Industry practice is not a defense against a defective fixed-term employment.

“The practice of having fixed-term contracts in the industry does not automatically make all talent contracts valid and compliant with labor law. The assertion that a talent contract exists does not necessarily prevent a regular employment status.” (Thelma Dumpit-Murillo v. Court of Appeals, Associated Broadcasting Company, et al., G.R. No. 164652, 08 June 2007)

In the Dumpit-Murillo case, the employee was hired as a newscaster and co-anchor for an early evening news program covered by a 3-month employment contract. Her contract was renewed four times with an added assignment. On her fourth year and two weeks before the expiration of the last contract, she wrote to the Vice-President for News and Public Affairs of the company expressing her interest in renewing her contract subject to a salary increase. Her last contract ended without a renewal resulting in the employee instituting a labor complaint for illegal/constructive dismissal and monetary claims, among others. In response, the employer maintained that the employee was hired under talent contracts which have fixed-terms that have already expired.

In deciding in favor of labor, the Supreme Court held that the employee was a regular despite being covered by talent contracts with fixed terms. As stated in the above-quote, industry practice does not necessarily make all talent contracts valid and compliant with labor law. The validity of talent contract depends on whether it complies with the legal requirements.

Regular employment generally consists of two kinds: “(1) those who are engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed.”

Citing jurisprudence, the decision further stated that: “…[T]he primary standard for determining regular employment is the reasonable connection between the particular activity performed by the employeevis-à-vis the usual trade or business of the employer. This 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.  If the employee has been performing the job for at least a year, even if the performance is not continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with respect to such activity and while such activity exists.”

In this case, the above requisites for regular employment were present. “Gleaned from the description of the scope of services aforementioned, petitioner’s work was necessary or desirable in the usual business or trade of the employer which includes, as a pre-condition for its enfranchisement, its participation in the government’s news and public information dissemination.  In addition, her work was continuous for a period of four years. This repeated engagement under contract of hire is indicative of the necessity and desirability of the petitioner’s work in private respondent ABC’s business.”

Validity of fixed-term employment

The law recognizes fixed-term employment to be valid provided that the following requisites are met: “For such contract to be valid, it should be shown that the fixed period was knowingly and voluntarily agreed upon by the parties. There should have been no force, duress or improper pressure brought to bear upon the employee; neither should there be any other circumstance that vitiates the employee’s consent. It should satisfactorily appear that the employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised by the employer over the employee. Moreover, fixed-term employment will not be considered valid where, from the circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee.”

Those requisites were not present in the Dumpit-Murillo case. “In the case at bar, it does not appear that the employer and employee dealt with each other on equal terms. Understandably, the petitioner could not object to the terms of her employment contract because she did not want to lose the job that she loved and the workplace that she had grown accustomed to, which is exactly what happened when she finally manifested her intention to negotiate. Being one of the numerous newscasters/broadcasters of ABC and desiring to keep her job as a broadcasting practitioner, petitioner was left with no choice but to affix her signature of conformity on each renewal of her contract as already prepared by private respondents; otherwise, private respondents would have simply refused to renew her contract.  Patently, the petitioner occupied a position of weakness vis-à-vis the employer.  Moreover, private respondents’ practice of repeatedly extending petitioner’s 3-month contract for four years is a circumvention of the acquisition of regular status.  Hence, there was no valid fixed-term employment between petitioner and private respondents.”

The Supreme Court ended with a reminder that it will not hesitate to invalidate a fixed-term employment that is not compliant with labor laws. “While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it has consistently emphasized that when the circumstances of a case show that the periods were imposed to block the acquisition of security of tenure, they should be struck down for being contrary to law, morals, good customs, public order or public policy.”

Term-employment not in Labor Code but recognized by law

The key to understanding fixed-term employment and its legitimacy lies in how it stands as compared to other employment contracts. In the Labor Code, the following employment arrangements are expressly and clearly recognized: regular, casual, probationary, project, and seasonal.

Fixed-term employment is not in the Labor Code.

Up until the landmark case of Brent School v. Zamora (G.R. No. L-48494, 05 February 1990), it was not certain whether fixed-term employment was still valid in light of the enactment of the P.D. 442 (Labor Code) in May 1, 1974. The reason was simple: the Labor Code did not include fixed-term contracts in its list of recognized employment arrangements.

When the Brent School case was brought to the Supreme Court En Banc, it was then made clear for the first time that fixed-term employment is still a valid employment arrangement. This case involved an employee who was hired as an athletic director covered by a 5-year employment contract. When the term ended, the employee filed a labor complaint alleging illegal dismissal as he claimed to be a regular employee since “his services were necessary and desirable in the usual business of his employer, and his employment had lasted for five years.” In response, the school maintained its position that the employment contract was for a fixed-term which had expired.

The Supreme Court recognized that, pre-Labor Code, fixed-term employment was clearly recognized albeit implied by the then Termination Pay Law (R.A. 1052, as amended), the Code of Commerce, the Civil Code, and the prevailing jurisprudence. However, with the advent of the Labor Code, “obscuration of the principle of licitness of term employment began to take place at… this time.”

The problem stems from the definition of regular employees as those who are “engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer.” Notwithstanding such definition, it did not necessarily follow that the employer and the employee are now prohibited from agreeing to a period for the performance of those activities. “There is nothing essentially contradictory between a definite period of an employment contract and the nature of the employee’s duties set down in that contract as being ‘usually necessary or desirable in the usual business or trade of the employer.’ The concept of the employee’s duties as being ‘usually necessary or desirable in the usual business or trade of the employer’ is not synonymous with or identical to employment with a fixed term.”

However, the Labor Code provisions dealing with regular employment was repeatedly revised such that there is “gradual and progressive elimination of references to term or fixed-period employment.”

On the other hand, “the Civil Code, which has always recognized, and continues to recognize, the validity and propriety of contracts and obligations with a fixed or definite period, and imposes no restraints on the freedom of the parties to fix the duration of a contract, whatever its object, be it specie, goods or services, except the general admonition against stipulations contrary to law, morals, good customs, public order or public policy. Under the Civil Code, therefore, and as a general proposition, fixed-term employment contracts are not limited, as they are under the present Labor Code, to those by nature seasonal or for specific projects with pre-determined dates of completion; they also include those to which the parties by free choice have assigned a specific date of termination.” The following are some employment contracts where fixed-term is used: overseas employment, appointments to the positions of dean, assistant dean, college secretary, principal, and other administrative offices in educational institutions, likewise certain company officials may be elected for what would amount to fixed periods, at the expiration of which they would have to stand down (e.g. president, executive vice-president, vice-president, etc.).

So long as the requisites mentioned earlier are met to avoid circumvention of security of tenure, fixed-term employment is recognized by law. “But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non, would an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement come within the scope of [the Labor Code provision on regular employment] which admittedly was enacted ‘to prevent the circumvention of the right of the employee to be secured in… (his) employment?’” If the answer is in the negative, then fixed-term employment is valid.

Fixed-Term employment as the exception

Does that mean then that fixed-term employment is like any other arrangement between the employer and employee (e.g. project, seasonal, etc.)?

No. As fixed-term employment is conditioned on requisites designed to protect the security of tenure of an employee, it remains as the exceptionto general rule of regular employment. “While this Court has recognized the validity of fixed-term employment contracts, it has consistently held that this is the exception rather than the general rule. More importantly, a fixed-term employment is valid only under certain circumstances.” (Price v. Innodata Phils., Inc., G.R. No. 178505, 30 September 2008)

Being an exception, it is the employer which has the burden of showing that the fixed-term employment arrangement complies with the requisites. Failure to do so will result in regular employment similar to the Dumpit-Murillo case.

Best Legal Practices

With a defective fixed-term employment, a fixed-term employee may be considered a regular resulting in the employer being liable for illegal dismissal, full backwages, monetary claims, moral and exemplary damages, nominal damages, and attorney’s fees. These could be a hefty sum of money.

It would then be prudent for the employer to observe these best legal practices to avoid these liabilities and consequences:

  1. Exhaust first all other employment arrangements (e.g. regular, probationary, casual, project, and seasonal) before using a fixed-term employment set-up. Remember, fixed-term employment is the exception. If there is a small hint that such is used to circumvent the security of tenure of an employee, it could be invalidated.
  2. Ensure that the fixed-term employment contract is properly drafted and worded to manifest the intention of the parties. Particularly, it should expressly reference therein that the employee voluntarily, wilfully, and deliberately consented without force, intimidation, duress, or similar actions were done. If applicable, it should clearly stipulate that the employee him/herself insisted on the arrangement.
  3. Explain clearly and thoroughly the contents of the fixed-term employment and reflect therein that such explanation was made. If needed, use the dialect known and understood by the employee.
  4. Notarize the employment contract to convert it into a public document in order for it to enjoy the presumption that the signature is that of the employee who voluntarily signed the agreement.

To summarize, industry practice is not a valid defense to uphold a fixed-term employment contract which is not compliant with labor law; rather, it is the employer’s adhering to the requirements which can legitimize a fixed-term employment arrangement.