Protecting Workers: Illegal Dismissal and the Rights of Pakyaw Employees in the Philippines

The Supreme Court's 2016 decision in A. Nate Casket Maker v. Arango (G.R. No. 192282) provides important guidance on the rights of employed by A. Nate Casket Maker, a casket-making business owned by spouses Armando and Anely Nate. The workers had been employed continuously from 1998 until their alleged termination in March 2007. They were "stay-in" workers who received free board and lodging, and were paid on a per-piece or "pakyaw" basis.

In February 2007, the owners presented the workers with a proposed employment contract that would shift them to a five-month contractual arrangement. The contract stated that renewal would be on a case-to-case basis, that the company could terminate employment anytime if performance fell below expectations, and that workers would not receive sick leave, vacation leave, 13th month pay, or other benefits given to regular employees.

When the workers refused to sign, they were told to go home and not report for work anymore. They filed complaints for illegal dismissal and non-payment of various monetary benefits. The Labor Arbiter and the NLRC dismissed the complaints, but the Court of Appeals reversed, ruling that the workers were illegally dismissed. The Supreme Court affirmed the Court of Appeals' ruling with a partial modification.

The Issue: Are Pakyaw Workers Regular Employees?

The Court ruled that pakyaw workers are considered regular employees when the employer exercises control over their work. Under Article 280 of the Labor Code, employment is deemed regular where the employee performs activities that are usually necessary or desirable in the employer's usual business, regardless of any written agreement to the contrary.

In this case, the workers' tasks—carpentry, painting, and finishing—were essential to the casket-making business. They had worked for the company for nearly a decade. The owners also exercised control over their work: the workers followed specific instructions, kept notebooks of completed work, and had their output checked by the owners as basis for compensation. The Court noted that the under Article 82 of the Labor Code. Field personnel are those who regularly perform duties away from the employer's premises and whose hours cannot be determined with reasonable certainty. Since the workers here performed their duties at the company's place of business, had determinable hours, and were supervised, they were not field personnel and were entitled to holiday and SIL pay.

• 13th month pay: The Court ruled that pakyaw workers are not entitled to 13th month pay. Under the rules implementing Presidential Decree No. 851, employees paid on a task basis are exempt from this benefit. Unlike the rules on holiday and SIL pay, the 13th month pay exemption does not require the worker to also be a field personnel.

• Backwages and separation pay: Since the workers were illegally dismissed, they were entitled to reinstatement with full backwages. However, given that nine years had passed since the complaint was filed, the Court found reinstatement no longer practical. The workers were instead awarded separation pay of one month for every year of service, with a fraction of at least six months considered as one full year. The case was remanded to the NLRC to compute the exact amounts of backwages, given the varying production levels and days worked by each piece-rate worker.

Practical Takeaways

• Pakyaw or piece-rate workers are generally regular employees if their work is necessary to the employer's business and the employer exercises control over their performance. Payment by output does not make them contractual or project-based workers.

• Employers cannot use contracts to strip workers of security of tenure. Any agreement that attempts to convert regular employees into short-term contractual workers, or that denies them statutory benefits, will be struck down if it subverts labor laws.

• Illegal dismissal requires both substantive and procedural due process. Employers must have a valid, just cause and must provide written notice and an opportunity to be heard. Simply telling workers to go home is not enough.

• Pakyaw workers are entitled to holiday pay and service incentive leave pay unless they qualify as field personnel. However, they are generally not entitled to 13th month pay under PD 851.

• When reinstatement is no longer practical—for example, after many years have passed—illegally dismissed employees may receive separation pay in lieu of reinstatement, computed at one month for every year of service.

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