Tamson's Enterprises, Inc. vs. Court of Appeals

Where an employer fails to make known to a probationary employee the reasonable standards for regularization at the time of engagement, the employee is deemed a regular employee from day one, and any subsequent termination must comply with the requirements of just cause and procedural due process applicable to regular employees; failure to satisfy both substantive and procedural requirements renders the dismissal illegal.

Tamson's Enterprises, Inc. is a corporate employer engaged in business operations that included a sales and payroll function. Respondent Rosemarie L. Sy was hired by the company on September 1, 2006 under the job title "Assistant to the President," though she was in fact directed to perform payroll clerk duties. Petitioners Nelson Lee (company President), Lilibeth Ong, and Johnson Ng (Sales Project Manager) were Sy's superiors and co-employees involved in the events leading to her termination. The dispute arose under Article 281 of the Labor Code, which governs probationary employment and requires that reasonable standards for regularization be made known to the employee at the time of engagement.

On September 1, 2006, Rosemarie L. Sy was hired by Tamson's Enterprises, Inc. under the job title "Assistant to the President." Despite the title, company President Nelson Lee directed her to act as payroll officer, though she actually performed the duties of a payroll clerk. During her pre-employment interview, Lee spoke favorably of her work experience and educational background and assured her of long-term employment with benefits. Throughout her tenure, Sy maintained a perfect attendance record, worked even during brownouts and typhoons, and frequently rendered overtime to finish her tasks.

On February 24, 2007 — four days before Sy would have completed her sixth month of employment — Johnson Ng, the Sales Project Manager, called her to a meeting with him and Lee. During the meeting, they informed Sy that her services would be terminated due to inefficiency. She was asked to sign a letter of resignation and quitclaim and was told not to report for work anymore because her services were no longer needed. On her last day, co-employee Lilibeth Ong humiliated Sy in front of her officemates by shouting at her and preventing her from retrieving her personal belongings or any documents from the office.

Petitioners asserted that before Sy was hired, she was apprised that she was being engaged as a probationary employee for six months, from September 1, 2006 to February 28, 2007, subject to extension as a regular employee conditioned on her meeting the company's standards of permanent employment. They claimed her work performance was monitored and evaluated, and that on February 1, 2007, she was formally informed that her employment would end on February 28, 2007 because she failed to meet the company's standards. They further alleged that Sy thereafter began threatening the families of the petitioners with bodily harm, and that her unpredictable attitude was itself a reason she was not considered for regular employment. Sy, for her part, contended that no evaluation or appraisal report was ever shown to her regarding her alleged inefficient performance, and that her dismissal was contrived to prevent her from acquiring regular status.

Sy filed a complaint for illegal dismissal with money claims before the NLRC Arbitration Branch, NCR, seeking backwages, unpaid salary, service incentive leave, overtime pay, 13th month pay, moral and exemplary damages, and attorney's fees. The Executive Labor Arbiter found the termination illegal for lack of just cause and due process, but the NLRC reversed on appeal, holding that the dismissal was a valid expiration of probationary employment. The Court of Appeals reversed the NLRC and reinstated the ELA decision, a ruling that petitioners brought to the Supreme Court via the present petition.

• Regularization Standards Substantially Complied With: Petitioners argued that they substantially complied with the requirements of the law by apprising Sy of her probationary status and that the standard — continued employment dependent on overall performance of assigned tasks — was made known to her from day one, even if not in writing.
• No Written Evaluation Required: Petitioners maintained that a reasonable standard of employment does not require a written evaluation of Sy's functions; it is sufficient that she was informed of her duties and that her performance was later rated below satisfactory by Management.
• Security of Tenure Limited to Probationary Period: Citing Alcira vs. NLRC and Colegio San Agustin vs. NLRC, petitioners contended that Sy's constitutional protection to security of tenure ended on the last day of her probationary tenure on February 28, 2007, and that it would be unfair to compel regularization of an employee found unfit for the job.
• No Illegal Dismissal, Merely Expiration of Contract: Petitioners asserted that because they were not obligated to extend Sy's employment, there was no illegal dismissal but merely an expiration of the probationary contract, entitling her to no benefits such as separation pay or backwages.

• No Standards Communicated: Respondent countered that she was illegally terminated and that petitioners could not invoke her failure to qualify because she was never informed of the standards or criteria she should have met for regular employment.
• No Proof of Poor Performance: Respondent argued that no proof was presented as to her alleged poor work performance, and that she was unceremoniously terminated solely to prevent her from becoming a regular employee and from being entitled to the benefits of regular employment.

• Validity of Termination: Whether the termination of Sy, a probationary employee, was valid.
• Regularization Standards: Whether Sy was deemed a regular employee from day one due to the employer's failure to communicate reasonable standards for regularization at the time of engagement.
• Procedural Due Process: Whether the petitioners observed procedural due process in terminating Sy's employment.

• Validity of Termination: No. The termination was illegal because petitioners failed to prove just cause or valid ground for dismissal, having presented no evidence of the regularization standards or of Sy's unsatisfactory performance.
• Regularization Standards: Yes. Because no reasonable standards for regularization were made known to Sy at the time of her engagement, she was deemed a regular employee from day one pursuant to Article 281 of the Labor Code and its Implementing Rules.
• Procedural Due Process: No. Petitioners failed to serve the required written notice of termination; Sy was merely verbally informed of the termination, in violation of Section 2, Rule I, Book VI of the Implementing Rules.

• Validity of Termination: Under Article 281 of the Labor Code, a probationary employee may be terminated for just cause or when he fails to qualify as a regular employee in accordance with reasonable standards made known by the employer at the time of engagement. The employer carries the burden of proving just or valid cause for dismissal. Here, petitioners justified Sy's dismissal on her alleged failure to qualify under company standards, yet presented no documentary or other evidence to substantiate that any standards existed or were communicated. No performance evaluation was presented to prove unsatisfactory performance. The absence of proof led the Court to infer that the employer's dissatisfaction was contrived to prevent Sy's regularization — a common and convenient practice of unscrupulous employers to circumvent the law on security of tenure. The Court would not permit such a subterfuge.

• Regularization Standards: The law requires that the employer make known to the probationary employee the standards under which he will qualify as a regular employee at the time of engagement. Where no standards are made known at that time, the employee shall be deemed a regular employee. Citing Clarion Printing House, Inc. vs. NLRC and Hacienda Primera Development Corporation vs. Villegas, the Court held that because petitioners failed to specify the reasonable standards by which Sy's performance was evaluated, much less prove that such standards were made known to her at the start of her employment, she was deemed to have been hired from day one as a regular employee. As a regular employee, she was entitled to security of tenure and could be dismissed only for just cause and after due compliance with procedural due process.

• Procedural Due Process: Even assuming arguendo that Sy failed to meet standards that had been properly communicated, the termination was still flawed for failure to give the required written notice. Section 2(d), Rule I, Book VI of the Implementing Rules provides that where termination is brought about by failure of an employee to meet the employer's standards in the case of probationary employment, it shall be sufficient that a written notice is served on the employee within a reasonable time from the effective date of termination. Petitioners admitted that Sy was merely verbally informed of her termination. Because petitioners failed to observe due process, the dismissal had no legal sanction. A worker's employment is property in the constitutional sense, and Sy, being a regular employee whose termination was illegal, was entitled to reinstatement, full backwages, and attorney's fees under Article 279 of the Labor Code.

• Probationary Employment and Regularization Standards — Probationary employment is a trial period during which the employer determines the employee's fitness for regular employment based on reasonable standards made known to the employee at the time of engagement. The word "probationary" implies the purpose of the term, not its length. Where the employer fails to make known the reasonable standards for regularization at the time of engagement, the employee is deemed a regular employee from day one. In this case, because no standards were communicated to Sy at the time of hiring, she was deemed a regular employee from the start.

• Security of Tenure of Probationary Employees — Even probationary employees, though not enjoying permanent status, are accorded constitutional protection of security of tenure. They may be terminated only for just cause or when they fail to qualify as regular employees in accordance with reasonable standards made known to them at the time of engagement. The employer's power to terminate a probationary employee is not without limitations: (1) it must be exercised in accordance with the specific requirements of the contract; (2) the employer's dissatisfaction must be real and in good faith, not feigned to circumvent the contract or the law; and (3) there must be no unlawful discrimination in the dismissal. The burden of proving just or valid cause rests on the employer.

• Procedural Due Process in Termination of Probationary Employees — Under Section 2(d), Rule I, Book VI of the Implementing Rules, where termination is due to failure of a probationary employee to meet the employer's standards, a written notice must be served on the employee within a reasonable time from the effective date of termination. Verbal notice is insufficient. Failure to comply with this requirement renders the dismissal without legal sanction.

• Twin Reliefs for Illegal Dismissal — Under Article 279 of the Labor Code, an employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges, full backwages inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement. Attorney's fees are also proper where the employee is compelled to litigate to protect her rights and interests.

• "Where no standards are made known to the employee at that time, he shall be deemed a regular employee." — This passage states the controlling rule on the consequence of an employer's failure to communicate regularization standards, which is the decisive basis for deeming Sy a regular employee from day one.

• "One of the conditions before an employer can terminate a probationary employee is dissatisfaction on the part of the employer which must be real and in good faith, not feigned so as to circumvent the contract or the law." — This formulation, quoted from the CA decision and adopted by the Supreme Court, articulates the good-faith requirement for terminating a probationary employee and underpins the Court's finding that the employer's dissatisfaction was contrived.

• "Security of tenure, which is a right of paramount value guaranteed by the Constitution, should not be denied to the workers by such a stratagem. The Court can not permit such a subterfuge, if it is to be true to the law and social justice." — This passage captures the Court's policy rationale for strictly enforcing the regularization-standards requirement and preventing employers from using probationary employment as a device to evade security of tenure.

• Clarion Printing House, Inc. vs. NLRC, 500 Phil. 61 (2005) — Cited by the CA and affirmed by the Supreme Court for the rule that where a probationary employee is not informed of the standards for regularization at the time of engagement, she is deemed a regular employee from day one.
• Mercado vs. AMA Computer College-Paranaque City, Inc., G.R. No. 183572, April 13, 2010, 618 SCRA 218 — Cited for the principle that the employer must show, as a matter of due process, how probationary standards have been applied to the employee, effectively constituting the second notice required in a dismissal situation.
• Alcira vs. NLRC, G.R. No. 149859, June 9, 2004, 431 SCRA 508 — Cited by petitioners for the proposition that security of tenure ends upon expiration of the probationary period; distinguished by the Court, which recognized the employer's management prerogative but emphasized its limitations.
• Dusit Hotel Nikko vs. Gatbonton, G.R. No. 161654, May 5, 2006, 489 SCRA 671 — Cited for the three limitations on the employer's power to terminate a probationary employee: contract compliance, good-faith dissatisfaction, and absence of unlawful discrimination.
• Hacienda Primera Development Corporation vs. Villegas, G.R. No. 186243, April 11, 2011 — Cited as recent precedent reinforcing that failure to specify and communicate reasonable standards at the time of engagement renders the employee a regular employee from day one.

• Article 281, Labor Code — Governs probationary employment, providing that probationary employment shall not exceed six months and that services may be terminated for just cause or failure to qualify as a regular employee in accordance with reasonable standards made known by the employer at the time of engagement. Applied as the primary statutory basis for holding that Sy was deemed a regular employee because no standards were communicated.
• Section 2, Rule I, Book VI, Implementing Rules of the Labor Code — Provides the due process standards for termination of employment, including the requirement that in cases of probationary employment terminated for failure to meet employer standards, a written notice must be served on the employee within a reasonable time from the effective date of termination. Applied to hold that the verbal notice given to Sy was insufficient.
• Article 279, Labor Code — Provides the twin reliefs of reinstatement and full backwages for an illegally dismissed employee. Applied to award Sy reinstatement, backwages, and attorney's fees.

Velasco, Jr., P.J. (Chairperson); Peralta, D.M.; Abad, R.A.; Perez, J.P. — All concurred in the decision. No separate concurring opinions were rendered.