HANJIN HEAVY INDUSTRIES AND CONSTRUCTION CO. LTD., HAK KON KIM AND/OR JHUNIE ADAJAR PETITIONERS, VS. FELICITO IBAÑEZ, LIGWAS CAROLINO, ELMER GACULA, ENRIQUE DAGOTDOT AND RUEL CA…

Hanjin Heavy Industries and Construction Company versus Ibañez

The Case

This is a labor case brought by construction workers against their foreign employer, Hanjin Heavy Industries and Construction Company, Limited, together with its Project Director and Supervisor. The workers claimed they were regular employees who were illegally dismissed, while the company insisted they were merely project employees whose services lawfully ended upon completion of a construction project. The case matters because it clarifies the crucial distinction between regular and project employees in the construction industry, and it underscores the employer's heavy burden of proving that a dismissal was valid.

Procedural History

The workers filed a complaint for illegal dismissal with the Labor Arbiter, who ruled in their favor and declared them regular employees who were illegally dismissed. The company appealed to the National Labor Relations Commission, which reversed the Labor Arbiter and dismissed the complaint, holding that the workers were project employees. The workers then appealed to the Court of Appeals, which reversed the National Labor Relations Commission and reinstated the Labor Arbiter's ruling that the workers were regular employees, though it deleted the awards for moral and exemplary damages. The company then came to the Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of Court.

Facts

The workers were hired by the company on various dates between 1992 and 2000 for positions such as tireman, crane operator, welder, and warehouseman. They claimed their tasks were usual and necessary to the company's construction business, and that they were part of a work pool from which the company drew workers for its various projects, including the North Harbor project, the Manila International Port, the Batangas Port, and the La Mesa Dam. On 15 April 2002, the company dismissed them, even as other projects were still ongoing and new workers were being hired.

The company claimed the workers were project employees hired for the LRT/MRT Line 2 Package 2 and 3 Project, with contracts lasting three months and automatically renewable. However, the company failed to produce these employment contracts before the Labor Arbiter. The company later admitted that due to a lapse in management procedure, no written contracts were executed at all. The company filed a single Termination Report with the Department of Labor and Employment on 11 April 2002, and presented payroll records showing payments labeled as completion bonus, along with quitclaims signed by the workers.

Issues

• Whether or not the Court of Appeals erred in ruling that the workers were regular employees and not project employees.
• Whether or not the workers were illegally dismissed.

Applicable Provisions

Article 280 of the Labor Code, which distinguishes regular from casual employment, provides:

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 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 sets the principal test for determining whether workers are project or regular employees: whether they were assigned to a specific project whose duration and scope were determined and made known to them at the time of hiring.

Clause 3.3(a) of Department Order Number 19, Series of 1993, which governs employment in the construction industry, provides:

a) Project employees whose aggregate period of continuous employment in a construction company is at least one year shall be considered regular employees, in the absence of a "day certain" agreed upon by the parties for the termination of their relationship. Project employees who have become regular shall be entitled to separation pay. A "day" as used herein, is understood to be that which must necessarily come, although it may not be known exactly when. This means that where the final completion of a project or phase thereof is in fact determinable and the expected completion is made known to the employee, such project employee may not be considered regular, notwithstanding the one-year duration of employment in the project or phase thereof or the one-year duration of two or more employments in the same project or phase of the project.

This provision creates a presumption of regularity for construction workers employed for at least one year, unless a day certain for termination was agreed upon.

Section 2.2 of Department Order Number 19, Series of 1993, which lists indicators of project employment, provides in relevant part:

2.2 Indicators of project employment. - Either one or more of the following circumstances, among others, may be considered as indicators that an employee is a project employee. (a) The duration of the specific/identified undertaking for which the worker is engaged is reasonably determinable. (b) Such duration, as well as the specific work/service to be performed, is defined in an employment agreement and is made clear to the employee at the time of hiring. (c) The work/service performed by the employee is in connection with the particular project/undertaking for which he is engaged. (d) The employee, while not employed and awaiting engagement, is free to offer his services to any other employer. (e) The termination of his employment in the particular project/undertaking is reported to the Department of Labor and Employment (DOLE) Regional Office having jurisdiction over the workplace within 30 days following the date of his separation from work, using the prescribed form on employees' terminations/dismissals/suspensions. (f) An undertaking in the employment contract by the employer to pay completion bonus to the project employee as practiced by most construction companies.

These indicators guide the determination of project employment status, and the company invoked the termination report and completion bonus as its compliance.

Section 3.4 of Department Order Number 19, Series of 1993, on completion of the project, provides:

3.4 Completion of the project. Project employees who are separated from work as a result of the completion of the project or any phase thereof in which they are employed are entitled to the pro-rata completion bonus if there is an undertaking by for the grant of such bonus. An undertaking by the employer to pay a completion bonus shall be an indicator that an employee is a project employee. Where there is no such undertaking, the employee may be considered a non-project employee. The pro-rata completion bonus may be based on the industry practice which is at least the employee's one-half (1/2) month salary for every 12 months of service and may be put into effect for any project bid (in case of bid projects) or tender submitted (in case of negotiated projects) thirty (30) days from the date of issuances of these Guidelines.

This provision requires an undertaking by the employer to pay a completion bonus before such payment can serve as an indicator of project employment.

Ruling

The Supreme Court denied the petition and affirmed the Court of Appeals, holding that the workers were regular employees who were illegally dismissed. The Court ruled that the principal test for project employment is whether the workers were assigned to a specific project whose duration and scope were determined and made known to them at the time of hiring. Here, the company failed to present any employment contracts, and the absence of such contracts is a red flag that puts into serious question whether the workers were properly informed of their status as project employees.

The Court rejected the company's reliance on the single Termination Report, noting that if the workers were truly project employees, the company should have filed a termination report every time a project or phase was completed. The Court stated:

Employers cannot mislead their employees, whose work is necessary and desirable in the former's line of business, by treating them as though they are part of a work pool from which workers could be continually drawn and then assigned to various projects and thereafter denied regular status at any time by the expedient act of filing a Termination Report.

The Court likewise rejected the completion bonus argument, noting that the company failed to present evidence of any undertaking to pay such bonus, and that a bonus paid as a mere afterthought cannot determine employment status. The Court also noted that the company failed to controvert the workers' claim that they were assigned to multiple projects over many years, and that it could not even state the exact year when it employed them.

Doctrine

The principal test for determining whether employees are project employees or regular employees is whether they were assigned to carry out a specific project or undertaking, the duration and scope of which were specified and made known to them at the time of engagement. The absence of a written employment contract does not automatically confer regular status, but it is a red flag that puts into serious question whether employees were properly informed of their project status. In illegal dismissal cases, the employer bears the burden of proving with clear, accurate, consistent, and convincing evidence that the dismissal was valid, and that the employee was properly classified as a project employee.

Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals decision declaring the workers regular employees who were illegally dismissed, with full backwages, separation pay in lieu of reinstatement, and litigation expenses.

Remember This

Memorize this line: a lone termination report filed only at the final dismissal, without prior reports for each completed project, is unconvincing and even suspicious proof of project employment. Examiners love to test this case on the distinction between regular and project employees in the construction industry, and on the employer's burden to prove that workers were informed of their project status at the time of hiring.