Philippine Labor Law: Types of Employees

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In any business venture, there are two resources which must be considered: capital and labor. Every businessman knows the saying “to make money, you have to spend money.” Every business entails a bit of risk-taking. The ability and the willingness to take certain calculated risks are almost always essential for every business venture to succeed. Thus, wise capital management, foresight, and ability to take calculated risks are among the qualifications of all successful businessmen and entrepreneurs.

The other side of the coin is labor. Labor is another key component of a successful business venture. While managing your financial investments in a business is quintessential, so is investing in its human resources, hence the term labor management.

No less than our Supreme Court has declared that “[e]xcept as limited by special laws, an employer is free to regulate, according to his own discretion and judgment, all aspects of employment, including hiring, work assignments, working methods, time, place and manner or work, tools to be used, processes to be followed, supervision of workers, working regulations, transfer of employees, work supervision, layoff of workers and the discipline, dismissal and recall of workers.” This classic phrase is what we know now as the “management prerogative”. However, exercise of the management prerogative does not mean that employers are given carte blanche over their employees. Emphasis must be laid on those six (6) initiatory words of the cited ruling of the high court “[e]xcept as limited by special laws”. The foregoing provision refers to the Labor Code of the Philippines and other laws enacted by Congress which deal with the rights of employees and limit exercise of the management prerogative.

The exercise of management prerogatives such as discipline, layoff of workers, or dismissal of an employee is dependent on the type or nature of employment. A regular employee is an employee who has been engaged to perform activities which are usually necessary or desirable in the usual business of the employer. An employee who is by law deemed a “regular employee” can only be fired or terminated based on grounds allowed by law (“authorized causes”) such as redundancy, retrenchment, closure or cessation of operations, or by enumerated grounds (“just causes”) such as serious misconduct, willful disobedience, gross and habitual neglect of duty, commission of a crime against the employer or the latter’s family and other analogous causes. It must be noted that these grounds are exclusive. A termination based on a ground not defined above may be considered as illegal dismissal.

Furthermore, in case the cause of termination is for a just cause, the employer must observe the “twin notice and hearing” rule, whereby prior to termination, the employer must have given 1) a notice requiring the employee to explain why he or she should not be terminated, 2) a hearing where the employee is allowed to examine the evidences presented against him or her and adduce evidences in support of his or her defenses, and 3) a notice informing the employee of the latter’s termination, stating the reasons for termination based on the evidences presented.

Anything short of the foregoing is also tantamount to illegal dismissal and may render the employer liable for damages in addition to payment backwages and separation pay.

Finally, in case the cause of the termination is for an authorized cause, the corresponding separation pay must be given and prior timely notice must be conveyed, otherwise, the employer also stands to be liable.

It must also be noted that fixed-term, contract, and project employees are by law considered regular employees for the duration of their employment or contract and can only be removed for grounds enumerated above.

On the other hand, probationary employees, for example, may be terminated without complying with the twin notice and hearing rule. It is sufficient that the employee be served a notice that he or she did not meet the standards of employment to qualify the employee for regularization. For this reason, it is called a “trial-basis” employment because the employer is allowed to see for himself whether the employee is suited for employment in the business. Thus, employees who are not considered regular employees, such as probationary and casual employees, may be terminated based on other grounds not provided by law. The only requirement is that the termination is done in good faith.

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