Herma Shipyard, Inc. and Mr. Herminio Esguerra vs. Danilo Oliveros, et al.
G.R. No. 208936, April 17, 2017


Herma Shipyard is a domestic corporation engaged in the business of shipbuilding and repair. The respondents were its employees occupying various positions such as pipe fitter, laborer, helper, etc.

The respondents filed before the Regional Arbitration Branch III, San Fernando City, Pampanga a Complaint for illegal dismissal, regularization, and of service incentive leave pay with prayer for the payment of full backwages and attorney’s foes against petitioners.

Respondents alleged that they are Herma Shipyard’s regular employees who have been continuously performing tasks usually necessary and desirable in its business. On various dates, however, petitioners dismissed them from employment.

Respondents further that as a condition to their continuous and uninterrupted employment, petitioners made them sign employment contracts for a fixed period ranging from one to four months to make it appear that they were project-based employees.

Per respondents, petitioners resorted to this scheme to defeat their right to security of tenure, but in truth there was never a time when they ceased working for Herma Shipyard due to expiration of project-based employment contracts. In fact, if they were indeed project employees, petitioners should have reported to the of Labor and Employment (DOLE) the completion of such project. But have never submitted such report to the DOLE.

For their defense, petitioners argued that respondents were its employees in its shipbuilding and t11at the specific project for which they were hired had been completed. In support Herma Shipyard presented contracts of employment, some of which are written in vernacular and denominated as Kasunduang Paglilingkod (Pang-Proyektong Kawani).

LA Ruling:

The Labor Arbiter rendered a Decision dismissing respondents’ complaint. The LA held that respondents were project-based employees whose services were validly terminated upon the completion of the specific work for which they were individually hired.

Respondents appealed to the NLRC.

NLRC Ruling:

The NLRC rendered its Decision denying respondents’ appeal and affirming in toto the Decision of the Labor Arbiter

It sustained the finding of the Labor Arbiter that based on their employment contracts, respondents were project-based employees hired to do a particular project for a specific period of time.

Respondents moved for reconsideration but the NLRC denied their Motion for Reconsideration.

Unfazed, respondents filed a Petition for Certiorari before the CA imputing grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the labor tribunals in finding that they were project-based employees and in not awarding them service incentive leaves.

Respondents contended that the labor tribunals grievously erred in relying on the project employment contracts which were for a uniform duration of one month. They argued that if it were true that they were project-based employees, the duration of their employment should have coincided with the completion of the project for which they were hired and not for a uniform period of one month.

CA Ruling:

The CA rendered its assailed Decision granting respondents’ Petition for Certiorari and setting aside the labor tribunals’ Decisions.

It held that even if contracts of employment indicated that respondents were as project-based workers, their status have become regular since: they were performing tasks that are necessary, desirable, and vital to the operation of petitioners’ business; petitioners failed to proof that respondents were hired for a specific period or that their employment.


Whether or not performance of usually necessary and desirable jobs precludes project employment and renders the employee regular

SC Ruling:

The SC found the petition meritorious.

A project employee under Article 280 (now Article 294) of the Labor Code, as amended, is one whose employment has been fixed for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee.

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The services of a project-based employees are co-terminous with the project and may be terminated upon the end or completion of the project or a phase thereof for which they were hired.

The principal in determining whether particular employees were as project-based employees, as distinguished from regular employees, is whether they were assigned to carry out a specific project or undertaking, the duration and scope of which was specified at, and made known to them, at the time of their engagement.

It is crucial that the employees were informed of their status as project employees at the time of hiring and that the period of their employment must be knowingly and voluntarily agreed upon by the parties, without any force, or improper pressure being brought to bear upon the employees or any other circumstances vitiating their consent.

For each and every project respondents were hired, they were adequately informed of their employment status as project-based employees at least at the time they signed their employment contract.

They were fully apprised of the nature and scope of their work whenever they affixed their signature to their employment contract. Their contracts of employment (mostly written in the vernacular) provide in no uncertain terms that they were hired as whose services are coterminous with the completion of the specific task indicated therein.

All their contracts of employment state clearly the date of the commencement of specific task and the expected completion date thereof. They also contain a provision expressly stating that respondents’ shall end upon the arrival of the target completion date or upon the completion of such project.

There is no indication that respondents were coerced into signing their employment contracts or that they affixed their signature thereto against their will. While they claim that they signed the said contracts in order to secure continuous employment, they have not, however, presented sufficient evidence to support the same other than their bare allegations.

It is settled that contracts for project employment are valid under the law. Thus, in Jamias vs. National Labor Relations Commission, the Court upheld the project employment contracts which were knowingly and voluntarily signed by the employees for want of proof that the employers employed force intimidation, or fraudulently manipulated them into signing the same.

Similarly in this case, by voluntarily entering into the aforementioned project employment contracts, respondents are deemed to have understood that their employment is co-terminus with the particular project indicated therein.

They expect to be employed continuously beyond the completion of such project because a project employment terminates as soon as it is completed.

It is settled, project-based employees may or may not be performing tasks usually necessary or desirable in the usual business or trade of the employer. The fact that the job is usually necessary or desirable in the business operation of the employer does not automatically imply regular employment; neither does it impair the validity of the employment contract stipulating fixed duration of employment.

While the tasks assigned to the respondents were indeed necessary and desirable in the usual business of Herma Shipyard, the same were distinct, separate, and identifiable from the other projects or contract services.

Citing ALU-TUCP vs. National Labor Relations Commission, the SC held that in the realm of business and industry, “project” could refer to one or the other of at two (2) distinguishable types of activities.

Firstly, a project could refer to a particular job or undertaking that is within the regular or usual business of the employer company, but which is distinct and separate, and identifiable as such, from the other undertakings of the company. Such job or undertaking begins and ends at determined or determinable times.

The typical example of this first type of project is a construction job or project of a construction company. A construction company ordinarily carries out two or more discrete identifiable construction projects: e.g.. hotel in .Makati; a condominium building in Baguio City; and a domestic air terminal in Iloilo City. Employees who are hired for the carrying out of one of these separate projects, the scope and duration of which has been determined and made known to the employees at the time of are properly treated as ‘project employees,’ and their services may be lawfully terminated at completion of the project.

The term project could also refer to, secondly, a particular job or undertaking that is not within the regular business of the corporation. Such a job or undertaking must also be identifiably separate and distinct from the ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or determinable times.

In this case, while the tasks assigned to the respondents were indeed necessary and desirable in the usual business of Herma Shipyard, the same were distinct, separate, and identifiable from the other projects or contract services.

The repeated and successive rehiring of respondents as project-based employees does not also, by and of itself qualify them as regular employees. Case law states that length of service (trough rehiring) is not the controlling determinant of the employment tenure of employees but, as earlier mentioned, whether the employment has been fixed for a specific project or undertaking, with its completion having been determined at the time of [their] engagement.”

Stated otherwise, that employees initially hired on a temporary basis may become permanent employees by reason of their length of service is not applicable to employees.

It is clear that Herma Shipyard only hires workers when it has existing contracts for shipbuilding and repair. It is not engaged in the business of building vessels for sale which would require it to continuously construct vessels for its inventory and consequently hire a number of permanent employees. Hence, Herma Shipyard should be allowed to reduce its work      force into a number suited for the remaining work to be done the completion or proximate accomplishment of [each particular] project.

As to the following provision in the contract:

“10. Ang Kasunduan ito ay maaaring palawigin ng mas mababang panahon na maaring kailanganin para sa matagumpay na pagtatapos ng mga gawa o proyektong pinagkammdum”

Paragraph 10 is in harmony with the agreement of the parties that employment is coterminous with the particular project stated in their contract. It was placed therein to ensure the success full completion of the specific work fur respondents were hired.

Thus, in case of delay or where said work is not finished within the estimated of completion, respondents’ period of employment can be extended until it is completed. In which case, the duration nature of their employment remains the same as previously dete1mined in the project employment contract; it is still coterminous with the particular project for which they were fully apprised of at the time of their engagement.

It is enough that Herma Shipyard gave the approximate or target completion in the project employment contract, Given the nature of its business and the scope of its projects which take months or even years to it cannot be expected for Herma Shipyard to give a definite and exact completion date.

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It can only approximate or estimate the completion date. What is important is that the respondents were apprised at the time of their engagement that their employment is coterminous with the specific project and that should their employment be extended by virtue of paragraph 10 for the purpose of extension is only to complete the same specific project, and not to keep them employed even after the completion thereof. Put differently, paragraph 10 does not allow the to extend the period of respondents’ employment after the completion of the specific project for which they were hired.

Their employment can only be extended if that particular project, to which their employment depends, remains unfinished.


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