Constructive Dismissal arising from Non-Renewal of Contracts in the Philippines
A comprehensive doctrinal and practical guide (updated to 2025)
1. Overview
Philippine labor law jealously guards security of tenure. When a fixed-term, project-based, or probationary contract simply “expires,” management often assumes the relationship ends automatically. The Supreme Court, however, has repeatedly ruled that non-renewal can amount to constructive dismissal—an illegal dismissal in disguise—where the employer’s acts defeat the worker’s right to continued employment.
2. Sources of Law
| Instrument | Key provisions relevant to non-renewal |
|---|---|
| 1987 Constitution | Art. XIII, §3 – “full protection to labor”; §3 also implies security of tenure. |
| Labor Code (as renumbered by R.A. 10151 & 10395) | Art. 294 (formerly 279) security of tenure; Art. 295 definitions of regular/casual; Art. 297 just causes; Art. 298 authorized causes. |
| Civil Code | Art. 1700 on employer-employee relations; Arts. 19-21 on abuse of rights (basis for moral damages). |
| DOLE Department Orders & Advisories | DO 174-17 (contracting), Labor Advisory No. 06-20 (fixed-term renewals in Covid context), and earlier DO 19-93 on project employment in construction. |
| Rules of Court | Rule 65 and Rule 45 for judicial review of NLRC decisions. |
3. Fixed-Term and Similar Contracts
Fixed-term employment is valid only if:
- (a) the period was knowingly and voluntarily agreed upon (Brent School v. Zamora, G.R. L-48494, 05 Feb 1990); and
- (b) no force, duress, or improper pressure or employer dominance vitiated consent; and
- (c) the period was determinative of the parties’ intent, not a device to defeat tenure.
Project employment ends when the project or phase is completed in fact, not merely on a self-serving date in the contract (Aliling v. Feliciano, G.R. 208912, 25 Apr 2017).
Probationary employment (max 6 months unless teaching/medical training): employees who meet reasonable standards ripen into regulars, so non-renewal after meeting standards = illegal dismissal (Abbott Laboratories v. Alcaraz, G.R. 195872, 23 Jul 2013).
Successive renewals create a “reasonable expectation of continued employment.” Repeated 5-month contracts for teachers, for instance, convert to regular status (AMA Computer College v. Ignacio, G.R. 178529, 11 Oct 2010).
4. Constructive Dismissal: Definition & Tests
“There is constructive dismissal when an act of clear discrimination, insensibility, or disdain by the employer makes continued employment impossible, or when the employer commits a breach of the contract tantamount to dismissal but under the guise of a less drastic act.” — Jurisprudence formula since Globe Telecom v. Florendo-Flores (G.R. 156360, 27 Feb 2013)
Courts apply two complementary tests:
- Reasonable-Person Test – Would a prudent employee in the same situation feel compelled to quit?
- Substantial-Alteration Test – Did the employer unilaterally reduce rank, pay, or security of tenure?
Non-renewal passes these tests when the expiry is merely nominal and the employer has:
- successive renewals yielding regular status;
- threats or hints that contract will be renewed only if employee waives rights;
- selective, discriminatory non-renewals;
- “sham projects” or endo practices (end-of-contract dismissals every 5 months to avoid regularization).
5. Key Supreme Court Rulings on Non-Renewal = Constructive Dismissal
| Case | G.R. No. / Date | Ratio Decidendi |
|---|---|---|
| Brent School v. Zamora | L-48494, 05 Feb 1990 | Fixed-term contracts are valid only if period truly the controlling motive. |
| AMA Computer College v. Ignacio | 178529, 11 Oct 2010 | Series of 5-month contracts for teachers was a scheme to defeat tenure; non-renewal = illegal dismissal. |
| GMA Network v. Pabriga | 176419, 10 Nov 2014 | Talents repeatedly rehired became regular; cessation upon “contract end” was constructive dismissal. |
| Aliling v. Feliciano | 208912, 25 Apr 2017 | BPO “project-ending” was illusory; employees deemed regular; non-renewal illegal. |
| Enchanted Kingdom v. Verzo | 209559, 30 Jan 2017 | Re-hiring after 5-month seasonal stint created expectation; non-re-engagement = illegal dismissal. |
| Colegio de San Juan de Letran-Calamba v. Villas | 185100, 06 Mar 2017 | Successive teaching contracts plus satisfactory evaluations = regularization. |
| SME Bank v. De Guzman | 184517, 13 Jun 2012 | Non-renewal of consultant’s fixed term did not equal dismissal because term was genuinely essential and parties in parity (illustrates valid fixed term). |
Collectively, these cases show the Court’s pro-labor stance: the true nature of employment, not labels, controls.
6. Employer Liability and Employee Remedies
- Reinstatement without loss of seniority or separation pay in lieu (one-month pay per year of service).
- Full backwages from actual dismissal (date of contract lapse) up to reinstatement/separation-pay finality.
- 13th-month pay differentials, COLA, other benefits for the same period.
- Moral and exemplary damages where bad faith or oppressive conduct is proven (Civil Code Arts. 19-21; 2224-2229).
- Attorney’s fees (Labor Code Art. 294 [c]).
7. Procedure & Prescriptive Periods
| Stage | Action |
|---|---|
| Prenegotiation | Optional SEnA request at DOLE (mandatory 30-day conciliation unless exceptions apply). |
| Complaint | File illegal dismissal case with NLRC within 4 years (Art. 305 Civil Code for actions based on injury to rights; constructive dismissal is deemed a tort). |
| Decision & Review | NLRC → Court of Appeals (Rule 65 petition) → Supreme Court (Rule 45). |
| Execution | Immediate reinstatement is self-executory pending appeal (Art. 229). |
8. Practical Guidance
For Employers
- Use fixed terms sparingly. Document real business necessity (e.g., foreign faculty for visiting term).
- Avoid serial renewals beyond one cycle; convert to regular or project-completion status.
- Maintain uniform renewal criteria; discriminatory or retaliatory non-renewal invites litigation.
- Observe due process even at term-end—issue written notice explaining why renewal is denied and allow employee comment.
- Budget for liabilities; losing a constructive dismissal case often costs 3-4 years of wages overnight.
For Employees
- Keep every contract copy, payslip, ID, HR e-mail. These prove continuous service.
- Document employer assurances or coercion (texts, chats).
- File timely: Count four-year prescriptive period from the first day you were refused renewal.
- Complain under SEnA early—win reinstatement while evidence is fresh.
- Seek counsel; claims for damages require detailed pleadings.
9. Frequently Asked Questions
| Question | Short Answer |
|---|---|
| My contract says “no employer-employee relationship.” Does that bar my case? | No. Labels do not defeat substantive employment findings. |
| Is “project completion” always valid? | Only if the project is defined and verifiable; otherwise you are regular. |
| Can I waive my right to regularization? | No. Rights to labor standards and tenure are not subject to waiver (Art. 22 Labor Code). |
| Does rehiring after a 6-month “gap” cure illegal dismissal? | No. Breaks contrived to defeat tenure are ignored (standard is totality of circumstances). |
10. Conclusion
Non-renewal of a contract in the Philippines is not automatically lawful. Where the contract period is a mere façade or where management’s acts compel a worker to accept expiry under duress, the law treats the act as constructive dismissal. Employers must therefore establish genuine fixed-term justification and fair criteria before refusing renewal. Workers, meanwhile, should recognize the signs of constructive dismissal and assert their constitutional right to security of tenure within the prescriptive window.
This article is a scholarly overview intended for general information. It does not substitute for independent legal advice before the NLRC, DOLE, or the courts.