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Dec. 3, 2014 | Leonen, J. | Legitimate contracting or
subcontracting: 4 Conditions; Fixed-term employees v
Independent Contractors v. Regular employees
Digester: Santiago, Senando Angelo
SUMMARY: Fuji Television Network hired Arlene Espiritu as a
news correspondent/producer to report Philippine news to Japan,
with her contract renewed annually. However, when she got
diagnosed with lung cancer, she informs Fuji, who then disclosed
that they will have a hard time renewing the contract, considering
her situation. Both parties sign a contract for non-renewal, which
stipulates that she would not renew and that she would receive
$18,050 as compensation for services, etc. Arlene filed a complaint
against Fuji for illegally dismissing her. SC decides in her favor.
DOCTRINE: It is the burden of the employer to prove that a
person whose services it pays for is an independent contractor
rather than a regular employee with or without a fixed term. That
a person has a disease does not per se entitle the employer to
terminate his or her services. Termination is the last resort. At the
very least, a competent public health authority must certify that
the disease cannot be cured within 6 months, even with
appropriate treatment.
FACTS (Skip? Go to second issue. Maam wants to focus on
2005: Petitioner Fuji Television Network, Inc. engaged Arlene
S. Espiritu as a news correspondent/producer to report
Philippine news to Fuji through its Manila Bureau field office.
Her contract, initially good for 1 year, was renewed annually
with salary adjustment.
January 2009: Arlene is diagnosed with lung cancer.
o She informs Fuji, and the chief of News Agency told
her that the company will have a hard time
renewing her contract since it would be difficult for
her to perform her job, even if her physician certifies
that she is still fit for work.
2009, May 5: Both Arlene and Fuji sign a non-renewal
contract, which stipulates that her contract will no longer be
renewed after its expiration on May 31, 2009. It also provided
that the parties release each other from liabilities and
responsibilities under the contract.
o In consideration of the contract, she acknowledges
receiving $18,050:

Her monthly salary from March-May 2009,

Year-end bonus,
mid-year bonus, and
separation pay.
o In her signature, however, she affixes U.P.she is
under protest.
[LA] May 6: Arlene files a complaint for illegal dismissal and
attorneys fees with the LA, alleging that she was forced to
sign the non-renewal contract when Fuji came to know of her
o She says her salaries and other benefits for March
and April 2009 were withheld when she refused to
o She claims she had no other choice but to sign. It
was only when she signed that the above amount
was given.
September 10: LA dismisses Arlenes complaint, concluding
that Arlene was not Fujis employee but an independent
contractor, after applying the four-fold test (see note #1). She
appeals to the NLRC.
[NLRC] 2010, March 5: NLRC holds that Arlene was a regular
employee with respect to the activities for which she was
employed since she continuously rendered services that were
deemed necessary and desirable to Fujis business.
o NLRC reverses LA decision and orders payment of
o Both parties file separate MRs, but NLRC denies,
finding no merit.
[CA] Both file separate petitions for certiorari to CA, which are
later consolidated.
o Disposition: NLRC decision affirmed, also ordering
reinstatement, in addition to payment of backwages
and benefits, moral and exemplary damages,
attorneys fees, and legal interest of 12% per year.
o Held: Arlene is a regular employee, and the
successive renewals of her fixed-term contract
resulted in regular employment.
She is not an independent contractor because she
was not contracted on account of any peculiar
ability, special talent, or skill. Since Fuji owned
everything Arlene used in her work, she could not be
an independent contractor.

Held: She was illegally dismissed as Fuji failed to

observe due process for her dismissal since she was
a regular employee.
o Held: Arlene did not sign the non-renewal contract
voluntarily and that Fuji made it appear that she
chose not to renew her contract.
An MR was filed, but was denied for failure to raise new
[SC] Fuji files petition for review, assailing CAs decision which
held Arlene to be a regular employee and awarding her claims,
benefits, and damages and arguing:
Rebuttal to CA
Arlene was
Arlene was hired as a stringer and
hired as an
informed her she would remain
contractor, not
She insisted that her contract be
as a regular
renewed annually because she had
employee; Fuji
skills that distinguished her from
had no control
ordinary employees.
over her work.
Both parties dealt on equal terms
(Focus on this.)
upon negotiating and entering into
the contracts.
There was no
The non-renewal contract is unneeded
illegal dismissal.
as the employment automatically
terminated upon expiration of her
Notwithstanding, she agreed not to
renew her contract. In an email to Fuji,
she consented to it, but refused to sign
(She sent an email of the non-renewal
agreement that she agreed to sign,
which further stipulated that Fuji shall
re-hire her if she was still interested to
work for them.)
No damages
They dealt with her in good good faith.
should be
Even if Fuji was not bound to pay sick
leaves in excess of 30 days, they still
paid her full salary for March-May
even if she only reported for work for a
total of 9 days.

RULING: Petition denied. CA decision affirmed with modification

that backwages be computed from June 2009. Legal interest at 6%
per annum.
Whether the petition for review should be dismissed as the
signatory of the verification and certification of non-forum
shopping of the petition had no authority to sign the same
on behalf of Fuji. NO.
Fuji complied substantially with the requirements of
verification and certification against forum shopping.
Whether CA was correct in holding NLRC to properly rule
that Arlene was a regular employee, not an independent
contractor, and that she was illegally dismissed YES
******* start of the part of the case where Maam asked us to focus
Art. 280, LC classifies employees into four:
o Regular (further classified into two)
those engaged to perform activities which are
usually necessary or desirable in the usual
business or trade of the employer;
casual employees who have rendered at least
one year of service, whether such is continuous
or broken.
o Project
o Seasonal and
o casual.
Brent School, Inc. v Zamora, introduces a new classification:
employees with fixed-term contracts, where the decisive
determinant in the employment is the day certain agreed upon
for the start and end of employment.
Fixed term is an essential and natural
appurtenance in overseas employment contracts
and officers in educational institutions.
o Some employers might abuse such contracts in that
periods are imposed to prevent the employee from
getting tenured.
Void contractscontrary to public policy or
o Criteria to determine the validity of such contracts:
1) The fixed period of employment was
knowingly and voluntarily agreed upon by
the parties without any force, duress, or
improper pressure being brought to bear

upon the employee and absent any other

circumstances vitiating his consent; or
2) It satisfactorily appears that 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
o Rationale: when the employee, on account of special
skills or market forces, is in a position to make
demands upon the prospective employer, such
prospective employee needs less protection than the
ordinary worker. Lesser limitations on the parties
freedom of contract are thus required for the
protection of the employee.
o The Court cited two cases wherein fixed-term
contracts were upheld as valid. (See notes 3 and 4)
Art. 106, LC recognizes independent contractors (See note
o Definition: one who carries on a distinct and
independent business and undertakes to perform
the job, work, or service on its own account and
under ones own responsibility according to ones
own manner and method, free from the control
and direction of the principal in all matters
connected with the performance of the work except
as to the results thereof. (Orozco v. CA)
No employer-employee relationship exists.
o DOLE Department Order No. 18-A, Series of 2011
defines a contractor as having 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.
(Sec. 3(c))
Same Order states: A trilateral relationship in
legitimate job contracting and subcontracting
arrangement exists among:
Principal (P)
Contractor (C)
Employees of contractor hired to
accomplish principals work (E)

Employer-employee relationship existent only

between C,E.
But where an independent C is an individual
with unique skills and talents that set
them apart from ordinary E, the contractor
him/herself performs the work for the Pnot
trilateral but a bilateral relationship.
o Two kinds of independent contractors exist:
Those engaged in legitimate job contracting
Those who have unique skills and talents that
set them apart from ordinary employees.
******* end of the part of the case where Maam asked us to focus
Arlene Espiritu was a regular employee with a fixed term
o Test for determining regular employment: is
whether there is a reasonable connection between
the employees activities and the usual business of
the employer.
o Art. 280, LC provides that the nature of work must
be necessary or desirable in the usual business or
trade of the employer as the test for determining
regular employment.
This repeated engagement under contract of
hire is indicative of the necessity and
desirability of the petitioners work in private
respondent ABCs business.
Philips Semiconductors, Inc. v. Fadriquela:
Where an employees contract had been
continuously extended or renewed to the
same position, with the same duties and
remained in the employ without any
interruption, then such employee is a
regular employee.
o An employee can be a regular employee with a
fixed-term contract.
As long as the employee is the one
requesting, or bargaining, that the contract
have a definite date of termination, or that
the fixed-term contract be freely entered into
by the employer and the employee, then the
validity of the fixed-term contract will be

Whether the CA properly modified the NLRC decision when

it awarded reinstatement, damages, and attorneys fees
Apart from Arlenes illegal dismissal, the manner of her
dismissal was effected in an oppressive approach with her
salary and other benefits being withheld until May 5, 2009,
when she had no other choice but to sign the non-renewal
contract. Thus, there was legal basis for the Court of Appeals
to modify the National Labor Relations Commissions decision.

(a) the selection and engagement of the employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employers power to control the
employee on the means and methods by which
the work is accomplished.
If this control test is satisfied, then the
person is an employee; else, independent
Stringer: news correspondent who is retained on a part-time
basis to report on events in a particular place.
Labayog v. MY San Biscuits: fixed-term contracts valid as the
employees knew they were being hired as mixers, packers, and
machine operators only for a specific period.
Caparoso v. Court of Appeals: fixed-term contracts upheld the
validity of the fixed-term contract of employment. Caparoso
and Quindipan claimed they were dismissed illegally but there

was no evidence of vitiation of consent. Also, there was no

proof that the employers used such contracts to prevent
workers regularization.
Art. 106. 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. X x x
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.