In most cases, an employer cannot simply change a regular employee into a contractual employee to remove security of tenure. A new contract, HR memorandum, payroll transfer, or change in job title does not automatically erase regular status. Philippine labor tribunals look at the actual working relationship—not merely the label written on a document.

An employer may reorganize, outsource legitimate services, or enter into valid project or fixed-term arrangements in limited circumstances. However, these arrangements cannot be used to avoid the legal requirements for terminating a regular employee.

The Basic Rule Under Philippine Labor Law

A regular employee enjoys security of tenure, meaning the employer may terminate employment only for a just cause, an authorized cause, or another lawful ground recognized by the Labor Code.

Article XIII, Section 3 of the 1987 Constitution directs the State to protect workers’ security of tenure. Article 294 of the Labor Code implements that protection by providing that a regular employee cannot be dismissed except for a just or authorized cause. An illegally dismissed employee may be entitled to reinstatement, full backwages, allowances, and other benefits. (Lawphil)

The employment relationship is also not treated as an ordinary private contract. Article 1700 of the Civil Code states that relations between capital and labor are impressed with public interest and that labor contracts must yield to the common good. An employee’s signature therefore does not automatically validate an arrangement that defeats labor law. (National Labor Relations Commission)

What Does “Contractual Employee” Mean?

“Contractual” is commonly used in workplaces, but it is not a single, precise category under Article 295 of the Labor Code. It may refer to different arrangements:

Arrangement	What it normally means
Fixed-term employee	Employment is intended to end on a specific date
Project employee	Employment is tied to a specific project whose scope and completion were identified when the employee was hired
Seasonal employee	Employment lasts for a particular season or recurring seasonal activity
Agency-hired employee	The worker is employed by a legitimate contractor that supplies services to a principal
Independent contractor or consultant	The person operates independently rather than under the employer’s control
Casual employee	The work is generally not necessary or desirable to the employer’s usual business, subject to the one-year rule under Article 295

These categories have different legal requirements. An employer cannot merely choose whichever label results in fewer employee protections.

Why a Regular Employee Cannot Simply Be Reclassified

Article 295 states that employment is regular when the employee performs activities that are usually necessary or desirable in the employer’s usual business or trade, regardless of a written agreement stating otherwise.

Regular status is determined by facts such as:

The nature of the employee’s work
How long the employee has performed it
Whether the work forms part of the employer’s normal operations
Who controls the employee’s schedule, methods, assignments, and performance
Whether the supposed project or fixed term was clearly established at the beginning
Whether the arrangement was imposed to prevent the employee from acquiring or keeping security of tenure

The Supreme Court has repeatedly held that a contract’s wording is not conclusive. In Regala v. Manila Hotel Corporation, the Court rejected supposed service agreements and fixed-term arrangements that did not reflect the real employment relationship. (Lawphil)

Similarly, in Paragele v. GMA Network, Inc., the Supreme Court explained that fixed-term employment is an exception that applies only in limited situations. The employer must establish that the term was knowingly and voluntarily agreed upon and that the parties dealt with each other on more or less equal terms. (Lawphil)

For an ordinary rank-and-file employee who is told, “Sign this five-month contract or lose your job,” genuine equality in bargaining is usually difficult for the employer to prove.

Does Signing the New Contract Make the Change Legal?

Not necessarily.

A signed contract is evidence that the employee received or accepted its terms, but it is not absolute proof that the reclassification is lawful. Labor Arbiters may examine whether:

The employee was given a genuine choice
The employee understood that regular status was supposedly being surrendered
Refusal to sign would have resulted in immediate unemployment
The new contract changed only the label while the same work continued
The parties had reasonably equal bargaining power
The arrangement was designed to circumvent security of tenure

In Brent School, Inc. v. Zamora, the Supreme Court recognized that fixed-term employment is not automatically illegal. However, it warned that fixed periods imposed to prevent employees from acquiring security of tenure must be struck down as contrary to public policy. (Lawphil)

The Court later emphasized in Fuji Television Network, Inc. v. Espiritu that an end date in a contract does not automatically prevent the worker from being considered a regular employee. (Lawphil)

When a Change in Employment Arrangement May Be Lawful

There are situations where a new arrangement can be valid, but the employer must meet the legal requirements.

A genuinely negotiated fixed-term contract

A fixed-term agreement may be upheld when:

The period was knowingly and voluntarily agreed upon
There was no force, duress, deception, or improper pressure
The parties dealt on relatively equal terms
The employee had enough bargaining power to negotiate
The term was not inserted merely to defeat security of tenure

This exception is more likely to apply to highly specialized professionals, senior executives, performers, foreign specialists, or persons who can genuinely negotiate the duration and compensation of their engagement. It is less likely to apply to ordinary employees who must accept the employer’s standard form to keep working.

A genuine project assignment

A project employee may lawfully be engaged for a specific project if the project’s scope and expected completion were identified when the employee was hired.

An employer generally cannot retroactively declare that a regular employee was “project-based” when:

No specific project was identified at the beginning
The employee has continuously performed the employer’s usual operations
Successive project contracts cover essentially the same permanent work
The project description is vague or merely repeats the employee’s normal duties

The Supreme Court has explained that project status depends on whether a specific project or undertaking, including its duration or scope, was determined at the time of engagement. (Lawphil)

A valid termination followed by a genuinely separate engagement

A company may terminate regular employees because of an authorized cause under Article 298, such as:

Installation of labor-saving devices
Redundancy
Retrenchment to prevent losses
Closure or cessation of business

But the employer cannot simply call the action a “conversion.” It must first prove the authorized cause and comply with the applicable requirements, including written notice to the employee and DOLE at least one month before termination and payment of the correct separation pay.

A later employment arrangement may be examined independently. If the supposed termination and rehiring are only paperwork while the employee continues without interruption in the same job, under the same supervisors, and under the same conditions, the arrangement may be treated as an attempt to evade tenure.

Legitimate contracting or outsourcing

Philippine law permits legitimate job contracting. A company may engage a genuine independent contractor that has its own business, capital, equipment, supervision, and control over its employees.

However, labor-only contracting is prohibited under Articles 106 to 109 of the Labor Code and DOLE Department Order No. 174, Series of 2017.

Labor-only contracting may exist when the contractor lacks substantial capital or relevant investments while its workers perform activities directly related to the principal’s main business, or when the contractor does not exercise control over how the workers perform their jobs. In that situation, the principal may be treated as the workers’ direct employer. (Lawphil)

Common Red Flags That the Conversion May Be Illegal

The following circumstances deserve careful scrutiny:

HR gives the employee a fixed-term contract after years of regular service.
The employee must resign before being rehired for the same position.
The employer says regular employees must transfer to a manpower agency but the same managers will continue directing their work.
The employee’s company ID or payroll entity changes, but the work, workplace, tools, supervisors, and schedule remain the same.
The new contract removes leave benefits, health coverage, seniority, retirement credits, or other established benefits.
The supposed project has no clear name, scope, duration, deliverable, or completion date.
The employee is repeatedly hired for five or six months to perform permanent work.
Refusal to sign results in being barred from work, removed from the schedule, or told not to report.
The company claims the employee “voluntarily resigned,” although resignation was required before the employee could continue working.

A substantial demotion, reduction in pay or benefits, or unreasonable change that makes continued employment impossible may also amount to constructive dismissal. Constructive dismissal occurs when the employee’s resignation or departure is not truly voluntary because the employer has made continued employment unreasonable or intolerable. (Lawphil)

What an Employee Should Do

1. Ask for the proposal in writing

Request copies of:

The proposed contract
The memorandum announcing the change
The stated business reason
The effective date
The name of any manpower agency or contractor
The effect on salary, benefits, tenure, and seniority
The consequences of refusing to sign

Avoid relying solely on verbal assurances such as “formality lang ito” or “regular ka pa rin internally.”

2. Compare the old and new arrangements

Check for changes involving:

Employer’s name
Job title and duties
Contract duration
Salary and allowances
Leave credits
HMO or insurance
Retirement plan
Work location
Work schedule
Probationary or termination clauses
Seniority date
Separation benefits
Disciplinary procedures

A change from regular to fixed-term status is significant even when the salary remains the same because it may allow the employer to claim that employment ends automatically on a stated date.

3. Do not sign without keeping a copy

Never sign a document containing blank spaces or pages that have not been provided to you.

When an employee signs because refusal may result in immediate loss of work, it is useful to send a prompt written message stating that:

The employee does not voluntarily waive regular status
The document was signed to avoid immediate loss of income
The employee reserves all rights under the Labor Code
The employee objects to any reduction in tenure, salary, seniority, or benefits

This written objection does not automatically decide the case, but it may help show that the arrangement was not freely negotiated.

4. Continue reporting for work unless clearly terminated

An employer may later claim abandonment if the employee simply stops reporting.

Where reasonably possible:

Continue reporting at the usual time and place.
Ask for written instructions if access is denied.
Send an email or message stating that you are ready and willing to work.
Record the date, time, names of persons present, and what happened.
Preserve screenshots of schedule removals, access deactivation, or instructions not to report.

The Supreme Court has recognized that employees who promptly protest their dismissal or take steps to recover their jobs generally cannot logically be considered to have abandoned them. (Lawphil)

5. Preserve employment records

Keep personal copies outside the company’s email system or device.

Documents to preserve	Why they matter
Original employment contract and regularization notice	Establish the original status and terms
Proposed contractual or agency agreement	Shows the attempted change
Payslips and bank records	Prove salary, allowances, and continuity
SSS, PhilHealth, and Pag-IBIG records	May identify the reported employer and periods of employment
Company IDs, schedules, and attendance records	Show continuity and control
Emails, chat messages, and memoranda	Show instructions, pressure, or the employer’s stated reason
Performance evaluations	Counter claims of poor performance
Job descriptions and organizational charts	Show that the work remains part of regular operations
Names of witnesses	Help corroborate verbal meetings or denial of work
CBA or employee handbook	May contain additional protections and grievance procedures

6. Use the company grievance process

Submit a written grievance to HR, management, or the union. State the facts and the specific result requested, such as:

Recognition of continued regular status
Withdrawal of the fixed-term agreement
Restoration of benefits and seniority
Written confirmation that refusal to sign will not result in termination

Internal complaints do not replace statutory filing deadlines, so employees should not wait indefinitely for HR to respond.

7. File a SEnA request if the problem is unresolved

The Single Entry Approach, or SEnA, is a 30-day mandatory conciliation-mediation process intended to settle labor disputes before a formal complaint is filed. It is available to employees, groups of workers, unions, employers, OFWs, and kasambahays. (Lawphil)

A Request for Assistance may be filed:

Online through the DOLE Assistance for Request Management System
At a DOLE Regional, Provincial, District, or Field Office
At an NLRC Regional Arbitration Branch
At an NCMB office or regional branch

SEnA is free. A settlement should clearly state the employee’s status, amounts to be paid, deadlines, tax treatment, reinstatement terms, and the consequences of noncompliance. (DOLE ARMS)

8. File a complaint with the NLRC if conciliation fails

Termination disputes, constructive dismissal claims, regularization issues accompanied by reinstatement, and related money claims generally fall under the jurisdiction of a Labor Arbiter.

Under the 2025 NLRC Rules, a case may generally be filed at the Regional Arbitration Branch covering the employee’s workplace or residence, at the employee’s option. A worker may represent himself or herself, although professional assistance can be valuable when the facts or documents are disputed.

Commonly required filing documents include:

Accomplished complaint form under oath
Valid government-issued ID
SEnA referral or endorsement
Employer’s correct legal name and address
Employment documents and supporting evidence

No filing fee is ordinarily charged to an aggrieved worker for filing a labor complaint. (National Labor Relations Commission)

What Happens in an NLRC Case?

The usual process is:

Filing and raffle. The complaint is assigned to a Labor Arbiter.
Summons. The Labor Arbiter issues summons and schedules mandatory conferences.
Mandatory conciliation and mediation. The parties are encouraged to settle.
Position papers. If no settlement is reached, the parties submit verified position papers, supporting documents, and affidavits. Under the 2025 rules, the Labor Arbiter generally directs simultaneous filing within 10 calendar days from termination of the mandatory conference.
Reply or clarificatory proceedings. A reply or limited hearing may be allowed when necessary.
Decision. The rules direct the Labor Arbiter to decide within 30 calendar days after the case is submitted for decision, although the full process may take longer because of service, conferences, pleadings, postponements, and case volume.
Appeal. A Labor Arbiter’s decision may generally be appealed to the NLRC within 10 calendar days from receipt.

Employees should monitor every deadline. Failure to file a position paper may result in dismissal of the complaint, while failure to appeal within the strict period may make the decision final.

Possible Remedies

Depending on the facts, an employee may request:

A declaration of continued regular employment
Reinstatement to the former or substantially equivalent position
Restoration of seniority and benefits
Full backwages if illegally dismissed
Payment of withheld wages, allowances, leave benefits, or other established benefits
Separation pay in lieu of reinstatement when reinstatement is no longer feasible
Damages when bad faith, oppression, or another legal basis is proven
Attorney’s fees when the legal requirements are met

Article 294 identifies reinstatement without loss of seniority and full backwages as the normal consequences of illegal dismissal. When reinstatement is no longer practical, courts may award separation pay in addition to the appropriate backwages. (Lawphil)

Illegal dismissal claims generally prescribe after four years, while many employment-related money claims prescribe after three years. Filing promptly remains important because witnesses leave, messages disappear, and company records become harder to obtain. (National Labor Relations Commission)

Frequently Asked Questions

Can my employer make me sign a five-month contract even though I am already regular?

The employer may present the document, but signing it does not necessarily make the conversion valid. If you continue performing the same permanent work and the term was imposed to remove security of tenure, a Labor Arbiter may disregard the fixed period.

Can the company terminate me if I refuse to sign?

Refusal to surrender regular status is not, by itself, a just cause for dismissal. The employer would still need to prove a lawful ground and comply with due process. Preserve written proof that you were willing to continue working under your existing lawful terms.

Can my employer require me to resign and then reapply as contractual?

A resignation must be voluntary. A resignation required as a condition for keeping the same job may be treated as part of an unlawful termination scheme or constructive dismissal, particularly when there is no genuine break or change in the work relationship.

What if the company transfers me to a manpower agency?

The arrangement must involve a legitimate contractor that independently controls its employees and has the required business resources. If the original company continues controlling your daily work and the agency merely processes payroll, labor-only contracting may be present.

Does a higher salary make the conversion valid?

No. Higher pay may be relevant in determining whether the employee freely negotiated the arrangement, but it does not automatically legalize the loss of regular status. The entire relationship and the parties’ bargaining positions must be examined.

Can a regular employee become a project employee?

An employer generally cannot retroactively convert permanent work into project employment. A genuine project must be sufficiently identified, and its scope or duration must be communicated at the time of engagement. Simply attaching a project name to the employee’s ordinary duties is not enough.

Is notarization required for the new employment contract?

An ordinary employment contract generally does not become valid or invalid solely because it is notarized. Notarization may strengthen proof that a document was signed, but it cannot cure provisions that violate labor law or public policy.

Can I file a case while I am still employed?

Yes. An employee may use SEnA to contest an attempted reclassification, reduction of benefits, or other employment dispute without first resigning. The appropriate formal claim will depend on whether there has already been dismissal, constructive dismissal, withholding of benefits, or another actionable violation.

Are foreign employees in the Philippines protected by these rules?

Foreign nationals working for Philippine employers are generally protected by Philippine labor standards and security-of-tenure rules when Philippine law governs the employment relationship. Work permits, visas, international assignments, and contracts negotiated abroad may create additional issues, but an employer cannot rely solely on nationality to disregard mandatory labor protections.

Key Takeaways

A regular employee generally cannot be unilaterally downgraded to contractual status.
Employment status depends on the actual work relationship, not merely the contract’s title.
Fixed-term arrangements are valid only in limited circumstances and cannot be used to evade security of tenure.
Outsourcing is allowed only through legitimate contracting; labor-only contracting is prohibited.
Signing a new contract does not automatically waive regular status, especially when the employee had no genuine bargaining choice.
Employees should object in writing, continue offering to work, and preserve contracts, payslips, messages, schedules, and benefit records.
An unresolved dispute may be brought through the free 30-day SEnA process and, when necessary, to an NLRC Labor Arbiter.