Continuous Re-Hiring Can Transform Project Employees into Regular Employees

Serrano v. Loxon Philippines, Inc., G.R. No. 249092, September 30, 2020

Imagine working for the same company for over two decades, only to find yourself suddenly out of a job because you refused to sign a new contract. This is the reality that Armando N. Serrano faced after dedicating 21 years to Loxon Philippines, Inc. His case raises critical questions about the nature of employment and the rights of workers in the Philippines. At the heart of the dispute was whether Serrano, who was repeatedly hired for various projects, should be considered a regular employee rather than a project-based one. The Supreme Court’s decision in this case not only clarified the legal status of employees like Serrano but also set a precedent that impacts how companies manage their workforce.

The key issue in Serrano v. Loxon Philippines, Inc. was whether an employee who is continuously rehired for different projects by the same employer can be classified as a regular employee. Serrano argued that his long-term engagement with Loxon, performing tasks essential to the company’s business, should grant him the status of a regular employee, thus entitling him to security of tenure and protection against arbitrary dismissal.

Legal Context

In the Philippines, the Labor Code defines a regular employee as one who is engaged to perform activities that are necessary or desirable in the usual business or trade of the employer. This is outlined in Article 295 of the Labor Code, which states, “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.”

The distinction between regular and project employees is crucial because regular employees enjoy greater job security and benefits. A project employee, on the other hand, is hired for a specific project or undertaking, the completion of which is determined at the time of engagement. However, if a project employee is repeatedly rehired for different projects, as in Serrano’s case, the nature of their employment can shift.

The Supreme Court has previously ruled in cases like Paregele v. GMA that continuous and repeated engagement in tasks integral to the employer’s business can lead to regularization. This principle is essential for understanding how the court viewed Serrano’s employment status.

Case Breakdown

Armando Serrano began working for Loxon Philippines, Inc. in 1994 as a Helper Service Technician, tasked with installing and maintaining smoke detectors and fire alarms. Over the next 21 years, he was repeatedly hired for various projects, performing the same tasks essential to Loxon’s business of building management.

In December 2015, Loxon required Serrano and other employees to sign a document stating that their contract would end by the end of the year, with a new contract offered for three months. Serrano refused to sign, believing he was a regular employee due to his long service. Despite submitting required documents like an NBI Clearance and Medical Certificate, Serrano was not reassigned to any project and was effectively dismissed.

Serrano filed a complaint for illegal dismissal, which was initially dismissed by the Labor Arbiter (LA) and upheld by the National Labor Relations Commission (NLRC). Both bodies considered Serrano a project employee whose contract had simply expired. The Court of Appeals (CA) also denied Serrano’s petition, affirming the lower courts’ decisions.

However, the Supreme Court reversed these rulings. The Court emphasized that Serrano’s continuous employment for over two decades, performing tasks integral to Loxon’s business, should classify him as a regular employee. The Court stated, “It is obvious in this case that his periodic contracts of employment were resorted to in order to prevent Armando from becoming a regular employee of Loxon.”

The Court also noted Loxon’s failure to comply with Department Order No. 19, which requires employers to report the termination of project employees to the Department of Labor and Employment (DOLE) after each project’s completion. Loxon’s lack of termination reports for Serrano’s previous assignments further supported the argument that he was not a project employee.

Finally, the Court highlighted that Serrano’s inclusion in the 2014 payroll without being assigned to any project indicated his regular employee status. The Court ruled, “Armando is a regular employee of Loxon, and cannot be considered a project employee.”

Practical Implications

The Supreme Court’s decision in Serrano v. Loxon Philippines, Inc. has significant implications for employers and employees alike. Companies must be cautious in their use of project employment contracts to avoid inadvertently regularizing employees through continuous re-hiring. Employers should ensure compliance with DOLE reporting requirements to maintain the project employee status of their workers.

For employees, this ruling reinforces the importance of understanding their employment status and rights under the Labor Code. Workers who are repeatedly rehired for different projects should be aware that their continuous engagement could entitle them to regular employee status and the associated benefits.

Key Lessons:

• Continuous re-hiring for different projects can lead to regularization if the tasks performed are integral to the employer’s business.
• Employers must comply with DOLE reporting requirements to maintain the project employee status of their workers.
• Employees should be vigilant about their employment status and seek legal advice if they believe they are being misclassified.

Frequently Asked Questions

What is the difference between a regular and a project employee?
A regular employee performs tasks necessary or desirable to the employer’s usual business and enjoys security of tenure. A project employee is hired for a specific project or undertaking with a predetermined duration.

Can a project employee become a regular employee?
Yes, if a project employee is repeatedly rehired for different projects and performs tasks essential to the employer’s business, they may be considered a regular employee.

What are the employer’s obligations regarding project employees?
Employers must report the termination of project employees to the DOLE after each project’s completion to maintain their project employee status.

What should an employee do if they believe they are being misclassified?
Employees should gather evidence of their continuous employment and seek legal advice to determine their correct employment status.

How can this ruling affect future employment disputes?
This ruling sets a precedent that continuous re-hiring for different projects can lead to regularization, potentially affecting how employers structure their workforce and how employees assert their rights.

ASG Law specializes in labor and employment law in the Philippines. Contact us or email hello@asglawpartners.com to schedule a consultation and ensure your employment rights are protected.