The Supreme Court held that an employee initially hired under a fixed-term contract, who continues to work after the contract expires, can become a regular employee with security of tenure. Consequently, the employee can only be dismissed for just cause and with due process. This ruling underscores the importance of adhering to procedural and substantive due process in termination cases, protecting employees from arbitrary dismissal and ensuring fair labor practices.

Beyond the Contract: When a Fixed Term Turns into a Regular Job

This case, United Tourist Promotions (UTP) and Ariel D. Jersey vs. Harland B. Kemplin, revolves around the termination of Harland Kemplin, who was initially hired by UTP as its President under a fixed-term employment contract. The core legal question is whether Kemplin’s employment transitioned from a fixed-term contract to a regular employment, thereby entitling him to security of tenure and protection against illegal dismissal.

In 1995, Ariel D. Jersey, along with Harland B. Kemplin and Mike Dunne, formed United Tourist Promotions (UTP). In 2002, UTP formally employed Kemplin as its President for a fixed term of five years, commencing on March 1, 2002, and ending on March 1, 2007, with a provision for renewal. After the expiration of his contract, Kemplin continued to serve as President. In May 2009, he entered into advertising agreements with Pizza Hut and M. Lhuillier, signing as President of UTP. On July 30, 2009, UTP’s legal counsel sent Kemplin a letter stating that his employment contract had expired on March 1, 2007, and was not renewed. The letter further cited Kemplin’s alleged mistreatment of employees and pending legal cases against him as reasons to cease his entry into UTP’s premises.

On August 10, 2009, Kemplin filed a complaint against UTP and its officers for illegal dismissal, non-payment of salaries, and damages. Kemplin argued that despite the expiration of his contract, he continued to work as President and General Manager. UTP countered that Kemplin’s termination was due to the expiration of his fixed-term contract and his alleged misconduct prejudicial to the business. The Labor Arbiter (LA) ruled in favor of Kemplin, finding him to be a regular employee who was illegally dismissed. The National Labor Relations Commission (NLRC) affirmed the LA’s decision, excluding Lorena Lindo and Larry Jersey from liability. The Court of Appeals (CA) upheld the NLRC’s decision, leading UTP and Jersey to file a Petition for Review on Certiorari with the Supreme Court.

The Supreme Court addressed several key issues, including whether Kemplin’s termination was valid, whether he was afforded due process, and whether the doctrine of strained relations justified the denial of reinstatement. The Court emphasized that a fixed-term contract can be converted into a regular employment if the employee continues to work after the expiration of the contract and performs tasks necessary or desirable to the employer’s business. According to Article 280 of the Labor Code,

“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… [A]ny employee who has rendered at least one year of service… 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.”

Building on this principle, the Court noted that Kemplin’s continued service as President of UTP after the expiration of his fixed-term contract in 2007 transformed his employment status to regular. Evidence, such as the advertisement agreements Kemplin signed in 2009, supported his claim that he continued to function as UTP’s President. Consequently, as a regular employee, Kemplin was entitled to security of tenure and could only be dismissed for just cause and with due process.

The Court found that UTP failed to comply with the procedural due process requirements for terminating an employee. The termination letter sent to Kemplin on July 30, 2009, was deemed insufficient as it did not clearly specify the charges against him and failed to provide him with an opportunity to be heard. In Unilever Philippines, Inc. v. Maria Ruby M. Rivera, the Supreme Court outlined the steps for compliance with procedural due process:

“(1) The first written notice to be served on the employees should contain the specific causes or grounds for termination against them, and a directive that the employees are given the opportunity to submit their written explanation within a reasonable period… (2) After serving the first notice, the employers should schedule and conduct a hearing or conference wherein the employees will be given the opportunity to: (1) explain and clarify their defenses to the charge against them; (2) present evidence in support of their defenses; and (3) rebut the evidence presented against them by the management… (3) After determining that termination of employment is justified, the employers shall serve the employees a written notice of termination indicating that: (1) all circumstances involving the charge against the employees have been considered; and (2) grounds have been established to justify the severance of their employment.”

The Supreme Court underscored that UTP’s failure to provide Kemplin with a clear notice of the charges against him and an opportunity to be heard constituted a violation of his right to due process, rendering his dismissal illegal. While UTP raised the issue of loss of trust and confidence as a ground for Kemplin’s dismissal, the Court noted that this issue was only presented in the Position Paper filed before the LA.

This approach contrasts with the due process requirements that necessitate informing the employee of the charges against them before the termination process. As highlighted in Lawrence v. National Labor Relations Commission:

“The legal requirements of notice and hearing cannot be supplanted by the notice and hearing in labor proceedings. The due process requirement in the dismissal process is different from the due process requirement in labor proceedings and both requirements must be separately observed.”

Given the circumstances, the Court modified the CA’s decision regarding reinstatement, taking into account the doctrine of strained relations. The Court acknowledged that reinstatement is the standard remedy for illegal dismissal but recognized an exception when the relationship between the employer and employee has become so strained that it would be impractical or detrimental to resume the employment relationship. Citing APO Chemical Manufacturing Corporation v. Bides, the Court stated:

“Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable… it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust.”

In lieu of reinstatement, the Court awarded Kemplin separation pay, computed at the rate of one month’s pay for every year of service from the commencement of his employment on March 1, 2002, until the finality of the decision. The Court also addressed the award of 13th-month pay to Kemplin, noting that as a managerial employee, he was not entitled to this benefit. Managerial employees are generally exempt from receiving 13th-month pay, according to existing labor regulations. This exemption is without prejudice to the employer’s discretion to grant other bonuses in lieu of the 13th-month pay.

This decision highlights the importance of distinguishing between fixed-term and regular employment, the necessity of adhering to due process requirements in termination cases, and the circumstances under which separation pay may be awarded in lieu of reinstatement.

FAQs

What was the key issue in this case?	The key issue was whether Harland Kemplin’s employment transitioned from a fixed-term contract to a regular employment, thus entitling him to security of tenure and protection against illegal dismissal.
What is a fixed-term employment contract?	A fixed-term employment contract is an agreement where employment is for a specified period. It automatically terminates upon the end of the agreed period unless renewed.
What happens when a fixed-term employee continues working after the contract expires?	If the employee continues to work after the fixed-term contract expires and performs tasks necessary or desirable to the employer’s business, their employment may be considered regular. This transition grants the employee security of tenure.
What is security of tenure?	Security of tenure means that a regular employee can only be dismissed for just cause and after being afforded due process. This protection ensures employees are not arbitrarily terminated.
What is due process in termination cases?	Due process involves providing the employee with a written notice specifying the grounds for termination and giving them an opportunity to explain their side. It also includes conducting a hearing or conference to allow the employee to respond to the charges.
What is the doctrine of strained relations?	The doctrine of strained relations provides that reinstatement is not required when the relationship between the employer and employee has become so strained that it would be impractical or detrimental to resume the employment relationship. Separation pay is then considered an acceptable alternative.
Are managerial employees entitled to 13th-month pay?	Generally, managerial employees are exempt from receiving 13th-month pay under existing labor regulations. However, employers may grant other bonuses in lieu of the 13th-month pay at their discretion.
What was the Supreme Court’s ruling in this case?	The Supreme Court affirmed that Kemplin was illegally dismissed but modified the remedy from reinstatement to separation pay due to strained relations. The Court also deleted the award of 13th-month pay.

In conclusion, the Supreme Court’s decision in United Tourist Promotions (UTP) and Ariel D. Jersey vs. Harland B. Kemplin clarifies the nuances between fixed-term and regular employment, emphasizing the importance of due process in termination cases and the applicability of separation pay in lieu of reinstatement when strained relations exist. This ruling provides significant guidance for employers and employees alike, ensuring fair labor practices and protecting workers from arbitrary dismissal.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: UNITED TOURIST PROMOTIONS (UTP) AND ARIEL D. JERSEY, VS. HARLAND B. KEMPLIN, G.R. No. 205453, February 05, 2014