Tomas Lao Construction vs. NLRC

Construction workers initially hired as project employees attain regular employment status when continuously rehired over a long period due to the continuing demands of the employer's business, and their dismissal for refusing to sign project employment contracts designed to defeat tenurial security constitutes illegal dismissal. The corporate veil of affiliated corporations under single family ownership and management may be pierced to hold all entities jointly and severally liable for monetary awards to illegally dismissed employees.

Three corporations — Tomas Lao Corporation (TLC), Thomas and James Developers (T&J), and LVM Construction Corporation (LVM) — collectively known as the "Lao Group of Companies," were engaged in the construction of public roads and bridges. The corporations operated under joint venture agreements, undertaking projects simultaneously or successively, leasing equipment to one another, and allowing the utilization of employees across entities. All three were exclusively controlled and managed by members of the Lao family: Lao Hian Beng alias Tomas Lao, his wife Chiu Siok Lian, Andrew C. Lao, and other family members. TLC eventually ceased operations while T&J and LVM continued. The legal framework governing the distinction between project and regular employees, including Policy Instruction No. 20 and its successor Department Order No. 19, provided the regulatory backdrop against which the employment status dispute arose.

From October to December 1990, eleven construction workers — Mario O. Labendia, Sr., Roberto Labendia, Narciso Adan, Florencio Gomez, Ernesto Bagatsolon, Salvador Babon, Paterno Bisnar, Cipriano Bernales, Angel Mabuhay, Sr., Leo Surigao, and Roque Morillo — individually filed complaints for illegal dismissal against petitioners with the NLRC Regional Arbitration Branch No. VIII in Tacloban City. The workers had been employed for various periods ranging from several years to nearly two decades: Roberto Labendia served as general construction foreman from 1971 to October 1990 at ₱3,700/month; Mario Labendia, Sr. as surveyor/foreman from August 1971 to July 1990 at ₱2,900/month; Angel Mabulay, Sr. as dump truck driver from August 1974 to October 1990 at ₱90/day; Leo Surigao as payloader operator from March 1975 to January 1978 at ₱100/day; Paterno Bisnar as road grader operator from January 1979 to October 1990 at ₱105/day; Cipriano Bernales as instrument man from February 1980 to November 1990 at ₱3,200/month; Narciso Adan as tireman from October 1981 to November 1990 at ₱75.00/day; Ernesto Bagatsolon as leadman/checker from June 1982 to October 1990 at ₱2,800/month; Salvador Babon as clerk/timekeeper/paymaster from June 1982 to October 1990 at ₱3,200/month; Florencio Gomez as welder from July 1983 to July 1990 at ₱260.00/day; and Roque Morillo as company watchman from August 1983 to October 1990 at ₱3,200/month.

Within the periods of their respective employments, the workers alternately worked for TLC, T&J, and LVM, collectively known as the "Lao Group of Companies," a business conglomerate exclusively controlled and managed by members of the Lao family. The three corporations were engaged in the construction of public roads and bridges and operated under joint venture agreements, undertaking projects either simultaneously or successively. They leased tools and equipment to one another and allowed the utilization of their employees across entities. Workers were transferred whenever necessary to on-going projects of the same company or of the others, or were rehired after the completion of a project or project phase. TLC eventually ceased operations while T&J and LVM continued.

Sometime in 1989, Andres Lao, Managing Director of LVM and President of T&J, issued a memorandum requiring all workers and company personnel to sign employment contract forms and clearances. The contracts were issued on 1 July 1989 but antedated to 10 January 1989, ostensibly for audit purposes pursuant to a joint venture agreement between LVM and T&J. To ensure compliance, the company ordered the withholding of the salary of any employee who refused to sign. The contracts expressly described the construction workers as project employees whose employment was for a definite period — upon expiration of the contract period or completion of the project for which they were hired. Except for Florencio Gomez, who claimed he signed under coercion and due to dire economic necessity, all private respondents refused to sign, contending that the scheme was designed to downgrade their status from regular employees to mere project employees.

As a consequence of their refusal, the workers' salaries were withheld. They were required to explain why their services should not be terminated for violating company rules and were warned that failure to satisfactorily explain would be construed as "disinterest" in continued employment. Because the workers stood firm in their refusal, their services were terminated. Petitioners additionally claimed that Mario Labendia and Roberto Labendia had absented themselves without leave. The Labor Arbiter dismissed the complaints, finding the workers to be project employees, but granted separation pay. The NLRC reversed, finding the workers to be regular employees illegally dismissed without just cause and denied due process, and disregarded the corporate veil to treat the three corporations as one entity.

• Employment Status: Petitioners maintained that private respondents were project employees whose employment was co-terminous with the completion of the projects for which they were hired, citing Policy Instruction No. 20 and the ruling in Sandoval Shipyards, Inc. vs. NLRC, which declared that project employees' employment ends upon project completion regardless of the number of projects worked.
• Termination for Cause: Petitioners argued that, assuming the workers were regular employees, their dismissal was for cause — specifically insubordination or blatant refusal to comply with a lawful employer directive, and abandonment of duty by Mario and Roberto Labendia.
• Excessive Back Wages: Petitioners contended that, assuming illegal dismissal, the NLRC erred in awarding back wages in excess of three years.
• Piercing the Corporate Veil: Petitioners asserted that the NLRC erred in disregarding the separate corporate personalities of the three petitioner-corporations and holding them jointly and severally liable.

• Project vs. Regular Employment: Whether private respondents were project employees or had attained the status of regular employees by virtue of continuous rehiring over a long span of time.
• Validity of Dismissal: Whether the dismissal of private respondents was for just cause, specifically whether their refusal to sign the project employment contracts constituted willful insubordination and whether Mario and Roberto Labendia were guilty of abandonment.
• Back Wages and Separation Pay: Whether the NLRC erred in awarding back wages in excess of three years and in granting separation pay if reinstatement was no longer feasible.
• Piercing the Corporate Veil: Whether the NLRC correctly disregarded the separate corporate personalities of TLC, T&J, and LVM and held them jointly and severally liable.

• Project vs. Regular Employment: No. Private respondents were regular employees, not project employees, their continuous rehiring over a long span of time having removed them from the scope of project employment.
• Validity of Dismissal: No. The dismissal was without just cause; the workers' refusal to sign the contracts was an act of self-preservation against an unreasonable and unlawful directive, and the allegation of abandonment was without merit.
• Back Wages and Separation Pay: No. The NLRC did not err; full back wages under Article 279 of the Labor Code were properly awarded, computed from the time compensation was withheld up to actual reinstatement, or until the finality of the decision if reinstatement was no longer feasible, plus separation pay.
• Piercing the Corporate Veil: No. The NLRC correctly disregarded the separate corporate personalities of the three corporations, they being substantially owned, controlled, and managed by the same Lao family and operating as a single entity.

• Project vs. Regular Employment: The principal test for distinguishing project employees from regular employees is whether the employees are assigned to carry out a specific project or undertaking, the duration and scope of which are specified at the time of engagement. While the workers may have been initially hired for specific projects, the repeated rehiring and continuing need for their services over a long span — the shortest at seven years — undeniably made them regular employees. Petitioners' own admissions confirmed that their construction projects overlapped or commenced immediately upon completion of others, and that employees were transferred and rehired in on-going projects after completion of prior assignments. This demonstrated the existence of a work pool from which petitioners drew workers for various projects. The cessation of construction activities between projects was a foreseeable suspension of work analogous to seasonal employment, where the employment relation is not severed but merely suspended; non-payment of salary during such periods did not denote project employment. Sandoval Shipyards was distinguished because the hiring there was intermittent and not continuous, the shipyard accepting contracts only on occasion. Moreover, petitioners failed to submit termination reports to the nearest public employment office after every project completion, as required by Policy Instruction No. 20 and Department Order No. 19, the failure proving that the employees were not project employees. The antedated project employment contracts were a farcical scheme to circumvent labor laws on tenurial security, imposing time frames on an otherwise flexible employment period of workers some of whom had been employed since 1969.

• Validity of Dismissal: Willful disobedience as a just cause for dismissal requires the concurrence of two requisites: the employee's conduct must have been willful or intentional with a wrongful and perverse attitude, and the order violated must have been reasonable, lawful, made known to the employee, and must pertain to the duties he was engaged to discharge. The workers' refusal was willful but not in the sense of plain and perverse insubordination; it was dictated by necessity and justifiable reasons, as the memorandum was a veiled attempt to deny them their rightful status as regular employees. This act of self-preservation did not merit the extreme penalty of dismissal. The allegation of abandonment was likewise without merit, as abandonment requires both failure to report for work without valid reason and a clear intention to sever the employer-employee relationship. Roberto and Mario Labendia were forced to leave because their salaries were withheld, and they had to seek temporary employment elsewhere to survive. Their filing of the illegal dismissal complaint itself negated any intention to permanently abandon their jobs. Even project employees enjoy security of tenure, and the burden of proving lawful dismissal lies with the employer; petitioners' assertions of proximate project completion were self-serving and insufficient, the services having been terminated not because of contract expiration but as sanction for refusal to sign the project employment forms.

• Back Wages and Separation Pay: Since the illegal dismissal occurred in 1990, after the effectivity of the amendatory provision of Republic Act No. 6715 on 21 March 1989, back wages were properly computed under Article 279 of the Labor Code, which entitles an unjustly dismissed employee to reinstatement without loss of seniority rights and full back wages inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. Consistent with Bustamante vs. NLRC, the back wages were undiminished by earnings derived elsewhere during the period of illegal dismissal. If reinstatement was no longer feasible, back wages were computed until the finality of the decision, and separation pay was awarded equivalent to at least one month salary or one month salary for every year of service, whichever was higher, a fraction of at least six months being considered one whole year.

• Piercing the Corporate Veil: The three corporations were substantially owned and controlled by members of the Lao family. T&J was 100% owned by the Laos; a majority of the outstanding shares of LVM were owned by the Lao family; and Lao Hian Beng alias Tomas Lao owned TLC and was the majority stockholder of T&J. The corporations were engaged in the same line of business under one management and used the same equipment and manpower services. Where business enterprises are owned, conducted, and controlled by the same parties, law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction of separate corporate personalities and treat them as identical. The liability further extended to the responsible officers acting in the interest of the corporations, as the fiction of corporate personality was envisaged for convenience and to serve justice, not as a subterfuge to commit injustice and circumvent labor laws.

• Project Employment vs. Regular Employment — The principal test is whether the employee is assigned to carry out a specific project or undertaking, the duration and scope of which are specified at the time of engagement. Project employees become regular employees when continuously rehired over a long span of time due to the demands of the employer's business, such that their employment is no longer co-terminous with any specific project. Length of time, while not a controlling test, is a strong factor. The existence of a work pool — where workers are available when called for projects but free to seek other employment during temporary breaks — is indicative of regular employment. Non-payment of salary during temporary cessations and the freedom to seek other employment do not denote project employment.

• Reportorial Requirement for Project Employment — Employers of project employees, while exempt from the clearance requirement, must submit a report of termination to the nearest public employment office every time a project employee's employment is terminated due to project completion. Failure to file such termination reports proves that the employees are not project employees. This requirement is explicitly provided in Policy Instruction No. 20 and its successor, Department Order No. 19, which lists the termination report as an indicator of project employment.

• Willful Disobedience as Just Cause for Dismissal — Two requisites must concur: (a) the employee's assailed conduct must have been willful or intentional, characterized by a wrongful and perverse attitude; and (b) the order violated must have been reasonable, lawful, made known to the employee, and must pertain to the duties he was engaged to discharge. Refusal to comply with an employer directive that is unreasonable and unlawful — such as a scheme to strip employees of regular status — does not constitute willful insubordination justifying dismissal.

• Abandonment as Ground for Dismissal — Two elements must be present: (a) failure to report for work or absence without valid or justifiable reason, and (b) a clear intention to sever the employer-employee relationship, the second being the more determinative factor. An employee forced to seek temporary employment elsewhere because the employer withheld his salary cannot be deemed to have abandoned his job, especially where the employee subsequently files a complaint for illegal dismissal.

• Full Back Wages Under Article 279 — An employee unjustly dismissed after the effectivity of Republic Act No. 6715 is entitled to reinstatement without loss of seniority rights and other privileges, and to full back wages inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement. Back wages are undiminished by earnings derived elsewhere during the period of illegal dismissal. If reinstatement is no longer feasible, back wages are computed until the finality of the decision, and separation pay is awarded.

• Piercing the Corporate Veil in Labor Cases — Where business enterprises are owned, conducted, and controlled by the same parties, both law and equity will, when necessary to protect the rights of third persons, disregard the legal fiction that the corporations are distinct entities and treat them as identical. The fiction of corporate personality was envisaged for convenience and to serve justice, and should not be used as a subterfuge to commit injustice and circumvent labor laws. Liability may extend to responsible officers acting in the interest of the corporations.

• "While it may be allowed that in the instant case the workers were initially hired for specific projects or undertakings of the company and hence can be classified as project employees, the repeated re-hiring and the continuing need for their services over a long span of time (the shortest, at seven [7] years) have undeniably made them regular employees." — This passage articulates the controlling rule on how continuous rehiring transforms project employees into regular employees, the central ratio decidendi of the case.

• "Clearly, here was an attempt to circumvent labor laws on tenurial security. Settled is the rule that when periods have been imposed to preclude the acquisition of tenurial security by the employee, they should be struck down as contrary to public morals, good customs or public order." — This defines the doctrine against imposing fixed periods on employment to defeat security of tenure, a principle frequently cited in subsequent labor jurisprudence.

• "It should always be borne in mind that the fiction of law that a corporation as a juridical entity has a distinct and separate personality was envisaged for convenience and to serve justice; therefore it should not be used as a subterfuge to commit injustice and circumvent labor laws." — This is the canonical formulation of the principle that corporate personality may be disregarded to prevent injustice in labor cases.

• "The refusal of private respondents was willful but not in the sense of plain and perverse insubordination. It was dictated by necessity and justifiable reasons — for what appeared to be an innocent memorandum was actually a veiled attempt to deny them their rightful status as regular employees." — This passage distinguishes justified refusal from insubordination, applying the two-requisite test for willful disobedience to the facts.

• Sandoval Shipyards, Inc. vs. NLRC, G.R. Nos. 65689 & 66119, 31 May 1985, 136 SCRA 674 — Distinguished. Petitioners relied on this case for the proposition that project employment is co-terminous with project completion regardless of the number of projects worked. The Court found it inapplicable because the hiring in Sandoval was intermittent and not continuous, the shipyard accepting contracts only on occasion, unlike the continuous and overlapping project operations of the Lao Group of Companies.

• Industrial-Commercial-Agricultural Workers Organization vs. CIR, No. L-21465, 31 March 1966, 16 SCRA 562 — Applied by analogy. The Court used this case, dealing with regular seasonal employees, to support the proposition that temporary cessation of work does not sever the employment relationship and that employees' freedom to seek other employment during layoff periods does not denote project employment.

• Bustamante vs. NLRC, G.R. No. 111651, 28 November 1996 — Followed. The Court applied its ruling that illegally dismissed employees are entitled to full back wages undiminished by earnings derived elsewhere during the period of illegal dismissal.

• Archbuild Masters and Construction, Inc. vs. NLRC, G.R. No. 108142, 26 December 1995, 251 SCRA 491 — Followed. Cited for the proposition that even project employees enjoy security of tenure and that termination must be for lawful cause with proper notice and hearing.

• Claparols vs. CIR, No. L-30822, 31 July 1975, 65 SCRA 622 — Followed. Cited for the principle that where business enterprises are owned, conducted, and controlled by the same parties, law and equity will disregard the legal fiction of separate corporate personalities when necessary to protect the rights of third persons.

• Article 279, Labor Code (as amended by Republic Act No. 6715) — Provides that an employee unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to full back wages inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement. Applied to determine the proper computation of back wages for the illegally dismissed workers.

• Policy Instruction No. 20, Department of Labor — Defines project employees as those employed in connection with a particular construction project and provides that employers of project employees are exempt from the clearance requirement but not from the submission of termination reports. Applied to test whether the workers were properly classified as project employees and whether the reportorial requirement was observed.

• Department Order No. 19 (1 April 1993) — Superseded Policy Instruction No. 20 and expressly provides that the report of termination is one of the indicators of project employment. Applied to reinforce the requirement that termination reports must be filed after every project completion.

• Section 4(b), Book VI, Omnibus Rules Implementing the Labor Code — Provides that separation pay shall be equivalent to at least one month salary or one month salary for every year of service, whichever is higher, a fraction of at least six months being considered one whole year. Applied to determine the proper separation pay award if reinstatement was no longer feasible.

Vitug, Kapunan, and Hermosisima, Jr., JJ., concurred.