Fixed-Term Contracts as a Scheme to Circumvent Security of Tenure

TLDR: This case clarifies that repeatedly hiring employees on fixed-term contracts for tasks essential to the business, only to replace them with others on similar contracts, is an illegal circumvention of the right to security of tenure. Such practices will be struck down as contrary to public policy and morals.

G.R. No. 122653, December 12, 1997

Introduction

Imagine working tirelessly for a company, only to be let go every few months, replaced by someone doing the exact same job. This precarious situation is a reality for many Filipino workers employed under fixed-term contracts. The Supreme Court case of Pure Foods Corporation v. NLRC addresses this issue, protecting employees from schemes designed to circumvent their right to security of tenure. The case revolves around whether employees hired on a fixed-term basis, performing tasks essential to the employer’s business, should be considered regular employees.

Pure Foods Corporation repeatedly hired workers for five-month periods at its tuna cannery. After each contract expired, the employees were terminated and replaced. The central legal question was whether this practice was a legitimate use of fixed-term contracts or an illegal attempt to avoid providing regular employment benefits and security.

Legal Context: Regular vs. Fixed-Term Employment

The Labor Code of the Philippines distinguishes between regular and casual (or fixed-term) employment. Article 280 of the Labor Code defines regular employment, stating:

“ART. 280. Regular and Casual Employment.– The provisions of written agreement to the contrary notwithstanding and regardless of the oral argument 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 activity exists.”

The key takeaway is that if an employee performs tasks necessary or desirable to the employer’s business, they are considered regular employees, regardless of any written agreement stating otherwise. The exception is when the employment is for a specific project or undertaking or is seasonal in nature.

The Supreme Court, in Brent School, Inc. v. Zamora, recognized the validity of fixed-term employment, but cautioned against its use to circumvent labor laws. The Court emphasized that the fixed period must be agreed upon voluntarily and without coercion, and that the employer and employee must deal on equal terms.

Case Breakdown: Pure Foods’ Employment Practices

Over 900 employees of Pure Foods Corporation filed a complaint for illegal dismissal after their five-month contracts were terminated. They argued that they were performing tasks essential to the company’s tuna cannery operations and should be considered regular employees.

Here’s a breakdown of the case’s procedural journey:

• Labor Arbiter: Initially dismissed the complaint, siding with Pure Foods and deeming the workers contractual, not regular, employees.
• NLRC (Fifth Division): Affirmed the Labor Arbiter’s decision.
• NLRC (upon Motion for Reconsideration): Reversed its earlier decision, declaring the employees as regular and the five-month contract a scheme to avoid security of tenure.
• Supreme Court: Affirmed the NLRC’s final decision, emphasizing the employees’ right to security of tenure.

The Supreme Court highlighted the nature of the employees’ work, stating:

“In the instant case, the private respondents’ activities consisted in the receiving, skinning, loining, packing, and casing-up of tuna fish which were then exported by the petitioner. Indisputably, they were performing activities which were necessary and desirable in petitioner’s business or trade.”

The Court found that Pure Foods’ practice of repeatedly hiring workers on five-month contracts, only to replace them with others on similar terms, was a clear attempt to circumvent labor laws. As the Court stated:

“This scheme of the petitioner was apparently designed to prevent the private respondents and the other “casual” employees from attaining the status of a regular employee. It was a clear circumvention of the employees’ right to security of tenure and to other benefits like minimum wage, cost-of-living allowance, sick leave, holiday pay, and 13th month pay.”

The Court also dismissed the “Release and Quitclaim” signed by the employees, stating that such documents are often frowned upon as they are contrary to public policy and do not bar employees from claiming their full legal rights.

Practical Implications: Protecting Workers’ Rights

This ruling serves as a warning to employers who attempt to use fixed-term contracts as a means of avoiding their obligations to regularize employees performing essential tasks. It reinforces the principle that employees cannot be deprived of their right to security of tenure through contractual manipulation.

Key Lessons:

• Essential Tasks: If employees perform tasks necessary or desirable to the employer’s business, they are likely to be considered regular employees.
• Repeated Hiring: Repeatedly hiring employees on fixed-term contracts for the same tasks can be seen as a scheme to circumvent labor laws.
• Equal Terms: Fixed-term contracts must be entered into voluntarily and on equal terms between employer and employee.
• Quitclaims: Quitclaims do not automatically waive an employee’s rights, especially if signed under duress or without full understanding.

Frequently Asked Questions

Q: What is security of tenure?

A: Security of tenure is the right of an employee to remain in their job unless there is a just or authorized cause for termination.

Q: What makes an employee a “regular” employee?

A: An employee is considered regular if they perform tasks necessary or desirable to the employer’s usual business or have rendered at least one year of service, regardless of their initial employment agreement.

Q: Can an employer always use fixed-term contracts?

A: Yes, but only under specific circumstances, such as for specific projects, undertakings, or seasonal work. The terms must be genuinely agreed upon without coercion.

Q: What happens if a fixed-term contract is deemed illegal?

A: The employee is considered a regular employee from the start of their employment, entitling them to all the rights and benefits of regular employees, including security of tenure.

Q: Are “Release and Quitclaim” agreements always valid?

A: No. They are often scrutinized by courts, especially if there’s evidence of coercion or unequal bargaining power. Employees cannot waive their rights if the agreement is unfair or against public policy.

Q: What should I do if I suspect my employer is using fixed-term contracts to avoid regularization?

A: Consult with a labor lawyer to assess your situation and understand your rights. Gather evidence of your work, the nature of your tasks, and the company’s hiring practices.

ASG Law specializes in Labor Law. Contact us or email hello@asglawpartners.com to schedule a consultation.