EDILBERTO PADPAD, ET. AL., PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, TOP RATE CONSTRUCTION & GENERAL SERVICES, INC. AND/OR ALFREDO HOCSON AND RAUL NELSON S. SAÑARES,…

Padpad versus National Labor Relations Commission

The Case

This is a labor case about thirty-six workers — messengers, janitors, drivers, and utility personnel — who were assigned by a manpower and construction firm, Top Rate Construction and General Services, to work at Banco Filipino Savings and Mortgage Bank. When the bank was closed and placed under receivership, the service agreement between Top Rate and the bank ended, and the workers' engagements ended with it. The workers sued for illegal dismissal and constructive dismissal, insisting that after many years of service they had become regular employees entitled to security of tenure. The case matters because it draws the line between regular and project employment, and it teaches when the end of a service agreement lawfully ends the worker's employment without separation pay.

Procedural History

The workers filed their complaint before the Labor Arbiter, who dismissed the complaint for illegal dismissal for lack of merit. The Labor Arbiter held that the workers were project employees whose employment was co-terminous with the service agreement between Top Rate and Banco Filipino, and ordered Top Rate to pay each complainant two days of wages, proportionate thirteenth month pay for 2011, and proportionate service incentive leave pay, in the total sum of 168,963 pesos and 65 centavos. On appeal, the National Labor Relations Commission affirmed the Labor Arbiter, holding that the workers were project employees under Article 280 of the Labor Code and that there was no illegal dismissal. The workers moved for reconsideration, which was denied. They then came to the Supreme Court by a petition for certiorari under Rule 65, charging the Commission with grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

Top Rate is a construction and manpower firm registered with the Department of Labor and Employment as a legitimate job contractor. It entered into a service agreement with Banco Filipino to provide janitorial, messengerial, maintenance, and other services. Under that agreement, Top Rate hired the petitioners and assigned them to the bank. Their contracts stated that their employment was co-terminous with the service agreement between Top Rate and Banco Filipino. The workers served for periods ranging from five to twenty years, signing their contracts each time without objection.

On March 17, 2011, Banco Filipino declared a bank holiday. The Philippine Deposit Insurance Corporation took over the bank and placed it under receivership. With the takeover, the service agreement between Top Rate and the bank was terminated, and the workers' engagements expired with it.

On March 21, 2011, the workers went to the office of Top Rate to inquire about their employment status. They were given a certification, signed by Top Rate's assistant vice-president, stating that they were contractual employees, issued for employment purposes. The workers claimed they were constructively dismissed: the certification mislabeled them as contractual, their wages for March 11 to 17, 2011 were unpaid, their wages from March 17 onward were unpaid, and Top Rate failed to ascertain their true employment status. Top Rate answered that the workers were project employees whose contracts simply expired when the service agreement ended.

Issues

• Whether or not the National Labor Relations Commission committed grave abuse of discretion amounting to lack or excess of jurisdiction in affirming that the petitioners were project employees and not regular employees.
• Whether or not the petitioners were illegally dismissed or constructively dismissed by reason of the closure of Banco Filipino and the termination of the service agreement.
• Whether or not the petitioners are entitled to separation pay and backwages.
• Whether or not the failure of only one petitioner to sign the verification and certification against forum shopping, and the authority of that petitioner to file the petition, barred the petition.

Applicable Provisions

Article 280 of the Labor Code provides:

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.

This is the provision that classifies employees into regular, project, and casual, and it is the basis for holding the petitioners to be project employees.

Section 9 of Department Order No. 18-02 provides:

SECTION 9. Contract Between Contractor or Subcontractor and Contractual Employee. — Notwithstanding oral or written stipulations to the contrary, the contract between the contractor or subcontractor and the contractual employee, which shall be in writing, shall include the following terms and conditions: (a) The specific description of the job; work or service to be performed by the contractual employee; (b) The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual contractual employee; and (c) The term or duration of employment, which shall be coextensive with the contract of the principal and subcontractor, or with the specific phase for which the contractual employee is engaged, as the case may be.

This provision supports the finding that the petitioners' contracts, which fixed their jobs and made their terms co-extensive with the service agreement, were valid project employment contracts.

Section 10 of Department Order No. 18-02 provides:

SECTION 10. Effect of Termination of Contractual Employment. — In cases of termination of employment prior to the expiration of the contract between the principal and the contractor or subcontractor; the right of the contractual employee to separation pay or other related benefits shall be governed by the applicable laws and jurisprudence on termination of employment. Where the termination results from the expiration of the contract between the principal and the contractor or subcontractor, or from the completion of the phase of the job, work or service for which the contractual employee is engaged, the latter shall not be entitled to separation pay. However, this shall be without prejudice to completion bonuses or other emoluments, including retirement pay as may be provided by law or in the contract between the principal and the contractor or subcontractor.

This is the provision that denies separation pay when employment ends because the contract between the principal and the contractor expired.

Section 1 of Rule XXIII, Book V of the Omnibus Rules Implementing the Labor Code provides:

Section 1. Security of tenure. — (a) In cases of regular employment, the employer shall not terminate the services of an employee except for just or authorized causes as provided by law, and subject to the requirements of due process. (c) In cases of project employment or employment covered by legitimate contracting or sub-contracting arrangements, no employee shall be dismissed prior to the completion of the project or phase thereof for which the employee was engaged, or prior to the expiration of the contract between the principal and contractor, unless the dismissal is for just or authorized cause subject to the requirements of due process or prior notice, or is brought about by the completion of the phase of the project or contract for which the employee was engaged.

This provision shows that notice and hearing are required only when the project employee is dismissed before the project or contract is completed, not when the contract simply expires.

Ruling

On the first issue, the Court held that the Commission did not commit grave abuse of discretion. The petitioners themselves admitted that Top Rate is an independent job contractor, and its certificate of registration from the Department of Labor and Employment carried the presumption of regularity. Article 280 comprehends three kinds of employees: regular, project, and casual. The petitioners were project employees: each was given a specific job, assigned to Banco Filipino, and hired for a term co-extensive with the service agreement. The Court stressed that the length of service of a project employee is not the controlling test of employment tenure, but whether the employment was fixed for a specific project or undertaking whose completion or termination was determined at the time of engagement.

On the second issue, the Court held that there was no illegal or constructive dismissal. When the Philippine Deposit Insurance Corporation closed Banco Filipino, the service agreement necessarily ceased, and the petitioners' employment was validly terminated under Section 10 of Department Order No. 18-02. The requirements of just or authorized cause and prior notice apply only when the employee is dismissed before completion of the project or contract, and here the termination was brought about by the expiration of the contract itself. The Court also rejected the argument based on the failure to file termination reports, because the governing policy instructions apply only in the construction industry, not to workers assigned to a banking institution.

On the third issue, the Court held that, as project employees whose employment ended with the expiration of the service agreement, the petitioners are not entitled to separation pay and backwages. The Labor Arbiter's award of two days of wages, proportionate thirteenth month pay, and proportionate service incentive leave pay stood.

On the fourth issue, the Court disregarded the procedural flaw. The verification was substantially complied with when one petitioner with sufficient knowledge swore to the truth of the allegations, and the certification against forum shopping was substantially complied with because all the petitioners shared a common interest and a common cause of action. The signing petitioner was also authorized under a special power of attorney.

Doctrine

A project employee is one whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of engagement. The length of service of a project employee is not the controlling test of employment tenure; what controls is whether the employment was fixed for a specific undertaking. A legitimate job contractor's certificate of registration from the Department of Labor and Employment carries the presumption of regularity. When a project employee's employment ends because the contract between the principal and the contractor expired, the employee is not entitled to separation pay, and the requirements of just or authorized cause and prior notice do not apply, because no dismissal before completion of the contract occurred. These rules flow directly from Article 280 of the Labor Code and Sections 9 and 10 of Department Order No. 18-02.

Disposition

The petition was dismissed for lack of merit, and the decision and resolution of the National Labor Relations Commission were affirmed; the workers lost, and no separation pay or backwages were awarded.

Remember This

Memorize this line: the length of service of a project employee is not the controlling test of employment tenure, but whether the employment was fixed for a specific project or undertaking determined at the time of engagement. Examiners use this case to test the project employee versus regular employee distinction, and the rule that expiration of the service agreement ends employment without separation pay.