Voluntary termination is inconsistent with claim of illegal dismissal.

Thus, if the employees of a contractor, whose service agreement with client was terminated, refused to renew the contract with said contractor, they are deemed to have voluntarily resigned.

The Supreme Court held in the following case:

Fonterra Brands Phils., Inc. vs. Leonardo Largado and Teotimo Estrellano
G.R. No. 205300, March 18, 2015


Fonterra Brands Phils., Inc. (Fonterra) contracted the services of Zytron Marketing and Promotions Corp. (Zytron) for the marketing and promotion of its milk and dairy products. Pursuant to the contract, Zytron provided Fonterra with trade merchandising representatives (TMRs), including Leonardo Largado (Lagardo) and Teotimo Estrellado (Estrellado). The engagement of their services began on 1 September 15, 2003 and May 27, 2002, respectively, and ended on June 6, 2006.

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On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions contract. Fonterra then entered into an agreement for manpower supply with A.C. Sicat Marketing and Promotional Services (A.C. Sicat). Desirous of continuing their work as TMRs, Lagardo and Estrellado submitted their job applications with A.C. Sicat, which hired them for a term of five (5) months.

When Lagardo and Estrellado’ 5-month contracts with A.C. Sicat were about to expire, they allegedly sought renewal thereof, but were allegedly refused. This prompted Lagardo and Estrellado to file complaints for illegal dismissal, regularization, non-payment of service incentive leave and 13th month pay, and actual and moral damages, against petitioner, Zytron, and A.C. Sicat.

LA Ruling:

The Labor Arbiter dismissed the complaint and ruled that: (1) Lagardo and Estrellado were not illegally dismissed. As a matter of fact, they were the ones who refused to renew their contract and that they voluntarily complied with the requirements for them to claim their corresponding monetary benefits in relation thereto; and (2) they were consecutively employed by Zytron and A.C. Sicat, not by Fonterra.

NLRC Ruling:

The NLRC affirmed the Labor Arbiter, finding that Lagardo and Estrellado’s separation from Zytron was brought about by the execution of the contract between Fonterra and A.C. Sicat where the parties agreed to absorb Zytron’s personnel, including Lagardo and Estrellado.

Too, Lagardo and Estrellado failed to present any evidence that they protested this set-up. Furthermore, Lagardo and Estrellado failed to refute the allegation that they voluntarily refused to renew their contract with A.C. Sicat. Also, Lagardo and Estrellado did not assert any claim against Zytron and A.C. Sicat.

The NLRC decision was assailed in a petition under Rule 65 before the CA.

CA Ruling:

The CA, in the questioned Decision, found that A.C. Sicat satisfies the requirements of legitimate job contracting, but Zytron does not. According to the CA: (1) Zytron’s paid-in capital of ­250,000 cannot be considered as substantial capital; (2) its Certificate of Registration was issued by the DOLE months after Lagardo and Estrellado’ supposed employment ended; and (3) its claim that it has the necessary tools and equipment for its business is unsubstantiated. Therefore, according to the CA, Lagardo and Estrellado were Fonterra’s employees.

Additionally, the CA held that Lagardo and Estrellado were illegally dismissed since Fonterra itself failed to prove that their dismissal is lawful. However, the illegal dismissal should be reckoned from the termination of their supposed employment with Zytron on June 6, 2006. Furthermore, Lagardo and Estrellado’s transfer to A.C. Sicat is tantamount to a completely new engagement by another employer.

Lastly, the termination of their contract with A.C. Sicat arose from the expiration of their respective contracts with the latter. The CA, thus, ruled that Fonterra is liable to Lagardo and Estrellado and ordered the reinstatement of Lagardo and Estrellado without loss of seniority rights, with full backwages, and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.

Zytron and Fonterra moved for reconsideration, but to no avail. Hence, the petition with SC.


Whether or not employees who refused to renew their contract with the contractor whose service agreement with the client was terminated, as they signed up with the new contractor so they could still be deployed to the same client, is deemed to have effectively resigned from the old contractor.

Whether or not non-renewal of fixed-term contract by employer amounts to illegal dismissal.

SC Ruling:

The SC found merit in the petition.

The termination of Lagardo and Estrellado’ employment with Zytron was brought about by the cessation of their contracts with the latter. The SC gave credence to the Labor Arbiter’s conclusion that Lagardo and Estrellado were the ones who refused to renew their contracts with Zytron, and the NLRC’s finding that they themselves acquiesced to their transfer to A.C. Sicat.

By refusing to renew their contracts with Zytron, Lagardo and Estrellado effectively resigned from the latter. Resignation is the voluntary act of employees who are compelled by personal reasons to dissociate themselves from their employment, done with the intention of relinquishing an office, accompanied by the act of abandonment.

It is obvious that Lagardo and Estrellado were no longer interested in continuing their employment with Zytron. Their voluntary refusal to renew their contracts was brought about by their desire to continue their assignment in Fonterra which could not happen in view of the conclusion of Zytron’s contract with Fonterra.

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Hence, to be able to continue with their assignment, they applied for work with A.C. Sicat with the hope that they will be able to continue rendering services as TMRs at Fonterra since A.C. Sicat is Fonterra’s new manpower supplier. This fact is even acknowledged by the CA in the assailed Decision where it recognized the reason why Lagardo and Estrellado applied for work at A.C. Sicat. The CA stated that “[t]o continuously work as merchandisers of Fonterra products, [Lagardo and Estrellado] submitted their job applications to A.C. Sicat x x x.” This is further bolstered by the fact that Lagardo and Estrellado voluntarily complied with the requirements for them to claim their corresponding monetary benefits in relation to the cessation of their employment contract with Zytron.

In short, Lagardo and Estrellado voluntarily terminated their employment with Zytron by refusing to renew their employment contracts with the latter, applying with A.C. Sicat, and working as the latter’s employees, thereby abandoning their previous employment with Zytron. Too, it is well to mention that for obvious reasons, resignation is inconsistent with illegal dismissal. This being the case, Zytron cannot be said to have illegally dismissed Lagardo and Estrellado, contrary to the findings of the CA.

The termination of Lagardo and Estrellado’s employment with the A.C. Sicat (new contractor) was simply brought about by the expiration of their employment contracts.

Foremost, Lagardo and Estrellado were fixed-term employees. As previously held by this Court, fixed-term employment contracts are not limited, as they are under the present Labor Code, to those by nature seasonal or for specific projects with predetermined dates of completion; they also include those to which the parties by free choice have assigned a specific date of termination. The determining factor of such contracts is not the duty of the employee but the day certain agreed upon by the parties for the commencement and termination of the employment relationship.

It is clear that Lagardo and Estrellado were employed by A.C. Sicat as project employees. In their employment contract with the latter, it is clearly stated that “[A.C. Sicat is] temporarily employing [Lagardo and Estrellado] as TMR[s] effective June 6[, 2006] under the following terms and conditions: The need for your service being only for a specific project, your temporary employment will be for the duration only of said project of our client, namely to promote FONTERRA BRANDS products x x x which is expected to be finished on or before Nov. 06, 2006.”

Lagardo and Estrellado, by accepting the conditions of the contract with A.C. Sicat, were well aware of and even acceded to the condition that their employment thereat will end on said pre-determined date of termination.

They cannot now argue that they were illegally dismissed by the latter when it refused to renew their contracts after its expiration. This is so since the non-renewal of their contracts by A.C. Sicat is a management prerogative, and failure of Lagardo and Estrellado to prove that such was done in bad faith militates against their contention that they were illegally dismissed. The expiration of their contract with A.C. Sicat simply caused the natural cessation of their fixed-term employment thereat.

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