Project vs. Regular Employees: Burden of Proof in Illegal Dismissal Cases

The Supreme Court's 1996 decision in Raycor Aircontrol Systems, Inc. v. National Labor Relations Commission (G.R. No. 114290) provides essential guidance on two recurring questions in Philippine labor law: when is a worker a project employee rather than a regular employee, and who carries the burden of proof in illegal dismissal cases? The ruling is particularly instructive for employers who hire workers on a per-project basis and for employees who want to understand their rights.

The Facts of the Case

Raycor Aircontrol Systems, Inc. was engaged solely in installing airconditioning systems in buildings. It hired fifteen workers—tinsmiths, leadmen, aircon mechanics, installers, welders, and painters—who worked for periods ranging from two to six years, with some claiming tenures exceeding ten years.

In 1992, the workers were served uniformly-worded notices of "Termination of Employment" citing "our present business status," effective the day after receipt. The workers alleged they were dismissed after refusing to sign a "Contract Employment" that provided for fixed-term employment that could end at the company's sole discretion. They filed illegal dismissal cases, which were consolidated before the labor arbiter.

The labor arbiter ruled that the workers were project employees under Policy Instructions No. 20 (series of 1977), which governs employer-employee relations in the construction industry. The NLRC reversed, finding the workers were regular employees who were illegally dismissed. The company then petitioned the Supreme Court.

The Issue: Project Employee or Regular Employee?

The central question was whether the workers were project employees (whose employment ends upon project completion) or regular employees (who enjoy security of tenure).

The Supreme Court turned to Article 280 of the Labor Code, which provides the principal test: an employment is regular where the employee performs activities "usually necessary or desirable in the usual business or trade of the employer," except where the employment is "fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement."

The Court emphasized, citing ALU-TUCP v. NLRC, that the key distinction is whether the employee was assigned to carry out a "specific project or undertaking" whose duration and scope were specified and made known at the time of engagement. The Court also clarified that the one-year rule in Article 280 applies only to casual employees, not to project employees—a project employee who works beyond one year does not automatically become regular.

The Burden of Proof Falls on the Employer

The Court found that neither party presented conclusive evidence. The company's "Contract Employment" documents were unsigned by the workers, covered only seven of fifteen employees, and pertained to short durations despite the workers' long tenures. The company failed to present its client contracts or payroll records to prove that the workers were assigned intermittently to specific projects.

The Court reiterated the doctrine that in illegal dismissal cases, the employer always bears the burden of proof. Because the company failed to discharge this burden, and because the law mandates that all doubts be resolved in favor of labor, the Court held that the workers were regular employees.

The Dismissal Was Illegal

The Court also found the dismissal itself illegal. The stated reason—"due to our present business status"—is not a valid cause for termination under the Labor Code. Even if the company intended to invoke retrenchment or closure, it failed to comply with the requirements of written notice to the workers and the Department of Labor at least one month before termination, and it did not pay separation pay.

The company's bad faith was further evidenced by a newspaper advertisement seeking replacements for the very positions of the dismissed workers. The Court noted that if the workers were truly project employees, there would have been no need to send termination notices—their employment would simply end upon project completion.

Practical Takeaways

• Employers must prove project employment. The burden is on the employer to present clear evidence—such as client contracts, payroll records, and signed employment agreements—showing that workers were hired for specific projects with determined durations and scopes.
• Unsigned contracts carry little weight. Employment contracts signed only by the employer, especially when workers refused to sign, are not conclusive proof of project employment.
• Length of service does not automatically make a project employee regular. The one-year rule in Article 280 applies to casual employees, not project employees. What matters is whether the project's duration and scope were determined at the time of engagement.
• Vague reasons for dismissal invite a finding of illegality. Termination must be based on valid causes under the Labor Code, with proper notice and hearing. The exact statutory provision governing retrenchment or closure is not available in the ASG law library, but the principle remains that a vague ground such as "business status" does not constitute a valid cause for termination.
• When evidence is inconclusive, the law favors labor. If the employer fails to discharge its burden of proof, doubts are resolved in favor of the employee.

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