Toyo Seat Philippines Corporation/Yoshihiro Takahama vs. Velasco

Project employment is valid where the employee was hired for a specific project or undertaking with a reasonably determinable completion date communicated at the time of engagement, even if the actual completion date fluctuates due to economic factors, so long as the employer's business model is genuinely project-based and the essential statutory requisites under Article 295 of the Labor Code are satisfied.

Toyo Seat Philippines Corporation (TSPC), formerly Automotive Interiors Corporation, is a Philippine corporation engaged in manufacturing car seats, seat and door trims, wire harnesses, and other related products. Yoshihiro Takahama served as TSPC's president. TSPC's manufacturing operations are conducted on a project basis, producing car seats and trims pursuant to work contracts from automobile makers such as Mazda and Mitsubishi, which are referred to TSPC by its allied companies in Japan, including its mother company TSPC-Japan and sister company Nanjo Sobi Kogyo (NSK). In 2008 and 2009, TSPC hired the respondents — Annabelle C. Velasco, Renato Natividad, Florante Bilasa, and Mary Ann Benigla — as sewers, initially for Project J68C (Export Trim for 2008 Mazda 3 vehicle) and subsequently for Projects J68N (Export Trim for 2011 Mazda 3 vehicle) and GS41 (Export Trim/Seats for Mitsubishi Lancer). Each engagement was governed by a written project employment contract specifying the project, the duration of employment, and the co-terminus nature of the engagement.

TSPC, formerly Automotive Interiors Corporation, is a Philippine corporation engaged in manufacturing car seats, seat and door trims, wire harnesses, manual binders, rear frames, bus seats, and cinema seats. Yoshihiro Takahama served as its president. In 2008 and 2009, TSPC hired respondents Annabelle C. Velasco, Renato Natividad, Florante Bilasa, and Mary Ann Benigla as sewers. Velasco was directly hired by TSPC on September 30, 2009, while the other three were hired through manpower agencies on September 22, 2008, September 28, 2008, and June 8, 2009, respectively. Respondents were initially engaged for Project J68C (Export Trim for 2008 Mazda 3 vehicle), which started in August 2008 and was estimated to be completed in September 2012.

At the advent of the 2011 model of the Mazda 3 vehicle, Mazda directed TSPC to stop production of the J68C Export Trim car seats for the 2008 model, resulting in the early termination of the J68C Project. In lieu thereof, TSPC was contracted to manufacture car seats specifically designed for the new 2011 Mazda 3 model, referred to as the J68N Project (Export Trim for 2011 Mazda 3 vehicle). Respondents agreed to be employed under Project J68N by signing a Letter dated May 31, 2011 issued by TSPC. Their employment was covered by a Project Employment Contract dated June 8, 2011, the duration of which was from June 8, 2011 until December 20, 2012. The contracts uniformly stated that respondents were engaged as project employees, that their employment was co-terminus with the duration of the project, and that upon completion of the project, their employment would automatically cease without any need for verbal or written notice.

Just a few months after the commencement of the J68N Project, Mazda informed TSPC of low volume orders for the 2011 Mazda 3 model, lessening the required amount of work. Respondents were not required to report for work every day due to lack of orders. To accommodate the employees under the J68N Project who were not earning salaries during idle days, TSPC assigned them as sewers under Project GS41 (Export Trim/Seats for Mitsubishi Lancer), which started in October 2011 and was estimated to be finished by December 2012. Respondents' work schedule alternated between J68N and GS41. TSPC entered into separate and distinct contracts for the GS41 project, which expressly referenced the J68N project contract for other provisions.

In December 2012, the GS41 Project ended. With respect to the J68N Project, TSPC advised respondents and their co-complainants that the project would not be completed as scheduled in December 2012, and offered an extension of their project employment until June 30, 2013, to which they agreed. On June 28, 2013, TSPC advised respondents of another extension of the J68N Project for one week, from June 30, 2013 until July 12, 2013, because of delayed arrival of materials. This time, respondents and their co-complainants declined the extension in view of their pending complaint for regularization before the NLRC. TSPC thereupon issued a letter informing respondents that their project employment had ceased effective July 1, 2013.

On the belief that they had attained regular employee status, respondents and their co-complainants had filed a Complaint for regularization with the NLRC on April 18, 2013 and May 22, 2013. After TSPC issued the termination letter, the complaint ripened into one for illegal dismissal and non-payment of 13th month pay, with prayer for reinstatement, moral, exemplary, actual, and nominal damages, and attorney's fees. Of the 27 TSPC sewers who originally filed complaints, 23 entered into settlements with TSPC, leading to the dismissal of their respective complaints. Only the four herein respondents opted to continue with the case. The Labor Arbiter found that respondents performed work necessary or desirable to TSPC's usual business but nevertheless ruled that they were validly engaged as project employees, the specific periods and estimated durations of each project having been clearly specified in their contracts. The NLRC affirmed this ruling. The Court of Appeals reversed, finding that the project completion periods were uncertain and that TSPC's project employment scheme was a circumvention of respondents' right to security of tenure.

• Validity of Project Employment: Petitioner argued that it validly engaged respondents as project employees pursuant to separate and distinct projects entered into with various clients, and that it complied with the requisites of a valid project employment — respondents were duly informed of their status as project employees at the time of engagement, the projects were sufficiently identified, and the company exercised good faith since its work is dependent on specific projects referred by its client.
• Separate and Distinct Projects: Petitioner maintained that the J68C, J68N, and GS41 projects were separate and distinct, each having its own specific duration with reasonably certain periods of completion.
• Nature of Work Not Determinative: Petitioner contended that performance of activities usually necessary and desirable to TSPC's business operations does not automatically make respondents regular employees, as length of service is not the controlling determinant of a project employee's tenure.
• Absence of Bad Faith: Petitioner argued there was no evidence to show that the project employment contracts were adopted to preclude respondents' regularization.
• Irrelevance of Reportorial Requirements: Petitioner asserted that the absence of termination reports filed with DOLE upon completion of each project was irrelevant to the validity of respondents' engagement as project employees, as the termination report requirement under DO 19-1993 applies only to the construction industry.
• Voluntary Execution of Contracts: Petitioner contended that respondents' project employment contracts and their own sworn statements showed that they knowingly and voluntarily entered into project employment.
• No Entitlement to Damages: Petitioner argued that since respondents were not illegally dismissed, they were not entitled to reinstatement with full backwages, moral and exemplary damages, and attorney's fees.

• Regularization by Nature of Work: Respondents contended that they had attained the status of regular employees because they performed activities for almost four years as sewers for TSPC, which are usually necessary and desirable to TSPC's usual business.
• Discrimination: Respondents posited that TSPC discriminated against them by maintaining two sets of employees — regular and non-regular — performing the same sets of work.
• Bad Faith in Rehiring: Respondents argued that TSPC's practice of rehiring them continuously under project employment contracts was tainted with bad faith and was a mere circumvention of the law to prevent their regularization.
• Indefinite Project Periods: Respondents asserted that the periods in their employment contracts did not pertain to the commencement and completion of the supposed projects, as completion was dependent on fluctuating consumer demands.
• Failure to File Termination Reports: Respondents argued that TSPC's failure to file termination reports with DOLE proved that they were not project employees but regular employees.

• Validity of Project Employment: Whether respondents were validly engaged as project employees, or whether they had attained the status of regular employees entitled to security of tenure.
• Determinability of Project Completion: Whether the completion or termination of the projects for which respondents were hired was determined at the time of their engagement within the meaning of Article 295 of the Labor Code.
• Simultaneous Engagement in Multiple Projects: Whether respondents' simultaneous engagement in the J68N and GS41 projects constituted evidence of regular employment or was a legitimate contingency measure.
• Effect of Non-Submission of Termination Reports: Whether TSPC's non-submission of termination reports to DOLE was conclusive proof that respondents were not project employees.
• Entitlement to Damages: Whether respondents were illegally dismissed and therefore entitled to reinstatement, backwages, moral and exemplary damages, and attorney's fees.

• Validity of Project Employment: Yes. Respondents were validly engaged as project employees, as TSPC's business model was genuinely project-based and the essential statutory requisites under Article 295 were satisfied.
• Determinability of Project Completion: Yes. The completion of the projects was certain, even though the exact date was dependent on economic factors; under Article 1193 of the Civil Code, a period is valid if it is set to end upon a day certain which must necessarily come, although it is not precisely known when.
• Simultaneous Engagement in Multiple Projects: The simultaneous engagement was a legitimate contingency measure. TSPC entered into separate and distinct contracts for each project, and only resorted to simultaneous engagement when there was low work volume for a particular project, distinguishing this case from instances where project employment was used to circumvent tenurial security.
• Effect of Non-Submission of Termination Reports: No, non-submission was not conclusive. The termination report requirement is only one of several indicators of project employment under DO 19-1993 and not a requisite for validity; the essential test remains Article 295 of the Labor Code, with the indicators applying suppletorily.
• Entitlement to Damages: No. Since respondents were not illegally dismissed but were validly separated upon completion of their project employment, they were not entitled to reinstatement, backwages, moral and exemplary damages, or attorney's fees.

• Validity of Project Employment: All three tribunals a quo agreed that respondents' initial engagement as project employees was valid and that respondents performed work necessary and essential to TSPC's business. The CA, however, found the requisites of valid project employment unmet because the completion periods were uncertain. The Court disagreed, finding that TSPC's business model was genuinely based on discrete and separate projects referred by its allied companies in Japan, as established by the Labor Arbiter's unchallenged finding that TSPC's involvement in the J68C and J68N projects was pursuant to an agreement between Mazda and TSPC's mother company in Japan. The essence of the distinction between project and regular employment lies not in the nature of the activity performed but in the engagement for a specific undertaking with a reasonably determinable time frame determined at the time of hiring and communicated to the employee. Since TSPC manufactures products on a project basis, it may hire project employees to cope with the demands of its current projects.

• Determinability of Project Completion: The actual duration of the J68C and J68N projects did not perfectly correspond to the periods set out in the employment contracts, being either shortened or extended according to economic forces of supply and demand. The J68C project was completed in June 2011, ahead of the estimated September 2011 date, because of low demand; the J68N project was extended from December 2012 to June 2013 because of fluctuations in demand and delayed arrival of raw materials. However, the employment contracts clearly stated that employment was co-terminus with the actual duration of the project and could be terminated at an earlier date if the project finished ahead of schedule. TSPC issued notices of extension with clearly indicated new end dates. Under Article 1193 of the Civil Code, a period is valid if it is set to end upon a day certain which must necessarily come, although it is not precisely known when. The completion of the projects was certain, even though the exact date depended on economic factors. Neither the NLRC nor the CA disturbed the Labor Arbiter's finding that respondents were not constrained, forced, or pressured to sign the project employment contracts.

• Simultaneous Engagement in Multiple Projects: The fact that TSPC entered into separate contracts for the GS41 project, taken together with the reference in those contracts to the J68N project contract, constituted substantial evidence supporting TSPC's assertion that respondents' engagement in GS41 was a mere contingency measure to optimize manpower utilization and allow respondents to continue working while the J68N project remained idle. If TSPC were using project employment to prevent regularization, it could have ordered respondents to work on several projects simultaneously from the outset, or assigned them to other projects without separate contracts. TSPC only resorted to simultaneous engagement when there was low work volume for a particular project. This contrasted with cases where project employment was used to circumvent tenurial security — either because workers were hired ostensibly as project employees but assigned to non-project tasks and regularly re-hired to the same position, or were made to work on other company projects without separate contracts and under different job descriptions.

• Effect of Non-Submission of Termination Reports: While DO 19-1993 was originally meant to apply only to project employment in the construction industry, its rules and principles have been applied to other industries where project employment is practiced, as explained in Maraguinot, Jr. vs. NLRC. Submission of termination reports should now be considered an indicator of project employment not only in construction but also in similarly situated industries. However, Section 2.2 of DO 19-1993 states that "[e]ither one or more of the following circumstances, among others, may be considered as indicators that an employee is a project employee," making clear that the DOLE did not intend to supplant the statutory requisites. The essential test remains Article 295 of the Labor Code, with the indicators applying suppletorily. Despite the non-submission of termination reports, substantial evidence on record proved the requisites of valid project employment: TSPC presented employment contracts and notices of termination or extension for each of the three projects, proving that the nature of respondents' employment and the completion dates were communicated at the time of engagement, and the completion dates were sufficiently determinate.

• Entitlement to Damages: Since respondents were validly engaged as project employees whose employment ceased upon completion of the project, their separation was not illegal. The CA therefore committed reversible error in ordering reinstatement, backwages, moral and exemplary damages, and attorney's fees. The NLRC's affirmance of the Labor Arbiter's dismissal of the complaint was proper, except for the order to pay 13th month pay for January to June 2013, which was not disturbed.

• Project Employment vs. Regular Employment — Under Article 295 of the Labor Code, an employment shall be deemed regular where the employee performs activities usually necessary or desirable in the employer's usual business or trade, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of engagement. The two essential elements of valid project employment are: (1) the employee was hired for a specific project or undertaking; and (2) the completion or termination of the project was determined at the time of engagement. The essence of the distinction lies not in the nature of the activity performed but in the engagement for a specific undertaking with a reasonably determinable time frame determined at the time of hiring and communicated to the employee. The Court applied this test to hold that respondents were validly engaged as project employees because TSPC's business model was genuinely project-based and the completion dates, while subject to economic fluctuation, were reasonably determinable.

• Determinable Period Under Article 1193, Civil Code — A period is valid if it is set to end upon a day certain which must necessarily come, although it is not precisely known when. The Court applied this principle to hold that the completion of TSPC's projects was certain, even though the exact date depended on economic factors such as consumer demand and arrival of raw materials, so long as the project would necessarily be completed.

• Indicators of Project Employment Under DO 19-1993 — Section 2.2 of DOLE Department Order No. 19, Series of 1993 lists indicators of project employment, including: (a) reasonably determinable duration of the undertaking; (b) duration and specific work defined in the employment agreement and made clear at hiring; (c) work performed in connection with the particular project; (d) employee free to offer services to other employers while not employed; (e) termination reported to DOLE Regional Office within 30 days; and (f) undertaking to pay completion bonus. These indicators apply suppletorily to the statutory test under Article 295 and are not individually conclusive. The Court held that non-submission of termination reports (indicator (e)) was not conclusive where other substantial evidence established the statutory requisites.

• Application of DO 19-1993 Beyond Construction Industry — While DO 19-1993 was originally meant to apply only to the construction industry, its rules and principles have been applied to other industries where project employment is practiced, as explained in Maraguinot, Jr. vs. NLRC, because the rationale of both the construction and motion picture industries concerns projects with a foreseeable suspension of work. The Court extended this principle to TSPC's manufacturing business.

• Scope of Review in Labor Cases via Rule 45 — In a Rule 45 review of a CA decision in a labor case, the Court's task is limited to determining whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision, not whether the NLRC decision on the merits was correct. Labor Arbiters and the NLRC commit grave abuse of discretion when they decide cases on the basis of findings and conclusions not supported by substantial evidence.

• "The essence of the distinction between project and regular employment lies not in the nature of the activity performed, but in the engagement for a specific undertaking with a reasonably determinable time frame which is determined at the time of hiring and communicated to the employee." — This passage articulates the controlling test for distinguishing project from regular employment, foregrounding the determinability and communication of the project's time frame over the nature of the work performed.

• "Here, the completion of the projects was certain, even though the exact date thereof was dependent upon several economic factors." — This statement applies the Civil Code concept of a "day certain" to project employment, holding that fluctuation in the exact completion date due to economic forces does not invalidate the determinability required by Article 295.

• "Either one or more of the following circumstances, among others, may be considered as indicators that an employee is a project employee." — This quotation of Section 2.2 of DO 19-1993 establishes that the listed indicators, including the termination report requirement, are neither individually nor collectively conclusive, and that the statutory test under Article 295 remains controlling.

• "In determining the existence of a valid project employment, the essential test remains that laid down by Article 295 of the Labor Code, with the indicators in DO 19-1993 applying suppletorily." — This passage defines the hierarchy between the Labor Code's statutory requisites and the DOLE department order's indicators, ensuring that administrative indicators do not supplant the law.

• ALU-TUCP vs. National Labor Relations Commission, 304 Phil. 844 (1994) — Controlling precedent defining the concept of a "project" in the context of project employment, distinguishing between projects within the regular business of the employer that are distinct and separate, and projects not within the regular business. The Court relied on this case to establish the principal test for determining project employee status.

• Maraguinot, Jr. vs. NLRC, 348 Phil. 580 (1998) — Followed for the proposition that DO 19-1993's rules and principles, while originally applicable to the construction industry, may be applied to other industries where project employment is practiced, as the rationale concerns projects with foreseeable suspension of work.

• Quebral et al. vs. Angbus Construction, Inc., et al., 798 Phil. 179 (2016) — Followed for the holding that submission of termination reports is only an indicator and not conclusive proof of project employment, especially where other evidence establishes the statutory requisites.

• De Ocampo, Jr. vs. National Labor Relations Commission, 264 Phil. 728 (1990) — Cited for the rationale behind the different treatment accorded to project employees: it would be unjust to require the employer to maintain workers on the payroll after project completion while they are doing nothing.

• Montoya vs. Transmed Manila Corp./Mr. Ellena, et al., 613 Phil. 696 (2009) — Cited for the scope of review in Rule 45 appeals from labor cases, limiting the Court's task to determining whether the CA correctly determined the presence or absence of grave abuse of discretion by the NLRC.

• Herma Shipyard, Inc. vs. Oliveros, 808 Phil. 668 (2017) — Cited by the CA for the definition of "project" as a particular job or undertaking within the regular or usual business of the employer but distinct and separate and identifiable, beginning and ending at determined or determinable times.

• Malicdem, et al. vs. Marulas Industrial Corporation, et al., 728 Phil. 264 (2014) — Distinguished; cited as an example where project employment was used to circumvent tenurial security because workers were hired ostensibly as project employees but assigned to non-project tasks and regularly re-hired to the same position.

• Innodata Knowledge Services, Inc. vs. Inting, 822 Phil. 314 (2017) — Distinguished; cited as an example where project employment was used to circumvent tenurial security because employees were made to work on other company projects without separate contracts and under different job descriptions.

• Article 295 [280], Labor Code — Defines regular and casual employment, providing that employment shall be deemed regular where the employee performs activities usually necessary or desirable in the employer's usual business or trade, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of engagement. The Court applied this provision as the essential statutory test for valid project employment, finding that both requisites — hiring for a specific project and determination of completion at the time of engagement — were satisfied.

• Article 1193, Civil Code — Provides that a period is valid if it is set to end upon a day certain which must necessarily come, although it is not precisely known when. The Court applied this provision to hold that the completion of TSPC's projects was certain, even though the exact date depended on economic factors.

• Section 2.2, DOLE Department Order No. 19, Series of 1993 — Lists indicators of project employment, including the duration of the undertaking being reasonably determinable, the duration and specific work being defined in the employment agreement and made clear at hiring, the work being in connection with the particular project, the employee being free to offer services to other employers, the termination being reported to DOLE within 30 days, and an undertaking to pay completion bonus. The Court held that these indicators apply suppletorily to the Article 295 test and are not individually conclusive.

• Section 3.3(a), DOLE Department Order No. 19, Series of 1993 — Defines a "day certain" as one which must necessarily come, although it may not be known exactly when, and provides that where the final completion of a project is in fact determinable and the expected completion is made known to the employee, the project employee may not be considered regular notwithstanding one-year duration of employment. The Court applied this provision to support its conclusion that the project completion dates were sufficiently determinate.

Peralta, C.J., Caguioa, Carandang, and Zalameda, JJ., concurred.