This Supreme Court decision clarifies the rights of workers paid on a piece-rate basis (‘pakyaw’ workers) who are illegally dismissed. The Court ruled that these workers, if considered regular employees due to the employer’s control over their work, are entitled to reinstatement with backwages, or separation pay if reinstatement is not feasible. Additionally, the decision confirms their entitlement to holiday pay and service incentive leave, while clarifying the ineligibility for 13th-month pay due to existing regulations. This ensures that ‘pakyaw’ workers are afforded the same labor protections as other regular employees, safeguarding their security of tenure and basic labor rights.

Casket Makers’ Contract: Regular Employment vs. Unfair Dismissal?

The case of A. Nate Casket Maker vs. Elias V. Arango (G.R. No. 192282, October 5, 2016) revolves around a labor dispute between several employees and A. Nate Casket Maker, a business engaged in casket manufacturing. The central issue is whether the employees, who were paid on a piece-rate basis (‘pakyaw’ workers), were illegally dismissed and, if so, what benefits they are entitled to. This dispute highlights the complexities of employment relationships and the protection afforded to workers under Philippine labor laws.

The factual backdrop reveals that the employees, working as carpenters, painters, and ‘mascilladors’, had been employed by A. Nate Casket Maker for several years. A conflict arose when the employer presented them with an employment contract that sought to change their status to contractual, with a fixed term of five months and a waiver of certain benefits typically granted to regular employees. The employees refused to sign the contract, leading to their alleged termination. They filed a complaint for illegal dismissal, underpayment of wages, and non-payment of other benefits.

The Labor Arbiter (LA) initially dismissed the complaint, a decision affirmed by the National Labor Relations Commission (NLRC). The NLRC reasoned that there was insufficient evidence of dismissal and that ‘pakyaw’ workers are not typically entitled to the claimed benefits. However, the Court of Appeals (CA) reversed these decisions, finding that the employees were indeed illegally dismissed and were entitled to certain monetary benefits. The Supreme Court then took up the case to determine the correctness of the CA’s decision.

At the heart of the legal analysis is the determination of the employees’ employment status. Article 280 of the Labor Code defines regular employment, stating that an employee is deemed regular if they perform activities that are usually necessary or desirable in the usual business or trade of the employer. The Supreme Court emphasized that the tasks performed by the employees were integral to the casket-making business. Moreover, the Court applied the ‘control test’, noting that the employer exercised control over the employees’ work by instructing them on the casket-making process and checking their completed work.

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…

Having established that the employees were regular, the Court addressed the issue of illegal dismissal. The burden of proving a just and valid cause for dismissal lies with the employer. The Court found that the employer failed to present sufficient evidence of a valid cause for termination, such as misconduct or poor performance. The employer’s attempt to change the terms of employment through a disadvantageous contract, coupled with the subsequent termination when the employees refused to sign, indicated an act of illegal dismissal. It is critical to note that employers cannot circumvent labor laws by using contracts that deprive employees of their security of tenure.

Regarding the monetary claims, the Court differentiated between the types of benefits. It affirmed the CA’s ruling that the employees were entitled to holiday pay and service incentive leave (SIL). Citing the case of David v. Macasio, the Court clarified that ‘pakyaw’ workers are entitled to these benefits unless they fall under the definition of ‘field personnel’. Since the employees worked at the employer’s premises and their work hours could be reasonably determined, they were not considered field personnel and were therefore entitled to holiday pay and SIL.

However, the Court ruled differently regarding the 13th-month pay. Presidential Decree No. 851 and its implementing rules exempt employers of those paid on a ‘task basis’ from providing 13th-month pay. The Court emphasized that this exemption applies regardless of whether the task worker is also considered a field personnel. Thus, the employees were deemed ineligible for 13th-month pay.

The decision highlights the importance of security of tenure, a right guaranteed to all workers under the Constitution and the Labor Code. This right protects employees from arbitrary dismissal and ensures that they can only be terminated for just or authorized causes, following due process. The Court underscored that employers must comply with both substantive and procedural due process when terminating an employee. This includes providing a written notice of termination stating the grounds for dismissal and giving the employee an opportunity to be heard.

In cases of illegal dismissal, employees are entitled to reinstatement and backwages. Reinstatement restores the employee to their former position, while backwages compensate for the wages lost due to the illegal dismissal. The Court acknowledged that reinstatement may not always be practical, especially if the employment relationship has been strained. In such cases, separation pay may be awarded in lieu of reinstatement. The Supreme Court in this case deferred to the CA’s finding that separation pay was warranted because nine years had passed, making reinstatement impractical.

The determination of backwages for piece-rate workers requires a careful assessment of their varying degrees of production and days worked. The Court directed the NLRC to conduct further proceedings to determine the appropriate amount of backwages due to each employee, ensuring a fair and accurate calculation based on their actual work performance. The court emphasized that this should not impede the award of separation pay as earlier determined.

FAQs

What was the key issue in this case?	The central issue was whether the ‘pakyaw’ workers were illegally dismissed and, if so, what benefits they were entitled to, considering their employment status and mode of payment.
What is a ‘pakyaw’ worker?	A ‘pakyaw’ worker is someone paid on a piece-rate or task basis, where compensation is based on the number of items produced or tasks completed rather than a fixed salary or hourly wage.
How did the court determine the employment status of the workers?	The court applied the ‘control test’, examining whether the employer had the right to control not only the result of the work but also the means and methods by which it was accomplished.
What is the ‘control test’?	The ‘control test’ is a legal standard used to determine whether an employer-employee relationship exists. It focuses on the employer’s power to control the manner and details of the employee’s work performance.
What is security of tenure?	Security of tenure is the right of an employee to remain in their job unless there is a just or authorized cause for termination, ensuring protection against arbitrary dismissal.
What benefits are illegally dismissed employees entitled to?	Illegally dismissed employees are generally entitled to reinstatement, full backwages, and other benefits, or separation pay if reinstatement is no longer feasible.
Are ‘pakyaw’ workers entitled to holiday pay and service incentive leave (SIL)?	Yes, ‘pakyaw’ workers are entitled to holiday pay and SIL unless they are classified as ‘field personnel’, meaning they regularly perform their duties away from the employer’s premises and their hours cannot be reasonably determined.
Are ‘pakyaw’ workers entitled to 13th-month pay?	No, ‘pakyaw’ workers are generally not entitled to 13th-month pay, as they fall under the exemption provided in the rules and regulations implementing Presidential Decree No. 851.
What is the significance of this ruling?	The ruling reinforces the protection of workers’ rights, clarifying that ‘pakyaw’ workers who are considered regular employees are entitled to the same labor protections as other regular employees.

This case serves as a reminder of the importance of upholding workers’ rights and ensuring fair labor practices. It emphasizes that employers must not exploit vulnerable workers through unfair contracts or arbitrary dismissals. The decision reinforces the principle that the law protects employees and will not tolerate attempts to circumvent its intent. This ruling is vital for both employers and employees to understand their respective rights and obligations under Philippine labor law.

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: A. Nate Casket Maker vs. Elias V. Arango, G.R. No. 192282, October 5, 2016