Mario Brothers, plumbing works contractor, entered into an agreement with Axis Business Corporation (Axis) for the plumbing works of its building under construction. Mario Brothers engaged the services of Tristan, Arthur, and Jojo as plumber, pipe fitter, and threader, respectively. These workers have worked for Mario Brothers in numerous construction projects in the past but because of their long relationship, they were never asked to sign contracts for each project. No reports to government agencies were made regarding their work in the company.
During the implementation of the works contract, Axis suffered financial difficulties and was not able to pay Mario Brothers its past billings. As a result, the three (3) employees were not paid their salaries for two (2) months and their 13th month pay. Because Axis cannot pay, Mario Brothers cancelled the contract and laid off Tristan, Arthur, and Jojo. The 3 employees sued Mario Brothers and Axis for illegal dismissal, unpaid wages, and benefits.
[a] Mario Brothers claims the 3 workers are project employees. It explains that the agreement is, if the works contract is cancelled due to the fault of the client, the period of employment is automatically terminated. Is the contractor correct? Explain. (2.5%)
[b] Can Axis be made solidarily liable with Mario Brothers to pay the unpaid wages and 13th month pay of Tristan, Arthur, and Jojo? Explain. (2.5%)
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[a] No, Mario Brothers is incorrect. [b] Yes, Axis can be held solidarily liable with Mario Brothers for unpaid wages and 13th month pay. Under the Labor Code, project employment requires informing workers of the duration at hiring and
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Quick check
What requirement must be satisfied for an employee to be validly classified as a project employee?
A project employee must be informed of the specific project duration and scope at the time of hiring.
What is the legal effect of an employer's failure to file DOLE completion reports for alleged project workers?
Failure to file DOLE project completion reports indicates regular employment status for continuously rehired workers.
Under Article 106 of the Labor Code, what is the extent of a principal client's liability for unpaid wages of a contractor's workers?
Article 106 imposes solidary liability on the principal client for unpaid wages of the contractor's employees.
Can a contractor validly lay off its regular employees solely because a client cancelled the service contract?
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What employment status is acquired by construction workers continuously rehired for years without project contracts?
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Learn more about these topics
1. Project Employment
Project employment requires that the employee is informed of the specific duration and scope of the project at the time of engagement. Moreover, the employer must submit terminal reports to the Department of Labor and Employment upon completion of each project. Failure to execute written project employment contracts or file the required termination reports with DOLE, coupled with continuous rehiring across numerous construction projects, converts project employees into regular employees entitled to full security of tenure under Philippine labor laws.
2. Solidary Liability
Under Article 106 of the Labor Code, when an employer contracts with another person for the performance of the former's work, the principal is solidarily liable with the contractor for any violation of the Labor Code, including unpaid wages and statutory benefits. Even in legitimate job contracting, the principal is indirectly liable as an indirect employer for unpaid salaries and 13th month pay of the contractor's employees, ensuring that workers are fully compensated for services rendered on the principal's project.
3. Termination of Employment
Regular employees may only be terminated for just or authorized causes established by law and after compliance with statutory procedural due process. The cancellation of a service agreement between a contractor and its client does not constitute a valid legal ground to lay off regular employees. Unless the contractor can establish a legitimate economic cause such as retrenchment or total cessation of business, the dismissal of regular workers resulting from client contract cancellation is illegal.