Hanjin Heavy Industries and Construction Co. Ltd. vs. Ibañez

An employer's failure to prove that the duration and scope of a specific project or undertaking were made known to the employee at the time of engagement, coupled with the absence of employment contracts and other indicators, renders the employee a regular employee entitled to security of tenure; the employer bears the burden of proving project employment and the legality of dismissal by clear, accurate, consistent, and convincing evidence.

HANJIN, a foreign corporation registered with the Securities and Exchange Commission to engage in construction in the Philippines, employed respondents in various positions and allegedly assigned them to its construction projects; Hak Kon Kim and Jhunie Adajar were its Project Director and Supervisor. The dispute turns on the Labor Code distinction between regular and project employment under Article 280 and the DOLE Department Order No. 19, Series of 1993, which governs construction workers and requires, among other indicators, that the duration and scope of the project be made known to the employee at the time of hiring.

HANJIN is a foreign corporation duly registered with the Securities and Exchange Commission to engage in the construction business in the Philippines. Hak Kon Kim and Jhunie Adajar were employed by HANJIN as Project Director and Supervisor, respectively. Respondents were hired for various positions on different dates: Felicito Ibañez as Tireman on 7 March 2000; Elmer Gacula as Crane Operator in 1992; Enrique Dagotdot as Welder in 1995; Aligwas Carolino as Welder in September 1994; and Ruel Calda as Warehouseman on 26 January 1996. Respondents alleged that their tasks were usual and necessary or desirable in HANJIN's usual business or trade, and that they were employed as members of a work pool from which HANJIN drew workers to be dispatched to its various construction projects, except Ruel Calda, who as a warehouseman was required to work in HANJIN's main office. Among the projects to which they were allegedly assigned were the North Harbor project in 1992-1994, Manila International Port in 1994-1996, Batangas Port in 1996-1998, the Batangas Pier, and La Mesa Dam.

On 11 April 2002, respondents and four other co-workers filed a complaint before the NLRC for illegal dismissal with prayer for reinstatement and full backwages. On 15 April 2002, HANJIN dismissed respondents from employment. Respondents claimed that at the time of their dismissal, HANJIN had several construction projects still in progress, such as Metro Rail Transit (MRT) II and MRT III, and continued to hire employees to fill the positions vacated by respondents.

HANJIN denied the allegations. It maintained that respondents were hired as project employees for the construction of the LRT/MRT Line 2 Package 2 and 3 Project. HANJIN alleged that it executed contracts of employment with respondents stipulating that they were project employees for a period of only three months, renewable in the absence of notice, and automatically terminating at the completion of the project or any phase thereof. HANJIN, however, failed to furnish the Labor Arbiter a copy of said contracts. HANJIN asserted that respondents were informed of its policies, rules, regulations, and contract terms, and that copies of the rules were posted on bulletin boards. HANJIN further claimed that prior to 15 April 2002, Hak Kon Kim notified respondents of the company's intention to reduce manpower due to the completion of the LRT/MRT Line 2 Package 2 and 3 Project, and that an Establishment Termination Report was filed with the DOLE Regional Office (IV) in Cainta, Rizal on 11 April 2002. HANJIN also claimed that a completion bonus was paid to respondents in accordance with construction industry practice, offering payroll records for 4 April 2002 to 20 April 2002 with the words "completion bonus" written at the lower left corner. HANJIN attached Quitclaims executed by respondents, uniformly stating that they received all wages and benefits due them and released HANJIN from claims, with Clearance Certificates confirming they were cleared of accountabilities at the close of working hours on 15 April 2002.

In their Reply dated 27 August 2002, respondents refuted having signed any written contract stating that they were project employees. During the proceedings before the Labor Arbiter, HANJIN's failure to produce respondents' contracts of employment was noted. Later, before the NLRC and the Supreme Court, HANJIN claimed that due to a lapse in management procedure, no such employment contracts were executed, but argued that the absence of a written contract did not remove respondents from being project employees. The Labor Arbiter found that HANJIN's allegation of project employment was negated by its failure to present proof, noted that a termination report should be presented after the completion of every project or phase, and construed the number of years respondents rendered service as an indication that they were regular employees. The NLRC gave probative value to the Termination Report, receipts for completion bonus, and Quitclaims, and observed that the records were devoid of proof that respondents were employed before 1997, when construction work on the MRT started. The Court of Appeals disfavored HANJIN's change in position and adjudged the Termination Report as inconclusive proof that respondents were project employees.

• Project Employment and Contractual Stipulations: Petitioners maintained that respondents were hired as project employees for the construction of the LRT/MRT Line 2 Package 2 and 3 Project, under contracts stipulating a three-month term, renewable absent notice, and terminating upon completion of the project or phase; respondents were allegedly informed of HANJIN's policies, rules, and contract terms.
• Completion of Project and Termination Report: Petitioners asserted that prior to 15 April 2002, Project Director Hak Kon Kim notified respondents of manpower reduction due to completion of the LRT/MRT Line 2 Package 2 and 3 Project, and that HANJIN filed an Establishment Termination Report with the DOLE Regional Office (IV) in Cainta, Rizal on 11 April 2002.
• Completion Bonus and Quitclaims: Petitioners argued that payment of a completion bonus, supported by payroll records for 4 April to 20 April 2002 bearing the words "completion bonus," and the Quitclaims executed by respondents confirmed project employment and barred claims.
• Absence of Written Contracts: On appeal, petitioners abandoned the claim that respondents signed employment contracts, but argued that the absence of a written contract did not remove respondents from being project employees.
• Compliance with D.O. 19 Indicators: Petitioners argued that they complied with Section 2.2(e) and (f) of Department Order No. 19, Series of 1993, through the Termination Report and completion bonus, and that the Court of Appeals erred in not applying Policy Instructions No. 20, as amended by Department Order No. 19, in relation to Article 280 of the Labor Code.
• Court of Appeals Factual Findings: Petitioners contended that the Court of Appeals' findings were mere conclusions without examining the records, contrary to Agabon vs. NLRC, and that it manifestly overlooked relevant facts.

• Regular Employment and Work Pool: Respondents alleged that HANJIN hired them for various positions on different dates; their tasks were usual and necessary or desirable in HANJIN's business; and they were employed as members of a work pool from which HANJIN drew workers for various construction projects, except Ruel Calda, who worked as a warehouseman in the main office.
• Illegal Dismissal: Respondents claimed that HANJIN dismissed them on 15 April 2002 while it had ongoing projects such as MRT II and MRT III and continued hiring employees to fill their positions, making their dismissal illegal.
• Denial of Project Employment Contracts: Respondents refuted having signed any written contract stating that they were project employees.
• Entitlement to Reinstatement and Backwages: Respondents filed the complaint for illegal dismissal with prayer for reinstatement and full backwages.

• Regular or Project Employment: Whether respondents were regular employees or project employees under Article 280 of the Labor Code and Department Order No. 19, Series of 1993.
• Burden of Proof and Evidence: Whether HANJIN discharged its burden of proving that respondents were project employees and that their dismissal was legal and valid.
• Termination Report and Completion Bonus: Whether the lone Termination Report and the payment of a completion bonus established that respondents were project employees.
• Due Process: Whether respondents were afforded the twin requirements of notice and hearing before dismissal.
• Quitclaims: Whether the Quitclaims signed by respondents barred them from claiming backwages and separation pay.

• Regular or Project Employment: Regular employees. The principal test requires proof that they were assigned to a specific project or undertaking whose duration and scope were specified at the time of engagement; HANJIN failed to prove this.
• Burden of Proof and Evidence: No. HANJIN failed to discharge its burden. In illegal dismissal cases, the employer must prove the validity of dismissal with clear, accurate, consistent, and convincing evidence; doubts are resolved in favor of the employee.
• Termination Report and Completion Bonus: No. The lone Termination Report and the completion bonus did not establish project employment. A termination report must be filed after every project or phase completed, and a completion bonus requires an undertaking and proper computation under Department Order No. 19.
• Due Process: No. Respondents were not served notices informing them of the particular acts for which dismissal was sought, nor were they required to give their side; the dismissal was illegal.
• Quitclaims: No. The Quitclaims did not bar respondents' claims because they were not shown to have been made for valuable consideration and were ineffective to bar the full measure of their legal rights.

• Regular or Project Employment: Article 280 of the Labor Code deems employment regular where the employee performs activities usually necessary or desirable in the employer's usual business or trade, except where employment is fixed for a specific project or undertaking whose completion or termination was determined at the time of engagement. The principal test is whether the project employees were assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time of engagement. Length of service or rehiring on a project-to-project basis does not confer regular status, but the scope and duration must be determined and made known to the employees at the time of employment. Here, HANJIN alleged that respondents were project employees for the LRT/MRT Line 2 Package 2 and 3 Project, but it failed to produce employment contracts or other evidence showing that respondents were informed of the duration and scope of that project at hiring. Respondents denied signing any such contracts. The absence of a written contract is not by itself sufficient to confer regular status, but it is a red flag and, without other evidence, puts into serious question whether respondents were informed of their project status. Thus, respondents were regular employees.

• Burden of Proof and Evidence: In illegal dismissal cases, the employer has the burden of proving with clear, accurate, consistent, and convincing evidence that the dismissal was valid. HANJIN failed to adduce evidence that respondents were project employees who had been informed of the duration and scope of their employment. It also failed to refute respondents' claim that they were assigned to various projects, such as North Harbor, Manila International Port, Batangas Port, Batangas Pier, and La Mesa Dam. HANJIN could have presented payroll records or termination reports for those projects that did not bear respondents' names, but it remained vague and could not categorically state the exact year it employed respondents. If doubts exist between the evidence of the employer and the employee, the scales of justice must be tilted in favor of the employee.

• Termination Report and Completion Bonus: Petitioners invoked Section 2.2(e) and (f) of Department Order No. 19, Series of 1993, which list as indicators of project employment the filing of a termination report with the DOLE within 30 days from separation and an undertaking in the employment contract to pay a completion bonus. The lone Termination Report filed on 11 April 2002 did not establish project employment because, if respondents were project employees, HANJIN should have filed as many Termination Reports as there were construction projects completed and for which respondents were employed. Filing only the final termination report, after previous continuous employment for other projects, was unconvincing and suspicious. As to the completion bonus, HANJIN failed to show an undertaking to pay such a bonus upon project completion, how it was computed, or the conditions for its grant. The payroll records for 4 April to 20 April 2002 bore no relevance to a completion bonus, and the amount paid was uniformly equivalent to fifteen-day wages without regard to years of service, contrary to Section 3.4 of Department Order No. 19, which pegs the pro-rata completion bonus at least one-half month salary for every twelve months of service. A completion bonus paid as a mere afterthought cannot determine employment status.

• Due Process: Records failed to show that HANJIN afforded respondents, as regular employees, due process prior to dismissal through the twin requirements of notice and hearing. Respondents were not served notices informing them of the particular acts for which their dismissal was sought, nor were they required to give their side regarding the charges. The dismissal was therefore not carried out in accordance with law and was illegal.

• Quitclaims: Quitclaims and waivers or releases are looked upon with disfavor and frowned upon as contrary to public policy. They are ineffective to bar claims for the full measure of a worker's legal rights, particularly where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or where the terms of settlement are unconscionable on their face. To determine validity, the consideration accepted by the employee must constitute a reasonable settlement equivalent to the full measure of their legal rights. The Quitclaims signed by respondents did not appear to have been made for valuable consideration. Since respondents were regular employees entitled to backwages and separation pay, the Quitclaims could not prevent them from seeking those claims.

• Project Employment Test — The principal test for determining whether employees are project employees as distinguished from regular employees is whether they were assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time of engagement. The employer must show that the duration and scope of the project, as well as the particular work or service to be performed, were defined in an employment agreement and made clear to the employees at the time of hiring. In this case, HANJIN failed to prove that respondents were informed of their project status at the time of engagement, so they were regular employees.
• Regular Employment by Operation of Law — Under Article 280 of the Labor Code, employment is regular where the employee performs activities usually necessary or desirable in the employer's usual business or trade, except where the employment is fixed for a specific project or undertaking whose completion or termination was determined at the time of engagement. Because HANJIN failed to establish the exception, respondents were regular employees.
• Burden of Proof in Illegal Dismissal — The employer bears the burden of proving with clear, accurate, consistent, and convincing evidence that the dismissal was valid. If doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the employee. HANJIN failed to discharge this burden.
• Indicators of Project Employment under Department Order No. 19, Series of 1993 — Section 2.2(e) and (f) list, among others, the filing of a termination report with the DOLE within 30 days from separation and an undertaking in the employment contract to pay a completion bonus. A lone termination report filed only upon final termination, after previous continuous employment for other projects, does not establish project employment. A completion bonus paid without an undertaking, proper computation, or relation to project completion is not an indicator of project employment.
• Quitclaims and Waivers — Quitclaims, waivers, and releases are looked upon with disfavor and are ineffective to bar claims for the full measure of a worker's legal rights, particularly when the waiver was wangled from an unsuspecting or gullible person or the terms of settlement are unconscionable on their face. The consideration must be a reasonable settlement equivalent to the employee's legal rights. The Quitclaims in this case did not bar respondents' claims.
• Security of Tenure and Work Pool — Employers cannot mislead employees whose work is necessary and desirable in the employer's line of business by treating them as part of a work pool from which workers could be continually drawn and assigned to various projects, and thereafter denied regular status by the expedient act of filing a Termination Report. Such a practice unjustly precludes employees from acquiring security of tenure and is contrary to public policy, morals, good customs, and public order.
• Twin Requirements of Notice and Hearing — Dismissal of regular employees requires compliance with the twin requirements of notice and hearing. Failure to serve notices informing the employee of the particular acts for which dismissal is sought and to require the employee to give a side regarding the charges renders the dismissal illegal.

• "The principal test for determining whether particular employees are properly characterized as "project employees" as distinguished from "regular employees" is whether or not the project employees were assigned to carry out a "specific project or undertaking," the duration and scope of which were specified at the time the employees were engaged for that project." — This states the controlling test applied to distinguish project from regular employment.
• "In this case, petitioners did not have that kind of agreement with respondents. Neither did they inform respondents of the nature of the latters' work at the time of hiring. Hence, for failure of petitioners to substantiate their claim that respondents were project employees, we are constrained to declare them as regular employees." — This is the ratio decidendi on the central issue of employment status.
• "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." — This articulates the policy against using work-pool arrangements and termination reports to defeat security of tenure.
• "As a rule, quitclaims and waivers or releases are looked upon with disfavor and frowned upon as contrary to public policy. They are thus ineffective to bar claims for the full measure of a worker's legal rights, particularly when the following conditions are applicable: 1) where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or (2) where the terms of settlement are unconscionable on their face." — This states the doctrine on quitclaims and explains why the Quitclaims did not bar respondents' claims.

• Abesco Construction and Development Corporation vs. Ramirez, G.R. No. 141168, 10 April 2006, 487 SCRA 9 — Cited for the rule that the principal test is whether employees were assigned to a specific project or undertaking, the duration and scope of which were specified at the time of engagement, and that the employees must be informed of their project status.
• Caramol vs. National Labor Relations Commission, G.R. No. 102973, 24 August 1993, 225 SCRA 582 — Cited for the requirement that a project-to-project contract is valid only if the fixed period was agreed upon knowingly and voluntarily by the parties, without force, duress, or improper pressure.
• Salinas, Jr. vs. National Labor Relations Commission, G.R. No. 114671, 24 November 1999, 319 SCRA 54 — Cited as reiterating the knowing-consent requirement for project employment.
• Grandspan Development Corporation vs. Bernardo, G.R. No. 141464, 21 September 2005, 470 SCRA 461 — Cited for the significance of the employer's failure to present employment contracts signed by workers stating the project duration.
• Audion Electric Co., Inc. vs. National Labor Relations Commission, G.R. No. 106648, 17 June 1999, 308 SCRA 341 — Cited with Grandspan for treating the absence of employment contracts as a red flag in determining project employment.
• Raycor vs. Aircontrol Systems, Inc. vs. National Labor Relations Commission, G.R. No. 114290, 9 September 1996, 261 SCRA 589 — Cited for refusing to give weight to employment contracts not signed by the employees.
• Philippine Employ Services and Resources, Inc. vs. Paramio, G.R. No. 144786, 15 April 2004, 427 SCRA 732 — Cited for the rule that quitclaims and waivers are looked upon with disfavor and are ineffective to bar claims for the full measure of a worker's legal rights.
• Land and Housing Development Corporation vs. Esquillo, G.R. No. 152012, 30 September 2005, 471 SCRA 488 — Cited for the requirement that the consideration for a quitclaim must be a reasonable settlement equivalent to the employee's legal rights.
• Nicario vs. National Labor Relations Commission, G.R. No. 125340, 17 September 1998, 295 SCRA 619 — Cited for the doctrine that doubts between the evidence of the employer and the employee are resolved in favor of the employee.
• ALU-TUCP vs. National Labor Relations Commission, G.R. No. 109902, 2 August 1994, 234 SCRA 678 — Cited for the rule that length of service or rehiring of construction workers on a project-to-project basis does not confer regular employment status.
• Filipinas Pre-Fabricated Building Systems (Filsystems), Inc. vs. Puente, G.R. No. 153832, 18 March 2005, 453 SCRA 820 — Cited for the principal test for project employment.
• Samson vs. National Labor Relations Commission, G.R. No. 113166, 1 February 1996, 253 SCRA 112 — Cited for the policy against treating employees as a work pool to deny regular status.

• Article 280, Labor Code — Distinguishes regular from project employment; employment is regular where the employee performs activities usually necessary or desirable in the employer's usual business or trade, except where fixed for a specific project or undertaking whose completion or termination was determined at the time of engagement. Applied to hold respondents regular because HANJIN failed to prove the exception.
• Clause 3.3(a), Department Order No. 19, Series of 1993 — Provides that 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 for termination. Applied to presume regular status absent proof that respondents were informed of project status.
• Section 2.2(e) and (f), Department Order No. 19, Series of 1993 — Lists as indicators of project employment the filing of a termination report with the DOLE within 30 days from separation and an undertaking in the employment contract to pay a completion bonus. Applied: the lone Termination Report and the completion bonus without an undertaking did not establish project employment.
• Section 3.4, Department Order No. 19, Series of 1993 — Provides that project employees separated due to project completion are entitled to pro-rata completion bonus if there is an undertaking by the employer; an undertaking to pay a completion bonus is an indicator of project employment, and without such undertaking the employee may be considered non-project. The pro-rata bonus is based on industry practice of at least one-half month salary for every 12 months of service. Applied to reject HANJIN's completion-bonus evidence.
• Policy Instructions No. 20, as amended by Department Order No. 19, Series of 1993 — Cited in the petition as the policy governing project employment in the construction industry; the Court applied the related Department Order provisions in determining that respondents were not project employees.
• Rule 45, Rules of Court — The procedural basis for the Petition for Review on Certiorari assailing the Court of Appeals Decision.

Consuelo Ynares-Santiago (Chairperson), Ma. Alicia Austria-Martinez, Antonio Eduardo B. Nachura, Ruben T. Reyes.