Principles of Employment Contracts

Summary

• Employment is generally a consensual contract which means it can be created by mere consent.

• Principle of autonomy applies to employment contracts.

• Regular employment is the default status of an employee.

• Burden of proof is on the employer to prove that an employee is a non-regular.

• The law determines the nature of employment, and not the parties.

• Job offer may constitute as an employment contract.

1. Concepts

Employment contract – refers to a contract whereby an employee would render services in exchange for compensation to be paid by the employer.

a. Essential requisites of a Contract

A contract is perfected upon the concurrence of the following requisites: (1) the consent of the contracting parties; (2) an object certain, which is the subject matter of the contract; and (3) the cause of the obligation. “Consent” is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. For consent to be valid, the “offer” must be certain, and the “acceptance” must be absolute. A contract is deemed perfected from the time the acceptance is made known to the offeror. Without the offeror’s knowledge of the acceptance, there is no meeting of the minds of the parties, and thus, no real concurrence of offer and acceptance. (Aragones v. Alltech Biotechnology Corporation, G.R. No. 251736, April 2, 2025, Per Caguioa, J.)

NB:

1) In an employment contract, consent may be: (a) express such as verbally agreeing, signing a written contract; or (b) implied – such as reporting for work, or being made and/or allowed to work, without signing a written contract.

2) Object is the service, or duties and responsibilities of the employee.

3) Cause is the remuneration or compensation.

b. Job Offer as an Employment Contract

Aragones v. Alltech Biotechnology Corporation, G.R. No. 251736, April 2, 2025, Per Caguioa, J.:

⦁ An employment contract, like any other contract, is perfected at the moment the parties come to agree upon its terms and conditions, and thereafter, concur in the essential elements thereof.

⦁ Based on [essential requisites of a contract: consent, object, and cause of the obligation], the Court finds that an employment contract between Aragones and Alltech was perfected on April 18, 2016. This conclusion is supported by the following undisputed facts: (a) Alltech made an offer that is certain through the Job Offer; (b) Aragones unequivocally accepted this offer by affixing his signature thereon on April 18, 2016; and (c) he informed Alltech of his acceptance by sending a copy of the signed Job Offer to respondent Octavio Eckhardt (Eckhardt) via e-mail on the same day. Thus, Alltech cannot claim that it validly withdrew its job offer in view of the general rule that an offer, once accepted, cannot be withdrawn.

See: Original Decision | Case Digest

2. Consensual nature of an Employment Contract

a. General rule: Consensual contract

Consensual contract – refers to contracts that can be formed or created by mere consent to a clearly defined object and consideration.

NB: In Contract Law, there are 3 kinds of contracts, namely: (1) Consensual contracts – which require consent, object, and consideration; (2) Solemn/Formal contracts – which require consent, object, and consideration, plus

In Contract Law, contracts are classified into three categories:

1) Consensual contracts – refer to contracts that can be formed or created by mere consent so long as the object (terms) and the consideration (payment) are clear;

2) Solemn/Formal contracts – refer to contracts that require consent, object, and consideration, plus the observance of a solemnity of formality (e.g. written contracts for transactions or saying vows of “I do” in a marriage contract); and

3) Real contracts – refer to contracts that require consent, object, and consideration, plus the delivery of the object of the contract (e.g. loaned amount has to be actually given for a loan contract to be valid).

1) Legal basis

ART. 97. Definitions. As used in this Title: x xx

(f) “Wage” paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered… (Emphasis supplied; P.D. 442, Labor Code)

ART. 295. [280] Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, 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 the engagement of the employee or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists. (Emphasis supplied; Ibid.)

The above provisions are the legal basis to show the validity of unwritten regular employment contracts. Otherwise stated, an employment contract may be created by oral/verbal agreement without need for anything in writing.

b. Exception: DO-174 employment contracts

By way of exception, DO-174 requires that deployed/assigned personnel should be provided with written employment contracts. (See Section 11, DOLE D.O. No. 174, Series of 2017)

c. Summary of rules

Thus, the rules may be summarized as follows:

# GENERAL RULE: Employment is generally a consensual contract (as opposed to a formal or written contract). Meaning, mere consent by the employer and the employee will create an employment relationship. The law does not require a form or a written employment contract to prove an employer-employee relationship.

# EXCEPTION: By way of exception, DOLE Department Order No. 174, series of 2017, requires that contractors and subcontractors provide for a written employment contract to their deployed personnel.

2. Presumption favors regular employment

Notwithstanding the fact that an employment contract is consensual, it is strongly recommended to have a written employment contract. The reason being is that an employment is presumed to be regular employment unless proven otherwise via a written employment contract. Meaning, an employee is presumed to be a regular employee unless there is a written employment contract showing that he is a non-regular employee, such a probationary, casual, project, seasonal, or fixed-term. Without proof via a written employment contract that an employee is a non-regular, he/she shall be presumed as a regular employee.

In addition, the written employment contract will be a reference to the stipulations that the employer and the employee agreed on during the job offer, such as compensation, benefits, bonuses, incentives, commissions, and similar thereto.

Vinoya v. NLRC, Regent Food Corporation, G.R. No. 126586, 02 February 2000, Per Kapunan, J.:

• It should be pointed out that no particular form of proof is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence may show the relationship. If only documentary evidence would be required to demonstrate that relationship, no scheming employer would ever be brought before bar of justice. In the case at bar, [the Complainant] presented the identification card issue[d] to him on 26 May 1990 by [the Company] as proof that it was the latter who engaged his services. To our mind, the ID card is enough proof that [the Complainant] was previously hired by [the Company] prior to his transfer as agency worker to [the Contractor]. It must be noted that the Employment Contract between [the Complainant] and [the Contractor] was dated 1 July 1991. On the other hand, the ID card issued by [the Company] to [the Complainant] was dated 26 May 1990, or more than one year before the Employment Contract was signed by [the Complainant] in favor of [the Contractor]. It makes one wonder why, if [the Complainant] was indeed recruited by [the Contractor] as its own employee on 1 July 1991, how come he had already been issued an ID card by [the Company] a year earlier? While the Employment Contract indicates the word “renewal,” presumably an attempt to show that [the Complainant] had previously signed a similar contract with [the Contractor], no evidence of a prior contract entered into [the Complainant] and [the Contractor] was ever presented by [the Company]. In fact, despite the demand made by the counsel of [the Complainant] for production of the contract which purportedly shows that prior to 1 July 1991 [the Complainant] was already connected with [the Contractor], [the Company] never made a move to furnish the counsel of [the Complainant] a copy of the alleged original Employment Contract. The only logical conclusion which may be derived from such inaction is that there was no such contract end that the only Employment Contract entered into between [the Contractor] and [the Complainant] was the 1 July 1991 contract and no other. Since, as shown by the ID card, [the Complainant] was already with [the Company] on 26 May 1990, prior to the time any Employment Contract was agreed upon between [the Contractor] and [the Complainant], it follows that it was [the Company] who actually hired and engaged [the Complainant] to be its employee.

3. Principle of autonomy

The principle of autonomy in contracts state that parties may free stipulate on whatever term and conditions they would agree on provided they are contrary to laws, morals, good customs, or public policy. This principle is applicable in employment contracts as well.

Accordingly, the employer and the employee may free stipulate on the terms of employment provided they do are not contrary to laws, morals, good customs, or public policy. For instance, the employer and the employee cannot stipulate that there shall be no overtime pay or holiday pay when these are required by the Labor Code.

a. Imbued with public interest

Article 1700. The relations between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good. Therefore, such contracts are subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor and similar subjects. (R.A. 386, Civil Code)

The supremacy of the law over the nomenclature of the contract and its pacts and conditions is to bring life to the policy enshrined in the Constitution to afford full protection to labor. Thus, labor contracts are placed on a higher plane than ordinary contracts since these are imbued with public interest and, therefore, subject to the police power of the State. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)

b. Default status of employment is regular

Regular employment is the default employment status unless proven otherwise by the employer. Otherwise stated, it is the employer who has the burden of proof that the employee is not a regular employee. This is done through showing of documentation, such as the employment contract.

4. Law determines nature of employment, not the parties

Under the Labor Code, it is the law that determines the nature of the employment, regardless of any agreement expressing otherwise. Thus, even if the parties stipulate to a casual employment contract to hide the fact that the employee is doing work of a regular employee, the law will consider such arrangement as a regular employment contract from the beginning.

The employment status of a person is defined and prescribed by law and not by what the parties say it should be. Equally important to consider is that a contract of employment is impressed with public interest such that labor contracts must yield to the common good. Thus, provisions of applicable statutes are deemed written into the contract, and the parties are never at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply entering into contracts with each other. (Innodata Knowledge Services, Inc. v. Inting, supra.)

Clearly, therefore, the nature of the employment does not depend solely on the will or word of the employer or on the procedure for hiring and the manner of designating the employee. Rather, the nature of the employment depends on the nature of the activities to be performed by the employee, considering the nature of the employer’s business, the duration and scope to be done, and, in some cases, even the length of time of the performance and its continued existence. (Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, 15 January 2019)

At the outset, we should note that the nature of the employment is determined by law, regardless of any contract expressing otherwise. The supremacy of the law over the nomenclature of the contract and the stipulations contained therein is to bring to life the policy enshrined in the Constitution to afford full protection to labor. Labor contracts, being imbued with public interest, are placed on a higher plane than ordinary contracts and are subject to the police power of the State. (GMA Network, Inc. v. Pabriga, G.R. No. 176419, 27 November 2013)

Similarly, in case of independent contractors or talents who are provided with independent contractor contracts or consultancy agreement, it is possible that they may be classified as a regular employee by the law depending on the circumstances.

a. Circumvention of labor law

[A]ny obvious circumvention of the law cannot be countenanced. The fact that respondent workers have agreed to be employed on such basis and to forego the protection given to them on their security of tenure, demonstrate nothing more than the serious problem of impoverishment of so many of our people and the resulting unevenness between labor and capital. A contract of employment is impressed with public interest. The provisions of applicable statutes are deemed written into the contract, and ‘the parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. (Basan v. Coca-Cola Bottlers Philippines, G.R. No. 174365-66, 04 February 2015)

Lest it be misunderstood, there are instances when the validity of project or fixed term42 employments were upheld on the ground that it was “agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter.” However, 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 project or fixed term contracts are disregarded for being contrary to public policy, as in this case. (University of Santo Tomas v. Samahan ng Manggagawa ng UST, G.R. No. 184262, 24 April 2017, Per Perlas-Bernabe, J.)

5. No involuntary servitude

Article 1703. No contract which practically amounts to involuntary servitude, under any guise whatsoever, shall be valid. (R.A. 386, Civil Code)

Involuntary Servitude – “refers to a condition of enforced and compulsory service induced by means of any scheme, plan or pattern, intended to cause a person to believe that if he or she did not enter into or continue in such condition, he or she or another person would suffer serious harm or other forms of abuse or physical restraint, or threat of abuse or harm, or coercion including depriving access to travel documents and withholding salaries, or the abuse or threatened abuse of the legal process.” (R.A. 9208, as amended by R.A. 10364, a.k.a. Expanded Anti-Trafficking in Persons Act of 2012, Section 3[f])

Forced Labor – “refers to the extraction of work or services from any person by means of enticement, violence, intimidation or threat, use of, force or coercion, including deprivation of freedom, abuse of authority or moral ascendancy, debt-bondage or deception including any work or service extracted from any person under the menace of penalty.” (Ibid., Section 3[d])

[T]he notion of involuntary servitude connotes the presence of force, threats, intimidation or other similar means of coercion and compulsion. (Imbong et al. v. Ochoa et al., En Banc, G.R. No. 204819, April 8, 2014, Per Mendoza, J.)

Related:

⦁ Employment Bonds

⦁ Post-Employment Restrictions

6. When in doubt, interpreted in favor of the employee

Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns to investments, and to expansion and growth. (1987 CONSTITUTION, Article XIII)

Article 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer. (R.A. 386, CIVIL CODE)

ART. 4. Construction in Favor of Labor. All doubts in the implementation and interpretation of the provisions of this Code, including its implementing rules and regulations, shall be resolved in favor of labor. (P.D. 442, LABOR CODE)

Affording protection to labor and construing doubt in favor of the laborer are not only statutorily required under the Labor Code,58 but are also consistent with the “social justice suppositions underlying labor laws[.] (Wahing v. Sps. Daguio, G.R. No. 219755, April 18, 2022, Per Leonen, J.)

[I]t is a well-settled doctrine that if doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter. It is a time-honored rule that in controversies between a laborer and [their employer], doubts reasonably arising from the evidence, or in the interpretation of agreements and writing, should be resolved in the former’s favor. The policy is to extend the doctrine to a greater number of employees who can avail themselves of the benefits under the law, which is in consonance with the avowed policy of the State to give maximum aid and protection to labor. (Padsing et al. v. Lepanto Consolidated Mining Company et al., G.R. No. 235358, August 4, 2021, Per Carandang, J.)

a. Doctrine of equipoise

When the evidence of the employer and the employee are in equipoise, doubts are resolved in favor of labor. This is in line with the policy of the State to afford greater protection to labor. (Hubilla et al. v. HSY Marketing Ltd., Co., et al., G.R. No. 207354, January 10, 2018, Per Leonen, J.)

b. Limitations

The constitutional policy to provide full protection to labor is not meant to be a sword to oppress employers. The commitment of this Court to the cause of labor does not prevent us from sustaining the employer when it is in the right, as in this case. Certainly, an employer should not be compelled to pay employees for work not actually performed and in fact abandoned. (Agabon v. NLRC, En Banc, G.R. No. 158693, November 17, 2004, Per Ynares-Santiago, J.)

In protecting the rights of the workers, the law, however, does not authorize the oppression or self-destruction of the employer. The constitutional commitment to the policy of social justice cannot be understood to mean that every labor dispute shall automatically be decided in favor of labor. The constitutional and legal protection equally recognize the employer’s right and prerogative to manage its operation according to reasonable standards and norms of fair play. (IMASEN Philippine Manufacturing Corporation v. Alcon, G.R. No. 194884, October 22, 2014, Per Brion, J.)

The employer should not be compelled to continue employing a person who is admittedly guilty of misfeasance or malfeasance and whose continued employment is patently inimical to the employer. The law protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer. (Agabon v. NLRC [2004], supra.)