The Supreme Court ruled that employees under fixed-term contracts, repeatedly renewed over many years, can achieve regular employee status. This decision protects workers from being perpetually classified as temporary, ensuring they are entitled to security of tenure and benefits under the Labor Code. Employers cannot circumvent labor laws by continuously renewing fixed-term contracts if the nature of the work is essential and the employer exercises control over the employee’s performance. This ruling provides significant protection for employees in the Philippines whose contracts are repeatedly renewed, ensuring they are treated as regular employees with full rights and benefits.

Fifteen Years and Still Not Regular? Examining Fixed-Term Contracts in La Salle Greenhills

The case of Arlene T. Samonte, Vladimir P. Samonte, Ma. Aurea S. Elepano v. La Salle Greenhills, Inc., Bro. Bernard S. Oca, revolves around the employment status of medical professionals who served La Salle Greenhills (LSGI) under repeated “Contracts of Retainer.” For fifteen years, these professionals, including the petitioners, provided medical services to the school, with their contracts renewed annually. However, when LSGI decided to hire full-time doctors and dentists, the petitioners’ contracts were not renewed, leading to a dispute over whether they were regular employees entitled to separation pay. The central legal question is whether the repeated renewal of fixed-term contracts transforms employees into regular staff, thereby entitling them to security of tenure and associated benefits.

The factual backdrop is crucial. From 1989, LSGI engaged medical professionals, including pediatricians, dentists, and a physician, to form its Health Service Team (HST). These professionals signed uniform one-page Contracts of Retainer each academic year, typically running from June to March. These contracts explicitly stated that the retainer was temporary and limited to a specific project or task, automatically ceasing upon the specified expiration date. A sample Contract of Retainer included stipulations such as the retainer being temporary, automatically ceasing on a specified date, and terminable by La Salle Greenhills, Inc., with prior written notice if the retainer fails to perform assigned tasks satisfactorily.

After fifteen consecutive years of renewals, LSGI informed the HST members that their contracts would not be renewed, leading to the filing of a complaint for illegal dismissal. The petitioners argued they were regular employees entitled to dismissal only for just and authorized causes. They highlighted their receipt of monthly salaries, annual 13th-month pay, and yearly salary increases. Furthermore, they detailed additional tasks and responsibilities assigned to them, such as attending staff meetings, participating in school events, and conducting inspections. They presented themselves as members of the “LA SALLIAN FAMILY,” integrated into the school’s professional staff.

LSGI countered that the petitioners were independent contractors retained for their medical skills to provide ancillary services to students and faculty. LSGI asserted it had no power to impose disciplinary measures or control how the professionals performed their services. Citing Sonza v. ABS-CBN, LSGI argued that the petitioners’ services were engaged for a specific purpose, and the school did not control the means and methods of their work. LSGI maintained that the professionals were paid monthly retainer fees, not regular salaries, and were not subject to the same disciplinary measures as regular employees.

The Labor Arbiter initially dismissed the complaint, finding the petitioners to be independent contractors under retainership contracts. The Arbiter emphasized that the medical services were not essential to LSGI’s primary business of education. The Arbiter pointed out that the professionals’ pay slips reflected professional fees rather than salaries, and their clinic schedules were based on their preferences, not the school’s requirements. However, on appeal, the National Labor Relations Commission (NLRC) disagreed, stating that the services were indeed necessary, referencing the Sanitation Code of the Philippines. Nonetheless, the NLRC concluded that the petitioners were fixed-term employees, with their employment terms subject to specific duration agreements.

The Court of Appeals affirmed the NLRC’s decision, stating that the NLRC did not commit grave abuse of discretion. The appellate court emphasized that the petitioners, as professionals, should have understood the implications of the contracts they voluntarily signed. The court was unpersuaded by the petitioners’ claims of regular employment based on benefits like overtime pay and bonuses, stating that LSGI had the right to regulate all aspects of employment, regardless of the employment type. The Court of Appeals held that LSGI acted within its rights to monitor the petitioners’ performance and provide incentives, as they were hired under fixed terms and conditions.

The Supreme Court, however, took a different view. The pivotal issue was whether the Court of Appeals correctly ruled that the NLRC did not commit grave abuse of discretion in classifying the petitioners as fixed-term employees rather than regular employees. The Supreme Court emphasized that while Article 280 of the Labor Code classifies employees into regular, project, seasonal, and casual, the key factor is the nature of the work performed. It underscored the principle that an employment is deemed regular if the employee performs activities necessary or desirable in the usual business or trade of the employer, regardless of any written agreement to the contrary.

The Supreme Court distinguished the petitioners from independent contractors, noting that independent contractors typically possess unique skills and talents setting them apart from ordinary employees, with minimal control exerted over their work methods. While doctors and medical professionals can sometimes be classified as independent contractors, the NLRC and Court of Appeals correctly determined that the petitioners did not fall into this category. The Court emphasized the importance of examining whether the employer and employee dealt on equal footing, without the employer exercising moral dominance, a condition often absent in fixed-term employment contracts.

Referring to the landmark case of Brent v. Zamor, the Court cautioned that the principles therein should be strictly construed, applying only when both parties are on equal footing. The Court criticized the NLRC for perfunctorily relying on Brent without assessing whether LSGI and the petitioners negotiated on equal terms. The Supreme Court clarified that fixed-term employment is permissible only when the term is voluntarily and knowingly agreed upon by parties with equal bargaining power, absent force or undue pressure. Article 280 of the Labor Code is designed to prevent employers from circumventing employees’ rights to security of tenure by using fixed-term contracts improperly.

The Supreme Court highlighted that the nomenclature of contracts does not define employment status, which is determined by law. A contract of employment is imbued with public interest, requiring labor contracts to align with the common good and applicable statutes. Provisions of law are considered part of the contract, preventing parties from insulating themselves from labor laws and regulations. Repeated renewals of a fixed-term contract can result in regular employment status. Citing Fuji Network Television v. Espiritu, the Court reiterated that fixed-term contracts do not automatically preclude regular employment, especially when the work is necessary and desirable to the employer’s business.

The Supreme Court disagreed with the Court of Appeals’ disregard for the repeated renewals of the petitioners’ Contracts of Retainer over fifteen years. The Court found that the petitioners, despite being medical professionals, were not on equal footing with LSGI, as they likely feared losing their jobs. The contracts lacked specificity regarding employment terms, indicating an imbalance of power. LSGI retained significant control over the petitioners, with the right to terminate the contract if the retainer failed to perform assigned tasks satisfactorily, underscoring LSGI’s control over the petitioners.

Ultimately, the Supreme Court ruled that the petitioners had attained regular employment status, entitled to security of tenure, and could only be dismissed for just and authorized causes. The Court based its decision on the repeated contract renewals, the necessity of the petitioners’ work as school physicians and dentists, and LSGI’s power of control over their work methods. As a result, the petitioners were illegally dismissed and were entitled to separation pay and full back wages. The case was remanded to the NLRC to determine the appropriate amounts of separation pay and back wages, covering the period from when the petitioners were prevented from returning to work in the 2004 school year.

FAQs

What was the key issue in this case?	The key issue was whether the petitioners, who had been working under fixed-term contracts repeatedly renewed for fifteen years, should be considered regular employees of La Salle Greenhills, Inc.
What is a fixed-term employment contract?	A fixed-term employment contract is an agreement where the employment period is specified, with a defined start and end date. These contracts are generally for a specific project or time frame and are not meant for indefinite employment.
Under what conditions can a fixed-term contract lead to regular employment?	A fixed-term contract can lead to regular employment if the work performed is necessary for the employer’s business, the contract is repeatedly renewed, and the employer exercises control over the employee’s work. These factors indicate that the employee is performing regular functions.
What is the significance of Article 280 of the Labor Code in this case?	Article 280 of the Labor Code defines regular employment and aims to prevent employers from circumventing employees’ rights to security of tenure by using fixed-term contracts improperly. It ensures that employees performing necessary work are considered regular, regardless of contract stipulations.
What factors did the Supreme Court consider in determining that the petitioners were regular employees?	The Supreme Court considered the repeated renewal of contracts over fifteen years, the necessity of the work as school physicians and dentists, and La Salle Greenhills’ control over the work methods of the petitioners. These factors indicated regular employment status.
What is the “control test” and how does it apply to this case?	The “control test” determines whether an employer-employee relationship exists by examining the employer’s control over the means and methods of the employee’s work. In this case, the Supreme Court found that La Salle Greenhills exercised sufficient control over the petitioners.
What remedies are available to employees who are illegally dismissed after being deemed regular employees?	Employees who are illegally dismissed after being deemed regular employees are entitled to reinstatement (if feasible) and full back wages. If reinstatement is not possible, they are entitled to separation pay in addition to back wages.
What was the final ruling of the Supreme Court in this case?	The Supreme Court ruled that the petitioners were regular employees and were illegally dismissed. The case was remanded to the NLRC for the computation of separation pay and full back wages from the time the petitioners were prevented from returning to work.

This case underscores the importance of evaluating the true nature of the employment relationship, regardless of the contractual label assigned. Continuous renewals of fixed-term contracts for essential services, coupled with employer control, can lead to the recognition of regular employment status, entitling workers to greater protection under the law. This ruling safeguards the rights of employees and prevents the circumvention of labor laws through the misuse of fixed-term contracts.

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: ARLENE T. SAMONTE, ET AL. VS. LA SALLE GREENHILLS, INC., ET AL., G.R. No. 199683, February 10, 2016