Probationary employment

Shall not exceed 6 months from the

date the employee started working,
unless it is covered by an
apprenticeship
agreement
stipulating a longer period. The
services of an employee who has
been engaged on a probationary
basis may be terminated for a just
cause or when he fails to qualify as
a regular employee in accordance
with reasonable standards made
known by the employer to the
employee at the time of his
engagement. An employee who is
allowed
to
work
after
a
probationary
period
shall
be
considered a regular employee.
In all cases of probationary
employment, the employer shall
make known to the employee the
standards under which he will
qualify as regular employee at the
time of his engagement. Where no
standards are made known to the
employee
at
the
time
of
engagement, he shall be deemed a
regular employee.

(1) Observance Period for employer to

determine if employee is qualified and for
employee to demonstrate to the ER his
skills
(2) Restrictive- As long as the termination
was made before the expiration of the sixmonth probationary period, the employer
has a right to sever the employeremployee relationship.

A probationary employee is one who is

on trial by an employer during which the
employer determines whether or not he is
qualified for permanent employment
[International Catholic Migration Comm.
vs. NLRC, 1989]

Duration
Generally, the probationary period
of employment is limited to six (6)
months. The exception to this
general rule is when the parties to
an employment contract may
agree otherwise, such as when the
same is established by company
policy or when the same is required
by the nature of work to be
performed by the employee. In the
latter case, there is recognition of
the
exercise
of
managerial
prerogatives in requiring a longer
period
of
probationary
employment, such as in the
present
case
where
the
probationary period was set for
eighteen (18) months, i.e. from
May, 1980 to October, 1981
inclusive, especially where the
employee must learn a particular
kind of work such as selling, or
when the job requires certain
qualifications, skills, experience or
training.

Termination - Can only be terminated

for:
(1) Just causes; or
(2) Failure to qualify as a regular
employee in accordance with reasonable
standards made known by the employer to
the employee at the time of engagement.
Note: The probationary employee is
entitled to substantial and procedural due
process before termination.
Limitations to termination
(1) It must be exercised in accordance
with the specific requirements of the
contract
(2) If a particular time is prescribed, the
termination must be within such time and
if formal notice is required, then that form
must be used;
(3) The employers dissatisfaction must
be real and in good faith, not feigned so as
to circumvent the contract or the law;
(4)
There
must
be
no
unlawful
discrimination in the dismissal.
Purposes

Indeed, the employer has the right

or is at liberty to choose as to who
will be hired and
who will be
declined. It is within the exercise of
this right to select his employees
that the employer may set or fix a
probationary period within which
the latter may test and observe the
conduct of the former before hiring
him permanently. The right of a
laborer to sell his labor to such
persons as he may choose is, in its
essence, the same as the right of
an employer to purchase labor
from any person whom it chooses.
The employer and the employee
have thus an equality of right
guaranteed by the Constitution.

Honasan was certainly under

observation during her three week
on-the-job training. If her services
proved unsatisfactory then, she
could have been dropped as early
as during that period. But she was

not. On the contrary, her services

were
continued,
presumably
because they were acceptable,
although she was formally placed
this time on probation.

Even if it be supposed that the

probation did not end with the
three-week period of on-the-job
training, there is still no reason why
that period should not be included
in the stipulated six-month period
of
probation.
Honasan
was
accepted for on-the-job training on
April 15, 1991. Assuming that her
probation
could
be
extended
beyond that date, it nevertheless
could continue only up to October
15, 1991, after the end of six
months from the earlier date.
Under this more lenient approach,
she
had
become
a
regular
employee of Holiday Inn and
acquired full security of tenure as
of October 15, 1991.
Paras started reporting for work on
May 27, 1996. The employers
unanimously
agreed
that
his
performance was unsatisfactory.
On November 26, 1996, he
received a Notice of Termination
dated
November
25,
1996,
Applying Article 13 of the Civil
Code, the probationary period of
six (6) months consists of one
hundred eighty [180] days. As
clearly provided for in the last
paragraph
of
Article
13,
in
computing a period, the first day
shall be excluded and the last day
included. Thus, the one hundred
eighty [180] days commenced on
May 27, 1996, and ended on
November 23, 1996. By the time
Paras received the letter he was
already a regular employee of the
petitioner under Article 281 of the
Labor Code.

To reiterate, the rule on duration may

be summarized as follows:
General Rule: Probationary employment
shall not exceed six (6) months from the
date the employee started working.
Exceptions:
(1) When the parties to an agreement
contract otherwise:
(2) When the same is established by
company policy;

(3) When the

nature of the
employee; and
(4) When
apprenticeship
longer period

s ame is required by the

work performed by the
it is covered by an
agreement stipulating a

Agreement to extend probationary

period
If the extension was ex gratia, an
act of liberality on the part of his
employer affording him a second
chance to make good after having
initially failed to prove his worth as
an employee. Such an act cannot
now unjustly be turned against
said employers account to compel
it to keep on its payroll one who
could not perform according to its
work standards.
Criteria for regularization must be
disclosed
In all cases of probationary
employment, the employer shall
make known to the employee the
standards under which he will
qualify as a regular employee at
the time of his engagement.
Where no standards are made
known to the employee at that
time, he shall be deemed a regular
employee.
Conversely,
an
employer
is
deemed
to
substantially comply with the rule
on notification of standards if he
apprises the employee that he will
be subjected to a performance
evaluation on a particular date
after his hiring.
Regular Status after Probation
When the bank renewed the
contract after the lapse of the sixmonth probationary period, the
employees
thereby
became
regular employees. No employer is
allowed to determine indefinitely
the fitness of its employees. [
Absorbed employees
The private respondents could not
be
considered
probationary
employees because they were
already
welltrained
in
their
respective functions. As stressed
by the Solicitor General, while
private respondents were still with
the CCAS they were already clerks.
Respondent Gelig had been a clerk
for CCAS for more than ten (10)
years, while respondent Quijano

had slightly less than ten (10)

years of service. They were,
therefore, not novices in their jobs
but experienced workers.
Double probation
There is no basis for subjecting an
employee to a new probationary or
temporary employment where he
had already become a regular
employee when he was absorbed
by a sister company.
Termination and salary
A probationary employee enjoys
only a temporary employment
status. This means that he is
terminable at any time, permanent
employment not having been
attained in the meantime. The
employer could well decide he no
longer needed the probationary
employees
services
or
his
performance
fell
short
of
expectations, etc. As long as the
termination was made before the
termination of the six-month
probationary period, the employer
was well within his rights to sever
the
employer-employee
relationship.
A
contrary
interpretation would defect the
clear meaning of the term
probationary.
Private school teachers
The provisions of Article 280 of the
Labor Code are not applicable to
the present case especially with
respect
to
the
issue
of
respondent's
acquisition
of
security of tenure. It is settled that
questions respecting a private
school teachers entitlement to
security of tenure are governed by
the Manual of Regulations for
Private Schools and not the Labor
Code.
Regular employment is not synonymous
with permanent employment, because
there is no such thing as a permanent
employment. Any employee may be
terminated for just cause.
A regular employee is one who is
engaged to perform activities which are
necessary and desirable in the usual
business or trade of the employer as
against those which are undertaken for a
specific project or are seasonal. There are
two separate instances whereby it can be

determined that an employment is

regular:
(1) if the particular activity performed by
the employee is necessary or desirable in
the usual business or trade of the
employer; and,
(2) if the employee has been performing
the job for at least a year.
Standard
of
determination
[Reasonable connection rule]
The
primary
standard
in
determining regular employment is
the
reasonable
connection
between the particular activity
performed by the employee in
relation to the usual business or
trade of the employer. The
connection can be determined by
considering the nature of the work
performed and its relation to the
scheme of the particular business
or trade in its entirety. The
repeated and continuing need for
the performance of the job has
been deemed sufficient evidence
of
the
necessity,
if
not
indispensability of the activity to
the business. In the case at bar,
continuous and repeated rehiring,
some for nearly two decades, of
these bill collectors indicate the
necessity and desirability of their
services, as well as the importance
of the role of bill collectors in the
MWSS.
Hiring for an extended period
Where the employment of project
employees is extended long after
the supposed project has been
finished,
the
employees
are
removed from the scope of project
employees and considered regular
employees.
Repeated renewal of contract
The petitioner cannot rightfully say
that since the private respondent's
employment hinged from contract
to contract, it was "temporary",
depending on the term of each
agreement. Under the Labor Code,
an employment may only be said
to be "temporary" "where:
(1) it has been fixed for a specific
undertaking,
the
completion
of or
termination of which has been determined
at the time of the engagement of the
employee or
(2) where the work or services to
be performed is seasonal in nature and

the employment is for the duration of the

season.

Quite to the contrary, the private

respondent's work, that of "typistclerk" is far from being "specific"
or "seasonal", but rather, one
"where the employee has been
engaged to perform activities
which are usually necessary or
desirable in the usual business."
And under the Code, where one
performs such activities, he is a
regular employee, "(t)he provisions
of written agreement to the
contrary notwithstanding
It is true that in Biboso vs Victorias
Milling
Company,
Inc.
we
recognized
the
validity
of
contractual stipulations as to the
duration of employment. But we
cannot apply it here because
clearly, the contract-to-contract
arrangement given to the private
respondent was but an artifice to
prevent
her
from
acquiring
security of tenure and to frustrate
constitutional decrees.

Length of time involved

Length of time not controlling,
merely serves as a badge of regular
employment. [Maraguinot vs. NLRC, 1998]
Project employment
Employment fixed on a specific
project or undertaking, completion
or
termination
of
which
is
determined
at
the
time
of
engagement of the employee.
Whether or not the project has a direct
relation to the business of the ER is not
important, BUT:
(a) EE must be informed of the
nature and duration of project
(b) project and principal business of
ER are two separate things
(c) no attempt to deny security of
tenure to the worker
Test of project employment
The principal test for determining
whether employees are properly
characterized
as
"project
employees," as distinguished from
"regular employees," is whether or
not the project employees were
assigned to carry out a "specific
project
or
undertaking,"
the
duration and scope of which were
specified
at
the
time
the

employees were engaged for that

project.
As defined, project employees are those
workers hired:
(1) for a specific project or
undertaking, and
(2) the completion or termination
of such project or undertaking has been
determined at the time of the engagement
of the employee. [PNOC Energy Devt Corp
vs. NLRC, 2007]
Indicators of project employment
(1)
The
duration
of
the
specific/identified undertaking for which
the worker is engaged is reasonably
determinable;
(2) Such duration, as well as the
specific work/service to be performed, is
defined in an employment agreement and
is made clear to the employee at the time
of the hiring;
(3)
The
work/service
to
be
performed by the employee is in
connection
with
the
particular
project/undertaking for which he is
engaged;
(4) The employee, while not
employed and awaiting engagement, is
free to offer his services to any other
employer;
(5)
The
termination
of
his
employment
in
the
particular
project/undertaking is reported to the
DOLE Regional Office having jurisdiction
over the workplace within 30 days
following the date of his separation from
work, using the prescribed form on
employees
terminations
/dismissals
/suspensions;
(6)
An
undertaking
in
the
employment contract by the employer to
pay completion bonus to the project
employee
as
practiced
by
most
construction companies.

Samson vs. NLRC (1996): When

the
present
action
for
regularization
was
filed
on
November 5, 1989 and during the
entire
period
of
petitioner's
employment
with
private
respondent prior to said date, the
rule in force then was Policy
Instruction No. 20, which required
the employer company to report to
the nearest Public Employment
Office the fact of termination of a
project employee as a result of the
completion of the project or any
phase in which he is employed.
Furthermore, Department Order No. 19,
which was issued on April 1, 1993, did not

totally
dispense
with
the
notice
requirement. Instead, it made provisions
and considered it (i.e. the notice) as one of
the "indicators" that a worker is a project
employee.
Work pool employee
A project EE or a member of a work
pool may acquire the status of a regular
employee when the following concur:
(1) There is a continuous rehiring of
project employees even after cessation of
a project; and
(2) The tasks performed by the
alleged project employee are vital,
necessary, and indispensable to the usual
business or trade of the employer.
However, the length of time during which
the EE was continuously rehired is not
controlling, but merely serves as a badge
of regular employment.

A work pool may exist although

the workers in the pool do not
receive salaries and are free to
seek other employment during
temporary breaks in the business,
provided, that the worker shall be
available when called to report for
a project. Although primarily
applicable to regular seasonal
workers, this set-up can likewise
be applied to project workers
insofar as the effect of temporary
cessation of work is concerned.
Members of a work pool from
which a construction company
draws its project employees, if
considered employees of the
construction company while in the
work
pool,
are
non-project
employees, or employees for an
indefinite period. If they are
employed in a particular project,
the completion of the project or
any phase thereof will not mean
severance
of
the
employeremployee relationship.

Rationale for project employment

If a project has already been
completed, it would be unjust to require
the employer to maintain them in the
payroll while they are doing absolutely
nothing except waiting until another
project is begun, if at all. In effect, these
stand-by workers would be enjoying the
status of privileged retainers, collecting
payment for work not done, to be
disbursed by the employer from profits not
earned.

Examples of project employment

Private respondents, as well as the
other 30 workers, were needed as
additional hands for the renovation
work and not for ordinary upkeep
and maintenance. The erection of
the fire escape and other small jobs
after the renovation cannot be
deemed maintenance but more of
casual work.

The corporation does not construct

vessels for sale or otherwise which
will demand continuous production
of ships and will need regular
workers.
It
merely
accepts
contracts for ship-building or for
repair of vessels from third parties.
It is only on occasion when it has
work contract of this nature that it
hires workers to do the job which,
needless to say, lasts only for less
than a year or longer. Completion
of
their
work
or
project
automatically
terminates
their
employment.

Petitioner was engaged to perform

data encoding and keypunching,
and her employment was fixed for
a specific project or undertaking
the completion or termination of
which had been determined at the
time of her engagement. This may
be observed from the series of
employment contracts between
petitioner and private respondent,
all
of
which
contained
a
designation of the specific job
contract and a specific period of
employment.

Employer
obligation
to
make
standards known
The law is clear that in all cases
involving employees engaged on
probationary' basis, the employer
shall make known to the employee
at the time he is hired, the
standards by which he will qualify
as a regular employee.

Nowhere
in
the
employment
contract
executed
between
petitioner and respondent Grulla is
there a stipulation that the latter
shall undergo a probationary period
for three months before he can
quality as a regular employee.

There is also no evidence on record

showing that the respondent Grulla

had
been
apprised
of
his
probationary
status
and
the
requirements which he should
comply in order to be a regular
employee. In the absence of these
requisites, there is justification in
concluding that respondent Grulla
was a regular employee at the time
he was dismissed by petitioner,
and as such cannot be done
without just and authorized cause.

exception with respect to project

employment. The re-hiring of
petitioners on a project-toproject
basis did not confer upon them
regular employment status. The
practice was dictated by the
practical
consideration
that
experienced construction workers
are more preferred. It did not
change their status as project
employees.

Specified period
The Court has upheld the legality
of fixed-term employment. It ruled
that the decisive determinant in
term employment should not be
the activities that the employee is
called upon to perform but the day
certain agreed upon by the parties
for
the
commencement
and
termination of their employment
relationship. But, this Court went
on to say that where from the
circumstances it is apparent that
the periods have been imposed to
preclude acquisition of tenurial
security by the employee, they
should
be
struck
down
or
disregarded as contrary to public
policy and morals. \

Seasonal employment
Work or services to be performed
are
seasonal
in
nature,
employment is for the duration of
the season.
No continuing need for the worker.

Continuous rehiring
Despite the insistence of petitioner
that they were project employees,
the facts show that as masons,
carpenters and fine graders in
petitioners various construction
projects, they performed work
which was usually necessary and
desirable to petitioners business
which involves construction of
roads and bridges. It is not enough
that an employee is hired for a
specific project or phase of work.
There must also be a determination
of, or a clear agreement on, the
completion or termination of the
project at the time the employee
was
engaged.
This
second
requirement was not met in this
case.

The fact that the workers have

been employed with the company
for several years on various
projects, the longest being nine (9)
years, did not automatically make
them
regular
employees
considering that the definition of
regular employment in Article 280
of the Labor Code, makes specific

Regular Seasonal Employees after

One Season
Regular seasonal employees are
those called to work from time to
time.
The
nature
of
their
relationship with the employer is
such that during off season they
are temporarily laid off but during
summer
season
they
are
reemployed, or when their services
may be needed. They are not,
strictly speaking, separated from
the
service
but
are
merely
considered as on leave of absence
without
pay
until
they
are
reemployed. Their employment
relationship is never severed but
only suspended. As such those
employees can be considered as in
the regular employment of the
employer.

For respondents to be excluded

from those classified as regular
employees, it is not enough that
they perform work or services that
are seasonal in nature. They must
have been employed only for the
duration of one season. While the
records sufficiently show that the
respondents work in the hacienda
was seasonal in nature, there was,
however, no proof that they were
hired for the duration of one
season only. In fact, the payrolls,
submitted in evidence by the
petitioners, show that they availed
the services of the respondents
since 1991. Absent any proof to the
contrary, the general rule of
regular
employment
should,
therefore, stand.

The disparity in facts between the

Mercado Sr., vs. NLRC case and the
instant case is best exemplified by
the fact that the farm laborers,
work only for a definite period for a
farm worker, after which they offer
their services to other farm owners.
In Mercado, although respondent
constantly availed herself of the
petitioners services from year to
year, it was clear from the facts
therein that they were not in her
regular employ. In other words,
they worked for respondent, but
were nevertheless free to contract
their services with other farm
owners.

Casual employment
When not regular, project or
employee. Requirements to
Regular employee:
(1) one (1) year
continuous or broken
(2) with respect to
employed
(3) employment shall
while such activity exists

seasonal
become
service,
activity
continue

Nature of work
What determines regularity or
casualness is not the employment
contract, written or otherwise, but
the nature of the job. If the job is
usually necessary or desirable to
the main business of the employer,
then employment is regular. [A. M.
Oreta and Co., Inc. vs. NLRC, 1989]
One-year service
The fact that the petitioners have
been hired on a "temporary or
seasonal" basis merely is
no
argument either.

As held in Philippine Bank of

Communications
v.
NLRC,
a
temporary or casual employee,
under Article 281 of the Labor
Code,
becomes
regular
after
service of one year, unless he has
been contracted for a specific
project.
And
we
cannot
say
that
merchandising is a specific project
for the obvious reason that it is an
activity related to the day-to-day
operations
of
California.
The
records show that the petitioners
had been given an initial six month
contract, renewed for another six

months. Accordingly, under Article

281 of the Code, they had become
regular employees of California
and had acquired a secure
tenure. Hence, they cannot be
separated without due process of
law.
Fixed term employment
Article 280 of the Labor Code does
not proscribe or prohibit an
employment contract with a fixed
period provided the same is
entered into by the parties, without
any force, duress or improper
pressure being brought to bear
upon the employee and absent any
other
circumstance
vitiating
consent.
(1) It does not necessarily
follow that where the duties of the
employee consist of activities usually
necessary or desirable in the usual
business of the employer, the parties are
forbidden from agreeing on a period of
time for the performance of such
activities. There is thus nothing essentially
contradictory between a definite period of
employment and the nature of the
employee's duties.
(2) It goes without saying
that contracts or employment govern the
relationship of the parties. In this case,
private respondent's contract provided for
a fixed term of nine (9) months, from June
1, 1991 to March 31, 1992. Such
stipulation, not being contrary to law,
morals, good customs, public order and
public policy, is valid, binding and must be
respected.
However, the Court upholds
the principle that where from the
circumstances it is apparent that
periods have been imposed to
preclude acquisition of tenurial
security by the employee, they
should be disregarded for being
contrary to public policy.
Requisites for validity
This arrangement does NOT circumvent
Security of Tenure when:
(1) Knowingly and voluntarily
agreed upon by the parties without any
force, duress, or improper pressure or any
other circumstances vitiating his consent;
OR
(2) The employer and the
employee dealt with each other on more
or less equal terms with no moral
dominance exercised by the former or the
latter. Brent Doctrine
(3) If a contract is for a fixed term
and the Employee is dismissed without

just cause, he is entitled to the payment of

his
salaries
corresponding
to
the
unexpired portion of the employment
contract.
JOB CONTRACTING Article 106 to 109
of the Labor Code
Contractor or Subcontractor.
Whenever an employer enters into a
contract with another person for the
performance of the formers work, the
employees of the contractor and of the
latters subcontractor, if any, shall be paid
in accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of his
employees in accordance with this Code,
the employer shall be jointly and severally
liable with his contractor or subcontractor
to such employees to the extent of the
work performed under the contract, in the
same manner and extent that he is liable
to employees directly employed by him.

The Secretary of Labor and

Employment may, by appropriate
regulations, restrict or prohibit the
contracting-out of labor to protect
the rights of workers established
under this Code. In so prohibiting
or restricting, he may make
appropriate distinctions between
labor-only contracting and job
contracting
as
well
as
differentiations within these types
of contracting and determine who
among the parties involved shall be
considered
the
employer
for
purposes of this Code, to prevent
any violation or circumvention of
any provision of this Code.

There is "labor-only" contracting

where the person supplying workers to an
employer does not have substantial
capital or investment in the form of tools,
equipment, machineries, work premises,
among others, and the workers recruited
and placed by such person are performing
activities which are directly related to the
principal business of such employer. In
such cases, the person or intermediary
shall be considered merely as an agent of
the employer who shall be responsible to
the workers in the same manner and
extent as if the latter were directly
employed by him.
Article 107. Indirect employer.
The provisions of the immediately
preceding article shall likewise

apply to any person, partnership,

association or corporation which,
not being an employer, contracts
with an independent contractor for
the performance of any work, task,
job or project.
Article 108. Posting of bond.
An employer or indirect employer
may require the contractor or
subcontractor to furnish a bond
equal to the cost of labor under
contract, on condition that the
bond will answer for the wages due
the
employees
should
the
contractor or subcontractor, as the
case may be, fail to pay the same.
Article 109. Solidary liability.
The provisions of existing laws to
the
contrary
notwithstanding,
every
employer
or
indirect
employer shall be held responsible
with his contractor or subcontractor
for any violation of any provision of
this
Code.
For
purposes
of
determining the extent of their civil
liability under this Chapter, they
shall be considered as direct
employers.
Examples
Aboitiz Haulers vs. Dimapatoi (2006):
The allegation of petitioner that
Grigio is an independent job
contractor is without basis. The
respondents, as checkers, were
employed to check and inspect
cargo, a task which is clearly
necessary for the petitioners
business
of
forwarding
and
distributing cargo. Grigio did not
undertake the performance of its
service contract according to its
own manner and method, free from
the control and supervision of its
principal.

The work activities, shifts, and

schedules of the respondents,
including time allowed for "recess"
were set under the Written
Contract of Services. This clearly
indicates that these matters, which
consist of the means and methods
by which the work is to be
accomplished, were not within the
absolute control of Grigio.

Petitioners allegation that Grigio

retained control by providing
supervisors
to
monitor
the

performance of the respondents

cannot be given much weight.
Instead of exercising their own
discretion or referring the matter to
the
officers
of
Grigio,
its
supervisors were obligated to refer
to petitioners supervisors any
discrepancy in the performance of
the respondents.
Lastly, the law casts the burden on
the contractor to prove that it has
substantial capital, investment,
tools etc. In this case, neither
Grigio nor the petitioner was able
to present any proof that Grigio
had substantial capital.

Lakas vs. Burlingame (2007):

No proof was adduced to show F.
Garils capitalization. The work of
the promo-girls was marketing and
selling, and thus directly related to
the principal business or operation
of Burlingame.
Finally, F. Garil did not undertake
the performance of its service
contract according to its own
manner and method, free from the
control
and
supervision
of
Burlingame. Based on the contract,
F. Garil was responsible in the
hiring process only with respect to
the
screening,
testing
and
preselection of the personnel it
provided to Burlingame. Actual
hiring itself was done through the
deployment
of
personnel
to
establishments by Burlingame.
The contract also stipulated that
Burlingame shall pay F. Garil a
certain sum per worker. F. Garil
merely served as conduit in the
payment
of
wages
to
the
personnel.
The interpretation
would have been different if the
payment was for the job, project, or
services
rendered
during the
month and not on a per worker
basis.

The Court has taken judicial notice

of the practice of employers who
do not issue payslips directly to
employees.
Under
current
practice, a third person, usually the
purported contractor [service or
manpower
placement
agency],
assumes the act of paying the
wage.

The contract also provides that

any personnel found to be

inefficient,
troublesome,
uncooperative and not observing
the rules and regulations set forth
by Burlingame shall be reported to
F. Garil and may be replaced upon
request.
Corollary
to
this
circumstance would be the exercise
of control and supervision by
Burlingame over workers supplied
by F. Garil in order to establish the
nature of undesirable personnel.
Department Order No. 18-A, Series of
2011: Rules Implementing Articles
106 to 109 of the LC, as amended (14
November 2011) Coverage
This shall apply to:
(1) all parties of contracting and
subcontracting arrangements where ER-EE
relationships exist
(2)
cooperatives
engaging
in
contracting
or
subcontracting
arrangements
Contractors and subcontractors referred to
in these rules are prohibited from
engaging in recruitment and placement
activities as defined in Art. 13(b) of the LC
whether for local or overseas employment.
Definition of terms
Cabo a persons or group of persons or a
labor groups which, in the guise of a labor
organization, cooperative or any entity,
supplies workers to an employer, with or
without
any
monetary
or
other
consideration, whether in the capacity of
an agent of the employer or as an
ostensible independent contractor.
Contracting or subcontracting an
arrangement whereby a principal agrees
to put out or farm out with a contractor
the performance or completion of a
specific job, work or service within a
definite
or
predetermined
period,
regardless of whether such job, work or
service is to be performed or completed
within or outside the premises of the
principal.
Contractor any person or entity,
including a cooperative, engaged in a
legitimate contracting or subcontracting
arrangement providing either services,
skilled worker, temporary workers or a
combination of services to a principal
under a Service Agreement.
Contractors employee includes one
employed by a contractor to perform or
complete a job, work, or service pursuant
to a Service Agreement with a principal.
It shall also refer to regular EEs of the
contractor whose functions are not
dependent on the performance or
completion of a specific job, work or

service within a definite period of time i.e.

administrative staff.
In-house agency a contractor which is
owned,, managed, or controlled directly or
indirectly by the principal or one where
the principal owns/represents any share of
stock, and which operates solely or mainly
for the principal.
Net Financial Contracting Capacity
(NFCC) refers to the formula to
determine the financial capacity of the
contractor to carry out the job, work or
services sought to be undertaken under a
Service Agreement.
Formula:
NFCC = (current assets - current liabilities)
x (K value of all outstanding or ongoing
projects including contracts to be started)
K stands for contract duration
equivalent to:
(a) 10 for one year or less
(b) 15 for more than 1 year up to 2 years
(c) 20 for more than 2 years
Principal any ER, whether a person or
entity, including government agencies and
GOCCs, who/which puts out or farms out a
job, service or work to a contractor.
Right to control the right reserved to
the person for whom the services of the
contractual workers are performed, to
determine not only the end to be
achieved, but also the manner and means
to be used in reaching that end.
Substantial capital refers to paid-up
capital
stocks/shares
of
at
least
P3,000,000 in the case of corporations,
partnerships and cooperatives; in case of
single proprietorship, a net worth of at
least P3,000,000. [Sec 3, D.O. 18-A-11]
Service agreement refers to the
contract between the principal and
contractor containing the terms and
conditions governing the performance or
completion of a specific job, work or
service being farmed out for a definite or
predetermined period.
Legitimate
contracting
or
subcontracting
Contracting or subcontracting shall be
legitimate
if
all
the
following
circumstances occur:
(a) The contractor must be registered in
accordance with these rules and carries a
distinct and independent business and
undertakes to perform the job, work or
service on its own responsibility, according
to its own manner and method, and free
from control and direction of the principal
in all matters connected with the
performance of the work except as to the
results thereof;
(b) The contractor has substantial capital
and/or investment; and,

(c) The Service Agreement ensures

compliance with all the rights and benefits
under Labor laws.
Job contracting is permissible only if
the following conditions are met:
(1) the contractor carries on an
independent business and undertakes the
contract work on his own account under
his own responsibility according to his own
manner and method, free from the control
and direction of his employer or principal
in all matters connected with the
performance of the work except as to the
results thereof; and
(2) the contractor has substantial capital
or investment in the form of tools,
equipment, machineries, work premises,
and other materials which are necessary
in the conduct of the business. [Lakas vs.
Burlingame Corp., 2007]
In the case of Aliviado v. Protecter &
Gamble Philippines, Inc., (G.R. No.
160506, 9 March 2010), the SC
conceded
that
the
law
and
its
implementing rules allow contracting
arrangements for the performance of
specific jobs, works, or services. Indeed, it
is management prerogative to farm out
any of its activities, regardless of whether
such activity is peripheral or core in
nature. However, in order for such
outsourcing to be valid, it must be made
to an independent contractor because the
current labor rules expressly prohibit
labor-only contracting.
Factors to determine existence of
independent contractor relationship
(1) Whether the contractor is carrying on
an independent business
(2) Whether the work is part of the
employers general business.
(3) The nature and extend of the work.
(4) The skill required.
(5) The terms and duration of the
relationship.
(6) The right to assign the performance of
the work to another.
(7) The control and supervision of the
work and the employers powers with
respect to the hiring, firing and payment
of salaries.
(8) The duty to supply premises, tools, and
appliances. [Mafinco vs. Ople, 1976]
Prohibition
against
labor-only
contracting
Labor only contracting is prohibited.
There is labor-only contracting where:
(a) The contractor does not have
substantial capital or investments in the
form of tools, equipment, machineries,

work premises, among others, and the

employees recruited and places are
performing activities which are usually
necessary or desirable to the operation of
the company, or directly related to the
main business of the principal within a
definite
or
predetermined
period,
regardless of whether such job, work or
service is to be performed or completed
within or outside the premises of the
principal; or
(b) The contractor does not
exercise the right to control the
performance of the work of the employee.
Other prohibitions
(A) Contracting out of jobs, works or
services when not done in good faith and
not justified by the exigencies of the
business such as the following:
(1) Contracting out of jobs, works
or services when the same results in the
termination or reduction of regular EEs
and reduction of work hours or reduction
or splitting of the bargaining unit.
(2) Contracting out of work with a
Cabo
(3) Taking undue advantage of the
economic situation or lack of bargaining
strength of the contractors EEs, or
undermining their security of tenure or
basic rights,
or circumventing the
provisions of regular employment in any of
the following instances:
(a)
Requiring
them
to
perform
functions
which
are
currently being performed by the
regular EEs of the principal; and,
(b) Requiring them to sign,
as a precondition to employment or
continued
employment,
an
antedated resignation letter; a
blank payroll; a waiver of labor
standards
including
minimum
wages and social or welfare
benefits; or a quitclaim releasing
the principal, contractor or from
any liability as to payment of future
claims.
(4) Contracting out of a job, work or
service
through
an
in-house
agency.
(5) Contracting out of a job, work or
service that is necessary or desirable or
directly related to the business or
operation of the principal by reason of a
strike or lockout whether actual or
imminent.
(6) Contracting out of a job, work or
service being performed by union
members when such will interfere with,
restrain or coerce EEs in the exercise of
their rights to self-organization as

provided in Art. 248(c) of the LC, as

amended.
(7) Repeated hiring of EEs under an
employment contract of short duration or
under a Service Agreement of short
duration with the same or different
contractors, which circumvents the LC
provisions on Security of Tenure.
(8) Requiring EEs under a
subcontracting arrangement to sign a
contract fixing the period of employment
to a term shorter than the term of the
Service Agreement, unless the contract is
divisible
into
phases
for
which
substantially different skills are required
and this is made known to the EE at the
time of the engagements.
(9) Refusal to provide a copy of the
Service Agreement and the employment
contracts between the contractor and the
EEs deployed to work in the bargaining
unit of the principals certified bargaining
agent to the sole and exclusive
bargaining agents.
(10)Engaging or maintaining by the
principal of subcontracted EEs in excess
of those provided in the applicable CBA or
as set by the Industry Tripartite Council.
(B) Contracting out of jobs, works, or
services analogous to the above when
not done in good faith and not justified by
the exigencies of the business.
Mafinco vs. Ople (1976):
When an independent contractor
and
not
an
employee:
We
recognize that contracting out is
not unlimited; rather, it is a
prerogative
that
management
enjoys subject to well-defined legal
limitations. As we have previously
held, the company can determine
in its best business judgment
whether it should contract out the
performance of some of its work for
as long as the employer is
motivated by good faith, and
(1) the contracting out must not have
been resorted to circumvent the law or
(2) must not have been the result of
malicious or arbitrary action.

We perceive at the outset the

disposition of the NLRC that
janitorial services are necessary
and desirable to the trade or
business of petitioner Coca-Cola.
But this is inconsistent with our
pronouncement
in
Kimberly
Independent Labor Union v. Drilon
where the Court took judicial notice
of the practice adopted in several

government
and
private
institutions and industries of hiring
janitorial
services
on
an
independent contractor basis. In
this respect, although janitorial
services
may
be
considered
directly related to the principal
business of an employer, as with
every business, we deem them
unnecessary in the conduct of the
employers principal business.
Rights of contractors EEs
All contractors EEs, whether deployed or
assigned ass reliever, seasonal, weekender, temporary, or promo jobbers, shall
be entitled to all the rights and privileges
as provided for in the LC, as amended.
Security of tenure of contractors EEs
It is understood that all contractors EEs
enjoy security of tenure regardless of
whether the contract of employment is coterminus with the service agreement, or
for a specific job, work, or service, or
phase thereof.

Effect of termination of employment

The termination of the contractor
EE prior to the expiration of the
Service
Agreement
shall
be
governed by Arts. 282284 of the
LC.

In case the termination is caused

by the pre-termination of the
Service Agreement not due to
authorized causes under Art. 283,
the right of the contractor EE to
unpaid wages and other unpaid
benefits including unremitted legal
mandatory contributions, e.g., SSS,
Philhealth, Pag-ibig, ECC, shall be
borne by the party at fault, without
prejudice to the solidary liability of
the
parties
to
the
Service
Agreement.
Where the termination result from
the expiration of the Service
Agreement, or from the completion
of the phase of the job, work or
service for which the EE is
engaged, the latter may opt for
payment of separation benefits as
may be provided by law or the
Service
Agreement,
without
prejudice to his/her entitlement to
the completion bonuses or other

emoluments, including retirement

benefits whenever applicable.
Mandatory registration
It shall be mandatory for all
persons or entities, including
cooperative, acting as contractors,
to register with the Regional Office
of the DOLE where it principally
operates.
Failure to register shall give rise to the
presumption that the contractor is
engaged in labor-only contracting.
Contracting
or
subcontracting
arrangements in the Construction and
other industries
Contracting
or
subcontracting
arrangements in the Construction
Industry,
under
the
licensing
coverage
of
the
Philippine
Construction Accreditation Board
(PCAB), shall be covered by the
applicable provisions of these Rules
and shall continue to be governed
by Dept Order No. 19, Series of
1993 [Guidelines Governing the
Employment of Workers in the
Construction Industry] Dept. Order
No 13, Series of 1998 [Guidelines
Governing the Occupational Safety
and Health in the Construction
Industry];
DOLE-DPWH-DILG-DTI
and
PCAB
Memorandum
of
Agreement-Joint
Administrative
Order No. 1, Series of 2011 on
coordination and harmonization of
policies
and
programs
on
occupational safety and health in
the construction industry.
Department Circular No. 01, Series of
2012: Clarifying the Applicability of
DO No. 18-A, 2011 to Business
Processing
Outsourcing
(BPO)/Knowledge
Process
Outsourcing
(KPO)
and
the
Construction Industry
Applicability to BPO
DO 18-A speaks of a trilateral
relationship that characterizes the
covered
contracting/subcontracting arrangement. Thus,
vendor-vendee
relationship
for
entire business processes covered
by the applicable provisions of the
Civil Code on Contracts is excluded.

DO 18-A contemplates generic or

focused singular activity in one
contract between the principal and
the
contractor
(for
example,

janitorial, security, merchandising,

specific production work) and does
not
contemplate
information
technology-enabled
services
involving an entire process (for
example, BPO, KPO, legal process
outsourcing,
hardware
and/or
software
support,
medical
transcription, animation services,
back office operations/support).
These companies engaged in BPOs
may hire employees in accordance
with applicable laws, and maintain
these EEs based on business
requirements, which may or may
not be for different clients of the
BPOs at different periods of the
EEs employment.
Applicability to the Construction
Industry
Licensing and the exercise of
regulatory
powers
over
the
construction industry is lodged
with PCAB which is under the
Construction Industry Authority of
the Philippines and not with the
DOLE or any of its regional offices.
Thus, the DOLE, through its
regional offices shall not require
contractors licensed by PCAB in
the
Construction
Industry
to
register under DO 18-A. Moreover,
findings of violation/s on labor
standards and occupational health
and safety standards shall be
coordinated with PCAB for its
appropriate action, including the
possible cancellation/suspension of
the contractors license.
Effects of finding that there is laboronly contracting
A finding by a competent authority
of labor-only contracting shall
render the principal jointly and
severally liable with the contractor
to the latters EEs, in the same
manner and extent that the
principal is liable to EEs directly
hired by him/her.
A finding of commission of any of
the prohibited activities in Sec. 7
or violation of either Secs. 8 or 9
hereof, shall render the principal
the direct ER of the EEs of the
contractor or subcontractor. [Sec.
27, DO 18-A, 2011]

If
found
to
be
labor-only
contractor, it is equivalent to
finding that there exists an

employer-employee
relationship
between the owner of the project
and the employees of the laboronly
contractor
since
that
relationship
is
defined
and
prescribed by the law itself.

In legitimate job contracting, no

employer-employee relation exists
between the principal and the job
contractor's
employees.
The
principal is responsible to the job
contractor's employees only for
the proper payment of wages. But
in
labor-only
contracting,
an
employeremployee
relation
is
created by law between the
principal
and
the
labor-only
contractor's employees, such that
the former is responsible to such
employees, as if he or she had
directly employed them.

The
only
time
the
indirect
employer may be made solidarily
liable with the contractor is when
the contractor fails to pay his
employees their wages and other
benefits claimed.

Eparwa Security, Inc. vs Liceo de

Cagayan University (2006):
Citing Eagle Security Agency vs.
NLRC--In the case at bar, it is
beyond dispute that the security
guards are the employees of EAGLE
(contractor).
That
they
were
assigned to guard the premises of
PTSI (principal) pursuant to the
latters contract with EAGLE and
that neither of these two entities
paid their wage and allowance
increases under the subject wage
orders are also admitted. Thus, the
application
of
the
aforecited
provisions of the Labor Code on
joint and several liability of the
principal
and
contractor
is
appropriate.
The solidary liability of PTSI and
EAGLE, however, does not preclude
the right of reimbursement from his
co-debtor by the one who paid [See
Article 1217, Civil Code]. It is with
respect
to
this
right
of
reimbursement that petitioners can
find support in the aforecited
contractual stipulation.
Trilateral Relationship in contracting
arrangements
There are three parties involved:

(1) Principal who decides to farm

out a job, work or service to a contractor;
(2) Contractor who has the
capacity to independently undertake the
performance of the job, work, or service;
and
(3) Contractual workers engaged
by the contractor to accomplish the job,
work or service. [Sec. 3 D.O. 18-A-11]
In legitimate contracting there exists:
(1) An ER-EE relationship between
the contractor and the employees it
engaged to perform the specific job, work
or service being contracted
(2) A contractual relationship
between the principal and the contractor
as governed by the provisions of the CC.
Note: In the event of any violation of any
provisions of the LC (including failure to
pay wages) there exists a solidary liability
on the part of the principal and the
contractor for purposes of enforcing the
provisions of the LC and other social
legislation, to the extent of the worked
performed
under
the
employment
contract. [Sec. 5, D.O. 18-A-11]
DISMISSAL FROM EMPLOYMENT
Art. 279: in case of regular employment,
the employer shall not terminate the
services of an employee except for
(a) just cause [Art. 282]
(b)
authorized cause [Art. 283284]
SECURITY OF TENURE
Right not be removed from ones
job without valid cause and valid
procedure
Nature
It is a constitutionally protected
right [Art. XIII Sec. 3, 1987 Constitution]; it
cannot be blotted out by an employment
contract.
It does not give the Employee an
absolute right to his position; when a
transfer
is
not
unreasonable,
nor
inconvenient, nor prejudicial to an
employee; and it does not involve a
demotion in rank or diminution of his pay,
benefits, and other privileges, the
employee may not complain that it
amounts to constructive dismissal.
Coverage
(1) 1987 Constitution: all workers
[Art. XIII Sec. 3]
(2) Labor Code: regular employees
[Art. 279] in all establishments or
undertakings, whether for profit or not
[Art. 278], except government and its
political
subdivisions
including
government
owned
or
controlled

corporations or GOCCs [IRR Book VI Rule I

Sec. 1]
(3) Security of tenure extends to
non regular Employees [Kiamco vs. NLRC,
1999]
(4) Contract Employees limited
extent; secured during the period their
respective contracts of employment
remain in effect. [Labajo vs. Alejandro,
1988]
(5) Probationary Employees
limited extent; additional limitations on
power of Employer to terminate:
(a) must be exercised in
accordance
with
the
specific
requirements of the contract;
(b) dissatisfaction of the
Employer must be real and in good
faith, not feigned so as to
circumvent the contract or the law;
(6) Project/seasonal Employees
limited extent; secured for the
duration of the limited period of
their employment
(7) Managerial Employees may be
dismissed upon loss of confidence;
entitled to security of tenure [Maglutac vs.
NLRC, 1990].
(8) An employee cannot be
arbitrarily dismissed at any time, and
without cause as reasonably established in
an appropriate investigation. [Inter Orient
Maritime Enterprises, Inc. vs. NLRC, 1994]
(9) Fixed-period Employees / Term
Employment: this arrangement does NOT
circumvent Security of Tenure when:
(a)
knowingly
and
voluntarily agreed upon by the
parties without any force, duress,
or improper pressure or any other
circumstances vitiating his consent;
OR
(b) Brent Doctrine: the
employer and the employee dealt
with each other on more or less
equal
terms
with
no
moral
dominance exercised by the former
or the latter.
(c) If a contract is for a fixed
term
and
the
Employee
is
dismissed without just cause, he is
entitled to the payment of his
salaries corresponding to the
unexpired
portion
of
the
employment contract.
CONFLICT
WITH
MANAGEMENT
PREROGATIVES
Management prerogatives
(1) Discipline [San Miguel v. NLRC,
1980]
(2) Right to dismiss or otherwise
impose disciplinary sanctions upon an

employee for just and valid cause,

pertains in the first place to the employer,
as well as the authority to determine the
existence of said cause in accordance with
the norms of due process. [Makati
Haberdashery, Inc. v. NLRC, 1989]
(3) To Demote [Petrophil vs. NLRC,
1986]
(4) To Dismiss it is a measure of
self protection [Reyes vs. Ministry of
Labor, 1989]
Requisites
for
the
validity
of
management prerogative affecting
security of tenure
(1) Exercised in good faith for the
advancement of the Employer's interest,
and
(2) NOT for the purpose of
defeating or circumventing the rights of
the Employees under special laws or
under valid agreements
JUST CAUSES
No written notice to employer required
Serious
misconduct
or
willful
disobedience Misconduct
(a) improper or wrongful conduct
(b)
transgression
of
some
established and definite rule of action, a
forbidden act, a dereliction of duty, willful
in character, and implies wrongful intent
and not mere error in judgment. [Dept of
Labor Manual, Sec. 4343.01; Hayuan
Restaurant vs. NLRC, 2006]
Requisites
(1) Serious to be serious, misconduct
must be:
(a) of such grave and aggravated
character
(b)
in
connection
with
the
employee's work. [Lakpue Drug, Inc. vs.
Belga, 2005]
(2) Shows that the Employee has become
unfit to continue working for the Employer.
[Philippine Aeolus Automotive United Corp.
vs. NLRC]
Willful disobedience:
Requisites:
(1) The employees assailed conduct has
been willful or intentional, the willfulness
being characterized by a wrongful and
perverse attitude; and
(2) The order violated must have been:
(a) Reasonable and lawful;
(b) Made known to the employee;
and
(c) In connection to the duties
which he has been engaged to discharge.

Gross and habitual neglect of duties

Gross negligence is want of even
slight care, acting or omitting to
act in a situation where there is a
duty to act, not inadvertently but
willfully and intentionally with a
conscious
indifference
to
consequences insofar as other
persons may be affected. [Tres
Reyes v. Maxim's Tea House, 2003]
Habitual neglect implies repeated failure
to perform one's duties for a period of
time, depending upon the circumstances.
[Chua v. NLRC, 2005]
Requisites
(1) Neglect of duty must be both gross
and
(2) Habitual
Fraud or willful breach of trust [loss
of trust and confidence]
Requisites (AWWT)
(1) Committed against the Employer or his
representative;
(2) willful since fraud implies wrongful
intent;
(3) EE concerned holds a position of trust
and confidence; and [Mabeza vs. NLRC,
1997]
(4) Act complained of must be workrelated i.e. it must show the employee
concerned to be unfit to continue working
for the employer.
Proof beyond reasonable doubt not
necessary
(1) It is sufficient that there is some basis
for such loss of confidence such as when
the employer has reasonable ground to
believe that the employee concerned is
responsible for the purported misconduct;
(2) And the nature of his participation
therein renders him unworthy of the trust
and confidence demanded of his position
Loss
of
confidence:
managerial/confidential vs. rank-andfile employees
Managerial
Substantial evidence reasonable ground
to believe Employees guilt; mere
existence of a basis for the belief [Etcuban
vs. Sulpicio Lines, 2005]

Rank-and-fi
Proof of invo
question re
assertions a
[Etcuban vs.

Employment for a long time is counted

against the Employee [Salvador v. Phil.
Mining Service Corp., 2003]
General rule: trust and confidence is
restricted to MANAGERIAL Employees
[Fujitsu Computer Products Corp. v. CA,
2005]

Except: wh
reposed with
vs. NLRC, 1
property

Abandonment
of
employment;
elements that must concur
Abandonment is the deliberate and
unjustified refusal of an Employee to
resume his employment. [Nueva Ecija
Electric Cooperative v. NLRC, 2005]
Requisites:
(1) Failure to report to work or absence
w/o valid reason;
(2) Clear intent to sever the employeremployee relationship via overt acts
[Floren Hotel v. NLRC, 2005]
(a)
Cannot be lightly inferred,
much less legally presumed from certain
equivocal
acts
such
as
interim
employment [Hacienda Dapdap v. NLRC,
1998]
Termination of employment pursuant
to a union security clause
Art. 283 and 284 are not exhaustive;
other authorized causes are:
(a) total and permanent disability,
(b) disease incurable in 6 mos,
(c) valid application of union security
clause,
(d) expiry of term employment period,
(e) completion of project,
(f) failure in probation, etc
Totality of infractions doctrine
The totality of infractions or the
number of violations committed
during the period of employment
shall be considered in determining
the penalty to be imposed upon an
erring employee. The offenses
committed by petitioner should
not be taken singly and separately.
Fitness for continued employment
cannot be compartmentalized into
tight little cubicles of aspects of
character, conduct and ability
separate and independent of each
other. While it may be true that
petitioner was penalized for his
previous infractions, this does not
and should not mean that his
employment record would be
wiped clean of his infractions. After
all, the record of an employee is a
relevant
consideration
in
determining the penalty that
should be meted out since an
employee's past misconduct and
present behavior must be taken
together in determining the proper
imposable penalty. [Merin v. NLRC,
2008]

AUTHORIZED CAUSES
Recognized right
The law recognizes the right of
every business entity to reduce its
workforce if the same is made
necessary by compelling economic
factors which would endanger its
existence or stability.
The fundamental law itself guarantees,
even during the process of tilting the
scales of social justice towards workers
and employees, the right of enterprises
to reasonable returns of investment and to
expansion and growth. [Uichico v. NLRC,
1997]
Art. 283 and 284 are not exhaustive;
other authorized causes are:
(a) total and permanent disability,
(b) disease incurable in 6 mos,
(c) valid application of union security
clause,
(d) expiry of term employment period,
(e) completion of project,
(f) failure in probation, etc
Redundancy,
retrenchment
and
closure
Redundancy
(1) [redundancy] exists where the service
capability of the workforce is in excess of
what is reasonably needed to meet the
demands of the business enterprise;
(2) a reasonably redundant position is one
rendered superfluous by any number of
factors, such as overhiring of workers,
decreased volume of business, dropping of
a particular product line previously
manufactured by the company, or phasing
out
of
service
activity
previously
undertaken by the business

Redundancy does not refer to

duplication of work. That no other
person was holding the same
position
which the
dismissed
employee held prior to the
termination of his services does not
show that his position had not
become redundant.
Financial loss is not a requisite
Creation of positions with functions
related or similar to those of the
abolished
functions
does
not
necessarily
invalidate
the
declaration of redundancythe old
and new positions were different
and the declaration was not
maliciously motivated. [Santos v.
CA, 2001]

Employers
good
faith
in
implementing
a
redundancy
program is not necessarily put in
doubt by the availment of services
of an independent contractor.
[Asian Alcohol Corp. v. NLRC, 1999]

Separation pay entitlement.

Employee is entitled to separation
pay of 1 month pay or 1 month
pay per year of service, whichever
is higher
Retrenchment
is the termination of employment
effected by management during
periods of business recession,
industrial depressions, seasonal
fluctuations, lack of work or
considerable reduction in the
volume
of
the
employers
business. [AMA Computer College
v. Ely Garcia, 2008]
General standards for when retrenchment
is preventive rather than curative (SINS).

(a)
Losses
expected
are
(s)ubstantial and not merely de minimis in
extent;
(b)
Apprehended
losses
are
reasonably (i)mminent, can be perceived
objectively and in good faith;
(c)
Retrenchment
must
be
reasonably (n)ecessary to prevent the
expected lossesmeasure of last resort;
and
(d) Expected or actual losses must
be proved by (s)ufficient and convincing
evidence.
Reduction of work days may be considered
constructive

Temporary
retrenchment
or
temporary cessation or suspension
of operations [Art. 286]
A specific period that employees
may remain temporarily laid-off or
in floating status. The temporary
lay-off or bona fide suspension of
operations of a business or
undertaking
wherein
the
employees likewise cease to work
should not last longer than 6
months. After 6 months, the
employees
should
either
be
recalled to work or permanently
entrenched
following
the
requirements of the law, and that
failing to comply with this would be
tantamount to dismissing the
employees and the employer would
thus be liable for such dismissal.

Separation pay entitlement.

Employee is entitled to separation
pay of 1 month pay or 1/2 month
pay per year of service, whichever
is higher
Closure
Employer may close or cease his
business operations or undertaking
even if he is not suffering from
serious business losses or financial
reverses, as long as he pays his
employees their termination pay in
the amount corresponding to their
length of service.
It includes both the complete cessation of
all business operations and the cessation
of only part of a companys business
Requirements.
Must de bona fide or in good faith
Procedural steps required
At least 1 month before the intended date
of termination, Employer is to serve
written notice to:
(1) Affected employees; and
(2) DOLE [Art. 283]
Requirements
for
valid
retrenchment/redundancy.
Requisites: Redundancy
(1) Written notice served on both the
Employees and the DOLE at least 1 month
prior to the intended date;
(2) Payment of separation pay equivalent
to one month pay or one month pay for
every year of service, whichever is higher;
(3) Good faith in abolishing the redundant
positions; and
(4) Fair and reasonable criteria in
ascertaining what positions are to be
declared redundant and accordingly
abolished. The following are usually
considered in redundancy: position itself,
nature of the services performed by the
employee, and necessity of such position.
[Edge Apparel v. NLRC, 1998]
Requisites: Retrenchment
(a) Necessary to prevent or minimize
losses and such losses are proven;
(b) There must be 1 month written notice
to the DOLE and the employee;
(c) Separation pay is paid;
(d) Exercised in good faith the
prerogative
was
exercised
for
the
advancement of the employers interest
and not to defeat or circumvent the
employees right to security of tenure; and
(e) Fair and reasonable criteria in
ascertaining who will be affected

Criteria in selecting employees for

dismissal.
Fair and reasonable criteria in ascertaining
who will be affected:
(1) preferred status [e.g. temporary,
casual or regular Employees],
(2) efficiency
(3) physical fitness,
(4) age,
(5) financial hardship, or
(6) seniority. [Asian Alcohol Corp. v. NLRC,
1999]

Serious Misconduct

Serious
(a) Grave an
(b) In connec
Shows that
Employer.

Willful Disobedience

Willful cond
attitude; and
(a) Reasonab
(b) Lawful,
(c) Sufficien
(d) In connec
Neglect mus
Loss of Confi
(a) Committ
representati
(b) willful sin
(c) EE con
and
(d) Act comp

Gross and Habitual Neglect

Standards to be followed
Fraud or Willful Breach of Trust
Table: Comparison of Retrenchment,
Redundancy and Closure
Retrenchment
Redundancy
Reduction
of
personnel The
service
of
an
usually due to poor financial Employee is in excess of
returns so as to cut down on what is required by an
costs of operations in terms enterprise
of salaries and wages

Resorted to primarily to avoid

or minimize business losses

To save production costs

Disease or illness
Separation pay entitlement
Employee is entitled to separation pay of 1
month pay or month pay per year of
service, whichever is higher
Requisites
(1) Employee has been found to be
suffering from any disease;
(2)
His
continued
employment
is
prohibited by law or is prejudicial to his
health as well as to the health of his coemployees;
(3) Payment of separation pay;
(4) A medical certification by a competent
public health authority that the disease
cannot be cured w/in 6 months even with
proper medical treatment [IRR Book VI.
Rule I. Sec. 8]
(a) Medical certification cannot be
dispensed with [Manlyl Express, Inc. v.
Payong, 2005]
(b) It must be issued by a
competent public health authority and not
the company physician [Cebu Royal Plant
v. Deputy Minister of Labor, 1987]
Just Causes

Additional G
(a) NOT simu
(b) NOT used
(c) NOT arbi
(d) genuine,

Commission of a crime or offense against

Employer

Analogous causes

Authorized Causes
Installation of Labor Saving Devices

Redundancy

Retrenchment

Crime again
(a) Employe
(b) Immedia
or
(c)
Emp
representati
prosecution
Due to a
omission by

Requisites
(a) 1 month
Employee (b) se
month pay or o
service, whichev
(a) 1 month
Employee (b) s
month pay or o
service, whichev
(c) Good faith
positions; and
(d) Fair and reas
affected such as
(e) preferred sta
(f) casual or regu
(g) seniority.
Basic Requisites:
(1) Necessary to
such losses are p
(2) 1 month w
Employees
(3) Separation
month pay or a
year of service, w
(4) Exercise is in

to be criteria
heard in
with
the mere
(5) Fair and reasonable
ascertaining
payment of 30 days' salary. [PNB v.
who will be affected
Cabanag,
(a) preferred status
(e.g. 2005]
temporary, casual or
Twin-notice requirement
regular Employees)
First notice notice specifying the grounds
(b) efficiency,
for fitness,
which dismissal is sought
(c) physical
(d) age, Second notice notice of the decision to
dismiss
(e) financial
hardship, or
Procedure
to Corp.
be v. NLRC,
observed
(f) seniority.
[Asian Alcohol
1999] in
termination cases.
General Standards:
Basis for termination
Just cause
Art. 282rather than curative
retrenchment
is preventive
(a) Losses expected are substantial and not
merely de minimis in extent;
(b) Apprehended losses are reasonably
Authorized
Cause Arts.
& 284
imminent;
(c) Retrenchment
must 283
be reasonably
necessary to prevent the expected losses; and
(d) Expected or actual losses must be proved by
sufficient and convincing evidence.
Closure or Cessation of Operations

Disease

(1) Notice s
dismissal is s
to be heard
dismiss [Art.
Notice to: (1
least 1 mon
separation

Requisites
(a) Must be
done in good faith [bona fide]
(a) Notice
not notice
needed to
when
Employee
(b) 1 month
written
DOLE
and
to pay
the equivalent
retrenchment
Employeeconsented
(c) Separation
to one or
voluntarily
appliedpay
for one.
month pay
or 1/2 month
for every year of
(b) Notice
must be individual, not
service, whichever
is higher.
collective.
(a) Employee
is suffering from any disease;
(c) Voluntary
arbitration
satisfies notice
(b) His continued
employment
is prohibited
by
law or is requirement
prejudicial tofor
hisauthorized
health as causes
well as as to
Consequences
for non-compliance.

the health
of his co-employees.
[Art. 284]
(c) Separation pay
equivalent to at least oneEffect
Situation
JustororatAuthorized
Cause +
month pay
least 1/2 month
payDismissal
for everyvalid
Due Process
year of service,
whichever is higher; and
(d) Medical certification by a competent public
No Just that
or Authorized
Cause
Dismissal
health authority
the disease
cannot
be curedinvalid
within 6+ Due
mosProcess
even with proper medical
treatment.

DUE
PROCESS
Substantive
Due
Process
Dismissal for any of the just or
authorized causes under Arts. 282
284
Right to counsel
A very basic requirement of
substantive due process; it has to
be observed. Indeed, the rights to
counsel and to due process of law
are two of the fundamental rights
guaranteed
by
the
1987
Constitution to any person under
investigation, be the proceeding
administrative, civil, or criminal.
[Salaw v. NLRC, 1991]
Procedural Due Process
Employee must be given notice
with adequate opportunity to be
heard before he/she is notified of
his/her actual dismissal for Cause.
[Fujitsu v. CA, 2005]
ER may NOT substitute the
required prior notice & opportunity

No Just or Authorized Cause

+ No Due Process

Dismissal invalid

Just or Authorized Cause +

No Due Process

Dismissal valid

Hearing; meaning of opportunity to

be heard
A formal or trial type
hearing is not at all times
and
in
all
instances
essential to due process; it
is enough to that the parties
are
afforded
fair
and
reasonable opportunity to
explain their side of the
controversy. [Mendoza vs.
NLRC, 1991]
Summary proceeding may
be
conducted;
written
explanations,
affidavits,

position papers or other

pleadings may be used as
well; what is essential is the
ample opportunity to be
heard.
[Homeowners
Savings and Loan Assoc.
Inc. vs. NLRC, 1996]
No
formal
hearing
necessary
when
the
Employee already admitted
his responsibility for the act
he was accused of. [Magos
v. NLRC, 1998]
A formal hearing or conference
becomes mandatory only in the
following instances:
(1) when requested by the
employee in writing;
(2) when substantial evidentiary
disputes exist; or
(3) when a company rule or
practice requires it.
Coming now to the period of time
within which the employee should submit
his reply to the show-cause memo, King of
Kings Transport v. Mamac, 526 SCRA 116
(2007), tells us that an employee under
investigation for a violation of company
rules is entitled to a reasonable time so
that he can prepare adequately for his
defense.
Under
King
of
Kings,
reasonable
opportunity
has
been
construed to mean at least five (5)
calendar days from receipt of the notice to
give the (employee) an opportunity to
study the accusation against him, consult
a union official or lawyer, gather data and
evidence, and decide on the defenses he
will raise against the complainant.
What the law requires, as held in
De Leon v. NLRC, cited by petitioners, is
for the employer to inform the employee
of the specific charges against him and to
hear his side or defenses. This does not
however
mean
a
full
adversarial
proceeding. Litigants may be heard thru:
(1)
pleadings,
written
explanations,
position
papers,
memorandum;
(2) oral argument. In both
instances, the employer plays an active
role
he must provide the employee the
opportunity to present his side and answer
the charges, in substantial compliance
with due process. Actual adversarial
proceeding becomes necessary only for
clarification or when there is a need to
propound searching questions to unclear
witnesses. This is a procedural right which
the employee must, however, ask for it is

not an inherent right, and summary

proceedings may be conducted. This is to
correct the common but mistaken
perception that procedural due process
entails lengthy oral arguments. Hearing in
administrative proceedings and before
quasi-judicial
agencies
are
neither
oratorical
contests
nor
debating
skirmishes where cross examination skills
are displayed. Non-verbal devices such as
written explanations, affidavits, position
papers or other pleadings can establish
just as clearly and concisely aggrieved
parties' predicament or defense. What is
essential is ample opportunity to be heard,
meaning, every kind of assistance that
management must accord the employee
to prepare adequately for his defense.
Article 277(b) of the Labor Code
provides that, in cases of termination for a
just cause, an employee must be given
"ample opportunity to be heard and to
defend himself." Thus, the opportunity to
be heard afforded by law to the employee
is qualified by the word "ample" which
ordinarily means "considerably more than
adequate or sufficient."21 In this regard,
the phrase "ample opportunity to be
heard" can be reasonably interpreted as
extensive enough to cover actual hearing
or conference.
Burden of Proof.
Upon the employer. Employer must
comply with due process requirements
before any termination is done.
(a) Unsubstantiated suspicions and
baseless conclusions by employers
are not legal justification for
dismissing employees.
Degree of Proof.
Substantial
evidence;
proof
reasonable doubt not required.

beyond

Agabon doctrine.
Current rule: Agabon v. NLRC, 2004
Dismissal is valid
(NO reinstatement and backwages)
BUT
Employer
to
indemnify
Employee in the form of nominal
damages
RELIEFS FOR ILLEGAL DISMISSAL
A finding of illegal dismissal entitles the
Employee to:
(1) reinstatement without loss of seniority
rights and privileges, and
(2) full backwages inclusive of allowances
and to benefits or their monetary
equivalent from the time withheld up to
actual reinstatement [Art. 279]

REINSTATEMENT
It is the restoration of an employee
who was unjustly dismissed to the
position from which he was
removed, that is, to his status quo
ante dismissal [Santos vs. NLRC,
1987]
Note: An offer by Employer to re-employ
the Employee did not cure the vice of
earlier arbitrary dismissal.
An order for reinstatement must be
specifically declared and cannot be
presumed; like back wages, it is a
separate and distinct relief given to an
illegally dismissed employee.
Alternative
In lieu of reinstatement, Employee is
entitled to separation pay of 1 month pay
per year of service.
General Rule: reinstatement is a matter
of right to an illegally dismissed Employee.
Exceptions:
(a) Closure of business
(b) Economic business conditions: The
reinstatement remedy must always be
adapted to economic-business conditions.
(c) EEs unsuitability
(d) EEs Retirement/Coverage
Prescription Period
An action for reinstatement by reason of
illegal dismissal is one based on an injury
which may be brought within 4 years from
the time of dismissal. [Art. 1146 of the
Civil Code]
Reinstatement pending appeal
Art. 223 is clear that an award for
reinstatement
shall
be
immediately
executory
even
pending appeal and the posting of
a bond by the employer shall not
stay
the
execution
for
reinstatement.
Reinstatement ordered by Labor Arbiter is
self-executory; reinstatement ordered by
NLRC is not and, though immediately
executory, still requires writ of execution.
Separation
pay
in
lieu
of
Reinstatement
Strained Relation rule
If reinstatement is not feasible,
expedient, or practical, as where
there is strained relations between
the parties, particularly where the
illegally dismissed employee held
a managerial or key position]
Quijano v. Mercury Drug Corp. (1998)

(a) Where reinstatement is not feasible,

expedient or practical,
(b) As where reinstatement would only
exacerbate the tension and strained
relations between the parties (c) Or where
the relationship between the employer
and employee has been unduly strained
by
reason
of
their
irreconcilable
differences, particularly where the illegally
dismissed employee held a managerial or
key position in the company
(d) It would be more prudent to order
payment of separation pay instead of
reinstatement
Kinds
(1) SP as a statutory requirement for
authorized causes
(2) SP as financial assistance found in the
next section
(3) SP in lieu of reinstatement where
reinstatement is not feasible; and
(4) SP as a benefit in the CBA or company
policy
Computation
SP as a statutory requirement is
computed by integrating the basic
salary with regular allowances
employee has been receiving;
allowances include transportation
and emergency living allowances

Commissions may not be included

since they must be earned by
actual market transactions by
employee
A dismissed employee who has
accepted separation pay is not
necessarily
estopped
from
challenging the validity of his or
her dismissal. Neither does it
relieve the employer of legal
obligations.

]
BACKWAGES
(1) According to St. Theresas School of
Novaliches Foundation v. NLRC (1998):
earnings lost by a worker due to his illegal
dismissal; a form of relief that restores the
income lost by reason of such unlawful
dismissal;
(2) it is not private compensation or
damages; nor is it a redress of a private
right;
(3) but, rather, in the nature of a
command to the employer to make a
public reparation for illegally dismissing an
employee.
Effect of failure to order backwages
A plain error which may be
rectified, even if employee did not

bring an
matter]

appeal

regarding

the

Computation
(1) Without deduction for their earnings
elsewhere during the layoff
(2) Awards including salary differentials
are not allowed
(3) The salary base properly used should
be the basic salary rate at the time of
dismissal plus the regular allowances;
allowances include:
(a) Emergency cost of living
allowances
(ECOLA),
transportation
allowances, 13th month pay
(b) Also included are vacation
leaves, service incentive leaves, and sick
leaves
(4) The effects of extraordinary inflation
are not to be applied without an official
declaration
thereof
by
competent
authorities
Limited backwages
General rule: An illegally dismissed
employee is entitled to full backwages.
Exceptions
(1) The Court awarded limited backwages
where the employee was illegally
dismissed but the employer was found
to be in good faith.
(2)
Jurisprudence
The Court affirmed the consistent
findings and conclusions of the
Labor Arbiter, (NLRC), and CA that
the
employee
was
illegally
dismissed since he was still fit to
resume
his
work;
but
the
employers liability was mitigated
by its evident good faith in
terminating
the
employees
services based on the terms of its
Health, Welfare and Retirement
Plan. Hence, the employee was
ordered reinstated to his former
position without loss of seniority
and other privileges appertaining
to him prior to his dismissal, but
the award of backwages was
limited
to
only
one
year
considering
the
mitigating
circumstance
of
good
faith
attributed to the employer.
The employee was terminated for
her continuous absence without
permission. Although the Court
found that the employee was
indeed guilty of breach of trust and
violation of company rules, it still
declared the employees dismissal
illegal as it was too severe a

penalty considering that she had

served the employer company for
21 years, it was her first offense,
and her leave to study the French
language would ultimately benefit
the employer who no longer had to
spend for translation services. The
Court awarded the said employee
backwages limited to a period of
two years, given that the employer
acted without malice or bad faith in
terminating
the
employees
services.
Delay of the EE in filing the case for
illegal dismissal
The employee filed his ULP charge
with reinstatement and back wages
about two years and fifteen days
after his separation on April 10,
1961. The shortest prescriptive
period for the filing of all other
actions for which the statute of
limitations does not fix a period, is
four years. The period of delay in
instituting this ULP charge with
claim for reinstatement and back
wages,
although
within
the
prescriptive period, should be
deducted from the liability of the
employer to him for back wages. In
order that the employee however
should be relieved from proving his
income during the period he was
out of the service and the employer
from submitting counter-proofs,
which may delay the execution of
the decision, the employer was
directed to the employee back
wages equivalent to one year,
eleven months, and fifteen days
without further disqualifications.
Rationale
Feati University Club vs. Feati
University
(1974)
adopted
a
consensus policy of pegging the
amount of backwages to their total
equivalent
for
three
years
(depending on the circumstances)
without deduction or qualification.
The rationale for the policy was
stated in the following words: As
has been noted, this formula of
awarding
reasonable
net
backwages without deduction or
qualification
relieves
the
employees
from
proving
or
disproving their earnings during
their lay-off and the employers
from submitting counterproofs, and
obviates the twin evils of Idleness
on the part of the employee who
would "with folded arms, remain

inactive in the expectation that a

windfall would come to him"
[Itogon Suyoc Mines, Inc. vs.
Sangilo-Itogon
Workers
Union
(1968), as cited in Diwa ng
Pagkakaisa vs. Filtex International
Corp. (1972)] and attrition and
protracted delay in satisfying such
award on the part of unscrupulous
employers who have seized upon
the
further
proceedings
to
determine the actual earnings of
the wrongfully dismissed or laid-off
employees
to
hold
unduly
extended hearings for each and
every
employee
awarded
backwages and thereby render
practically nugatory such award
and compel the employees to
agree
to
unconscionable
settlements of their backwages
award in order to satisfy their dire
need.
PREVENTIVE SUSPENSION
It is a disciplinary measure for the
protection
of
the
company's
property pending investigation of
any
alleged
malfeasance
or
misfeasance committed by the
employee. The employer may place
the
worker
concerned
under
preventive
suspension
if
his
continued employment poses a
serious and imminent threat to the
life or property of the employer or
of his co-workers.
The employer has the right to
preventively suspend an employee
during the pendency of the
administrative case against the
latter as a measure of selfprotection. In PAL v. NLRC, 292
SCRA
40
(1998),
the
Court
explained
that
preventive
suspension, by itself, does not
signify that the employer has
already adjudged the employee
guilty of the charges for which he
was asked to answer and explain.
Such
disciplinary
measure
is
resorted to for the protection of the
companys property or the life of
the employer or of the coemployees pending investigation of
any
alleged
malfeasance
or
misfeasance committed by the
employee.
Preventive suspension is limited to
30 days; any more than that
amounts to constructive dismissal.
After 30 days of preventive
suspension, the employer shall

reinstate the worker in his former

position or substantially equivalent
position. The employer may also
extend the period of suspension
provided that during the said
period, he shall pay the wages and
other benefits due to the worker.

CONSTRUCTIVE DISMISSAL
The following constitute constructive
dismissal:
(1) Bona fide suspension of the operation
of a business or undertaking exceeding 6
months
(2) Floating status of more than 6
An involuntary resignation is resorted
to
1) when continued employment is
rendered impossible, unreasonable, or
unlikely;
2) when there is a demotion in rank and/or
a diminution in pay;
3) or when a clear discrimination,
insensibility or disdain by an employer
becomes unbearable to the employee.
If an employee was forced to
remain without work or assignment for a
period exceeding 6 months, then he is in
effect constructively dismissed
Management Prerogative
This Court held that the employers
right
to conduct the affairs of his
business, according to its own
discretion and judgment, is wellrecognized. An employer has a free
reign and enjoys wide latitude of
discretion to regulate all aspects of
employment.
This
is
a
management prerogative, where
the free will of management to
conduct its own affairs to achieve
its purpose takes form
DISCIPLINE
The employers right to conduct
the
affairs
of
his
business,
according to its own discretion and
judgment, includes the prerogative
to instill discipline in its employees
and to impose penalties, including
dismissal, upon erring employees.
This is a management prerogative
where the free will of management
to conduct its own affairs to
achieve its purpose takes form. The
only criterion to guide the exercise
of its management prerogative is
that the policies, rules and
regulations
on
work-related
activities of the employees must
always be fair and reasonable and

the corresponding penalties, when

prescribed, commensurate to the
offense involved and to the degree
of the infraction.
Right to dismiss or otherwise
impose disciplinary sanctions upon
an employee for just and valid
cause, pertains in the first place to
the employer, as well as the
authority
to
determine
the
existence
of
said
cause
in
accordance with the norms of due
process.

TRANSFER OF EMPLOYEES
(1) An Employees right to security of
tenure does not give him such a vested
right in his position as would deprive the
company of its prerogative to change his
assignment or transfer him where he will
be most useful.
(2) The Employer has the right to transfer
or assign Employees from one area of
operation to another, or one office to
another or in pursuit of its legitimate
business interest,
(3) provided there is no demotion in rank
or diminution of salary, benefits and other
privileges
and
not
motivated
by
discrimination or made in bad faith, or
effected as a form of punishment or
demotion without sufficient cause.
This prerogative extends to the
managements right to regulate,
according to its own discretion and
judgment,
all
aspects
of
employment, including the freedom
to transfer and reassign employees
from one are to another in order to
meet the requirements of the
business is, therefore, not general
constitutive
of
constructive
dismissal. Thus, the consequent
transfer of Trycos personnel,
assigned
to
the
Production
Department was well within the
scope
of
its
management
prerogative.
When
the
transfer
is
not
unreasonable, or inconvenient, or
prejudicial to the employee, and it
does not involve a demonition in
rank or diminution of salaries,
benefits, and other privileges, the
employee may not complain that it
amounts
to
a
constructive
dismissal.
PRODUCTIVITY STANDARD
The employer has the right to
demote and transfer an employee
who has failed to observe proper

diligence in his work and incurred

habitual tardiness and absences
and indolence in his assigned work.
In the consolidated cases of
Leonardo vs. NLRC [G. R. No.
125303, June 16, 2000] and Fuerte
vs. Aquino [G. R. No. 126937, June
16, 2000], the employer claimed
that the employee was demoted
pursuant to a company policy
intended to foster competition
among its employees. Under this
scheme, its employees are required
to comply with a monthly sales
quota. Should a supervisor such as
the employee fail to meet his quota
for several consecutive months, he
will be demoted, whereupon his
supervisors allowance will be
withdrawn and be given to the
individual who takes his place.
When the employee concerned
succeeds in meeting the quota
again,
he
is
re-appointed
supervisor and his allowance is
restored. The Supreme Court held
that this arrangement is an
allowable exercise of company
rights since an employer is entitled
to impose productivity standards
for
its
workers.
In
fact,
noncompliance may be visited with
a penalty even more severe than
demotion.

GRANT OF BONUS
A bonus is "a gratuity or act of
liberality of the giver which the
recipient has no right to demand as
a matter of right" [Aragon vs. Cebu
Portland Cement Co., 61 O.G.
4597]. "It is something given in
addition to what is ordinarily
received by or strictly due the
recipient." The granting of a bonus
is
basically
a
management
prerogative which cannot be forced
upon the employer "who may not
be obliged to assume the onerous
burden of granting bonuses or
other benefits aside from the
employee's
basic
salaries
or
wages"
With
regard
to
the
private
respondents claim for the midyear
bonus, it is settled doctrine that a
grant of a bonus is a prerogative,
not an obligation of the employer.
The matter of giving a bonus over
and above the workers lawful
salaries and allowances is entirely
dependent
on
the
financial

capability of the employer to give

it.
CHANGE OF WORKING HOURS
Further, management retains the
prerogative, whenever exigencies
of the service so require, to change
the working hours of its employees.
So long as such prerogative is
exercised in good faith for the
advancement of the employers
interest and not for the purpose of
defeating or circumventing the
rights of the employees under
special laws or under valid
agreements, this Court will uphold
such exercise.

RULES
ON
MARRIAGE
BETWEEN
EMPLOYEES
OF
COMPETITOREMPLOYERS
In the recent case of Duncan
Association of DetailmanPTGWO
and Pedro
Tecson
v.
Glaxo
Wellcome Philippines, Inc., we
passed on the validity of the policy
of a pharmaceutical company
prohibiting its employees from
marrying
employees
of
any
competitor company. We held that
Glaxo has a right to guard its trade
secrets, manufacturing formulas,
marketing strategies and other
confidential
programs
and
information from competitors. We
considered the prohibition against
personal or marital relationships
with employees of competitor
companies
upon
Glaxos
employees reasonable under the
circumstances
because
relationships of that nature might
compromise the interests of Glaxo.
In laying down the assailed
company policy, we recognized
that Glaxo only aims to protect its
interests against the possibility
that a competitor company will
gain access to its secrets and
procedures. [Star Paper Corp. vs.
Simbol, 2006]
POST-EMPLOYMENT BAN
In cases where an employee
assails a contract containing a
provision prohibiting him or her
from
accepting
competitive
employment as against public
policy, the employer has to adduce
evidence to prove that the
restriction is reasonable and not
greater than necessary to protect
the employers legitimate business
interests. The restraint may not be

unduly harsh or oppressive in

curtailing
the
employees
legitimate efforts to earn a
livelihood and must be reasonable
in light of sound public policy.
In Tiu v. Platinum Plan Phils., Inc.,
517 SCRA 101 (2007), the
Supreme Court decided a case
involving a restrictive covenant
contained in an employment
agreement
prohibiting
the
employee from working for a
competitor to protect its interest.
The Court ruled in favor of the
employer, saying that the noncompete or noninvolvement clause
has a time limit: two years from
the
time
the
employees
employment with the company
ended. The restriction was also
limited since it only prohibits the
employee from engaging in any
pre-need business akin to the
employers.

Social and Welfare Legislation [ PD

626 ]
SSS LAW [ RA 8282 ] COVERAGE
Compulsory
(1) Employers as defined above;
(2) Employees not over 60 years including
domestic helpers with at least P1,000
monthly pay; and
(3) Self-employed as may be determined
by the Commission, but not limited to:
(a) Self-employed professionals
(b) Partners and single proprietors
of businesses
(c) Actors and actresses, directors,
scriptwriters, and news correspondents
who do not fall within the definition of the
term employee under Section 8 (d)
(d) Professional athletes, coaches,
trainers and jockeys
(e) Individual
farmers and
fishermen
Voluntary
(1) Spouses who devote full time to
managing household and family affairs,
unless they are also engaged in other
vocation or employment (which is subject
of compulsory coverage);
(2) OFWs recruited by foreign-based
employers;
(3)
Employees
(previously
under
compulsory coverage) already separated
from employment or those selfemployed
(also under compulsory coverage) with no
realized income for a given month, who
chose to continue with contributions to
maintain right to full benefit.

Note: Foreign governments, international

organizations or their wholly owned
instrumentality employing workers in the
Philippines may enter into an agreement
with the Philippine government to include
their employees in the SSS except those
already covered by their civil service
retirement system.
EXCLUSIONS FROM COVERAGE
(1) Employment purely casual and not for
the purpose of occupation or business of
the employer;
(2) Service performed on or in connection
with an alien vessel by an employee if he
is employed when such vessel is outside
the Philippines;
(3) Service performed in the employ of the
Philippine Government or instrumentality
or agency thereof;
(4) Service performed in the employ of a
foreign
government
or
international
organization,
or
their
wholly-owned
instrumentalities; and
(5) Services performed by temporary and
other employees which may be excluded
by SSS regulation. Employees of bona fide
independent contractors shall not be
deemed employees of the employer
engaging the services of said contractors.
BENEFITS
Monthly pension
Computation of monthly pension: the
monthly pension shall be the highest of
the following amounts: (1) P300 + [20% x
(ave. monthly credit)] + [2% x (ave.
monthy credit) x (# of cash credited years
of service in excess of 10 years)]; or
(2) 40% x [ave. monthly credit]; or
(3) P1,000; provided, that the monthly
pension shall in no case be paid for an
aggregate amount of less than 60 months.
(4) Notwithstanding the abovementioned,
minimum pension is P1,200 for members
with at least 10 years credit service,
P2,400 for those with 20 years.
Dependents pension
(a) Paid when member dies, retires or with
permanent total disability;
(b) Paid to each child conceived on or
prior to contingency, but not exceeding 5,
beginning
with
the
youngest
and
preferring the legitimate;
(c) Amount is either P250 or 10% of the
monthly pension as computed above,
whichever is higher.
Retirement benefits
Eligibility requirements
(1) 120 monthly contributions;

(2) Age (a) 65 years old; or (b) a member

who has reached 60 years may also avail
if he is already separated from employment or has ceased to be self-employed.
Benefit entitlement to monthly pension
from retirement until death.
Lump Sum Alternative- Member may
opt to receive his first 18 monthly
pensions in lump sum but such is
discounted at a preferential rate of
interest.
To those ineligible to the 60 year old
with less than 120 monthly contributions
who
is
no
longer
employed
or
selfemployed, and who is not continuing
contributions independently, he is entitled
to a lump sum equal to his total
contributions paid.
Permanent disability benefits
(a) Eligibility requirement: 36 monthly
contributions prior to the semester of
disability; same as death benefit; only
difference is that the pension is paid
directly to the member.
(b) In case the permanently disabled
member dies, it would be given the same
treatment as a retiree dying.
(c) For permanent partial disability, the
pension is not lifetime. (e.g. loss of thumb
entitles member to only 10 months of
pension, while loss of arm 50 months).
(1) It shall be paid in lump sum if
the period is less than 12 months.
(2) For multiple partial disabilities,
they shall be additive when related or
deteriorating the percentage shall be
equal to the number of months the partial
disability is entitled to divided by 75
months. (e.g. loss of sight in one eye
25/75; loss of arm 50/75; if both occur
due to same cause, then 25/75 + 50/75 =
100% so treated as if it were permanent
total disability.)
Death benefits
Eligibility requirement: 36 monthly
contributions prior to the semester of
death.
Benefit monthly pension to primary or
secondary beneficiaries.
To those ineligible lump sum benefit
which shall be the higher between the
two: (a) (monthly pension) x 12; or (b)
(monthly pension) x (# of monthly
contributions)
Funeral benefits- P12,000 in cash or in
kind, upon death of member
Loan.
Social Security Commission
Resolution No. 669. Moreover, several
SSS-issued circulars such as Circular No.

21-P and No. 52 pertain to the treatment

of salary loans, sometimes providing for
more
flexible
payment
terms
or
condonation
for
delinquent
payers;
Santiago v. CA and SSS, GR # L-39949
(1984) resolved an issue involving the
treatment of salary loan repayments; SSS
website also shows loans
Sickness benefits
Eligibility requirements and other
conditions
(1) Inability to work due to sickness or
injury
(2) Confined for at least 4 days either in a
hospital or elsewhere with SSS approval;
(3) At least 3 months of contributions in
the 12 month period immediately before
the semester of sickness or injury has
been paid;
(4) All company sick leaves with pay for
the current year has been used up;
(5) Maximum of 120 days per 1 calendar
year [so maximum permissible for the
same sickness and confinement is 240
days for 2 consecutive years];
(6) The employer has been notified, or, if a
separated, voluntary or self-employed
member, the SSS directly notified within 5
days of confinement;
(7) Notice to employer or SSS not needed
when confinement is in a hospital; notice
to employer not required as well when
Employee became sick or injured while
working or within premises of the
employer.
Benefit: daily cash allowance paid for the
number of days a member is unable to
work due to sickness or injury equivalent
to 90% x (average daily salary credit)
Maternity leave benefits. (limited
only to first four deliveries or miscarriage)
Note: All of these benefits are tax-exempt.
BENEFICIARIES
Primary
(a) Dependent spouse until remarriage
(see above);
(b)
Dependent
children
(legitimate,
legitimated,
legally
adopted,
and
illegitimate) (see above); illegitimate
children are entitled only to 50% of the
share of legitimate children unless there
are no legitimate children, in which case,
they get 100%.
Secondary shall only receive when
primary beneficiaries are absent
Dependent parents
Others shall only receive when
primary and secondary beneficiaries

the
(a)
the
are

absent (a) Any other person designated by

member as his/her secondary beneficiary.
GSIS [ RA 8291 ]
COVERAGE
All public sector employees below the
compulsory
retirement
age
of
65,
irrespective of employment status.
EXCLUSIONS FROM COVERAGE
(a) AFP and PNP;
(b) Members of the Judiciary and
Constitutional Commissions who are
covered only by life insurance as they
have separate retirement schemes;
(c) Contractual employees with no
employer-employee relationship with the
agency they serve.
BENEFITS]
Monthly pension
The amount shall be:
(a) 37.5% x (revalued ave. monthly
compensation)
(b) Plus 2.5 x (revalued ave. monthly
compensation) x [years in service in
excess of 15 years].
(1) The monthly pension shall not exceed
90%
of
the
average
monthly
compensation.
(2) It shall not be less than P2,400 for
those with 20 years of service and not less
than P1,300 for everyone else.
Retirement benefits
Eligibility requirements
(1) 15 years service;
(2) 60 years of age; and
(3) Not receiving pension benefit from
permanent total disability.
Note: Retirement is compulsory for
employees 65 years of age who have
rendered at least 15 years of service; if
employee has less than 15 years of
service, he may be allowed to continue in
accordance with civil service laws.
Benefit: choice between
(a) 60 x [basic monthly pension] lump
sum payment at the time of retirement
plus basic monthly pension payable
monthly for life after expiry of the 5-year
guaranteed period which is already
covered by the lump sum; or
(b) Cash payment equivalent to 18 x
[basic monthly pension] plus monthly
pension for life immediately but with no 5year guarantee
Permanent disability benefits
Eligibility
requirements
for
Permanent Total Disability
(1) Disability not due to employees own
grave misconduct, notorious negligence,

habitual intoxication, or willful intention to

kill himself or another;
(2) Employee is: in service at the time of
disability; or b] even if separated, he has
paid at least 36 monthly contributions
within the 5-year period immediately prior
to disability or has paid a total of at least
180 monthly contributions prior to
disability; and
(3) Member is not enjoying old-age
retirement benefit.
Injuries deemed as Permanent Total
Disability
(1) Complete loss of sight of both eyes
(2) Loss of two limbs at one or above the
anke or wrist
(3) Permanent complete paralysis of two
limbs
(4) Brain injury resulting in incurable
imbecility, insanity, or other irreversible
conditions
Benefit for Permanent Total Disability
Monthly income benefit for life equal to
basic monthly pension This is effective
from date of disability;
(1) If member is in service at the time of
disability and he has paid at least 180
monthly contributions, in addition to the
monthly income benefit, he shall receive
an additional cash payment of 18 times
basic monthly pension.

To the ineligible
If member has rendered at least 3 years
of service, then he shall receive cash
payment equal to 100% of ave. monthly
compensation for each year of service
(essentially total amount of contributions
made) or P12,000 whichever is higher.
Partial Disability
Injuries deemed as Permanent Partial
Disability
Complete and permanent loss of the use
of: any one finger, any toe, one arm, one
hand, one foot, one leg, one or both ears,
sight of one eye or such other cases as
may be determined by the GSIS
Computation of benefits
(1) If member is in the service, benefit is:
Cash payment (CP) = Basic Monthly
Pension (BMP) X nos. of Permanent Partial
Disability (PPD) months as recommended
by the GSIS medical evaluator
(2) If the member is separated from the
service but has paid 36 monthly
contributions within the last 5 years
immediately preceding the disability or

has
paid
at
least
180
monthly
contributions, benefit is:
CP = BMP X nos. of PPD months as
recommended by the GSIS medical
evaluator
Death Benefits
When
member
dies,
the
primary
beneficiaries are entitled to only one of
the following:
(a) Survivorship pension (check G.1
above)
(1) If he was in the service when he
died; or
(2) Even if separated from the
service, he has at least 3 years of
service and has paid 36 monthly
contributions within the 5 years
immediately preceding death; or
(3) Even if separated from the
service, he has paid 180 monthly
contributions prior to death. (b)
Survivorship pension plus cash
payment of 100% ave. monthly
compensation for every year of
service [so essentially, pension
plus total contributions made]
(1) If he was in the service
when he died; and
(2) With 3 years of service.
(c) Cash payment equivalent to
100% ave. monthly compensation
for each year of service he paid
contributions or P12,000 whichever
is higher
(1) With 3 years of service;
and
(2) He has failed to qualify
in the prior 2 schemes.
Funeral benefits
Fixed by GSIS rules and regulations
(currently at P20,000)
Entitled to this are the following:
(1) Active member;
(2) Member separated from service but
still entitled to funeral benefit;
(3) Pensioner;
(4) Retiree who at the time of retirement
was of pensionable age but opted to retire
under RA 1616.
Loan GSIS website provides for this
Temporary disability benefits (similar
to sickness)
Eligibility requirements and other
conditions:
(5) Employee must be
(a) in service at the time of
disability; or
(b) if separated, he has rendered
at least 3 years of service and paid at
least 6 monthly contributions in the 12

month period immediately prior to

disability;
(6) All sick leave credits including CBA sick
leaves for the current year has been used
up; and
(7) Maximum of 120 days per 1 calendar
year (so maximum permissible for the
same sickness and confinement is 240
days for 2 consecutive years).
Benefit
75% of the current daily compensation for
every day or fraction thereof of disability
or P70 whichever is higher.
Separation benefits
Eligibility requirements
(1) 60 years of age, or separation from
service with at least 3 years but not over
15 years served
(2) Below 60 years of age, but at least 15
years of service rendered.
Benefit
(1) For 60 years of age or separated from
service with 3 to 15 years of service: cash
payment of 100% of ave. monthly
compensation for each year of service (so
essentially, the total amount of all
contributions paid) or P12,000 whichever
is higher.
(2) Below 60 years of age and at least 15
years of service: cash payment equivalent
to 18 x (monthly pension) at the time of
resignation or separation plus an old-age
pension benefit equal to basic monthly
pension.
Unemployment benefits Sec 11
Eligibility requirements
(a) Employee separated from service due
to abolition of his office or position; and
(b) Employee has been paying integrated
contributions for at least 1 year prior to
separation.

BENEFICIARIES
Primary
(a) Dependent spouse until remarriage;
(b)
Dependent
children
(legitimate,
legitimated,
legally
adopted,
and
illegitimate) but RA 8291 does not
distinguish share of legitimate and
illegitimate children.
Secondary shall only receive when the
primary beneficiaries are absent
(a) Dependent parents \
(b) Legitimate descendants, subject to the
restrictions on dependent children.
LIMITED PORTABILITY LAW [ RA
7699 ] COVERAGE
(1) Workers who transfer employment
from one sector to another; or
(2) Those employed in both sectors (public
and private).
PROCESS
The covered worker shall have his
credible services or contributions in both
Systems credited to his service or
contribution record in each of the Systems
and shall be totalized for purposes of oldage, disability, survivorship and other
benefits in case the covered member does
not qualify for such benefits in either or
both
systems
without
totalization:
Provided, however, That overlapping
periods of membership shall be credited
only once for purposes of totalization [Sec.
3]
Totalization shall refer to the process
of adding up the periods of creditable
services or contributions under each of the
Systems, for purposes of eligibility and
computation of benefits [Sec. 2e].
Note: Overlapping periods of membership
in case of those employed in both sectors
at once are to be counted only ONCE for
purposes of totalization.

Benefit
Monthly cash payments of 50% of average
monthly compensation for a duration
which is proportional to years rendered,
ranging from 2 months to 6 months.

WHY?
To be able to satisfy eligibility
requirements of benefits provided for by
either SSS or GSIS.

Survivorship benefits
Beneficiaries are entitled to the following:
(a) Basic survivorship pension which is
50% of basic monthly pension; and
(b) Dependent childrens pension not
exceeding 50% of the basic monthly
pension.
Life insurance benefits
Note:
Judiciary
and
Constitutional
Commissions are entitled to life insurance
only.

EMPLOYEES
COMPENSATION

COVERAGE AND WHEN COMPENSABLE

COVERAGE
(a) Every employer shall be covered.
(b) Every employee not over sixty (60)
years of age shall be covered.
(c) An employee over sixty (60) years of
age shall be covered if he had been
paying contributions to the System prior to
age sixty (60) and has not been
compulsorily retired.

(d) An employee who is coverable by both

the GSIS and SSS shall be compulsorily
covered by both Systems. [Sec. 2, IRR of
Title II, Book IV of LC]
(e) Filipinos working abroad in the service
of an employer as defined in Section 3
hereof shall be covered by the System,
and entitled to the same benefits as are
provided for employees working in the
Philippines.
EFFECTIVITY
Coverage of employees shall take effect
on the first day of employment. [Sec. 6]
WHEN COMPENSABLE
Grounds:
(1) For the injury and the resulting
disability or death to be compensable, the
injury must be the result of accident
arising out of and in the course of the
employment.

(2) For the sickness and the resulting

disability or death to be compensable, the
sickness must be the result of an
occupational disease listed under Annex
A of these Rules with the conditions set
therein satisfied, otherwise, proof must be
shown that the risk of contracting the
disease is increased by the working
conditions.
Limitation: No compensation shall be
allowed
to
the
employee
or
his
dependents when the injury, sickness,
disability, or death was occasioned by any
of the following:
(1) his intoxication;
(2) his willful intention to injure or kill
himself or another; or
(3) his notorious negligence
(4) As otherwise provided by law.