IKSI vs. Inting, et. al.

G.R. No. 211892, 6 December 2017

Facts of the case:

Innodata Knowledge Services, Inc. (IKSI) is a company engaged in data processing, encoding, indexing, abstracting, typesetting, imaging, and other processes in the capture, conversion, and storage of data and information and was hired by a company based in the US to review various litigation documents. For this purpose, IKSI engaged the services of respondents with a contract duration of five (5) years.

IKSI argued that based on the contract, respondents’ employment was fixed for a specific project or undertaking, with its completion or termination clearly determined at the time of the employee’s engagement. However, sometime in November 2008, IKSI required respondents to work on another project called "Bloomberg," which was not included in the original contracts that they signed and without entering into a new project employment contract. Respondents initially opposed working on said project but eventually agreed, in fear of losing their employment altogether. Months later, they were again required to work on their assigned project and reverted to their previous designation.

On January 7, 2010, however, respondents received a Notice of Forced Leave from IKSI informing them that they shall be placed on indefinite forced leave effective that same day due to changes in business conditions, client requirements, and specifications. Hence, respondents filed a complaint for illegal dismissal, reinstatement or payment of separation pay, backwages, and damages against IKSI. Subsequently, IKSI sent respondents separate notices dated May 27, 2010 informing them that due to the unavailability of new work related to the product stream and uncertainties pertaining to the arrival of new workloads, their project employment contracts would have to be terminated.

The Labor Arbiter declared that there was no illegal dismissal. The NLRC affirmed the decision of LA but with modification. On appeal to the CA, the petition was granted declaring that petitioners were illegally dismissed by Innodata.

Issues:

1. Whether or not respondents are project employees.

2. Whether or not the respondents were constructively dismissed when petitioner put them under floating status.

Ruling of the Court:

1. The respondents are not project employees.

IKSI failed to show that respondents worked for a specific project and the duration of the same as stated in their contract. The fact is IKSI actually hired respondents to work, not only on the ACT Project, but on other similar projects such as the Bloomberg. When respondents were required to work on the Bloomberg project, without signing a new contract for that purpose, it was already outside of the scope of the particular undertaking for which they were hired; it was beyond the scope of their employment contracts. The fact that the same happened only once is inconsequential. What matters is that IKSI required respondents to work on a project which was separate and distinct from the one they had signed up for.

With regard to the duration, it can be gleaned in their respective contract that the 5-year period is not actually the duration of the project but merely that of the employment contract. Naturally, therefore, not all of respondents' employment would end on the same date, as the completion of the 5-year period would depend on when each employee was employed. This is precisely the reason why IKSI originally left a blank for the termination date because it varied for each employee. If respondents were truly project employees, then the termination date would have been uniform for all of them. In effect, respondents entered into fixed-term employment contracts with IKSI with a fixed period of 5 years.

In other words, IKSI sought to alternatively avail of project employment and employment for a fixed term so as to preclude the regularization of respondents' status. The fact that respondents were lawyers or law graduates who freely and with full knowledge entered into an agreement with the company is inconsequential. The utter disregard of public policy by the subject contracts negates any argument that the agreement is the law between the parties and that the fixed period was knowingly and voluntarily agreed upon by the parties. Considering that there were no valid fixed-term or project contracts, they are considered as regular employees who could not be dismissed except for just or authorized causes.

2. Respondents were constructively dismissed when petitioner put them under floating status.

Requiring employees on forced leave is one of the cost-saving measures adopted by the management in order to prevent further losses but IKSI failed to discharge the burden of proof vested upon it. The records are bereft of any evidence of actual suspension of IKSI's business operations or even of the ACT Project alone. In fact, while IKSI cited Article 301 to support the temporary lay-off of its employees, it never alleged that it had actually suspended the subject undertaking to justify such lay-off.

In light of the well-entrenched rule that the burden to prove the validity and legality of the termination of employment falls on the employer, IKSI should have established the bona fide suspension of its business operations or undertaking that could legitimately lead to the temporary layoff of its employees for a period not exceeding six (6) months, in accordance with Article 301. IKSI’s paramount consideration should be the dire exigency of its business that compelled it to put some of its employees temporarily out of work. This means that it should be able to prove that it faced a clear and compelling economic reason which reasonably constrained it to temporarily shut down its business operations or that of the ACT Project, incidentally resulting in the temporary lay-off of its employees assigned to said particular undertaking. IKSI must likewise bear the burden of proving that there were no other available posts to which the employees temporarily put out of work could be possibly assigned. Unfortunately, IKSI was not able to fulfill any of the aforementioned duties.

In fact, IKSI still continued its operations and retained several employees who were also working on the ACT Project even after the implementation of the January 2010 forced leave. Much worse, it continued to hire new employees, with the same qualifications as some of respondents. The placing of an employee on floating status presupposes, among others, that there is less work than there are employees. Hence, placing respondents on floating status was unnecessary. If any, respondents - with their experience, knowledge, and familiarity with the workings of the company - should be preferred to be given new projects and not new hires who have little or no experience working for IKSI. And even assuming, without admitting, that there was indeed suspension of operations, IKSI did not recall the employees back to work or place them on valid permanent retrenchment after the period of 6 months, as required of them by law.

There being no valid suspension of business operations, IKSI’s act amounted to constructive dismissal of respondents since it could not validly put the latter on forced leave or floating status pursuant to Article 301.

Inasmuch as IKSI failed to adduce clear and convincing evidence to support the legality of respondents' dismissal, the latter is entitled to reinstatement without loss of seniority rights and backwages computed from the time compensation was withheld up to the date of actual reinstatement, as a necessary consequence. However, reinstatement is no longer feasible in this case because of the palpable strained relations between the parties and the possibility that the positions previously held by respondents are already being occupied by new hires. Thus, separation pay equivalent to 1-month salary for every year of service should be awarded in lieu of reinstatement.

Award of moral and exemplary damages for an illegally dismissed employee is proper where the employee had been harassed and arbitrarily terminated by the employer. Moral damages may be awarded to compensate one for diverse injuries such as mental anguish, besmirched reputation, wounded feelings, and social humiliation occasioned by the unreasonable dismissal. The Court has consistently accorded the working class a right to recover damages for unjust dismissals tainted with bad faith, where the motive of the employer in dismissing the employee is far from noble. The award of such damages is based, not on the Labor Code, but on Article 2220 of the Civil Code. In line with recent jurisprudence, the Court finds the amount of ₱50,000.00 for each of moral and exemplary damages adequate.

The award of attorney's fees is likewise due and appropriate since respondents incurred legal expenses after they were forced to file an action to protect their rights. The rate of interest, however, has been changed to 6% starting July 1, 2013, pursuant to the BSP Circular No. 799, Series of 2013.

Good notes on this case:

Employment status is defined by law

- The employment status of a person is defined and prescribed by law and not by what the parties say it should be. Equally important to consider is that a contract of employment is impressed with public interest such that labor contracts must yield to the common good. Thus, provisions of applicable statutes are deemed written into the contract, and the parties are never at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply entering into contracts with each other.

- Based on Article 295, the law determines the nature of the employment, regardless of any agreement expressing otherwise. The supremacy of the law over the nomenclature of the contract and its pacts and conditions is to bring life to the policy enshrined in the Constitution to afford full protection to labor. Thus, labor contracts are placed on a higher plane than ordinary contracts since these are imbued with public interest and, therefore, subject to the police power of the State.

Employment contracts

- In the interpretation of contracts, obscure words and provisions shall not favor the party that caused the obscurity. Consequently, the terms of the employment contract should be construed strictly against the employer, for being the party who prepared it. Verily, the private agreement of the parties can never prevail over Article 1700 of the Civil Code, which states: Art. 1700. The relation between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good. Therefore, such contracts are subject to special laws on labor unions, collective bargaining, strikes and lockouts, closed shops, wages, working conditions, hours of labor and similar subjects.

Project employment

- Project employment contracts, which fix the employment for a specific project or undertaking, are valid under the law. By entering into such a contract, an employee is deemed to understand that his employment is coterminous with the project. He may no longer be employed after the completion of the project for which he was hired. But project employment contracts are not lopsided agreements in favor of only one party. The employer's interest is equally important as that of the employees. While it may be true that it is the employer who drafts project employment contracts with its business interest as overriding consideration, such contracts must not prejudice the employee.

- In order to safeguard the rights of workers against the arbitrary use of the word "project" which prevents them from attaining regular status, employers claiming that their workers are project employees have the burden of showing that: (a) the duration and scope of the employment was specified at the time they were engaged; and (b) there was indeed a project. Therefore, as evident in Article 295, the litmus test for determining whether particular employees are properly characterized as project employees, as distinguished from regular employees, is whether or not the 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.

Fixed-term employment

- While the former requires a particular project, the duration of a fixed-term employment agreed upon by the parties may be any day certain, which is understood to be "that which must necessarily come although it may not be known when." The decisive determinant in fixed-term employment is not the activity that the employee is called upon to perform but the day certain agreed upon by the parties for the commencement and termination of the employment relationship.

- The Court has previously recognized the validity of fixed-term employment contracts, but it has consistently held that this is more of an exception rather than the general rule. Aware of the possibility of abuse in the utilization of fixed-term employment contracts, the Court has declared 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 as contrary to public policy or morals.

Retrenchment

- Considering the grave consequences occasioned by retrenchment, whether permanent or temporary, on the livelihood of the employees to be dismissed, and the avowed policy of the State to afford full protection to labor and to assure the employee's right to enjoy security of tenure, the Court stresses that not every loss incurred or expected to be incurred by a company will justify retrenchment. The losses must be substantial and the retrenchment must be reasonably necessary to avert such losses. The employer bears the burden of proving this allegation of the existence or imminence of substantial losses, which by its nature is an affirmative defense. It is the employer’s duty to prove with clear and satisfactory evidence that legitimate business reasons exist in actuality to justify any retrenchment. Failure to do so would inevitably result in a finding that the dismissal is unjustified. Otherwise, such ground for termination would be susceptible to abuse by scheming employers who might be merely feigning business losses or reverses in their business ventures to dispose of their employees.

- Retrenchment is the severance of employment, through no fault of and without prejudice to the employee, which management resorts to during the periods of business recession, industrial depression, or seasonal fluctuations, or during lulls caused by lack of orders, shortage of materials, conversion of the plant to a new production program or the introduction of new methods or more efficient machinery, or of automation. In other words, lay-off is an act of the employer of dismissing employees because of losses in the operation, lack of work, and considerable reduction on the volume of its business. However, a lay-off would amount to dismissal only if it is permanent. When it is only temporary, the employment status of the employee is not deemed terminated, but merely suspended.

- There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a specific period or duration. Notably, in both permanent and temporary lay-offs, the employer must act in good faith - that is, one which is intended for the advancement of the employer's interest and not for the purpose of defeating or circumventing the rights of the employees under the law or under valid agreements.

- Employees cannot forever be temporarily laid-off. Hence, in order to remedy this situation or fill the hiatus, Article 301 may be applied to set a specific period wherein employees may remain temporarily laid-off or in floating status. Elsewise stated, an employer may validly put its employees on forced leave or floating status upon bona fide suspension of the operation of its business for a period not exceeding 6 months. In such a case, there is no termination of the employment of the employees, but only a temporary displacement. When the suspension of the business operations, however, exceeds 6 months, then the employment of the employees would be deemed terminated, and the employer would be held liable for the same.

- Withal, in both permanent and temporary lay-offs, jurisprudence dictates that the one (1)-month notice rule to both the DOLE and the employee under Article 298 is mandatory.

- Under the Labor Code, separation pay is payable to an employee whose services are validly terminated as a result of retrenchment, suspension, closure of business or disease.

Requisites for a valid dismissal from employment

- Dismissal is the ultimate penalty that can be meted to an employee, the requisites for a valid dismissal from employment must always be met, namely: (1) it must be for a just or authorized cause; and (2) the employee must be afforded due process, meaning, he is notified of the cause of his dismissal and given an adequate opportunity to be heard and to defend himself. Our rules require that the employer be able to prove that said requisites for a valid dismissal have been duly complied with.

Rules of Court

- A distinction must be made between non-compliance with the requirement on or submission of defective verification and noncompliance with the requirement on or submission of defective certification against forum shopping:

1. As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction, or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served;

2. Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct;

3. As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof, unless there is a need to relax the Rule on the ground of substantial compliance or the presence of special circumstances or compelling reasons;

4. The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case; otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule; and

5. Finally, the certification against forum shopping must be executed by the party-pleader, not by his counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must execute a Special Power of Attorney designating his counsel of record to sign on his behalf.

- In view of the circumstances of the case and the substantive issues raised therein, the Court may find justification to liberally apply the rules of procedure to the case. Rules of procedure should be viewed as mere tools designed to facilitate the attainment of justice; their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be eschewed.

The Court previously held that the signature of only one of the petitioners substantially complied with the Rules if all the petitioners share a common interest and invoke a common cause of action or defense. In cases, therefore, where it is highly impractical to require all the plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order not to defeat the ends of justice, for one of the plaintiffs, acting as representative, to sign the certificate, provided that the plaintiffs share a common interest in the subject matter of the case or filed the case as a "collective" raising only one common cause of action or defense.

- Verification, like in most cases required by the rules of procedure, is a formal requirement, not jurisdictional. Such requirement is simply a condition affecting the form of pleading, the non-compliance of which does not necessarily render the pleading fatally defective. It is mainly intended to secure an assurance that matters which are alleged are done in good faith or are true and correct and not of mere speculation.

- Indeed, the application of technical rules of procedure may be relaxed in labor cases to serve the demand of substantial justice. Labor cases must be decided according to justice and equity and the substantial merits of the controversy. After all, the policy of our judicial system is to encourage full adjudication of the merits of an appeal. Procedural niceties should be avoided in labor cases in which the provisions of the Rules of Court are applied only in suppletory manner. Indeed, rules of procedure may be relaxed to relieve a part of an injustice not commensurate with the degree of non-compliance with the process required.