Fixed-Term Employment vs Regular Employment: Security of Tenure Under the Labor Code

The Supreme Court’s 2016 decision in Oyster Plaza Hotel v. Melivo (G.R. No. 217455) clarifies a recurring question in Philippine labor law: when does a worker hired under successive short-term arrangements become a regular employee entitled to security of tenure? The ruling is a practical reminder that employers cannot use fixed-term or probationary contracts to circumvent the Labor Code’s protection against illegal dismissal.

The Facts of the Case

Errol Melivo was hired by Oyster Plaza Hotel as a trainee room boy in August 2008. After three months of training, he was re-hired in November 2008 as a probationary room boy under a contract that expired in March 2009. On April 7, 2009, the hotel hired him again as a room boy, this time without any written contract. In September 2009, his supervisor verbally told him that his contract was expiring and that he must stop reporting for work.

Melivo filed a complaint for illegal dismissal. The hotel argued that he was merely a fixed-term employee whose contract had expired, and therefore no illegal dismissal occurred.

The Issue

The central issue was whether Melivo was a regular employee who could only be dismissed for just or authorized causes, or a fixed-term employee whose employment ended upon the expiration of his contract.

The Ruling: Regular Employment Prevails

The Supreme Court ruled that Melivo was a regular employee and was illegally dismissed. The Court reasoned as follows:

Probationary period counted from training. The Court applied the principle from Holiday Inn Manila v. NLRC that an employee’s on-the-job training period can be considered part of the probationary period. Because Melivo’s performance as a trainee was under observation, his probationary employment started in August 2008. When he was re-hired in November 2008, he had already attained regular status.

Re-hiring after probation makes the employee regular. Even assuming the three-month training was a separate probationary period, Melivo completed his five-month probation from November 2008 to March 2009. When the hotel re-hired him on April 7, 2009, he became a regular employee by operation of law.

Not a project employee. Under Article 280 of the Labor Code (now Article 295), a project employee is one hired for a specific project or undertaking whose completion or termination is determined at the time of engagement. Melivo’s contract failed to identify any specific project. Moreover, the employer failed to submit a termination report to the public employment office as required by Department Order No. 19 — a strong indication that he was not a project employee.

The Limits of Fixed-Term Employment

The case underscores that fixed-term employment is valid only when the term is agreed upon knowingly and voluntarily by both parties, and when the term is not used to circumvent security of tenure. Here, the successive re-hirings and the absence of a specific project showed that the hotel was simply renewing a regular employee’s engagement to avoid the consequences of regularization.

Personal Liability of Corporate Officers

The Court also addressed whether the hotel’s corporate officers could be held personally liable. The general rule is that corporate officers are not personally liable for corporate obligations. Solidary liability attaches only when the dismissal is done with malice or in bad faith. Since the supervisor merely relayed the termination and the owner’s participation was not established with substantial evidence, the Court held only the hotel liable, not the individual respondents.

Practical Takeaways

• Training periods count toward probation. Employers should not assume that an OJT or training stint is outside the probationary period; it may be credited toward regularization.
• Re-hiring after probation creates regular status. Once a worker completes probation and is re-hired, the law treats the worker as a regular employee.
• Fixed-term contracts cannot defeat security of tenure. A contract labeled "fixed-term" will not prevent regularization if the circumstances show the term was used to avoid the Labor Code’s protections.
• Project employees must be properly documented. To validly claim project employment, the contract must specify the project and the employer must file the required termination report.
• Corporate officers are not automatically liable. Personal liability for illegal dismissal requires proof of malice or bad faith.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.