Philippine Geothermal, Inc. vs. NLRC

Employees hired under repeatedly renewed short-term "contractual" contracts who render at least one year of service — whether continuous or broken — in activities necessary or desirable to the employer's business attain regular employment status and may not be terminated except for just cause or as authorized by the Labor Code; the practice of endlessly renewing fixed-term contracts to avoid regularization is contrary to Article 280 and the policy of security of tenure.

Petitioner Philippine Geothermal, Inc. is a U.S. corporation engaged in the exploration and development of geothermal energy resources, duly authorized to do business in the Philippines and serving as the prime contractor of the National Power Corporation at the Tiwi, Albay and Makiling-Banahaw Geothermal Projects. Private respondents are workers occupying various positions ranging from carpenter to Clerk II who rendered services to petitioner under individual contracts denominated as contractual employment.

Petitioner Philippine Geothermal, Inc. is a U.S. corporation engaged in the exploration and development of geothermal energy resources as an alternative source of energy, duly authorized to engage in business in the Philippines and serving as the prime contractor of the National Power Corporation at the Tiwi, Albay and Makiling-Banahaw Geothermal Projects. Private respondents are employees occupying various positions ranging from carpenter to Clerk II who worked with petitioner under individual contracts categorized as contractual employment, each contract running for a period ranging from fifteen days to three months. These contracts were regularly renewed to the extent that individual private respondents had rendered service from three to five years, until 1983 and 1984 when petitioner started terminating their employment by not renewing their individual contracts. Petitioner subsequently entered into a job contracting agreement with Dra. Generosa Gonzales, who supplied it with skilled manpower.

Sometime in July 1983, private respondents organized a separate labor union in view of their exclusion from the bargaining unit of the regular rank-and-file employees represented by the Federation of Free Workers. In August 1983, they filed a petition for certification election with the Ministry of Labor and Employment, NCR, docketed as Case No. NCD-LRD-8-242-84. Petitioner allegedly began harassing them as a result and replaced them with so-called "contract workers." The complainant union and respondent employees thereupon filed a case for illegal lock-out and unfair labor practice, docketed as Case No. 1420-83, and the instant consolidated cases RAB Case Nos. 0403-85 to 427-85 and RAB Cases Nos. 0392-85 to 0393-85, involving twenty-six workers, for unfair labor practice and/or illegal dismissal, reinstatement, backwages, and service incentive.

On March 3, 1987, Labor Arbiter Voltaire A. Balitaan rendered a decision declaring the private respondents regular and permanent employees, finding their dismissal illegal, and ordering reinstatement to their former positions without loss of seniority rights and with one year backwages without qualification or deduction in the amount of ₱590,021.76. On appeal, the NLRC dismissed the appeal and affirmed the Labor Arbiter's decision on November 9, 1987; a motion for reconsideration was denied on March 9, 1988. While the petition for review was pending before the Supreme Court, a writ of execution was issued by Executive Arbiter Gelacio L. Rivera, Jr. on April 11, 1988, on the ground that no appeal had been interposed and the Labor Arbiter's decision had become final and executory. The Supreme Court initially dismissed the petition on April 17, 1989, for failure to show grave abuse of discretion, but upon reconsideration granted due course on June 5, 1989.

• Nature of Employment: Petitioner alleged that it engaged the services of private respondents on a monthly basis to ensure that manpower would be available when and where needed, and that private respondents were fully aware of the contractual nature of their employment as this was clearly spelled out in the employment contracts.
• Expiration of Contract, Not Dismissal: Petitioner maintained that what happened to private respondents was not a case of unwarranted dismissal but simply one of expiration of the tenure of employment contracts and the completion of the phase of the project for which their services were hired.

• Regular Employment Status: Whether private respondents may be considered regular and permanent employees due to their length of service in the company despite the fact that their employment is on a contractual basis.

• Regular Employment Status: Yes. Private respondents were correctly declared regular and permanent employees, their repeated contract renewals over three to five years having satisfied the criteria for regular employment under Article 280 of the Labor Code and the doctrine in Kimberly Independent Labor Union vs. Drilon.

• Regular Employment Status: The Court applied the classification of regular employees set forth in Kimberly Independent Labor Union vs. Drilon, which identifies two kinds of regular employees: (1) those engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. Private respondents, though initially hired under contracts denominated as "contractual" lasting from fifteen days to three months, had their contracts regularly renewed such that they rendered three to five years of service. Even assuming they could properly be regarded as casual employees, they became entitled to regular employment status upon completing one year of service, the status of regular employment attaching on the day immediately after the end of the first year of service. To uphold the contractual arrangement as petitioner urged would in effect permit employers to avoid hiring regular or permanent employees by indefinitely maintaining workers on temporary or casual status, thereby denying them security of tenure. Article 106 of the Labor Code was designed to prevent precisely such a result. The constitutional guarantee of security of tenure under Article XII, Section 3 of the 1987 Constitution, construed through Article 280 of the Labor Code, mandates that an employer shall not terminate the services of a regular employee except for just cause or when authorized by the Code. Because private respondents had attained regular status, their termination by mere non-renewal of contract was illegal.

• Regular Employment Status of Repeatedly Renewed Contractual Employees — An employee engaged under a fixed-term or "contractual" arrangement who renders at least one year of service — whether continuous or broken — in activities necessary or desirable to the employer's business attains the status of a regular employee on the day immediately after the end of the first year of service. Employers may not circumvent this rule by repeatedly renewing short-term contracts to avoid the obligations of regular employment. The Court applied this doctrine to private respondents who, though hired under contracts of fifteen days to three months, had their contracts renewed over three to five years, thereby satisfying both categories of regular employment recognized in Kimberly Independent Labor Union vs. Drilon: performance of activities necessary or desirable in the employer's business, and completion of at least one year of service.

• Security of Tenure as Social Justice — The constitutional guarantee of security of tenure is an act of social justice; when a person has no property, his job may be his only possession or means of livelihood, and he should be protected against arbitrary deprivation thereof. Under Article 280 of the Labor Code, security of tenure means that the employer shall not terminate the services of an employee except for just cause or when authorized by the Code. The Court relied on this principle to hold that petitioner could not lawfully terminate private respondents by the expedient of non-renewal of contract once they had attained regular status.

• "It is not difficult to see that to uphold the contractual arrangement between the employer and the employee would in effect be to permit employers to avoid the necessity of hiring regular or permanent employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their jobs." — This passage articulates the ratio decidendi: the Court's rejection of repeated short-term contracting as a device to evade regularization and security of tenure under the Labor Code.

• "When a person has no property, his job may possibly be his only possession or means of livelihood. Therefore, he should be protected against any arbitrary deprivation of his job." — This passage frames security of tenure as an act of social justice, grounding the constitutional and statutory protection of employment in the realities of the worker's economic dependence on the job.

• "[I]t is more in keeping with the intent and spirit of the law to rule that the status of regular employment attaches to the casual employee on the day immediately after the end of his first year of service." — This formulation, drawn from Kimberly Independent Labor Union vs. Drilon and applied in this case, establishes the operative point at which casual employment converts to regular status, a rule frequently cited in subsequent labor jurisprudence.

• Kimberly Independent Labor Union for Solidarity, Activism, and Nationalism-Olalia vs. Hon. Franklin M. Drilon, G.R. Nos. 77629 and 78791 (May 9, 1990) — Controlling authority cited for the two-fold classification of regular employees and the rule that regular employment status attaches to a casual employee on the day immediately after the end of the first year of service. Applied directly to private respondents' situation.

• Philippine Bank of Communications vs. National Labor Relations Commission, 146 SCRA 347 (1986) — Cited in support of the proposition that Article 106 of the Labor Code is designed to prevent employers from avoiding the necessity of hiring regular employees by maintaining workers indefinitely on temporary or casual status.

• Rance vs. NLRC, 163 SCRA 279 (June 30, 1988) — Cited for the interpretation of "security of tenure" under Article 280 of the Labor Code as meaning that the employer shall not terminate the services of an employee except for just cause or when authorized by the Code.

• Article 280, Labor Code — Defines regular employment and security of tenure, providing that an employee shall be deemed regular when engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, and that the employer shall not terminate services except for just cause or as authorized by the Code. Applied to hold that private respondents, having rendered at least one year of service under repeatedly renewed contracts, attained regular status and could not be dismissed by mere non-renewal.

• Article 106, Labor Code — Cited as designed to prevent employers from avoiding the necessity of hiring regular or permanent employees by indefinitely maintaining workers on temporary or casual status, thereby denying them security of tenure.

• Article XII, Section 3, 1987 Constitution — Guarantees the right of workers to security of tenure. Invoked as the constitutional foundation for the statutory protections under Articles 280 and 106 of the Labor Code.

Melencio-Herrera (Chairman), Padilla, and Regalado, JJ., concurred. Sarmiento, J., was on leave.