Fixed-Term Employment Contract

What is a fixed-term employment contract and when is it considered valid? The Supreme Court had occasion to tackle these questions in the case of Cherry J. Price, et al. versus INNODATA Phils. Inc., et al., (G.R. No. 178505), promulgated on September 30, 2008.

Cherry, Stephanie and Lolita were employed as formatters by INNODATA a domestic corporation engaged in the data encoding and data conversion business. The parties executed an employment contract denominated as a “Contract of Employment for a Fixed Period,” stipulating that the contract shall be for a period of one year.

The days passed by and soon Cherry and her companions found themselves separated from work due to the end of their contract. Cherry and her companions decided to contest the validity of said contract by filing a case for illegal dismissal. The case eventually reached the Supreme Court.

In the course of deciding the case the Court cited Art. 280 of the Labor Code which states, “The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer…” According the Court:

“The employment status of a person is defined and prescribed by law and not by what the parties say it should be. Equally important to consider is that a contract of employment is impressed with public interest such that labor contracts must yield to the common good. Thus, provisions of applicable statutes are deemed written into the contract, and the parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other.”

It went on to say that, “Under Article 280 of the Labor Code the applicable test to determine whether an employment should be considered regular or non-regular is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer.”

However, the High Court also pointed out that employment which requires performance of usual and desirable functions, and does not exceed one year, does not always result in regular employment. This is where the concept of fixed-term employment comes in:

“Under the Civil Code, fixed-term employment contracts are not limited, as they are under the present Labor Code, to those by nature seasonal or for specific projects with predetermined dates of completion; they also include those to which the parties by free choice have assigned a specific date of termination….The decisive determinant in term employment is the day certain agreed upon by the parties for the commencement and termination of their employment relationship, a day certain being understood to be that which much necessarily come, although it may not be known when.”

Does this mean that fixed-term employment contracts are always valid, provided they are entered into knowingly and voluntarily? No. In the case under consideration the Supreme Court emphasized that fixed-term employment contracts are the exception rather than the general rule, and are valid only under certain circumstances. Citing its earlier decision in Brent School v. Zamora (G.R. No. 48494, 5 February 1990, 181 SCRA 702) the Court identified several circumstances wherein a fixed-term is an essential and natural appurtenance:

“Some familiar examples may be cited of employment contracts which may be neither for seasonal work nor for specific projects, but to which a fixed term is an essential and natural appurtenance: overseas employment contracts, for one, to which, whatever the nature of the engagement, the concept of regular employment with all that it implies does not appear ever to have been applied, Article 280 of the Labor Code notwithstanding; also appointments to the positions of dean, assistant dean, college secretary, principal, and other administrative offices in educational institutions, which are by practice or tradition rotated among the faculty members, and where fixed terms are a necessity without which no reasonable rotation would be possible. Similarly, despite the provisions of Article 280, Policy Instructions No. 8 of the Minister of Labor implicitly recognize that certain company officials may be elected for what would amount to fixed periods, at the expiration of which they would have to stand down, in providing that these officials, “x x may lose their jobs as president, executive vice-president or vice president, etc. because the stockholders or the board of directors for one reason or another did not reelect them.”

The Court also mentioned the fact that in the same Brent case, it issued “a stern admonition that where, from the circumstances, it is apparent that the period was imposed to preclude the acquisition of tenurial security by the employee, then it should be struck down as being contrary to law, morals, good customs, public order and public policy.”

To end the long story: Cherry and her companions were considered by the Court as regular employees; and as far as their fixed-term employment contract was concerned, the Court had this to say:

“After considering petitioners’ contracts in their entirety, as well as the circumstances surrounding petitioners’ employment at INNODATA, the Court is convinced that the terms fixed therein were meant only to circumvent petitioners’ right to security of tenure and are, therefore, invalid.”

15 thoughts on “Fixed-Term Employment Contract

  1. Hi Attorney,

    I am working in a community corporation as an Assistant Camp Admin Manager. My first contract given was a 3 months fixed term and at the same time probationary for 3 months. My boss give me a failed evaluation after three (3) months. I can say that the evaluated conducted by my superior is not fair for me so i contested it to the HR manager. The HR Manager give me another one month extension to prove myself for the position but again a one month fixed term again that supposedly will end on the 15th day of January 2014. Untill now i did not received any notice with regards on my employment status, no new contract after my one month fixed term. I started my work to the company last September 15, 2014 up to present. My question is am i already a regular employee based on our labor law?

    I really need your answer.


  2. Hi Good Afternoon, I will ask some few questions Sir. 1. What is the maximum number of months that a company would be able to have a fixed term employment with an applicant? 6 months? 1 year?
    2. Is there a rule that would say after having a fixed term employment the company should absorb or have the employee as a regular employee of the company?

    • Hi Sarah, I think you’ll find the answers to your queries in the post above. But generally speaking, there’s no particular time frame; it’s on a case-to case basis. And if it’s a valid fixed-term agreement there’s no commitment to regularize the employee once the agreement expires.

  3. Sir, i would just like to inquire regarding my case, i was once a fixed term employee, commencing Jan- Dec, 2012, i decided to resign from this company and recently i just started my training this Jan 2013 with my new employer, however my previous employer charge me of awol- abandonement of work, is this kind of treatment acceptable with the general rule? thank you

  4. Sir,
    My friend is working in a PROJECT of a non-profit organization of a religious group. Their contract is only good for 6 months and is renewable. His contract has been renewed many times but until now he is not a regular employee. this project started in 2010 and will end on 2014. non of the workers are regular, nor casual, all are under project.

    They receive the benefits provided by the law such as SSS, Philhealth, Pag-IBIG, income tax returns, 13th month and above minimum wage salary.

    Do they have the right to claim to be regular employees?

    my intention is not to sue the organization but to help them be guided what is a legal thing to do and to give to their workers what is due based on the law. thank you very much sir?

  5. Sir, this is very useful…a significant # of companies are practicing this method to circumvent “regularization and security of tenure”. This will help us secure a solid stand on worker’s right to security of tenure.
    Mabuhay po kayo and God Bless!

  6. Thanks for sharing this attycortes. Most employees, those who had reached the end of their contract and to us who are nearing our own, have the same sentiments on losing our job. As some have wanted to bring this in legal court, some are afraid of the outcome that we may lose the case. What advise can you give? Thanks

    • Hi Innohep, I’m glad you found this helpful. I rarely check my blog nowadays and it might be a long time before I get back to regular blogging. But anyway I’m sorry I can’t give you any advice via this blog, as I don’t think this is the proper venue to dispense specific legal advice. All I can do is suggest that you get in touch with your local labor lawyer. He’ll be in a better position to advice you.

      Regards and God bless.

  7. thank you attycortes for sharing this. we are in the very same situation such as with Price, et al vs INNODATA. but then many are afraid to challenge the company. What can you advise attycortes? Thank you

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