the employees. The Court reiterated the four elements to determine the employer-employee relationship:

• Selection and engagement of the employee
• Payment of wages
• Power of dismissal
• Power to control the employee’s conduct

The Court found that all these elements were present. Megascope selected and hired the workers, paid their salaries, had the power to dismiss them, and exercised control over their work assignments. The Court emphasized Megascope’s own admission that the workers were assigned to the NPC housing villages as gardeners under a maintenance contract.

The Supreme Court held:

“Undeniably, private respondents had been performing activities which were necessary or desirable in the usual trade or business of petitioner. Their services as gardeners, helpers and maintenance workers were continuously availed of by petitioner in the conduct of its business as supplier of such services to clients.”

Furthermore, the Court stated:

“Granting arguendo that private respondents were initially contractual employees, by the sheer length of service they had rendered for petitioner, they had been converted into regular employees by virtue of the aforequoted proviso in the second paragraph of Art. 280 since they all served petitioner’s client for more than a year.”

The Court ruled that the termination of the NPC contract did not automatically terminate the employer-employee relationship between Megascope and the workers. By failing to redeploy the workers to other clients, Megascope was deemed to have constructively dismissed them. The Court affirmed the award of separation pay but set aside the NLRC’s ruling that there was no illegal dismissal.

Practical Implications: Protecting Employee Rights

This case highlights the importance of properly classifying employees and understanding the implications of continuous service. Businesses that engage in contracting services must be aware that long-term engagement of workers, even under project-based arrangements, can lead to regular employment status.

This ruling serves as a reminder to employers that they cannot circumvent labor laws by repeatedly hiring employees on a contractual basis for tasks essential to their business. Employees who believe they have been unfairly treated can use this case as precedent to argue for their rights as regular employees.

Key Lessons

• Continuous service for over a year in activities necessary to the employer’s business can lead to regular employment status.
• Employers cannot avoid regularization by repeatedly hiring employees on short-term contracts.
• Termination of a client contract does not automatically terminate the employer-employee relationship if the employee is considered regular.
• Failure to redeploy regular employees after a client contract ends can be considered constructive dismissal.

Hypothetical Example: A cleaning company hires workers on a six-month contract basis to clean various office buildings. The company continuously renews the contracts of several workers for over two years. Based on this case, these workers could argue that they have achieved regular employment status due to the continuous nature of their work and its necessity to the cleaning company’s business.

Frequently Asked Questions

Q: What is the main difference between a regular employee and a project employee?

A: A regular employee performs tasks that are necessary or desirable to the employer’s usual business, while a project employee is hired for a specific project with a predetermined completion date.

Q: How long does an employee need to work to be considered a regular employee?

A: Generally, if an employee has rendered at least one year of service, whether continuous or broken, they are considered a regular employee with respect to the activity in which they are employed.

Q: What is constructive dismissal?

A: Constructive dismissal occurs when an employer makes continued employment impossible, unreasonable, or unlikely, forcing the employee to resign.

Q: Am I entitled to separation pay if I am a regular employee and my employer terminates my employment due to redundancy?

A: Yes, regular employees are entitled to separation pay if terminated due to authorized causes such as redundancy. The amount of separation pay depends on the length of service and the company’s policies.

Q: What should I do if I believe I have been illegally dismissed?

A: Consult with a labor lawyer to assess your case and determine the appropriate course of action. You may file a complaint with the National Labor Relations Commission (NLRC).

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.