Magtibay vs. Airtrac Agricultural Corporation

An employee who performs activities which are usually necessary or desirable in the usual business or trade of the employer becomes a regular employee notwithstanding the execution of consultancy agreements, and the period imposed in such agreements will be struck down as contrary to public policy where the circumstances show that the employer imposed the period precisely to preclude the employee from acquiring tenurial security. The nature of employment depends on the nature of the activities performed, not solely on the will or word of the employer or the procedure for hiring and designation.

Petitioner Marciano D. Magtibay is a certified accountant who was hired as Consultant by respondent Airtrac Agricultural Corporation, a corporation engaged in the business of crop dusting, weed control, and eradication by the use of airplane or related equipment. He joined Airtrac on July 19, 2010 upon the invitation of Roinda Soriano, the administrative head officer of Sumifru, and was paid P55,705.00 per month for a minimum of 24 hours of service per week. The engagement was initially governed by a Consultancy Agreement for five months, but the arrangement evolved when petitioner later assumed the position of General Manager.

Petitioner Marciano D. Magtibay, a certified accountant, was hired as Consultant by respondent Airtrac Agricultural Corporation on July 19, 2010, upon the invitation of Roinda Soriano, the administrative head officer of Sumifru. He was paid P55,705.00 per month for a minimum of 24 hours of service per week and signed a Consultancy Agreement for five months from July 19, 2010 to December 18, 2010. In August 2010, petitioner worked as Controller of Airtrac, and in November 2010, when the previous operations manager resigned, petitioner assumed the position of "General Manager." He initially protested the low pay considering the increased responsibility but refrained from being adamant as his contract was to expire on December 18, 2010. He claimed that his working hours as General Manager were from 8:00 a.m. to 5:00 p.m., from Monday to Saturday.

On April 20, 2011, an Aviation Service Agreement was entered into by and between Airtrac and Sumifru, and petitioner was under special instruction as General Manager of Airtrac to work on the services provided in the Service Agreement. Sometime in January 2012, he was made to sign another Consultancy Agreement with Airtrac for a two-year period from December 19, 2011 to December 18, 2013, with a Service Fee of P70,000.00 per month, 13th month pay, and other additional benefits, for which he was required to render service four hours per day at such times as may be reasonably required by the Company. This was despite the fact that he was already rendering duties of a General Manager working eight hours a day. He claimed that within the week of signing the contract, he expressed his dissent to Marilyn Lee, the Chief Financial Officer of Airtrac, who advised him to clarify it with Soriano, but petitioner did not follow through with his complaint.

After his contract expired on December 18, 2013, he was again made to sign another two-year Consultancy Agreement from December 19, 2013 until December 18, 2015, at the rate of P70,000.00 per month. He signed it but changed the offered rate of P70,000.00 per month to a higher rate of P90,000.00 per month. This contract was signed by Ricky Tagabucba, the Human Resources Management Department Head. On January 20, 2014, as the new contract was not yet approved, petitioner billed Airtrac for unpaid hours of service from June 2011 until January 18, 2014, amounting to P1,904,000.00 after deduction of the 15% tax as consultant. The new contract with his counteroffer of P90,000.00 per month was later disapproved.

In a letter dated February 10, 2014, Airtrac notified him of the non-renewal of his consultancy agreement and that petitioner's appointment as General Manager would likewise be terminated effective March 12, 2014. Petitioner received the notice but made a marginal note on the received copy thereof as "received with reservations and issues to resolve." He then handed to Rose Mary Angelia his resignation letter stating that he would resign as General Manager of Airtrac. On February 12, 2014, a written announcement signed by respondent Cuyegkeng as president of Airtrac appointed Captain Samson S. Villaber as Officer-in-Charge and Than Htun as consultant. Petitioner turned over the records and functions previously assigned to him, returned the company car, and paid the cash advances made to him. Petitioner reiterated his billing for receivables on the balance of his pay pertaining to the extra hours he served Airtrac, but Airtrac denied his claim.

On April 22, 2014, petitioner instituted a complaint for illegal dismissal with money claims against respondents. In his position paper, petitioner claimed that he was a regular employee of Airtrac who was illegally dismissed, and that he was made to sign consultancy agreements in order to deprive him of his benefits and security of tenure. Respondents countered that petitioner was not dismissed but rather his consultancy agreement expired and was not renewed, and that he was an independent contractor and not an employee of Airtrac. The Labor Arbiter found that petitioner was illegally constructively dismissed, holding that the existence of employment relationship is determined by law and not by contract, and that when petitioner was appointed as General Manager and performed the duties and functions as such, the Consultancy Agreement was effectively terminated and he was considered hired as a regular employee. The NLRC reversed, holding that petitioner was a contracted employee or officer who voluntarily agreed to the fixed-term contracts, and the CA affirmed the NLRC.

• Regular Employment: Petitioner argued that he was a regular employee of Airtrac who was illegally dismissed, and that he was made to sign consultancy agreements in order to deprive him of his benefits and security of tenure.
• Change in Employment Nature: Petitioner contended that things changed upon the resignation of the prior manager and his eventual assumption of the duties of General Manager, which necessitated a change in his working hours and functions.
• Consultancy Agreements Not Reflecting True Relationship: Petitioner argued that the consultancy agreements do not reflect the true working relationship of the parties, considering that the consultancy agreement provides no specific project, no schedule of services was appended therein, and stipulated open-ended undetermined tasks requirement which do not pertain to the tasks actually performed by the petitioner as General Manager.
• Regular Employee Test: Petitioner stressed that he did not function as consultant but as a General Manager, and he did not work for four hours only as stated in the consultancy agreement; thus, being the General Manager of Airtrac, he is considered a regular employee having performed activities usually necessary or desirable in the usual business and trade of the employer.

• Fixed-Term Contract: Respondents maintained that the CA correctly upheld the consultancy agreements as proof of respondents' employment of petitioner for a fixed term or period.
• Nature of Relationship Unchanged: Respondents asserted that whatever acts or duties petitioner as General Manager had on top of and in addition to his being a consultant did not change the nature of the relationship between petitioner and respondents.
• Voluntary Consent: Respondents countered that when petitioner signed his signature but changed the printed amount of P70,000.00 to P90,000.00, he was aware of his status as a consultant.

• Regular Employment: Whether petitioner is a regular employee of respondents or an officer with a fixed term contract.
• Illegal Dismissal: Whether petitioner was illegally terminated by respondents.
• Money Claims: Whether petitioner is entitled to his money claims.

• Regular Employment: Yes. Petitioner was a regular employee of respondent Airtrac, not merely an officer whose duration of employment is fixed under a contract, because he performed activities which are necessary or desirable in the usual business or trade of the employer as General Manager.
• Illegal Dismissal: Yes. Petitioner was illegally constructively dismissed when he was effectively replaced by the appointments of his replacements on February 12, 2014, as the alleged non-renewal of consultancy agreement is not among the just causes allowable by law as grounds for termination.
• Money Claims: Yes. Petitioner is entitled to unpaid salaries, full backwages, separation pay, moral and exemplary damages, attorney's fees, and legal interest, with the amounts modified by the Supreme Court.

• Regular Employment: The Court applied Article 295 of the Labor Code, which provides that an employment shall be deemed 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. The primary standard is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. Although the parties initially executed a Consultancy Agreement, the nature of petitioner's employment changed when he replaced the previous General Manager and was made to perform the duties and responsibilities of a General Manager. His working hours doubled from four hours to eight hours from 8:00 a.m. to 5:00 p.m., Monday to Saturday. Petitioner not only performed activities which are necessary or desirable in the usual business or trade of the employer, but in fact administered and directed the day-to-day affairs of the company. The Court cited documents proving his position as General Manager: the Aviation Service Agreement between Airtrac and Sumifru where petitioner was named as General Manager; the Airtrac Operations Manual's Organizational Structure; Secretary's Certificates authorizing petitioner as General Manager to deal with the Civil Aviation Authority of the Philippines; the Airtrac Lease Agreement; and the Agricultural Aircraft Operator Certificate issued by the Civil Aviation Authority of the Philippines. The Court held that these documents are not the work of a simple consultant, but one who is engaged to perform activities which are necessary or desirable in the usual business or trade of the employer. The Court also addressed the NLRC's ruling that petitioner willingly and voluntarily signed the consultancy agreements, citing Brent School, Inc. vs. Zamora, which held that where the circumstances evidently show that the employer imposed the period precisely to preclude the employee from acquiring tenurial security, the law and the Court will not hesitate to strike down or disregard the period as contrary to public policy, morals, etc. The nature of employment does not depend solely on the will or word of the employer or on the procedure for hiring and the manner of designating the employee; rather, it depends on the nature of the activities to be performed by the employee, considering the nature of the employer's business, the duration and scope to be done, and in some cases, even the length of time of the performance and its continued existence.

• Illegal Dismissal: Having ruled that petitioner became a regular employee of respondent Airtrac, the Court agreed with the LA that petitioner was terminated without just or authorized cause. The Court was not convinced that petitioner resigned from his job. On February 11, 2014, Angelia furnished petitioner with a letter informing him of the company's decision to no longer renew the Consultancy Agreement that expired on December 18, 2013. The Court quoted with approval the LA's discussion that respondent had no justifiable cause to terminate petitioner's employment as the alleged non-renewal of consultancy agreement is not among the just causes allowable by law as grounds for termination, and that petitioner was illegally constructively dismissed when he was effectively replaced by the appointments of his replacements on February 12, 2014. The attendant circumstances in the submission of the disputed resignation letter disprove the voluntariness of resignation, considering that petitioner was demanding for his salaries that were withheld from him and even trying to express his dismay and disappointment over his indistinct status as General Manager as well as his salary rate, which are manifestations that petitioner had no intention to resign.

• Money Claims: The Court addressed the propriety of the monetary claims asserted by petitioner. The unpaid salaries claimed by petitioner from December 19, 2013 to February 12, 2014 and admitted by respondent Airtrac is proper. The Court agreed with the Labor Arbiter in computing petitioner's monthly salary at P140,000.00, considering that petitioner was made to render service double the stipulated hours in the consultancy agreements. The Court cited the settled rule that an employee who is unjustly dismissed from work shall be entitled to full backwages and reinstatement without loss of seniority rights and other privileges, computed from the time his compensation was withheld up to the time of actual reinstatement. Where reinstatement is no longer viable as an option, separation pay equivalent to one month for every year of service should be awarded as an alternative. The Court found that the Labor Arbiter correctly granted separation pay because reinstatement is no longer advisable considering the strained relations of the parties. As to the award of damages, the Court found that the reduced amount of P50,000.00 as moral damages and P50,000.00 as exemplary damages is more appropriate. Moral damages are recoverable when the dismissal of an employee is attended by bad faith or fraud or constitutes an act oppressive to labor, or is done in a manner contrary to good morals, good customs or public policy. Exemplary damages are recoverable when the dismissal was done in a wanton, oppressive, or malevolent manner. Considering the manner in which petitioner was dismissed and terminated from his service when he was asserting the adjustment and payment of his unpaid salary justifies the grant of these amounts of damages.

• Regular Employment Test — Under Article 295 of the Labor Code, an employment shall be deemed 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. The primary standard is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer, determined by considering the nature of work performed and its relation to the scheme of the particular business or trade in its entirety. The Court applied this test to find that petitioner, who performed the duties of General Manager administering and directing the day-to-day affairs of the company, was a regular employee despite the consultancy agreements.

• Fixed-Term Employment — Jurisprudence added a fifth kind of employee, the fixed-term employee, whose employment exists only for the duration of the term and ends on its own when the term expires. However, where the circumstances evidently show that the employer imposed the period precisely to preclude the employee from acquiring tenurial security, the law and the Court will not hesitate to strike down or disregard the period as contrary to public policy, morals, etc., and the employee shall be deemed regular. The Court applied this doctrine to disregard the consultancy agreements that were used to prevent petitioner from acquiring regular employment and security of tenure.

• Constructive Dismissal — Constructive dismissal occurs when an employee is effectively replaced by the appointments of his replacements without justifiable cause, and the alleged non-renewal of a consultancy agreement is not among the just causes allowable by law as grounds for termination. The attendant circumstances disproving the voluntariness of resignation include the employee demanding for salaries that were withheld and expressing dismay over his indistinct status, which are manifestations that the employee had no intention to resign.

• "The nature of employment does not depend solely on the will or word of the employer or on the procedure for hiring and the manner of designating the employee. Rather, the nature of the employment depends on the nature of the activities to be performed by the employee, considering the nature of the employer's business, the duration and scope to be done, and in some cases, even the length of time of the performance and its continued existence." — This passage articulates the controlling principle that the nature of employment is determined by the activities performed, not by contractual designations, and serves as the ratio decidendi for finding petitioner to be a regular employee.

• "Where the circumstances evidently show that the employer imposed the period precisely to preclude the employee from acquiring tenurial security, the law and the Court will not hesitate to strike down or disregard the period as contrary to public policy, morals, etc." — This quotation from Brent School, Inc. vs. Zamora, as cited in Universal Robina Sugar Milling Corp. vs. Acibo, states the exception to the validity of fixed-term employment agreements and was applied to disregard the consultancy agreements in this case.

• "The attendant circumstances therefore in the submission of the disputed resignation letter disprove the voluntariness of resignation considering that complainant was demanding for his salaries that were withheld from him and even trying to express his dismay and disappointment over his indistinct status as General Manager as well as his salary rate, which are manifestations that complainant Magtibay has no intention to resign." — This passage, quoted with approval from the Labor Arbiter's discussion, establishes that the resignation was not voluntary and supports the finding of constructive dismissal.

• Brent School, Inc. vs. Zamora, 206 Phil. 747 (1990) — Controlling precedent establishing the doctrine on fixed-term employment, holding that a fixed period of employment agreed upon knowingly and voluntarily by the parties is valid, but where the employer imposed the period precisely to preclude the employee from acquiring tenurial security, the period will be struck down as contrary to public policy.

• Universal Robina Sugar Milling Corp. vs. Acibo, 724 Phil. 489 (2014) — Cited for the proposition that where circumstances show the employer imposed the period to preclude the employee from acquiring tenurial security, the employee shall be deemed regular.

• UST vs. Samahang Manggagawa ng UST, 809 Phil. 212 (2017) — Cited for the primary standard in determining regular employment: the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer.

• Innodata Knowledge Services, Inc. vs. Inting, G.R. No. 211892, December 6, 2017 — Cited for the proposition that jurisprudence added a fifth kind of employee, the fixed-term employee.

• Colegio del Santisimo Rosario vs. Rojo, 717 Phil. 265 (2013) — Cited for the definition of fixed-term employment, which exists only for the duration of the term and ends on its own when the term expires.

• ICT Marketing Services, Inc. vs. Sales, 769 Phil. 498 (2015) — Cited for the settled rule that an employee who is unjustly dismissed from work shall be entitled to full backwages and reinstatement without loss of seniority rights and other privileges.

• Reyes vs. RP Guardians Security Agency, Inc., 708 Phil. 598 (2013) — Cited for the rule that where reinstatement is no longer viable, separation pay equivalent to one month for every year of service should be awarded as an alternative.

• Article 295, Labor Code (formerly Article 280, as renumbered pursuant to Section 5 of Republic Act No. 10151) — Provides that an employment shall be deemed 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 or where the work is seasonal in nature. The Court applied this provision to determine that petitioner was a regular employee because he performed activities necessary or desirable in Airtrac's business as General Manager.

• Rule 45, Rules of Court — Governs Petitions for Review on Certiorari, which may raise only questions of law. The Court noted the recognized exception to this rule where there is divergence of findings of fact by the LA on the one hand, and the NLRC and the CA on the other, allowing the Court to scrutinize the records.

• Leonen, J.
• Gesmundo, J. (on official leave)
• Zalameda, J.
• Gaerlan, J.