Project Employees Remain Non-Regular Despite Repeated Rehiring: Herma Shipyard Case

The distinction between project-based and regular employment is one of the most frequently litigated questions in Philippine labor law. In Herma Shipyard, Inc. v. Oliveros (G.R. No. 208936, April 17, 2017), the Supreme Court clarified that employees hired for specific projects remain project-based even if they perform tasks necessary to the employer's business and are repeatedly rehired for successive projects. The ruling provides important guidance for employers and workers in project-driven industries.

The Case Before the Court

Herma Shipyard, Inc. is a domestic corporation engaged in shipbuilding and ship repair. The respondents were hired as welders, pipe fitters, leadmen, laborers, and helpers under contracts denominated as Kasunduang Paglilingkod (Pang-Proyektong Kawani). Each contract specified the particular project, the position, the start date, and the expected completion date.

In June 2009, the workers filed complaints for illegal dismissal and regularization. They claimed that despite being made to sign fixed-term contracts ranging from one to four months, they were actually regular employees who performed tasks necessary and desirable to the company's business. They argued that the project contracts were a scheme to circumvent their security of tenure.

The Labor Arbiter and the National Labor Relations Commission both dismissed the complaints, ruling that the workers were project-based employees whose services were validly terminated upon project completion. The Court of Appeals reversed, holding that the workers had become regular employees because their tasks were necessary to the business and they were repeatedly rehired.

The Supreme Court's Ruling

The Supreme Court reversed the Court of Appeals and reinstated the labor tribunals' decisions. The Court held that the workers were validly engaged as project employees.

Under Article 280 of the Labor Code (now Article 294), a project employee is one whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of engagement. The principal test is whether the employees were assigned to carry out a specific project whose duration and scope were specified and made known to them at the time of hiring.

The Court found that the workers knowingly and voluntarily signed their project employment contracts. The contracts, mostly written in Filipino, clearly stated that the workers were hired as project-based employees whose services were coterminous with the completion of the specific project indicated. The contracts specified the commencement date and expected completion date, and expressly stated that employment would end upon completion of the project.

Necessary Tasks Do Not Automatically Mean Regular Employment

The Court rejected the Court of Appeals' reasoning that performing tasks necessary and desirable to the employer's business makes a worker regular. Citing ALU-TUCP v. National Labor Relations Commission, the Court explained that a project can refer to a particular job within the regular business of the employer, provided it is distinct, separate, and identifiable from other undertakings. A construction company, for example, may properly treat employees hired for a specific building project as project employees even though construction is its regular business.

In this case, each worker was hired for identifiable projects such as "MT Masinop," "Hull 0102-phase 6," and "Petrotrade 7." These projects were distinct and separate from one another.

Repeated Rehiring Does Not Convert Project to Regular Employment

The Court likewise rejected the argument that repeated rehiring made the workers regular employees. Citing Villa v. National Labor Relations Commission, the Court held that length of service is not the controlling determinant for project employees. The rule that temporary employees may become permanent through length of service applies only to casual employees, not project employees.

The Court noted that the workers' employment was intermittent, with gaps between projects ranging from days to months. These gaps coincided with the completion of one project and the start of another. For each completed project, the company submitted the required Establishment Employment Records to the Department of Labor and Employment, a clear indicator of project employment.

Approximate Completion Dates Are Sufficient

The Court also addressed the argument that the contracts lacked a definite completion date. Paragraph 10 of the contracts allowed extension of employment if needed for the successful completion of the project. The Court held that this provision was consistent with project employment—it ensured the specific project would be finished, not that workers would remain employed beyond completion.

Given the nature of shipbuilding and repair, the Court ruled that an approximate or target completion date suffices. What matters is that workers were informed that their employment was coterminous with the specific project.

Practical Takeaways

• Project employees remain project-based even if their tasks are necessary to the employer's business. The key is whether the employment was fixed for a specific, identifiable project whose completion was determined at the time of hiring.
• Repeated rehiring for different projects does not convert project employment into regular employment. Length of service is not the controlling factor for project employees.
• Written project employment contracts matter. Contracts that clearly state the project, position, and completion date—and that are knowingly and voluntarily signed—will be upheld.
• Employers should submit termination reports to the DOLE. The Court considered the company's submission of Establishment Employment Records as evidence of genuine project employment.
• Approximate completion dates are acceptable. Employers need not provide exact dates; a target completion date is sufficient as long as workers understand their employment is coterminous with the project.

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