Facts

• Respondent Philippine National Oil Company - Energy Development Corporation (PNOC-EDC) is a government-owned and controlled corporation (GOCC) engaged in the exploration and generation of geothermal energy.
• For its Leyte Geothermal Power Project, the company hired hundreds of workers on a contractual basis, with employment agreements stipulating that their service was limited to the completion or termination of the specific project or phase for which they were engaged.
• The petitioner Union — the Leyte Geothermal Power Progressive Employees Union — representing the majority of these workers, demanded recognition as the exclusive bargaining agent and requested CBA negotiations.
• PNOC-EDC ignored these demands and, in 1998, as the project neared completion, began serving Notices of Termination to the workers.
• In response, the Union filed a Notice of Strike on December 28, 1998, alleging unfair labor practices (ULP), such as union busting and refusal to bargain, and staged a strike on the same day.
• The dispute is certified for compulsory arbitration. The Secretary of Labor eventually intervened, certifying the dispute to the NLRC for compulsory arbitration.
• NLRC and Court of Appeals — the workers were project employees. Both the NLRC and the Court of Appeals found that the workers had been hired for a specific project whose duration and scope were made known to them at engagement.

Issue

Ruling

Ratio

• The Court emphasized that under Article 280 (now 295) of the Labor Code§, the nature of employment is defined by law, regardless of any written or oral agreement expressing otherwise.
• This means that the nomenclature used in a contract or the stipulations contained therein cannot override the factual reality of the employment status as prescribed by statute.

• The supremacy of the law over private contracts is intended to bring to life the constitutional mandate to "afford full protection to labor".
• Because labor and capital do not stand on equal footing, the law serves to equalize the relationship by ensuring that contractual arrangements are not used to circumvent a worker's right to security of tenure.

• Despite the high level of regulation, the Court clarified that project employment contracts remain valid.
• If the parties freely and voluntarily execute a contract that fixes employment for a specific undertaking, and there is no evidence of force or duress, the terms and conditions stipulated therein must be honored.

• The Court reiterated that the repeated and successive rehiring of project employees over several years does not automatically qualify them as regular employees.
• The determinative factor is whether the employment was fixed for a specific project and if its completion was determined at the start of the engagement.

Doctrine

• Constitutional Protection to Labor (Art. XIII, Sec. 3): The ruling affirms that the State's duty to afford full protection to labor is the primary reason why the law, rather than the parties, determines employment status. It ensures that the "freedom of contract" is not used as a tool to deny workers their fundamental rights.
• Civil Code Provision (Art. 1700§): This case reinforces the principle that labor-capital relations are not merely contractual but are impressed with public interest. Therefore, labor contracts are placed on a "higher plane" than ordinary agreements and must yield to the common good as regulated by the State's police power.
• Civil Code Provision (Art. 1702§): The ruling aligns with the mandate that all labor contracts must be construed with liberality in favor of the worker. While the Court upheld the project status in this instance, it noted that any ambiguity in such contracts must be resolved in favor of the laborer to prevent the alternative or arbitrary availment of different employment types to avoid regularization.
• Police Power: The case demonstrates that the State, through the Labor Code, exercises its police power to regulate the pursuit of business for the general welfare, ensuring that the inherent economic inequality between employer and employee is balanced by legal standards.