A project employment contract is an employment arrangement between an employer and a project employee wherein the latter’s employment has been fixed for a specific project or undertaking.
1. Summary
⦁ A project employment contract is an employment arrangement between an employer and a project employee wherein the latter’s employment has been fixed for a specific project or undertaking.
⦁ The project’s completion or termination should be determined at the time of the engagement of the project employee.
⦁ The existence of a project is vital to the validity of the project employment.
⦁ Project employment is co-terminus with the project.
⦁ Non-compliance of the requirements may result in the employee being reclassified as a regular employee.
2. Concept
A project employment contract is an employment arrangement between an employer and a project employee wherein the latter’s 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, as defined under the Labor Code.
Verily, for an employee to be considered project-based, the employer must show compliance with two (2) requisites, namely that: (a) the employee was assigned to carry out a specific project or undertaking; and (b) the duration and scope of which were specified at the time they were engaged for such project. (Gadia v. Sykes Asia, Inc., G.R. No. 209499, 28 January 2015.)
Project employment contracts, which fix the employment for a specific project or undertaking, are valid under the law. By entering into such a contract, an employee is deemed to understand that his employment is coterminous with the project. He may no longer be employed after the completion of the project for which he was hired. But project employment contracts are not lopsided agreements in favor of only one party. The employer’s interest is equally important as that of the employees’. While it may be true that it is the employer who drafts project employment contracts with its business interest as overriding consideration, such contracts must not prejudice the employee. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)
3. Test for project employment
The principal test in determining whether particular employees were engaged as project-based employees, as distinguished from regular employees, is whether they were assigned to carry out a specific project or undertaking, the duration and scope of which was specified at, and made known to them, at the time of their engagement. It is crucial that the employees were informed of their status as project employees at the time of hiring and that the period of their employment must be knowingly and voluntarily agreed upon by the parties, without any force, duress, or improper pressure being brought to bear upon the employees or any other circumstances vitiating their consent. (Herma Shipyard, Inc. v. Oliveros, G.R. No. 208936, 17 April 2017)
a. Existence of a project
In order to safeguard the rights of workers against the arbitrary use of the word “project” to prevent employees from attaining a regular status, employers claiming that their workers are project(-based) employees should not only prove that the duration and scope of the employment was specified at the time they were engaged, but also, that there was indeed a project. (Omni Hauling Services, Inc. v. Bon, G.R. No. 199388, 03 September 2014)
[The employees] could not be considered as project employees because the specific undertakings or projects for which they were employed were not clearly delineated. This is evidenced by the vagueness of the project descriptions set forth in their respective CEAs, which states that they were tasked “to assist” in various carpentry, electrical, and masonry work. In fact, when the aforesaid CEAs are pieced together, it appears that during the years 1990 to 1999, (the employees) were each engaged to perform all-around maintenance services throughout the various facilities/installations in (the university’s) campus. Thus, it seems that (the university), through the CEAs, merely attempted to compartmentalize (the employee’s) various tasks into purported “projects” so as to make it appear that they were hired on a per-project basis. Verily, the Court cannot countenance this practice as to do so would effectively permit (the university) to avoid hiring permanent or regular employees by simply hiring them on a temporary or casual basis, thereby violating the employees’ security of tenure relative to their jobs. (University of Santo Tomas v. Samahan ng Manggagawa ng UST, G.R. No. 184262, 24 April 2017)
In this case, (the employers) have not shown that (the employee – a Boat Captain) was informed that he will be assigned to a “specific project or undertaking.” As earlier noted, neither has it been established that he was informed of the duration and scope of such project or undertaking at the time of their engagement. (Poseidon Fishing/Terry De Jesus v. NLRC, Estoquia, G.R. No. 168052, 20 February 2006)
1) 2 kinds of projects
There are two (2) kinds of projects:
1) Those within the regular or usual business of the employer; or
2) Those not within the regular business of the employer.
a) Within the regular/usual business
In the realm of business and industry, we note that ‘project’ could refer to one or the other of at least two (2) distinguishable types of activities. Firstly, a project could refer to a particular job or undertaking that is within the regular or usual business of the employer company, but which is distinct and separate, and identifiable as such, from the other undertaking of the company. Such job or undertaking begins and ends at determined or determinable times. The typical example of this first type of project is a particular construction job or project of a construction company. A construction company ordinarily carries out two or more discrete identifiable construction projects: e,g., a twenty-five-storey hotel in Makati; a residential condominium building in Baguio City; and domestic air terminal in Iloilo City. Employees who are hired for the carrying out of one these separate projects, the scope and duration of which has been determined and made known to the employees at the time of employment are properly treated as ‘project employees’ and their services may be lawfully terminated at completion of the project. (Herma Shipyard, supra.)
b) Not within the regular/usual business
The term “project” could also refer to, secondly, a particular job or undertaking that is not within the regular business of the corporation. Such a job or undertaking must also be identifiably separate and distinct from the ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or determinable times. (Ibid.)
The services of project-based employees are co-terminous with the project and may be terminated upon the end or completion of the project or a phase thereof for which they were hired. (Ibid.)
2) Co-terminous employment with project
A project employee is assigned to a project which begins and ends at determined or determinable times. Unlike regular employees who may only be dismissed for just and/or authorized causes under the Labor Code, the services of employees who are hired as ‘project(-based) employees’ may be lawfully terminated at the completion of the project. (Omni Hauling Services, Inc. v. Bon, supra.)
A project employment terminates as soon as the project is completed. Thus, an employer is allowed by law to reduce the work force into a number suited for the remaining work to be done upon the completion or proximate accomplishment of the project. However, the law requires that, upon completion of the project, the employer must present proof of termination of the services of the project employees at the nearest public employment office. This is specially provided for as regards construction workers obviously to obviate indiscriminate termination of employment in derogation of the workers’ right to security of tenure. After the termination of the project, an employer may wind up its operations only to complete the project. In such a case, the remaining employees do not necessarily lose their status as project employees. However, if the employees’ services are extended long after the supposed project had been completed, the employees are removed from the scope of project employees and they shall be considered regular employees. (Villa v. NLRC, National Steel Corporation, G.R. No. 117043, 14 January 1998)
3) Project may extend more than a year
A project employment, on the other hand, contemplates on arrangement whereby “the employment has been fixed for a specific project or undertaking whose completion or termination has been determined at the time of the engagement of the employee(.)” (Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, 15 January 2019.)
Two requirements, therefore, clearly need to be satisfied to remove the engagement from the presumption of regularity of employment, namely: (1) designation of a specific project or undertaking for which the employee is hired; and (2) clear determination of the completion or termination of the project at the time of the employee’s engagement. (Ibid.)
The services of the project employees are legally and automatically terminated upon the end or completion of the project as the employee’s services are coterminous with the project. (Ibid.)
Unlike in a regular employment under Article 280 of the Labor Code, however, the length of time of the asserted ‘project’ employee’s engagement is not controlling as the employment may, in fact, last for more than a year, depending on the needs or circumstances of the project. Nevertheless, this length of time (or the continuous rehiring of the employee even after the cessation of the project) may serve as a badge of regular employment when the activities performed by the purported “project” employee are necessary and indispensable to the usual business or trade of the employer. In this latter case, the law will regard the arrangement as regular employment. (Ibid.)
4) Extension of project employment
HERMA SHIPYWARD, INC. v. OLIVEROS,G.R. No. 208936, 17 April 2017
⦁ The CA likewise erred in holding that paragraph 10 of the employment contract allowing the extension of respondents’’ employment violates the second requisite of project employment that the completion or tem1ination of such project or undertaking be determined at the time of engagement of the employee. It reads:
10 Ang knsunduang ito maaaring palawigin ng mas mababang panahon na maaaring kailanganin para sa matagumpay na pagtatapos ng mga gawn o proyektong pinagkasunduan;
⦁ To our mind, paragraph 10 is in harmony with the agreement of the parties that respondents’ employment is coterminous with the particular project stated in their contact. It was placed therein to ensure the successful completion of the specific work fur which respondents were hired. Thus, in case of delay or where said work is not finished within the estimated completion, respondents’ period of employment can be extended until it is completed. In which case, the duration and nature of their employment remains the same as previously determined in the project employment contract; it is still coterminous with the particular project for which they were fully apprised of at the time of their engagement.
⦁ As to the requirement that the completion or termination of the specific project or undertaking for which respondents were hired should be determined at the time of their engagement, we rule and so hold that it is enough that (the Company) gave the approximate or target completion date in the project employment contract. Given the nature of its business and the scope of its projects which take months or even years to finish, we camnot expect (the Company) to give a definite and exact completion date. It can only approximate or estimate the completion date. What is important is that the respondents were apprised at the time of their engagement that their employment is coterminous with the specific project and that should their employment be extended by virtue of paragraph 10 the purpose of the extension is only to complete the same specific project, and not to keep them employed even after the completion thereof. Put differently, paragraph l 0 does not allow the parties to extend the period of respondents’ employment after the completion of the specific project for which they were hired. Their employment can only be extended if that particular project, to which their employment depends, remains unfinished.
b. Pre-determined start or end
[T]he law and jurisprudence dictate that “the duration of the undertaking begins and ends at determined or determinable times” while clarifying that “(t)he phrase ‘determinable times’ simply means capable of being determined or fixed.” In this case, (the Company) substantially complied with this requisite when it expressly indicated in (the employees’) employment contracts that their positions were “co-terminus with the project.” To the mind of the Court, this caveat sufficiently apprised (the employees) that their security of tenure with (the Company) would only last as long as the Alltel Project was subsisting. In other words, when the Alltel Project was terminated, (the employees) no longer had any project to work on, and hence, (the Company) may validly terminate them from employment. Further, the Court likewise notes the fact that the Company) duly submitted an Establishment Employment Report and an Establishment Termination Report to the Department of Labor and Employment Makati-Pasay Field Office regarding the cessation of the Alltel Project and the list of employees that would be affected by such cessation… (C)ase law deems such submission as an indication that the employment was indeed project-based. (Gadia v. Sykes Asia, Inc., G.R. No. 209499, 28 January 2015.)
4. May perform tasks of a regular employee
It is settled, however, that project-based employees may or may not be performing tasks usually necessary or desirable in the usual business or trade of the employer. The fact that the job is usually necessary or desirable in the business operation of the employer does not automatically imply regular employment; neither does it impair the validity of the project employment contract stipulating a fixed duration of employment. (Herma Shipyard, supra.)
(T)he repeated and successive rehiring (of respondents as project-based employees) does not (also), by and of itself: qualify them as regular employees. Case law states that length of service (through rehiring) is not the controlling determinant of the employment tenure (of project-based employees but, as earlier mentioned), whether the employment has been fixed for a specific project or undertaking, with its completion having been determined at the tin1e of (their) engagement.’ Stated otherwise the rule that employees initially hired on a temporary basis may become permanent employees by reason of their length of service is not applicable to project-based employees.” (Ibid.)
Thus, the fact that petitioners worked for (the Company) under different project employment contracts for several years cannot be made a basis to consider them as regular employees, for they remain project employees regardless of the number of projects in which they have worked. Length of service is not the controlling determinant of the employment tenure of a project employee. In the case of Mercado Sr. v. NLRC, this Court rule that the proviso in the second paragraph of Article 280, providing that an employee who has served for at least one year, shall be considered a regular employee, relates only to casual employees and not to project employees. (Villa v. NLRC, 348 Phil 116, 141 [1998])
While generally, length of service provides a fair yardstick for determining when an employee initially hired on a temporary basis becomes a permanent one, entitled to the security and benefits of regularization, this standard will not be fair, if applied to the constrn9tion industry because construction firms cannot guarantee work and funding for its payrolls beyond the life of each project as they have no control over the decisions and resources of project proponents or owners. Thus, once the project is completed it would be unjust to require the employer to maintain these employees in their payroll since this would be tantamount to making the employee a privileged retainer who collects payment from his employer for work not done, and amounts to labor coddling at the expense of management. (Dacles v. Millenium Erectors Corporation, G.R. No. 209822, 08 July 2015.)
5. Construction Industry
Generally, length of service provides a fair yardstick for determining when an employee initially hired on a temporary basis becomes a permanent one, entitled to the security and benefits of regularization. But this standard will not be fair, if applied to the construction industry, simply because construction firms cannot guarantee work and funding for its payrolls beyond the life of each project. And getting projects is not a matter of course. Construction companies have no control over the decisions and resources of project proponents or owners. There is no construction company that does not wish it has such control but the reality, understood by construction workers, is that work depended on decisions and developments over which construction companies have no say. (Carpio v. Modair Manila Co. Ltd. Inc., G.R. No. 239622, 21 June 2021)
However, as discussed in Maraguinot, idle construction workers, even if regularized, are still subject to the “no work, no pay” principle. In case the contractor is faced with an oversupply of regularized construction workers, then it can exercise its management prerogative in deciding whom to engage for the limited projects and whom to consider as still “on leave.” Indeed, under such principle, the “employer has the inherent right to regulate, according to his own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, the time, place and manner of work, work supervision, transfer of employees, lay-off of workers, and discipline, dismissal, and recall of employees.” Still, the employer must use fair and reasonable standards in deciding, e.g., experience, skills-match, availability. (Ibid.)
CARPIO v. MODAIR MANILA CO. LTD. INC., G.R. No. 239622, 21 June 2021
⦁ Thus, synthesizing all [various jurisprudence cited on project employees in the construction industry], and to obviate further confusion regarding the nature of employment for workers in the construction industry, the Court articulates the following principles for the guidance of workers, employers, labor tribunals, the bench, bar, and public:
⦁ First, a worker is presumed a regular employee, unless the employer establishes that (1) the employee was hired under a contract specifying that the employment will last only for a specific undertaking, the termination of which is determined at the time of engagement; (2) there was indeed a project undertaken; and (3) the parties bargained on equal terms, with no vices of consent.
⦁ Second, if considered a regular employee at the outset, security of tenure already attaches, and the subsequent execution of project employment contracts cannot undermine such security, but will simply be considered a continuation in the regular engagement of such employee.
⦁ Third, even if initially engaged as a project employee, such nature of employment may ripen into regular status if (1) there is a continuous rehiring of project employees even after cessation of a project; and (2) the tasks performed by the alleged “project employee” are vital, necessary and indispensable to the usual business or trade of the employer. Conversely, project-based employment will not ripen into regularity if the construction worker was truly engaged as a project-based employee, and between each successive project, the employer made no manifestations of any intent to treat the worker as a continuing resource for the main business.
⦁ Fourth, regularized construction workers are subject to the “no work, no pay” principle, such that the employer is not obligated to pay them a salary when “on leave.” In case of an oversupply of regularized construction workers, then the employer can exercise management prerogative to decide whom to engage for the limited projects and whom to consider as still “on leave.”
⦁ Finally, submission of termination reports to the DOLE Field Office “may be considered” only as an indicator of project employment; conversely, non-submission does not automatically grant regular status. By themselves, such circumstances do not determine the nature of employment.
5. Burden of proof on the employer
When the validity of the employment arrangement is challenged, the burden of proof is on the employer.
In order to safeguard the rights of workers against the arbitrary use of the word ‘project’ which prevents them from attaining regular status, employers claiming that their workers are project employees have the burden of showing that: (a) the duration and scope of the employment was specified at the time they were engaged; and (b) there was indeed a project. Therefore, as evident in Article 295, the litmus test for determining whether particular employees are properly characterized as project employees, as distinguished from regular employees, is whether or not the employees were assigned to carry out a specific project or undertaking, the duration and scope of which were specified at the time the employees were engaged for that project. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)
6. When in doubt, interpreted in favor of the employee
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. (Article 1702, Civil Code)
References
⦁ Book VI, Presidential Decree No. 442, a.k.a. Labor Code of the Philippines
⦁ Book VI, Omnibus Rules Implementing the Labor Code
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/Updated: February 23, 2023
