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Case Study: Herma Shipyard, Inc. vs. Danilo Olivares et al.

G.R. No. 208936

17 Apr 2017

Del Castillo, J.


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

On June 17, 2009, the respondents filed a complaint for illegal dismissal, regularization, and non-payment of service incentive leave pay with prayer for the payment of full backwages and attorney's fees 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 alleged 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 Henna Shipyard due to expiration of project-based employment contracts. In fact, if they were indeed project employees, petitioners should have reported to the Department of Labor and Employment (DOLE) the completion of such project. But petitioners have never submitted such report to the DOLE.

For their defense, petitioners argued that respondents were its project-based employees in its shipbuilding projects and that the specific project for which they were hired had already been completed, In support thereof, Herma Shipyard presented contracts of employment.


Whether or not respondents who are project employees have become regular employees as a result of their repeated hiring by the petitioner for various projects.


The Court held in the negative.

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,

The services of 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.

Repeated rehiring of project employees to different projects does not automatically make them regular employees. Length of service (through rehiring) is not the controlling determinant of the employment tenure of project-based 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.

It is significant to note that the corporation does not construct vessels for sale or otherwise which will demand continuous productions of ships and will need permanent or regular workers. It merely accepts contracts for shipbuilding and repairs for third parties. Workers are hired only when there are projects, the completion of which usually require less than a year or longer. Thus the completion of the work or project automatically results in the termination of project based employment in which case, the employer is under the law, only obliged to render a report on the termination of the employment.

Hence, Herma Shipyard should be allowed '"to reduce its work force into a number suited for the remaining work to be done upon the completion or proximate accomplishment of each particular project." As for respondents, since they were assigned to a project or a phase thereof which begins and ends a determined or determinable times, their services were lawfully terminated upon the completion of such project or phase thereof

Moreover, the extension of the respondent’s employment does not violate the second requisite of project employment that the completion or termination of such project or undertaking be determined at the time of engagement of the employee. In case of delay or where such work is not finished within the estimated completion, respondents’ period of employment can be extended until it is completed. The duration and nature of their employment remains coterminous with the particular project which they were fully informed of at the time of their engagement.

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