Key Takeaway: The Importance of Proper Employment Classification and Documentation

Square Meter Trading Construction and Lito C. Pascual v. Court of Appeals, et al., G.R. No. 225914, January 26, 2021

Imagine you’re a construction worker, hired to work on a specific project. You’re told your employment will end when the project does. But what happens when the project ends and you’re not rehired? Are you a project employee or a regular one? This question lies at the heart of a significant Supreme Court case that could impact thousands of Filipino workers in the construction industry.

The case of Square Meter Trading Construction and Lito C. Pascual versus the Court of Appeals and several former employees revolved around the classification of workers as either project or regular employees. The central issue was whether the workers, who were dismissed after the completion of various projects, were entitled to reinstatement and backwages as regular employees, or if they were correctly classified as project employees whose employment naturally ended with the projects.

Legal Context: Project vs. Regular Employment

In the Philippines, the distinction between project and regular employment is crucial, as it determines workers’ rights to job security, benefits, and remedies upon termination. The Labor Code, specifically Article 295 (formerly Article 280), defines regular employment as one where the employee has been engaged to perform activities usually necessary or desirable in the usual business or trade of the employer.

On the other hand, project employment is defined under Department Order No. 19, Series of 1993, which outlines specific indicators for project employees in the construction industry. These include:

• The duration of the specific project is reasonably determinable.
• The work/service is performed in connection with the particular project.
• The employee is free to offer services to other employers when not engaged.
• The termination of employment is reported to the Department of Labor and Employment (DOLE) within 30 days.

The Supreme Court has emphasized that for an employee to be considered a project employee, the employer must clearly show the project’s scope and duration at the time of hiring. Failure to do so results in the presumption of regular employment, as seen in cases like Samson v. NLRC and Hanjin Heavy Industries and Construction Co., Ltd. v. Ibañez.

Case Breakdown: From Labor Arbiter to Supreme Court

The journey of this case began with two separate complaints filed by the workers against Square Meter Trading Construction. The first complaint was for underpayment of wages and other monetary benefits, while the second was for illegal dismissal and unfair labor practices.

In the first case, the Labor Arbiter (LA) initially dismissed the workers’ claims, finding them to be project employees. This decision was appealed to the National Labor Relations Commission (NLRC), which affirmed the LA’s ruling. However, the Court of Appeals (CA) reversed this, declaring the workers (except one, Oscar Borja) as project employees but entitled to certain monetary benefits.

The second case took a different path. The LA found the workers to be regular employees who were illegally dismissed, ordering reinstatement and backwages. The NLRC initially reversed this decision, citing res judicata based on the first case’s outcome. However, the CA again reversed, affirming the LA’s finding of regular employment and illegal dismissal.

The Supreme Court’s decision hinged on the principle of res judicata and the proper classification of the workers. The Court held:

“The nature of private respondents’ employment was not squarely contended nor fully litigated by the parties in the first case as the complaint was on pure money claims.”

This meant that the CA’s ruling in the first case did not preclude the second case from determining the workers’ employment status. However, the Court treated Oscar Borja differently, as the first case had conclusively determined he was not an employee at all.

The Court ultimately found that, except for Borja, the workers were regular employees due to the employer’s failure to provide evidence of their project-based status, such as project contracts or termination reports to DOLE.

Practical Implications: What This Means for Employers and Employees

This ruling underscores the importance of proper documentation and clear communication of employment terms, especially in project-based industries like construction. Employers must:

• Clearly define the scope and duration of projects in employment contracts.
• Submit termination reports to DOLE after each project’s completion.
• Ensure that employees understand their status as project or regular employees from the outset.

For employees, this case reaffirms their right to security of tenure and the importance of challenging misclassification. It also highlights the potential for backwages and separation pay if illegally dismissed.

Key Lessons:

• Proper classification of employees is crucial for both legal compliance and fair treatment.
• Employers must maintain meticulous records and follow DOLE reporting requirements.
• Employees should be aware of their rights and the criteria distinguishing project from regular employment.

Frequently Asked Questions

What is the difference between a project employee and a regular employee?

A project employee is hired for a specific project with a defined duration, while a regular employee performs tasks necessary to the employer’s usual business and has greater job security.

How can an employer prove that an employee is a project employee?

Employers must provide evidence such as project contracts, clear communication of project duration at hiring, and submission of termination reports to DOLE after each project.

What happens if an employer fails to properly classify an employee?

If misclassified, an employee presumed to be regular may be entitled to reinstatement, backwages, and other benefits if dismissed without just cause or due process.

Can a project employee become a regular employee?

Yes, if a project employee is continuously rehired and performs tasks necessary to the employer’s business, they may be considered regular.

What should I do if I believe I’ve been misclassified as a project employee?

Seek legal advice to review your employment contract and circumstances. You may file a complaint with the Labor Arbiter for proper classification and potential remedies.

ASG Law specializes in labor and employment law. Contact us or email hello@asglawpartners.com to schedule a consultation.