Pullout by Employer After Signed Employment Contract in the Philippines

Disclaimer: The following discussion is provided for general informational purposes only and does not constitute legal advice. Philippine labor laws and regulations can be complex and fact-specific, and legal outcomes can vary depending on the circumstances. For specific concerns, consult a qualified attorney or the appropriate government agencies (e.g., the Department of Labor and Employment).

Overview

In the Philippines, an employment contract—once validly executed—creates binding obligations on both employer and employee. A situation sometimes arises where an employer, for various reasons, decides to withdraw or “pull out” of the agreement after a contract has already been signed. This article explores the nature of employment contracts, the enforceability of those contracts once signed, potential employer liabilities, and legal remedies available to aggrieved employees.

1. Legal Basis for Employment Contracts

1.1. Nature of Employment Contracts

An employment contract is a specific form of contract under Philippine law, governed primarily by:

  • Labor Code of the Philippines (Presidential Decree No. 442) – outlines the general rights, obligations, and protections for both employees and employers.
  • Civil Code of the Philippines (Republic Act No. 386) – supplies general provisions on contracts, obligations, and damages. Articles 1159 and 1305, for instance, affirm that contracts have the force of law between the parties and must be complied with in good faith.

Once parties have consented to the essential elements (offer and acceptance) and an employment contract is signed, both sides are generally bound by its terms.

1.2. Essential Elements

Under the Civil Code, a valid contract requires:

  1. Consent of the contracting parties – an agreement to be bound by the offer and acceptance;
  2. Object certain – the subject of the contract, i.e., the job or services to be provided;
  3. Cause of the obligation – typically, the employee’s work in exchange for the employer’s compensation.

Once these elements are met, and the contract is signed, both parties are presumed to be in a legally binding agreement.

2. Employer “Pullout” or Withdrawal: Key Considerations

An employer’s “pullout” after contract signing refers to a unilateral decision to rescind, cancel, or otherwise refuse to honor an employment offer or contract already executed. Several Philippine legal principles come into play:

  1. Breach of Contract

    • If the employer withdraws the offer without justifiable reason after both parties have signed, this can be treated as a breach of contract under civil law and labor law principles.
    • Under Article 1159 of the Civil Code, “Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.”

  2. Good Faith and Fair Dealing

    • Both parties must act in good faith. Arbitrary withdrawal by an employer can suggest bad faith, potentially exposing the employer to damages.

  3. Probationary vs. Regular Employment

    • If the contract in question grants “probationary” employment status, the employer typically has up to six (6) months to assess the employee’s fitness. However, that assessment starts only after the employee begins working.
    • Pulling out before the employment commences is different and could be considered a breach of contract if there was already a finalized, binding agreement.

  4. Doctrine of Constructive Dismissal (Typically for Employees Already in Service)

    • Constructive dismissal involves employer conduct that effectively forces an employee to resign or otherwise leaves them jobless without just or authorized cause.
    • While constructive dismissal usually applies after employment has commenced, an employer’s post-contract conduct that prevents an employee from starting the job may, in certain fact patterns, be challenged similarly (though more common remedies fall under breach of contract rather than classic constructive dismissal).

3. Potential Employer Liabilities

Should an employer unilaterally pull out of a signed contract, the affected employee may seek legal remedies under both the Labor Code and the Civil Code.

  1. Damages Under the Civil Code

    • Articles 2176 and 2201 of the Civil Code guide the imposition of damages. If an employee can prove they suffered actual, moral, or even exemplary damages due to the employer’s arbitrary withdrawal, courts may award compensation.
    • Types of Damages:
      • Actual (Compensatory) Damages: Out-of-pocket costs (e.g., relocation costs, lost opportunity, etc.) that the employee incurred in reliance on the contract.
      • Moral Damages: If the employer’s acts were done in bad faith, humiliating, or oppressive.
      • Exemplary Damages: Meant to set an example if the employer’s conduct is particularly egregious.
      • Nominal Damages: Recognize a technical injury to a legal right, even if no substantial harm is proven.

  2. Labor Law Violations

    • If the employer’s withdrawal effectively denies the employee’s statutory or contractual rights, the employee might seek intervention from the Department of Labor and Employment (DOLE) or file a labor complaint before the National Labor Relations Commission (NLRC).
    • The primary question in labor forums is often whether the employee has already gained an “employer-employee relationship.” However, some tribunals might still hold the employer liable in certain circumstances where the contract is clear and binding.

  3. Administrative Liabilities

    • If the employer’s actions violate other labor regulations (for instance, discrimination, if that can be shown as the reason for the pullout, or contravention of an established DOLE rule), they may face administrative sanctions.

4. Remedies for the Aggrieved Employee

When an employer retracts a signed contract without a lawful basis, the employee may explore the following remedies:

  1. Filing a Complaint with the NLRC or DOLE

    • In many situations, employees or prospective employees choose to file a complaint against the employer for illegal dismissal or breach of contract, depending on the facts.
    • The success of these actions typically depends on the existence of an employer-employee relationship, which is determined by the “four-fold test” (i.e., the employer’s power to hire, fire, pay wages, and control the work). Since a signed contract strongly indicates the existence of at least an incipient employer-employee relationship, it supports the employee’s case.

  2. Civil Action for Breach of Contract

    • Apart from labor tribunals, an employee may also file a civil action in regular courts for damages resulting from the employer’s breach.
    • This might be more appropriate when no actual employer-employee relationship is recognized for labor law purposes but a valid contract was still formed under civil law (for instance, the job was set to start a month later, and the employee resigned from a prior job in reliance on the new offer).

  3. Settlement or Alternative Dispute Resolution (ADR)

    • Many disputes are resolved through mediation or conciliation facilitated by DOLE or private ADR mechanisms.
    • Settlement might provide a quicker resolution and compensation for the employee without protracted litigation.

5. Possible Defenses for Employers

While an employer’s unilateral withdrawal generally creates liability, certain defenses can be raised if justified by the facts:

  1. No Valid Contract Formed

    • If the purported “signed contract” was missing an essential element (e.g., it was a preliminary offer subject to conditions, or lacked final terms on compensation or duties), the employer might argue there was no perfected contract.

  2. Supervening Events

    • In rare cases, an employer might validly withdraw based on force majeure (e.g., catastrophic events) or significant changes in business circumstances. The burden is on the employer to prove these events were unforeseeable and made performance impossible or legally untenable.

  3. Employee’s Misrepresentation

    • An employer who discovers that the employee secured the contract under false pretenses—such as fraudulent credentials—may justify withdrawal.
    • This is a recognized ground for dismissal or contract termination even after the employment has begun, so it logically can apply prior to commencement if discovered in good faith.

  4. Contractual Provisions Allowing Rescission

    • If the employment contract itself includes clauses permitting either party to rescind before commencement under certain conditions (e.g., “subject to clearances,” “subject to background checks,” “subject to meeting specific performance metrics even before start date,” etc.), the employer might not be in breach if they properly invoke these provisions.

6. Practical Advice for Employers and Employees

6.1. For Employers

  1. Clarity of Terms

    • Draft employment contracts with clear contingencies or conditions precedent if the final confirmation is pending certain approvals (e.g., board approval, background checks).
    • Be transparent about any conditions that must be fulfilled before the employment is deemed fully binding.

  2. Good Faith Communication

    • If a legitimate change in business operations or conditions necessitates withdrawal, communicate openly and negotiate in good faith. Often, a fair settlement (covering minimal damages or inconvenience to the new hire) can avoid legal escalation.

  3. Legal Review

    • Have employment contracts reviewed by legal counsel to ensure compliance with labor regulations and to mitigate risks of a breach-of-contract claim.

6.2. For Employees

  1. Request a Written, Signed Contract

    • If you only have a verbal agreement or an email exchange, insist on a formal, written, and signed employment contract to strengthen your position.
    • Do not resign from your current employment or turn down other offers until you are sure the new offer is final, unconditional, and in writing.

  2. Document Everything

    • Keep copies of all communications. If the employer does withdraw, your documentation can prove the existence of a perfected contract and any damages suffered.

  3. Seek Legal Counsel Promptly

    • If an employer attempts to pull out after signing a contract, consult with a lawyer or the Public Attorney’s Office (if eligible) or file a complaint with the appropriate labor authority (NLRC or DOLE).
    • Understanding your legal standing and the practical implications will guide you in deciding whether to pursue mediation, settlement, or litigation.

7. Conclusion

In the Philippines, a signed employment contract generally carries the force of law between the employer and the employee. An employer’s unilateral withdrawal or “pullout” after a contract has been executed can expose them to liability for breach of contract, damages, or labor law violations if no valid justification exists. The aggrieved employee may seek recourse through administrative and judicial remedies, including labor complaints or civil actions. Ultimately, clarity of contract terms, good faith dealings, and prompt legal advice can help both parties safeguard their interests and avoid protracted disputes.

References and Further Reading

  • Labor Code of the Philippines (Presidential Decree No. 442)
  • Civil Code of the Philippines (Republic Act No. 386)
  • DOLE Website: https://www.dole.gov.ph (for official issuances and guidelines)
  • National Labor Relations Commission (NLRC) Rules of Procedure

Disclaimer Reminder: This article is not a substitute for independent legal advice. If you face any actual or potential legal conflict, consult a licensed Philippine attorney or contact the Department of Labor and Employment for accurate, current, and case-specific guidance.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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