Regularization After One Year: Fixed-Term Contracts Cannot Circumvent Employee Rights

TLDR: Philippine labor law prioritizes security of tenure. Even with repeated fixed-term contracts, if an employee performs work essential to the employer’s business for over a year, they are considered regular employees, gaining protection against illegal dismissal. Employers cannot use short-term contracts to avoid regularization.

G.R. No. 122327, August 19, 1998

INTRODUCTION

Imagine working diligently for a company for years, only to be repeatedly classified as a temporary employee despite performing essential tasks. This precarious situation, faced by many Filipino workers, highlights the critical importance of security of tenure in employment. The case of Artemio J. Romares v. National Labor Relations Commission and Pilmico Foods Corporation delves into this issue, clarifying when a worker under multiple fixed-term contracts should be recognized as a regular employee with full labor rights. At the heart of the dispute was Artemio Romares, a mason hired by Pilmico Foods Corporation through several short-term contracts. The central legal question was whether Romares, despite these contracts, had attained regular employee status due to the nature and duration of his work, thus making his termination illegal.

LEGAL CONTEXT: ARTICLE 280 OF THE LABOR CODE AND REGULAR EMPLOYMENT

Philippine labor law, specifically Article 280 of the Labor Code, defines regular and casual employment to protect workers from unfair labor practices. This article is crucial in determining an employee’s rights, particularly security of tenure. It states:

“Article 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 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.”

This provision outlines two categories of regular employees:

1. Those hired to perform tasks “usually necessary or desirable” for the employer’s business, regardless of the employment contract.
2. Casual employees who have worked for at least one year, continuous or broken, in an activity related to the employer’s business.

The law aims to prevent employers from circumventing security of tenure by repeatedly hiring employees on a temporary basis for work that is actually permanent in nature. The Supreme Court, in numerous cases, has emphasized that the “usually necessary or desirable” criterion is paramount in determining regular employment. Furthermore, even if initially considered casual or temporary, an employee who renders at least one year of service performing such necessary or desirable tasks becomes regular by operation of law.

CASE BREAKDOWN: ROMARES VS. PILMICO FOODS CORPORATION

Artemio Romares was hired by Pilmico Foods Corporation as a mason in the Maintenance/Projects/Engineering Department under several short-term contracts. His employment periods were:

• September 1, 1989 to January 31, 1990
• January 16, 1991 to June 15, 1991
• August 16, 1992 to January 15, 1993

In total, Romares worked for Pilmico for over a year, performing maintenance work, including painting and repairs, tasks essential to Pilmico’s operations in producing flour and food products. Upon the expiration of his last contract on January 15, 1993, Pilmico did not renew it, effectively terminating Romares’ employment. Romares filed a complaint for illegal dismissal, arguing he had become a regular employee.

Labor Arbiter’s Decision

The Executive Labor Arbiter ruled in favor of Romares, declaring him a regular employee. The Arbiter highlighted that Romares’ repeated hiring for the same essential tasks, totaling more than one year of service, established his regular status. The Labor Arbiter stated:

“The records reveal that complainant has been hired and employed by respondent PILMICO since September 1, 1989 to January 15, 1993, in a broken tenure but all in all totalled to over a year’s service… The fact that complainant was hired, terminated and rehired again for three times in a span of more than three (3) years and performing the same functions, only bolstered our findings that complainant is already considered a regular employee…”

Based on this, the Labor Arbiter ordered Pilmico to reinstate Romares, pay backwages, and attorney’s fees.

NLRC’s Reversal

Pilmico appealed to the National Labor Relations Commission (NLRC), which reversed the Labor Arbiter’s decision. The NLRC reasoned that Romares’ employment was governed by fixed-term contracts, and his termination was simply due to contract expiration, not illegal dismissal. The NLRC emphasized the contracts were for “fixed or temporary periods.”

Supreme Court’s Ruling: Upholding Regular Employment

Romares elevated the case to the Supreme Court, which sided with the Labor Arbiter and reversed the NLRC. The Supreme Court emphasized the “usually necessary or desirable” nature of Romares’ work and his service exceeding one year. The Court stated:

“Construing the aforesaid provision, the phrase “usually necessary or desirable in the usual business or trade of the employer” should be emphasized as the criterion in the instant case. Facts show that petitioner’s work with PILMICO as a mason was definitely necessary and desirable to its business. PILMICO cannot claim that petitioner’s work as a mason was entirely foreign or irrelevant to its line of business in the production of flour, yeast, feeds and other flour products.”

The Court further noted that repeated short-term contracts were a “subterfuge” to prevent regularization and circumvent Romares’ right to security of tenure. Referencing the Brent School, Inc. vs. Zamora case, the Supreme Court clarified that while fixed-term employment is permissible, it cannot be used to undermine labor laws, especially when:

1. The fixed period was not freely and voluntarily agreed upon.
2. There is unequal bargaining power between employer and employee.

Neither of these conditions for valid fixed-term employment was met in Romares’ case. The Supreme Court concluded that Romares was a regular employee illegally dismissed and reinstated the Labor Arbiter’s decision.

PRACTICAL IMPLICATIONS: WHAT THIS MEANS FOR EMPLOYERS AND EMPLOYEES

The Romares case reinforces the principle that substance prevails over form in employment contracts. Employers cannot use fixed-term contracts as a blanket strategy to avoid regularizing employees who perform essential functions for extended periods. This ruling has significant implications for both employers and employees:

For Employers:

• Assess Job Roles Realistically: Employers must accurately assess whether a job is genuinely temporary or integral to their business. If the work is continuously needed and desirable, the position is likely for regular employment.
• Avoid Contractual Loopholes: Repeatedly hiring employees on short-term contracts for essential tasks will not shield employers from regularization requirements. Labor authorities and courts will look at the actual nature of the work and duration of service.
• Fair Labor Practices: Adopting fair labor practices, including proper regularization when due, fosters better employee relations and avoids costly legal battles.

For Employees:

• Know Your Rights: Employees should be aware that performing necessary tasks for over a year, even under fixed-term contracts, can lead to regular employment status.
• Document Your Employment: Keep records of employment contracts, payslips, and job descriptions. This documentation is crucial if you need to assert your rights.
• Seek Legal Advice: If you believe you have been unfairly denied regular employment status or illegally dismissed, consult with a labor lawyer to understand your options and protect your rights.

Key Lessons from Romares v. Pilmico Foods

• One-Year Rule: Service exceeding one year in a necessary role strongly indicates regular employment, regardless of contract terms.
• Substance Over Form: Courts prioritize the actual nature of work and length of service over contractual labels like “fixed-term” if used to circumvent labor laws.
• Security of Tenure: Philippine law strongly protects employees’ right to security of tenure, preventing arbitrary dismissals of regular employees.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1: What is considered “usually necessary or desirable” work?

A: Work is considered “usually necessary or desirable” if it is directly related to the core business operations of the employer. In Romares’ case, maintenance work was deemed necessary for Pilmico’s food production business. This is determined on a case-by-case basis, considering the nature of the employer’s industry and the employee’s tasks.

Q2: Does a break in service reset the one-year count for regularization?

A: Not necessarily. Article 280 explicitly mentions “whether such service is continuous or broken.” Short breaks or re-hiring for the same essential role will likely still count towards the one-year threshold for regularization, as seen in Romares’ case where broken periods of employment were aggregated.

Q3: Can an employer legally hire project-based or fixed-term employees?

A: Yes, project-based and fixed-term employment are legal in the Philippines under specific conditions. Project-based employment is for a specific undertaking with a determined completion date, while fixed-term employment has a pre-set end date. However, these arrangements cannot be used to circumvent regular employment for tasks that are actually ongoing and necessary for the business.

Q4: What are the consequences of illegally dismissing a regular employee?

A: Illegally dismissed regular employees are entitled to reinstatement to their former position, backwages (payment of salaries from the time of dismissal until reinstatement), and potentially damages and attorney’s fees. Employers may also face legal penalties and reputational damage.

Q5: How can an employee prove they are a regular employee despite fixed-term contracts?

A: Employees can present evidence such as employment contracts, job descriptions, performance evaluations, and testimonies from colleagues or supervisors to demonstrate the nature of their work and the duration of their service. Focus should be on showing that the work performed was essential to the employer’s business and lasted for more than one year.

Q6: What is the Brent School ruling and how does it relate to fixed-term employment?

A: The Brent School, Inc. vs. Zamora case (G.R. No. L-48494, February 5, 1990) recognized the validity of fixed-term employment contracts under specific conditions, primarily when there is equal bargaining power and the fixed term is genuinely agreed upon, not imposed to circumvent labor laws. The Romares case applies the principles of Brent School to strike down fixed-term contracts used to prevent regularization.

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