Project employees should be informed of the duration and scope of the employment which should be specified at the time they were engaged and that there should indeed be a project.

Hence, the Supreme Court held in the December 6, 2017 case, as follows:

Innodata Services, Inc. vs. Socorro D’Marie T. Inting, et al.
G.R. No. 211892, December 6, 2017


The SC denied the petition.

Petitioner 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. At one time, Applied Computer Technologies (ACT), a company based in the United States of America, hired IKSI to review various litigation documents.

Due to the nature of the job, ACT required IKSI to hire lawyers, or at least, law graduates, to review various litigation documents, classify said documents into the prescribed categories, and ensure that outputs are delivered on time. For this purpose, IKSI engaged the services of Respondents Socorro D’Marie Inting, et al. (Inting, et al.) as senior and junior reviewers with a contract duration of five (5) years.

Inting, et al. 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, Inting, et al. filed a complaint for illegal dismissal, reinstatement or payment of separation pay, backwages, and damages against IKSI.

Subsequently, IKSI sent Inting, et al. separate notices 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.

LA Ruling:

The LA declared that there was no illegal dismissal.

The LA declared that Inting, et al. were not constructively dismissed but were placed on forced leave as a cost-saving measure.

Consequently, IKSI was directed to recall Inting, et al. back to work as soon as work becomes available.

NLRC Ruling:

The NLRC, on May 31, 2011, affirmed the LA Ruling with modification in that in lieu of reinstatement, to pay Inting, et al. the modified amount.

Undaunted, the employees elevated the matter to the CA Cebu, alleging grave abuse of discretion on the NLRC’s part.

CA Ruling:

The CA granted their petition and reversed the assailed NLRC ruling.

IKSI then filed a Motion for Reconsideration, but the same was denied in a Resolution. Hence, the petition before the SC.


Whether or not a project employee who was assigned to a project outside of the original contract loses the status as project employee and deemed regular employee

Whether or not project duration is clearly established if employees engaged for the same project are given different completion dates

Whether or not employees engaged to serve for five years under a project engagement can be validly placed on forced leave, temporary lay-off, or floating status due to decline in the volume of work prior to the end of the said period even though at one point assigned to another project outside of the original contract

Whether or not a contract that appears to be project employment but contains a fixed-term duration is ambiguous and in effect renders employees regular

Whether or not failure to actually suspend the undertaking to justify the lay-off and the company merely indicated changes in business conditions as reason can establish bona fide suspension of operations

Whether or not there is a valid floating status when the company continued to hire new employees during the period of suspension

Whether or not suspension of operations that is not valid results in constructive dismissal

Whether or not in both permanent and temporary lay-offs notice to DOLE is mandatory

SC Ruling:

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 [formerly Article 280] of the Labor Code, as amended, 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.

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Here, while IKSI was able to show the presence of a specific project, the ACT Project, in the contract and the alleged duration of the same, it failed to prove, however, that Inting, et al. were in reality made to work only for that specific project indicated in their employment documents and that it adequately informed them of the duration and scope of said project at the time their services were engaged.

It is well settled that a party alleging a critical fact must support his allegation with substantial evidence, as allegation is not evidence. The fact is IKSI actually hired Inting, et al. to work, not only on the ACT Project, but on other similar projects such as Bloomberg.

When Inting, et al. 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 Inting, et al. to work on a project which was separate and distinct from the one they had signed up for. This act by IKSI indubitably brought Inting, et al. outside the realm of the project employees category according to the SC.

The five (5)-year period is not actually the duration of the project but merely that of the employment contract. Not all of Inting, et al.’s employment would end on July 2, 2013, as the completion of the five (5)-year period would depend on when each employee was employed. If Inting, et al. were truly project employees, as IKSI claims and as found by the NLRC, then the termination date would have been uniform for all of them.

According to SC IKSI’s contracts of employment are suspect for being highly ambiguous. In effect, it sought to alternatively avail of project employment and employment for a fixed term so as to preclude the regularization of Inting, et al.’s status. The fact that Inting, et al. 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. In the interpretation of contracts, obscure words and provisions shall not favor the party that caused the obscurity.

Consequently, the terms of the present 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 that 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.

Thus, the SC concluded that there were no valid fixed-term or project contracts and Inting, et al. were IKSI’s regular employees who could not be dismissed except for just or authorized causes. Any ambiguity in said contracts must be resolved against the company, especially because under Article 1702 of the Civil Code, in case of doubt, all labor contracts shall be construed in favor of the worker.

In the instant case, IKSI claims that its act of placing Inting, et al. on forced leave after a decrease in work volume, subject to recall upon availability of work, was a valid exercise of its right to lay-off, as an essential component of its management prerogatives.

However, IKSI failed to discharge the burden of proof vested upon it. Having the right should not be confused with the manner in which that right is exercised; the employer cannot use it as a subterfuge to run afoul of the employees’ guaranteed right to security of tenure.

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. It merely indicated changes in business conditions and client requirements and specifications as its basis for the implemented forced leave/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 lay-off of its employees for a period not exceeding six (6) months, in accordance with Article 301 [formerly Article 286] of the Labor Code.

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, 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.

Here, IKSI never offered any evidence that would indicate the presence of a bona fide suspension of its business operations or undertaking. IKSI cannot simply rely solely on the alleged decline in the volume of work for the ACT Project to support the temporary retrenchment of Inting, et al.

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 Inting, et al., through paid advertisements and placements in Suns tar Cebu, a local newspaper.

The placing of an employee on floating status presupposes, among others, that there is less work than there are employees. But if IKSI continued to hire new employees then it can reasonably be assumed that there was a surplus of work available for its existing employees. Hence, placing Inting, et al. on floating status was unnecessary. If any, Inting, et al. -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.

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

Even assuming 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 six (6) months, as required of them by law. IKSI could not even use the completion of the duration of the alleged project as an excuse for causing the termination of Inting, et al.’s employment. It must be pointed out that the termination was made in 2010 and the expected completion of the project in Inting, et al.’s contracts was still in 2012 to 2014.

When IKSI feigned suspension of operations and placed Inting, et al. on forced leave, the same had already amounted to constructive dismissal. And when IKSI sent letters informing them that they would be terminated effective July 7, 2010, Inting, et al. then had been actually dismissed.

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. Here, both the DOLE and Inting, et al. did not receive any prior notice of the temporary lay-off.

Inting, et al. received the notice of forced leave after the business day of which the same forced leave was to take effect. Inting, et al. also pointed out that when they received said notice, they were told to no longer report starting the next day, made to completely vacate their workstations and surrender their company identification cards, and were not even allowed to use their remaining unused leave credits, which gave them the impression that they would never be returning to the company ever again.

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