FIXED-TERM HIRING1

Legal. This not provided by the Labor Code, but recognized only in jurisprudence.
Two (2) Requisites or criteria for the validity of a fixed-term contract employment are as follows:

(1) The fixed period of employment was knowingly and voluntarily agreed upon 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
(2) 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 on the latter.2
If the foregoing criteria is not present, the fixed-term contract of employment should be struck down for being
illegal.3

SOME PRINCIPLES ON FIXED-TERM EMPLOYMENT

 Fixed-term employment is valid even if the duties are usually necessary or desirable in the employer’s
usual business or trade.4
 Notice of termination not necessary in fixed-term employment.5
 Employee is deemed regular if contract failed to state the specific fixed period of employment.6
 Charges for misconduct or other wrongful acts or omissions are relevant only in termination prior to
expiration of the term. They are not relevant if termination is due to expiration of fixed period.7
 Employees allowed to work beyond fixed term become regular employees8
 Rendering work beyond one (1) year would result to regular employment.9
 Hiring of employees on a uniformly fixed 5-month basis and replacing them upon expiration of their
contracts with other workers with the same employment status circumvents their right to security of
tenure.10
 Termination prior to lapse of term contract should be for a just or authorized cause.11
 Liability for illegal dismissal of fixed-term employee is only for salary for unexpired portion.12

1
Relevant Provision: No Labor Code provision on fixed –term employment (Brent School, Inc. V. Zamora and
Alegre, GR No. 48494, Feb 5 1990)
2
Philippine National Oil Company-energy Development Corporation v. NLRC GR No. 97747, March 31 1993; See
Also Phillips Semiconductors [Phils.], Inc. v. Fadriquela, GR No. 141717, April 14 2004, Labayog v. MY San
Biscuits, Inc. GR No. 148102, July 11 2006; Medenilla v. Philippine Veterans Bank, GR No. 127673, March 13
2000.
3
Pure Foods Corporation v. NLRC, GR No. 122563, December 12 1997, 283 SCRA 133.
4
Caparoso v. CA, GR No. 155505, February 15 2007.
5
Pangilinan v. General milling Corporation, supra; Blancaflor v. NLRC, GR No. 101013, February 2 1993, 218
SCRA 366; New Sunrise Metal Construction v. Pia, GR No. 171131, July 10 2007.
6
Poseidon Fishing v. NLRC, GR No. 168052, February 20 2006.
7
AMA Computer College, Paranaque v. Austria, GR No 164078, 23 November 2007.
8
Viernes v, NLRC, GR No. 1008405, April 4 2003.
9
Megascope General Services v. NLRC, GR No. 109224, June 19 1997, 274 SCRA 147, 156; Agusan del Norte
Electric Cooperative, Inc. v. Cagampang and Garzon, GR No. 167627, October 10 2008.
10
Pure Foods Corporation v. NLRC, GR No. 122653, December 12 1997, 283 SCRA 133; Universal Robina Corp.
v. Catapang, GR No. 164736, October 14 2005.
11
Coca-Cola Bottlers Phils., Inc. v. De la Cruz, GR No. 184977, December 7, 2009; Pacquing v. Coca-Cola
Philippines, Inc., GR No. 157966, January 31 2008; Magsalin & Coca-Cola Bottlers Phils., Inc. v. National
Organization of Working Men (NOWM), GR No. 148402, May 9 2003.
12
New Sunrise Metal Construction v. Pia, GR No. 171131, July 10 2007.
HIRING THRU AN AGENCY
Summary:

 If legitimate Job Contracting – Legal

 If it is Labor-Only Contracting –Illegal. Thus making the principal as if the direct employer of the
employees of the contractor or sub-contractor.
(1) LEGITIMATE JOB CONTRACTING
Contracting out services is not illegal per se. Absence any proof that the management acted in malicious or
arbitrary manner, the Court will not interfere with the exercise of judgment by an employer.13
A company can determine in its best judgment whether it should contract out a part of its work for as long as
the employer is motivated by good faith; the contracting is not for purposes of circumventing the law; and does
not involve or be the result of malicious or arbitrary action.14
*** Labor Code does not define what constitutes a legitimate job contracting arrangement. However, under
Department Order (DO) No. 18-A and jurisprudence, job-contracting shall legitimate if all of the following
circumstances concur:
1. The contractor must be duly registered with the DOLE
2. The contractor carries a distinct and independent business and undertakes to perform the job, work or
service on its own responsibility, according to its own manner and method, and free of control and
direction of the principal in all matters connected with the performance of the work, except as to
results thereof;
3. The contractor has substantial capital and/or investment in the form of tools, equipment, machineries,
work premises, and other materials which are necessary in the conduct of the business;15
4. The Service Agreement between principal and contractor should ensure compliance with all the rights
and benefits of workers under Labor Laws16 such as labor and occupational safety and health
standards, free exercise of the right to self-organization, security of tenure and social and welfare
benefits.17

Absence of any of the following requisites makes it a labor-only contracting arrangement.18

1. [Requisite 1]Failure to register shall give rise to the presumption that the contractor is engaged in
labor-only contracting.19
2. [Requisite 2] Right of Control - If the issue is answered in the affirmative, then the requisite of
legitimate job contracting arrangement is fully satisfied.

13
Manila Electric Company v. Quisumbing, GR No. 127598, February 22 2000, 383 Phil 47,60.
14
Temic Automotive Philippines v. Temic Automotive Philippines, Inc. Employees Union –FFW, GR No. 186965,
December 23 2009.
15
De los Santos v. NLRC, GR No. 121327, December 20 2001, 423 Phil. 1020, 1032; See also Manila Electric
Company v. Benamira, GR No. 145271, July 14 2005.
16
Manila Water Co., Inc. v. Pena, GR No. 158255, July 2004; Corporal, Sr., v, NLRC, GR No. 129315, October 2
2000, 395 Phil. 890.
17
See also Almeda v. Asahi Glass Philippines, Inc., GR No. 177785, September 3, 2008; Acevedo v. Advanstar Co.,
GR No. 157656, November 11 2005; Vinoya v. NLRC, GR No. 126586, February 2, 2000, 324 SCRA 469.
18
Philippine School of Business Administration (PSBA-Manil) v. NLRC GR No. 114143, August 28, 1996; Tabas
v. California Manufacturing Co., GR No. 30680, January 26 1989, 169 SCRA 497.
19
Section 4, in relation to Section 14, DO 18-A Series of 2011.
 3. [Requisite 3] Substantial Capital and/or Investment - If the answer is in the affirmative, the second
requisite in legitimate job contracting/sub-contracting is fully complied with.
4. [Requisite 4] Legal Rights and Benefits Test – if the service agreement is compliant with the rights
and benefits, the contracting arrangement is deemed legitimate.

(2)LABOR ONLY CONTRACTING

*** Absolute Prohibition – under Article 106 of the Labor Code and its Implementing Rules.
Under the law, DO No. 18-A Series of 2011, and jurisprudence, labor-only contracting refers to an arrangement
where:
1. The contractor does not have substantial capital or investments in the form of toiols, equipment,
machineries, work premises among others and the employees recruited and placed are performing
activities which are usually necessary and desirable to the operation of the company, or directly related
to the main business of the principal within a definite or predetermined period, regardless of whether
such job, work or service is to be performed or completed within or outside the premises of the principal,
or
2. The contractor does not have the right of control over the performance of the work of the employee.

ILLUSTRATIVE CASES:

 Even if only one (1) of the two (2) elements above is present, there is labor-only contracting20
 In a 2012 case of Norkis Trading Corporatoon v. Buenavista, it held the PASAKA, a duly registered
cooperative , was declared to be a labor-only contractor because , besides its lack of substantial capital
 or investment in tools and its failure to carry on an independent contracting experience, the respondent
–workers supplied to the petitioner employer were performing activities directly related to the principal
business of the Petitioner.
 In labor-only contractor will be treated as the agent or intermediary of the principal. Whereas, the
principal is as if the directly employer of the employees. Thus, making the principal solidarily liable
with the contractor.
 Prohibitions other than Labor -Only:
o Contracting out of jobs, works or services when not done in good faith and not justified by the
exigencies of the business such as the following:
 Contracting out of jobs, works or services when the same results in the termination or
reduction of regular employees and reduction of work hours, or reduction or splitting
of the bargaining unit
 Contracting out of work with a CABO. 21
 Contracting out of through an in-house agency22
 Repeated hiring of employees under an employment contract of short duration or under
a Service Agreement of short duration which circumvents the Labor Code provisions
of Tenure

20
Coca-Cola Bottlers Phils., Inc. v. Agito, GR No. 179546, 579 SCRA 445, 460 460-461; Aboitiz Haulers, Inc. v.
Dimapatol, GR No. 148619, September 19 2006.
21
CABO – refers to a person or group of persons or to a labor group which, in guise of a labor organization,
cooperative ir entity, supplies workers to an employer, with or without consideration, whether in the capacity of an
agent of the employer or as an ostensible independent contractor.
22
In-House Agency – refers tto a contractor which is owned, managed, or controlled directly or indirectly by the
principal or one where the principal owns/represents any share pf stock, and which operates solely or mainly for the
principal.
 o Contracting out of jobs or services analogous to the above when not done in good faith and not
justified by the exigencies of the business
o EFFECT: Render the Principal the direct employer of the employees of the contractor or
subcontractor, pursuant to Article 109 of the Labor Code, as amended.

REHIRING
In the case of GMA Network v. Carlos Pabriga, Geoffrey Arias, et.al23, the Supreme Court held that:
“Similarly, in the case at bar, we find it unjustifiable to allow petitioner to hire and rehire
workers on fixed terms, ad infinitum, depending upon its needs, never attaining regular
employment status. To recall, respondents were repeatedly rehired in several fixed term
contracts from 1996 to 1999. To prove the alleged contracts, petitioner presented cash
disbursement vouchers signed by respondents, stating that they were merely hired as pinch-
hitters. It is apparent that respondents were in no position to refuse to sign these vouchers,
as such refusal would entail not getting paid for their services. Plainly, respondents as
"pinch-hitters" cannot be considered to be in equal footing as petitioner corporation in the
negotiation of their employment contract.”
Moreover, as discussed above, repeated hiring of employees under an employment contract of short
duration or under a Service Agreement of short duration which circumvents the Labor Code provisions
of Tenure is considered to be prohibited other than labor-only contracting.

23
G.R. No. 176419, November 27, 2013.