Regala vs. Manila Hotel Corporation

A worker who has rendered years of continuous service performing activities necessary and desirable to the employer's business is a regular employee entitled to security of tenure, and fixed-term service contracts executed after regular employment has already accrued are invalid when they are contracts of adhesion, fail to specify both effectivity and expiration dates, and are designed to circumvent the employee's right to regularization.

Manila Hotel Corporation (MHC) operates a hotel and food service business that, by its nature, depends on a manpower complement to carry out food and beverage operations, event planning, and hospitality services. MHC maintains a regular staff of waiters but also engages so-called "extra waiters" on a short-term basis through loose referrals and fixed-term service contracts to address temporary spikes in business volume. Regala was one such worker hired in February 2000, though the parties sharply disputed the legal character of his engagement throughout the proceedings.

Allan Regala was hired by Manila Hotel Corporation (MHC) sometime in February 2000 as one of its waiters assigned to the Food and Beverage Department. In the course of his employment, he was directed to report to a Captain Waiter and was assigned to work across multiple MHC dining establishments, including the Cowrie Grill, Pool Bar, Mini Bar, Kitchen Ginza, Tap Room, Champagne Room, Room Service, Mabuhay Palace, Banquet Services, and Pastry and House Keeping. He was later assigned as cook helper at MHC's Chocolate Room/Cookies Kitchen from October 18, 2004 to June 26, 2006. Regala worked six days every week and was paid a daily salary of ₱382.00 until sometime in December 2009. MHC also remitted contributions on Regala's behalf to the Social Security System and PhilHealth. From October 2008 to May 2009, Regala was made to attend and participate in hotel trainings for Basic Food Safety Strategies, Food Safety Awareness, and Customer Service Awareness.

Regala alleged that despite rendering services to MHC for several years, he was not recognized as a regular rank-and-file employee. He further claimed that MHC constructively dismissed him when it reduced his regular work days from five to two per week starting December 2, 2009, resulting in a diminution of his take-home salary. MHC, for its part, denied that Regala was a regular employee, characterizing him as a mere freelance or "extra waiter" engaged on a short-term basis to supplement the hotel's regular staff during temporary spikes in business volume. MHC explained that it relied on loose referrals from its employees and a list of waiters who had expressed interest in part-time engagements, and that this informal hiring practice was common in the hotel and restaurant industry, allowing extra waiters like Regala to offer their services to other establishments despite their existing engagement with MHC.

To support its position, MHC presented a sample fixed-term service contract and copies of Regala's Department Outlet Services Contracts for Extra Waiters/Cocktail Attendants covering the period from March 1, 2010 to March 3, 2010. These Service Agreements stated that the engagement was "co-terminus with the completion of the function, work or services" and expressly provided that "for all intents and purposes, you are not considered employees of the Company." MHC argued that the expiration of the period under these Service Agreements simply caused the natural cessation of Regala's fixed-term employment, precluding any claim of illegal dismissal. Regala countered that the fixed-term contracts were a scheme devised by MHC to prevent him from attaining regular employment status, and that as a regular employee, the unreasonable reduction of his work days amounted to constructive dismissal.

• Regular Employment Status: Regala maintained that, applying the four-fold test, he was a regular employee of MHC, his duties as waiter being necessary and desirable to the hotel's food and beverage business, and his continuous employment since February 2000 evidencing the necessity and indispensability of his services.
• Invalidity of Fixed-Term Contracts: Regala argued that MHC's practice of making him sign fixed-term service contracts from time to time was a scheme devised to preclude him from attaining regular employment status, rendering his work at the pleasure of MHC and intended to prevent security of tenure from accruing in his favor.
• Constructive Dismissal: Regala contended that as a regular employee, MHC's act of unreasonably reducing his work days from five to two per week, resulting in diminution of his take-home pay, was tantamount to constructive dismissal.
• Outsourcing Affecting Work Hours: Regala claimed that MHC outsourced the services of a contractor which supplied "extra waiters," which purportedly affected his working hours.

• Fixed-Term Employment: MHC argued that Regala was a mere freelance or "extra waiter" engaged on a short-term basis during temporary spikes in business volume, and that the Service Agreements validly established fixed-term employment whose expiration caused the natural cessation of his engagement.
• Management Prerogative: MHC contended that its practice of hiring additional waiters on a fixed or short-term contractual basis was a valid exercise of management prerogative to meet client demands arising from unforeseen spikes in business volume.
• Necessary and Desirable Work Does Not Preclude Fixed Term: MHC argued that the fact Regala performed activities necessary or desirable to its business did not preclude the fixing of employment for a specified duration or period.
• Voluntary Execution of Contracts: MHC asserted that the Service Agreements were freely entered into by Regala, their terms were clear and determined before each engagement, and there was no showing that Regala was forced, coerced, or manipulated into signing them.
• Industry Practice: MHC maintained that its system of hiring freelance waiters on an informal and temporary basis was a common practice in the hotel and restaurant industry.
• Belated Submission of Evidence (2016 Manifestation): MHC requested the Supreme Court to admit Regala's Daily Time Records and Payroll Journals, arguing that these showed Regala continuously reported for work since January 11, 2010, proving no actual dismissal occurred and that he was not entitled to backwages.

• Employment Status: Whether Regala is a regular employee of MHC or a fixed-term employee.
• Validity of Fixed-Term Contracts: Whether the Service Agreements and fixed-term service contracts executed between MHC and Regala constitute valid fixed-term employment contracts.
• Constructive Dismissal: Whether Regala was constructively dismissed from employment when MHC reduced his work days from five to two per week.
• Belated Submission of Evidence: Whether MHC's belated submission of additional documentary evidence before the Supreme Court should be admitted.

• Employment Status: Yes. Regala is a regular employee of MHC, having performed activities necessary and desirable to the hotel's business and having rendered continuous service since February 2000, entitling him to the presumption of regular employment in the absence of a clear agreement showing he was informed of a fixed-term status at the time of hiring.
• Validity of Fixed-Term Contracts: No. The Service Agreements and fixed-term service contracts are invalid, having failed to specify both effectivity and expiration dates, being contracts of adhesion prepared unilaterally by MHC, and having been designed to preclude Regala from acquiring tenurial security.
• Constructive Dismissal: Yes. The reduction of Regala's regular work days from five to two per week, resulting in diminution of his take-home pay, constituted constructive dismissal, the fact of which should be reckoned from December 2, 2009.
• Belated Submission of Evidence: No. MHC's belated submission of DTRs and Payroll Journals was denied, the Court refusing to receive evidence submitted for the first time on appeal and to permit MHC to take an inconsistent position or change its theory on appeal.

• Employment Status: Article 295 of the Labor Code provides two categories of regular employees: those engaged to perform activities usually necessary or desirable in the employer's business, and those who have rendered at least one year of service. Regala's duties as a waiter—preparing mise en place, taking orders, and serving food and beverages to hotel guests—were essential to MHC's service-oriented business, which depends on its manpower complement for food and beverage operations. The desirability of his functions was bolstered by the fact that MHC retained regular waiters charged with like duties. The continuing need for his services over nearly a decade, evidenced by repeated renewals during business spikes since February 2000, further demonstrated the indispensability of his role. In the absence of a clear written agreement at the time of hiring showing Regala was informed of a fixed-term status, he enjoyed the presumption of regular employment. The employment status of a person is defined and prescribed by law, not by what the parties say it should be.

• Validity of Fixed-Term Contracts: While fixed-term employment has been recognized as an exception to the general rule of regular employment, it is valid only under the criteria laid down in Brent School, Inc. vs. Zamora: (1) the fixed period was knowingly and voluntarily agreed upon without force, duress, or improper pressure, and absent circumstances vitiating consent; or (2) the employer and employee dealt on more or less equal terms with no moral dominance exercised by either. Both criteria must be read together. As to the first, the Service Agreements only accounted for March 1–3, 2010 and did not prove Regala knowingly agreed to fixed-term employment back in February 2000. The contracts were entirely prepared by MHC's Personnel Department, making them contracts of adhesion whose terms must be strictly construed against the unilateral crafter; Regala had no realistic chance to negotiate. As to the second, as a rank-and-file waiter, Regala could hardly stand on equal terms with MHC in negotiating employment conditions. Moreover, the Service Agreements failed to unequivocally specify expiration dates—they indicated only effectivity dates—and did not account for Regala's employment since February 2000. Industry practice of using fixed-term contracts does not make them valid per se, and business fluctuations are inherent entrepreneurial risks that may not be used as an excuse to circumvent labor laws.

• Constructive Dismissal: Constructive dismissal exists when continued employment is rendered impossible, unreasonable, or unlikely, as through a demotion in rank or diminution in pay. The reduction of Regala's work days from five to two per week patently resulted in diminution of pay. MHC failed to specifically deny Regala's allegation of constructive dismissal, and under Section 11, Rule 8 of the Rules of Court, which supplements the NLRC Rules of Procedure, allegations not specifically denied are deemed admitted. MHC's defense—that the cessation resulted from expiration of fixed-term contracts—was unresponsive, as it did not address the propriety of the reduction of work days. The fact that Regala continued reporting for work did not rule out constructive dismissal or operate as a waiver, as an employee may have no choice but to continue working despite abuses, especially in difficult times. The fact of constructive dismissal was reckoned from December 2, 2009, when Regala was made to accept the changed work schedule.

• Belated Submission of Evidence: The Court does not make findings of fact on evidence submitted for the first time on appeal. Points of law, theories, issues, and arguments not brought to the attention of the lower court need not be considered by a reviewing court, as basic considerations of fairness and due process impel this rule. MHC provided no justifiable reason for failing to present the DTRs and Payroll Journals before the LA or NLRC, despite having them in its possession since January 2009. The belated submission cast doubt on their credibility. Furthermore, MHC sought to take an inconsistent position—having argued before the labor tribunals that Regala's dismissal was valid due to expiration of fixed-term contracts, it now asserted that no dismissal occurred at all. Permitting a party to change theory on appeal would offend basic rules of fair play, justice, and due process, and would prejudice Regala, who would have no opportunity to present counter-evidence.

• Presumption of Regular Employment — In the absence of a clear agreement or contract, whether written or otherwise, showing that an employee was properly informed of a fixed-term employment status, the employee enjoys the presumption of regular employment. MHC failed to furnish any written contract executed at the time of Regala's hiring in February 2000 showing a fixed-term engagement, thus the presumption operated in Regala's favor.

• Brent Doctrine on Fixed-Term Employment — Fixed-term employment contracts are valid only under two criteria, which must be read together: (1) the fixed period was knowingly and voluntarily agreed upon by the parties without force, duress, or improper pressure, and absent any circumstances vitiating consent; or (2) the employer and employee dealt with each other on more or less equal terms with no moral dominance exercised by the former over the latter. The doctrine applies only in few special cases where the employer and employee are on more or less equal footing, such as when a prospective employee has special skills or market forces give bargaining power. Both criteria were not met in this case.

• Contracts of Adhesion in Employment — A contract of adhesion is one wherein one party prepares the stipulations and the other merely affixes his signature, with the weaker party's participation reduced to "take it or leave it." Employment contracts of adhesion must be strictly construed against the unilateral crafter. The Service Agreements and fixed-term service contracts, entirely prepared by MHC's Personnel Department, gave Regala no realistic chance to negotiate, undermining the claim that he knowingly and voluntarily agreed to fixed-term employment.

• Requisites of a Valid Fixed-Term Employment Contract — A fixed-term employment contract must specify both the date of effectivity and the date of expiration of the employee's engagement. A contract that fails to specify both cannot be regarded as a fixed-term employment contract despite its nomenclature. The Service Agreements presented by MHC indicated only effectivity dates (March 1, 2, and 3, 2010) but did not unequivocally specify expiration dates.

• Constructive Dismissal — Constructive dismissal exists when continued employment is rendered impossible, unreasonable, or unlikely, as through a demotion in rank or diminution in pay and other benefits, or when an act of clear discrimination, insensibility, or disdain by the employer becomes so unbearable that the employee is foreclosed from any choice except to forego continued employment. The reduction of work days resulting in diminution of pay constitutes constructive dismissal. Continued reporting for work does not rule out constructive dismissal nor operate as a waiver.

• Prohibition on Changing Theory on Appeal — A party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court will not be permitted to change theory on appeal. Points of law, theories, issues, and arguments not brought to the attention of the lower court need not be considered by a reviewing court, as it would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory.

• Entrepreneurial Risk Cannot Circumvent Labor Laws — The rise and fall of customer demands is inherent in any business enterprise and may not be used as an excuse to circumvent labor laws; otherwise, no worker could ever attain regular employment status. Business fluctuations are presumed in all commercial industries, and an established employer cannot credibly claim inability to anticipate them as justification for employing ruses to deny workers regular employment status.

• "The employment status of a person is defined and prescribed by law and not by what the parties say it should be." — This passage articulates the fundamental principle that the legal character of employment cannot be overridden by contractual labels or party stipulations, anchoring the Court's refusal to accept MHC's characterization of Regala as a fixed-term employee.

• "if it is apparent from the circumstances of the case 'that periods have been imposed to preclude acquisition of tenurial security by the employee,' such fixed term contracts are disregarded for being contrary to law and public policy." — This formulation, quoting St. Theresa's School of Novaliches Foundation vs. NLRC, sets the controlling test for invalidating fixed-term contracts that are used as devices to evade security of tenure.

• "a fixed-term employment contract which otherwise fails to specify the date of effectivity and the date of expiration of an employee's engagement cannot, by virtue of jurisprudential pronouncement, be regarded as such despite its nomenclature or classification given by the parties." — This defines the mandatory formal requisite of a valid fixed-term contract and explains why the Service Agreements, which indicated only effectivity dates, were not true fixed-term employment contracts.

• "Constructive dismissal occurs not when the employee ceases to report for work, but when the unwarranted acts of the employer are committed to the end that the employee's continued employment shall become so intolerable." — This clarifies that continued reporting for work does not negate constructive dismissal, a point critical to Regala's case since he kept working even after filing his complaint.

• Brent School, Inc. vs. Zamora, 260 Phil. 747 (1990) — Controlling precedent establishing the two criteria for valid fixed-term employment contracts: knowing and voluntary agreement without vitiated consent, and dealing on more or less equal terms without moral dominance. The Court applied both criteria and found neither satisfied.

• St. Theresa's School of Novaliches Foundation vs. National Labor Relations Commission, 351 Phil. 1038 (1998) — Followed for the principle that while necessary or desirable duties do not forbid fixed-term agreements, fixed-term contracts are disregarded when periods are imposed to preclude acquisition of tenurial security.

• Poseidon Fishing vs. National Labor Relations Commission, 518 Phil. 146 (2006) — Instructive precedent holding that a contract failing to specify an actual or specific date or period for employment cannot qualify as a fixed-term contract, analogous to the defective Service Agreements in this case.

• Rowell Industrial Corporation vs. Court of Appeals, 546 Phil. 516 (2007) — Followed for the principle that a rank-and-file employee can hardly be on equal terms with the employer in negotiating employment contracts, supporting the finding that the second Brent criterion was not met.

• GMA Network, Inc. vs. Pabriga, 722 Phil. 161 (2013) — Followed for the principle that the Brent criteria must be read together and apply only in few special cases where employer and employee are on more or less equal footing.

• Innodata Philippines, Inc. vs. Quejada-Lopez, 535 Phil. 263 (2006) — Followed for the doctrine that entrepreneurial risk inherent in business cannot be used as an excuse to circumvent labor laws and deny workers regular employment status.

• The Orchard Golf and Country Club vs. Francisco, 706 Phil. 479 (2013) — Followed for the principle that constructive dismissal occurs when the employer's unwarranted acts render continued employment intolerable, and that an employee's continued reporting for work does not negate constructive dismissal.

• Maxicare PCIB Cigna Healthcare vs. Contreras, 702 Phil. 688 (2013) — Followed for the rule that a party may not change theory on appeal, as it would be unfair to the adverse party deprived of the opportunity to present counter-evidence.

• Article 295, Labor Code — Defines two categories of regular employees: (a) those engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, and (b) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. Applied to classify Regala as a regular employee under the first category, his waiter duties being necessary and desirable to MHC's hotel and food business.

• Section 11, Rule 8, Rules of Court — Provides that allegations not specifically denied in the pleadings are deemed admitted. This provision supplements the NLRC Rules of Procedure and was applied to hold that MHC's failure to specifically deny Regala's allegation of constructive dismissal constituted an admission.

• Rule 45, Rules of Court — Governs Petition for Review on Certiorari, under which questions of fact are generally not entertained. The Court nevertheless took cognizance of the factual issues due to conflicting findings between the LA and CA on one hand and the NLRC on the other, exercising its equity jurisdiction to review the facts.

Perlas-Bernabe, S.A.J. (Chairperson), Inting, and Delos Santos, JJ., concurred. Baltazar-Padilla, J., was on leave.