Fixed Term Employment Contract (Reposted)

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.”


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