LAO CONSTRUCTION, LVM CONSTRUCTION CORP., THOMAS and JAMES DEVELOPERS, INC.

vs NLRC,
LABENDIA, and 10 others
Bellosillo, J. September 5, 1997 G.R. No. 116781

Doctrine No work, no pay. The cessation of construction activities at the end of every project is a foreseeable
suspension of work. No compensation can be demanded from the employer because the stoppage of
operations at the end of a project and before the start of a new one is regular and expected by both parties
to the labor relations.
Summary Andres Lao issued a Memorandum requiring all workers to sign employment contract forms which explicitly
described the construction workers (respondents included) as project employees. Respondents refused to
sign, saying that the scheme would downgrade their status from regular employees to project employees.
As a result, their salaries were withheld. They were later terminated when they stood firm in their refusal.
They filed a case for illegal dismissal. LA dismissed their complaint, but this was reversed by NLRC Fourth
Division. Before the SC, petitioners argued that respondents are not regular employees since they were not
regularly maintained in the payroll and were free to offer their services to other companies. The Court held
that the respondents were regular employees. (see doctrine) The employment relation is not severed by
merely being suspended. The employees are merely on leave of absence without pay until they are
reemployed. The Court also said that the repeated rehiring and the continuing need for the services of the
respondents over a long span of time have made them regular employees. The Court also ruled that the
respondents were illegally dismissed.

Facts Private respondents were construction workers who worked alternately for the petitioners.
o The petitioner companies were alternately known as the Lao Group of Companies. They comprise a
business conglomerate exclusively controlled and managed by the Lao family. They were engaged
in construction of public roads and bridges. They enter into JVAs among each other, and would
undertake projects either simultaneously or successively so that they would lease tools and
equipment to one another. Each one would allow the utilization of their employees by the other 2
o Workers were transferred to on-going projects of the same company or of the others, or were
rehired after the completion of the project/project phase to which they were assigned.
o TLC ceased its operations while T&J and LVM stayed on.
Andres Lao, Managing Director of LVM and President of T&J issued a Memo requiring all workers and
personnel to sign employment contract forms and clearances which were issued on July 1, 1989 but
antedated January 10, 1989 (allegedly for audit purposes).
o The company ordered the withholding of the salary of any employee who refused to sign.
The contracts expressly described the construction workers as project employees whose employments
were for a definite period (upon expiration of the contract period or the completion of the project for
which the workers were hired).
All private respondents (except for Gomez) refused to sign, saying that the scheme would downgrade
their status from regular employees to mere project employees.
o Their salaries were withheld, and they were required to explain why their services should not be
terminated. They stood firm in their refusal to comply. Their services were terminated.
Private respondents filed complaints for illegal dismissal with the NLRC Regional Arbitration Branch.
NLRC-RAB dismissed the complaints. The respondents were project employees whose employments
could be terminated upon completion of the project/project phase for which they were hired.
NLRC Fourth Division reversed the ruling of the LA. The private respondents were regular employees
who were dismissed without just cause and denied due process.
o Disregarded the veil of corporate fiction and treated the three corporations as forming only one entity
on the basis of the admission of the companies that they operated as one.
Ratio/Issues I. WON the respondents are project employees (NO)
1. Petitioners: the respondents have no cause to complaint since the employment contracts merely
formalized their status as project employees. Policy Instruction No. 20 defines project employees as
those employed in connection with a particular construction project. Ruling in Sandoval Shipyards
vs. NLRC applies because there the Court declared that the employment of project employees is co-
terminous with the completion of the project regardless of the number of projects in which they have
worked.
2. Court: the principal test in determining whether particular employees are project employees is
whether the project employees are assigned to carry out specific project or undertaking, the duration
and scope of which are specified at the time the employees are engaged for the project.
i. Project - a particular job or undertaking that is within the regular or usual business of employer,
but which is distinct, separate and identifiable as such from the undertakings of the company.
Such job or undertaking begins and ends at determined or determinable times.
 ii. The repeated rehiring and the continuing need for the services of the respondents over a long
span of time have undeniably made them regular employees. Where the employment of project
employees is extended long after the supposed project has been finished, the employees are
removed from the scope of project employees and considered regular employees.
3. A work pool may exist although the workers in the pool do not receive salaries and are free to seek
other employment during temporary breaks in the business, provided that the worker shall be
available when called to report for a project.
i. The continuous rehiring of the same set of employees within the framework of the Lao Group of
Companies indicates that the private respondents were an integral part of a work pool from which
petitioners drew its workers for projects.
II. [MAIN] WON the respondents are regular employees even if they were not regularly maintained
in the payroll and were free to offer their services to other companies.(YES)
1. Court: The cessation of construction activities at the end of every project is a foreseeable
suspension of work. No compensation can be demanded from the employer because the stoppage
of operations at the end of a project and before the start of a new one is regular and expected by
both parties to the labor relations.
i. The employment relation is not severed by merely being suspended. The employees are merely
on leave of absence without pay until they are reemployed.
III. WON the respondents were illegally dismissed. (YES)
1. Court: For dismissal to be valid, the mandatory requirements of substantive and procedural due
process must be strictly complied with.
2. Private respondents were dismissed allegedly because of insubordination or blatant refusal to
comply with a lawful directive of their employer. But willful disobedience as a just cause for the
dismissal of the employees needs the concurrence of two requisites: a) employees assailed
conduct must have been willful and intentional, the willfulness being characterized by a wrongful and
perverse attitude; and, b) the order violated must have been reasonable, lawful, made known to the
employee and must pertain to the duties which he has been engaged to discharge.
i. The refusal of the employees was willful but not plain and perverse insubordination.
3. The employees are also not guilty of abandonment. The elements of abandonment are: a) failure to
report for work or absence without valid or justifiable reason, and b) clear intention to sever
employer-employee relationship.
i. Private respondents Roberto and Mario Labendia were forced to leave their duties because their
salaries were withheld. They did not intend to sever ties with petitioners and permanently abandon
their jobs.
Others:
The ruling in Sandoval Shipyards is not applicable. In Sandoval, the hiring of construction workers,
unlike in the present case, was intermittent and not continuous, for the shipyard merely accepts
contracts for shipbuilding or for repair of vessels from third parties and only on occasions when it has
work contract of this nature that it hires workers to do the job which lasts only for less than a year or
longer.
If respondents were merely project employees, petitioners should have submitted a report of termination
to the nearest public employment office every time their employment was terminated due to completion
of each project. Policy Instruction No. 20 says that employers of project employees are exempted from
the clearance requirement but not from the submission of termination report.
The burden of proving that an employee has been lawfully dismissed lies with the employer. In the case
at bar, the assertions of the petitioners were self-serving and insufficient to substantiate their claim of
proximate project completion. The services of the employees were terminated not because of contract
expiration but as sanction for their refusal to sign the project employment forms and quitclaims.
The illegally dismissed employees are entitled to full back wages, undiminished by earnings derived
elsewhere during the period of their illegal dismissal. If reinstatement is no longer feasible, back wages
shall be computed from the time of illegal termination until the time of the finality of the decision.
Separation pay shall be equivalent to at least 1 month salary to 1 month salary for every year of
services, whichever is higher, a fraction of at least 6 months being considered as one whole year.
NLRC is correct in piercing the veil of corporate fiction. The three corporations were in fact substantially
owned and controlled by members of the Lao family.
Liability of petitioners extends to the responsible officers acting in the interest of the corporations.
Held Petition denied. Decision of NLRC is affirmed.
Prepared by: Krisha F. Villanueva