The Supreme Court ruled that employees continuously rehired for the same essential tasks are considered regular employees, regardless of fixed-term contracts. This decision protects workers from being unjustly terminated without just cause, ensuring their rights to security of tenure and full labor benefits. The ruling emphasizes that employers cannot use project-based contracts to circumvent labor laws and deny employees their rightful status and benefits.

The Sack Factory Stalemate: Regularization Rights Denied?

Macarthur Malicdem and Hermenigildo Flores filed a complaint against Marulas Industrial Corporation and Mike Mancilla for illegal dismissal, separation pay, money claims, moral and exemplary damages, and attorney’s fees. Malicdem and Flores, who were hired as extruder operators, argued that their continuous rehiring qualified them as regular employees, thereby making their termination illegal. Marulas countered that the employees were on fixed-term contracts for specific projects, which had expired. The Labor Arbiter (LA) ruled in favor of Marulas, but ordered the company to pay wage differentials. The NLRC partially granted Malicdem and Flores’ appeal, adding awards for 13th-month pay, service incentive leave, and holiday pay. This led to the Supreme Court, where the central issue was whether Malicdem and Flores were regular employees entitled to security of tenure.

The Supreme Court emphasized the importance of distinguishing between legitimate project employees and those who are effectively regular employees masked under project-based contracts. The Court referred to Article 281 of the Labor Code, which states that “an employee who is allowed to work after a probationary period shall be considered a regular employee.” The Court highlighted that continuous employment after a probationary period automatically confers regular employee status, preventing employers from indefinitely testing an employee’s fitness. The Court referenced the case of Maraguinot, Jr. v. NLRC, where it was ruled that a project or work pool employee, who has been (1) continuously rehired for the same tasks; and (2) whose tasks are vital to the employer’s business, must be deemed a regular employee.

x x x. Lest it be misunderstood, this ruling does not mean that simply because an employee is a project or work pool employee even outside the construction industry, he is deemed, ipso jure, a regular employee. All that we hold today is that once a project or work pool employee has been: (1) continuously, as opposed to intermittently, re-hired by the same employer for the same tasks or nature of tasks; and (2) these tasks are vital, necessary and indispensable to the usual business or trade of the employer, then the employee must be deemed a regular employee, pursuant to Article 280 of the Labor Code and jurisprudence. To rule otherwise would allow circumvention of labor laws in industries not falling within the ambit of Policy Instruction No. 20/Department Order No. 19, hence allowing the prevention of acquisition of tenurial security by project or work pool employees who have already gained the status of regular employees by the employer’s conduct.

Building on this principle, the Court determined that the primary test for distinguishing regular from non-regular employment lies in the reasonable connection between the employee’s activities and the employer’s usual business. The Court noted that if an employee performs a job for at least one year, even if the performance is intermittent, the law recognizes this continued need as sufficient evidence of the activity’s necessity. The Court found that Marulas Industrial Corporation deliberately intended to prevent the regularization of Malicdem and Flores. There was no actual specific project outlined in their contracts; instead, the contracts merely stipulated dates, duties, and responsibilities as extruder operators. As there was no specific project or undertaking to speak of, the respondents cannot invoke the exception in Article 280 of the Labor Code.

Moreover, the Court emphasized that even if the petitioners were initially considered project employees, the factors outlined in Maraguinot, Jr. were undeniably present. Malicdem and Flores were continuously rehired by Marulas for the same position as extruder operators. Their role in operating the machines that produced sacks was crucial to the company’s primary business. The Court cited D.M. Consunji, Inc. v. Estelito Jamin and Liganza v. RBL Shipyard Corporation, which affirmed that employment ceases to be project-based when an employee is continuously rehired due to business demands and engaged for multiple projects without interruption. The employment contracts were a mere stratagem to violate the employees’ security of tenure, the Court emphasized.

The Court rejected the respondents’ reliance on William Uy Construction Corp. v. Trinidad, clarifying that it is applicable only in the construction industry, where employment is inherently project-based and coterminous with specific projects. The Court reasoned that applying this principle outside the construction industry would unjustly burden employers by requiring them to maintain employees even when there are no projects available. Now that it has been clearly established that the petitioners were regular employees, their termination is considered illegal for lack of just or authorized causes. Under Article 279 of the Labor Code, 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.

FAQs

What was the key issue in this case?	The key issue was whether the petitioners, Macarthur Malicdem and Hermenigildo Flores, were regular employees or project-based employees of Marulas Industrial Corporation. This determined whether their termination was legal or constituted illegal dismissal.
What is a regular employee according to Philippine law?	A regular employee is one whose employment is not dependent on a specific project or fixed term. They perform tasks essential to the employer’s usual business and are entitled to security of tenure.
What is a project-based employee?	A project-based employee is hired for a specific project or undertaking, and their employment is coterminous with the completion of that project. This type of employment is common in industries like construction.
How does continuous rehiring affect an employee’s status?	Continuous rehiring for the same essential tasks can lead to an employee being classified as regular, even if they were initially hired as project-based. This is especially true if the tasks are vital to the employer’s business.
What is security of tenure?	Security of tenure is the right of a regular employee not to be dismissed without just cause and due process. It is a fundamental right protected by Philippine labor law.
What remedies are available to an illegally dismissed employee?	An illegally dismissed employee is entitled to reinstatement to their former position, full backwages (including allowances and benefits), and other applicable damages. This aims to compensate them for the loss of employment and ensure their rights are protected.
Can an employer use fixed-term contracts to avoid regularization?	No, employers cannot use fixed-term contracts to circumvent labor laws and prevent employees from attaining regular status if the nature of their work and the duration of their employment indicate a regular employment relationship. Such practices are considered illegal.
What was the basis of the Supreme Court’s decision?	The Supreme Court based its decision on Article 280 and 281 of the Labor Code, existing jurisprudence, and the factual circumstances indicating that the employees were continuously rehired for tasks essential to the employer’s business.
What does this case mean for employers?	This case serves as a reminder to employers to properly classify their employees and to avoid using project-based contracts to deprive employees of their rights to security of tenure and labor benefits. Employers must adhere to labor laws and regulations.

In conclusion, the Supreme Court’s decision in Macarthur Malicdem and Hermenigildo Flores v. Marulas Industrial Corporation and Mike Mancilla reaffirms the importance of protecting workers’ rights and preventing the circumvention of labor laws through improper use of project-based contracts. It serves as a significant precedent for determining employment status and ensuring fair labor practices in the Philippines.

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: Macarthur Malicdem and Hermenigildo Flores v. Marulas Industrial Corporation and Mike Mancilla, G.R. No. 204406, February 26, 2014