Hacienda Primera Development Corporation v. Villegas

A probationary employee who was not informed of reasonable standards for regularization at the time of engagement is deemed a regular employee from day one, and his dismissal without just cause or due process constitutes illegal dismissal.

Petitioner Hacienda Primera Development Corporation owned and operated Amorita Resort, and hired respondent Michael S. Villegas as its General Manager. The employment was on a probationary basis for three months, governed by Article 281 of the Labor Code and Section 6, Rule I of the Implementing Rules of Book VI, which require that reasonable standards for regularization be made known to the employee at the time of engagement.

Petitioner Hacienda Primera Development Corporation hired respondent Michael S. Villegas as General Manager of Amorita Resort on a probationary basis for three months. The employment contract, executed at the time of engagement, specified a net salary of ₱60,000.00 per month for the first three months and ₱70,000.00 upon regularization, along with six round-trip tickets per annum, a ₱2,500.00 cell phone allowance, vacation and sick leave benefits upon permanency, pro-rated 13th month pay starting December 2006, a three-month probationary period starting January 2007, board and lodging at the resort, and medical insurance. The contract contained no mention of any standards or criteria by which respondent's fitness for regular employment would be evaluated.

Respondent began working on January 1, 2007. On March 14, 2007, he received a call from Paramount Consultancy and Management directing him to report back to Manila, where he learned that his services had been terminated. He requested a written notice of termination but received none. He then filed a complaint for illegal dismissal.

Petitioner Hacienda contended that respondent's services were terminated because he failed to qualify for regular employment, specifically claiming that respondent failed to conceptualize and complete financial budgets, sales projections, room rates, website development, and a marketing plan in coordination with the Sales and Marketing Manager. The Labor Arbiter found respondent to have been illegally dismissed and ordered reinstatement, backwages, moral and exemplary damages, and attorney's fees. The NLRC reversed this finding, dismissing the illegal dismissal charge and limiting the award to the salary for the unexpired portion of the probationary contract. The Court of Appeals set aside the NLRC decision and reinstated the Labor Arbiter's ruling, with the modification that reinstatement was replaced by separation pay due to strained relations between the parties.

• Illegal Dismissal: Petitioner argued that the CA erred in ruling that respondent was illegally dismissed, maintaining that respondent's services were lawfully terminated because he failed to qualify as a regular employee.
• Backwages: Petitioner argued that the CA erred in awarding backwages beyond the probationary employment period, contending that any award should be limited to the unexpired portion of the probationary contract.
• Moral and Exemplary Damages: Petitioner argued that the CA erred in awarding moral and exemplary damages, asserting no basis for such awards existed.
• Attorney's Fees: Petitioner argued that the CA erred in awarding attorney's fees, there being no sufficient justification.
• Separation Pay: Petitioner argued that the CA erred in ordering the payment of separation pay in lieu of reinstatement.
• Jurisdiction/Finality: Petitioner argued that the CA erred in deciding respondent's petition because the NLRC resolution dated April 22, 2008 was already final and executory, since respondent's motion for reconsideration was unverified contrary to the NLRC Rules of Procedure.

• Probationary Employment Standards: Whether respondent was illegally dismissed for failure of the employer to make known reasonable standards for regularization at the time of engagement.
• Backwages: Whether backwages beyond the probationary period were properly awarded.
• Damages: Whether moral and exemplary damages were properly awarded.
• Attorney's Fees: Whether attorney's fees were properly awarded.
• Separation Pay: Whether separation pay in lieu of reinstatement was properly ordered.
• Finality of NLRC Resolution: Whether the CA erred in taking cognizance of the petition given the alleged finality of the NLRC resolution due to an unverified motion for reconsideration.

• Probationary Employment Standards: Yes. The dismissal was illegal because the employer failed to specify the reasonable standards by which respondent's performance was evaluated and failed to prove that such standards were made known to him at the time of engagement, rendering him a regular employee from day one.
• Backwages: Yes. As an illegally dismissed regular employee, respondent was entitled to backwages as awarded by the Labor Arbiter and reinstated by the CA.
• Damages: Yes. The award of moral and exemplary damages was sustained by affirmance of the CA decision.
• Attorney's Fees: Yes. The award of attorney's fees was sustained by affirmance of the CA decision.
• Separation Pay: Yes. The substitution of separation pay for reinstatement was sustained, the CA having found strained relations between the parties rendering reinstatement no longer feasible.
• Finality of NLRC Resolution: No. The petition was denied and the CA decision affirmed, the Court finding no merit in the petition.

• Probationary Employment Standards: Under Article 281 of the Labor Code and Section 6(d), Rule I of the Implementing Rules of Book VI, a probationary employee may be terminated either for just cause or when he fails to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the time of engagement. Where no standards are made known at that time, the employee shall be deemed a regular employee. The employment contract in this case contained no standards whatsoever for evaluating respondent's fitness for regular employment. Petitioner merely claimed that respondent was presumed to know the standards required of him as General Manager in charge of the resort's pre-opening. The CA observed that a cursory examination of the contract showed the absence of any standard to which respondent should comply, and no indicia that he was ever informed of any such standards. Because the employer failed to make known reasonable standards at the time of engagement, respondent was deemed a regular employee from day one, and his dismissal without just cause or due process was illegal. This conclusion was consistent with Secon Philippines, Ltd. vs. NLRC, Orient Express Placement Phils. vs. NLRC, and Davao Contractors Development Cooperative (DACODECO) vs. Pasawa, where dismissals of probationary employees were not sustained due to the employer's failure to apprise them of reasonable standards for continued employment.
• Backwages: Having been deemed a regular employee illegally dismissed, respondent was entitled to full backwages as awarded by the Labor Arbiter, the CA having correctly reinstated that award.
• Damages: The award of moral and exemplary damages was sustained through the affirmance of the CA decision, which had reinstated the Labor Arbiter's ruling in full on this point.
• Attorney's Fees: The award of attorney's fees equivalent to 10% of the total monetary award was sustained through the affirmance of the CA decision.
• Separation Pay: The CA correctly substituted separation pay of one month for every year of service in lieu of reinstatement, having found that strained relations between the parties rendered reinstatement no longer possible.
• Finality of NLRC Resolution: The Court found the petition unmeritorious and did not sustain the argument that the NLRC resolution had become final and executory due to an unverified motion for reconsideration.

• Probationary Employment — Reasonable Standards Requirement — A probationary employee is one on trial during which the employer determines fitness for permanent employment. The employer must make known to the employee the reasonable standards for regularization at the time of engagement. Where no standards are made known, the employee is deemed a regular employee from day one. Two grounds exist for legally terminating a probationary employee: (a) for a just cause, or (b) when the employee fails to qualify as a regular employee in accordance with reasonable standards made known by the employer at the time of engagement. In this case, the employer's failure to specify and communicate reasonable standards rendered the dismissal illegal and the employee a regular employee from the start.
• Strained Relations Doctrine — Where reinstatement is no longer feasible due to strained relations between the parties, separation pay of one month for every year of service may be awarded in lieu of reinstatement. The CA applied this doctrine, and the Supreme Court affirmed.

• "It can be gleaned from the foregoing provisions of law and jurisprudential pronouncement that there are two grounds to legally terminate a probationary employee. It may be done either: a) for a just cause; or b) when the employee fails to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the start of the employment." — This passage states the controlling two-pronged test for lawful termination of probationary employees, which is the ratio decidendi of the case.
• "In this case, petitioner Hacienda fails to specify the reasonable standards by which respondent's alleged poor performance was evaluated, much less to prove that such standards were made known to him at the start of his employment. Thus, he is deemed to have been hired from day one as a regular employee." — This passage applies the reasonable standards requirement to the facts and states the consequence of the employer's failure: the employee is deemed regular from day one.
• "Verily, a cursory examination of the employment contract readily shows the absence of any standard to which [respondent] should comply. Neither was there any indicia that [respondent] was ever informed of the said standards if there [were] any. What [petitioners] merely claim, as mentioned above, is that [respondent] was presumed to know the standard required of him as General Manager in charge [of] the pre-opening of the resort." — This quotation from the CA, adopted by the Supreme Court, illustrates that a presumption of knowledge based on job title is insufficient to satisfy the reasonable standards requirement.

• Magis Young Achievers' Learning Center vs. Manalo, G.R. No. 178835, February 13, 2009, 579 SCRA 421 — Followed. Cited for the definition of probationary employment as a trial period during which the employer determines the employee's fitness for permanent employment, and for the principle that "probationary" refers to the purpose of the period, not its length.
• Orient Express Placement Phils. vs. NLRC, 339 Phil. 449 (1997) — Followed. Cited for the proposition that an employer's failure to apprise a probationary employee of reasonable standards for continued employment renders the dismissal unlawful. Also cited for the due process principle that an employee must be apprised beforehand of the conditions of employment.
• Secon Philippines, Ltd. vs. NLRC, 377 Phil. 711 (1999) — Followed. Cited as authority for not sustaining the dismissal of employees where the employer failed to apprise them of reasonable standards for regularization.
• Davao Contractors Development Cooperative (DACODECO) vs. Pasawa, G.R. No. 172174, July 9, 2009, 592 SCRA 334 — Followed. Cited alongside Secon and Orient Express for the same proposition regarding failure to communicate reasonable standards.
• Aberdeen Court, Inc. vs. Agustin, Jr., 495 Phil. 706 (2005) — Cited in a footnote for the two grounds for terminating a probationary employee.
• Clarion Printing House, Inc. vs. NLRC, 500 Phil. 61 (2005) — Cited in a footnote for the rule that an employee is deemed regular from day one where no standards are made known.

• Article 281, Labor Code — Governs probationary employment, providing that it shall not exceed six months unless covered by an apprenticeship agreement, and that a probationary employee may be terminated for just cause or upon failure to qualify as a regular employee in accordance with reasonable standards made known by the employer at the time of engagement. Applied to find that the employer's failure to make known reasonable standards rendered respondent a regular employee.
• Section 6, Rule I, Implementing Rules of Book VI, Labor Code — Defines probationary employment and provides that the employer shall make known to the employee the standards for regularization at the time of engagement, and that where no standards are made known, the employee shall be deemed a regular employee. Applied as the operative provision rendering respondent a regular employee.
• Article 223, Labor Code — Referenced in the Labor Arbiter's decision regarding the immediate executory nature of the reinstatement aspect of labor decisions.

Antonio T. Carpio (Chairperson), Diosdado M. Peralta, Roberto A. Abad, and Jose Catral Mendoza concurred. No separate concurring opinions were written.