You are on page 1of 37

EN BANC

JENNY M. AGABON and


VIRGILIO C. AGABON,
Petitioners,

- versus -

G.R. No. 158693


Present:
Davide, Jr., C.J.,
Puno,
Panganiban,
Quisumbing,
Ynares-Santiago,
Sandoval-Gutierrez,
Carpio,
Austria-Martinez,
Corona,
Carpio-Morales,
Callejo, Sr.,
Azcuna,
Tinga,
Chico-Nazario, and
Garcia, JJ.

NATIONAL LABOR RELATIONS


COMMISSION (NLRC), RIVIERA
HOME IMPROVEMENTS, INC.
Promulgated:
and VICENTE ANGELES,
Respondents.
November 17, 2004
x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:
This petition for review seeks to reverse the decision[1] of the Court of
Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, modifying the
decision of National Labor Relations Commission (NLRC) in NLRC-NCR Case
No. 023442-00.

Private respondent Riviera Home Improvements, Inc. is engaged in the


business of selling and installing ornamental and construction materials. It
employed petitioners Virgilio Agabon and Jenny Agabon as gypsum board and
cornice installers on January 2, 1992[2] until February 23, 1999 when they were
dismissed for abandonment of work.
Petitioners then filed a complaint for illegal dismissal and payment of
money claims[3] and on December 28, 1999, the Labor Arbiter rendered a decision
declaring the dismissals illegal and ordered private respondent to pay the monetary
claims. The dispositive portion of the decision states:
WHEREFORE, premises considered, We find the termination of
the complainants illegal. Accordingly, respondent is hereby ordered to
pay them their backwages up to November 29, 1999 in the sum of:
1.
2.

Jenny M. Agabon
Virgilio C. Agabon

P56, 231.93
56, 231.93

and, in lieu of reinstatement to pay them their separation pay of one (1)
month for every year of service from date of hiring up to November 29,
1999.
Respondent is further ordered to pay the complainants their
holiday pay and service incentive leave pay for the years 1996, 1997 and
1998 as well as their premium pay for holidays and rest days and Virgilio
Agabons 13th month pay differential amounting to TWO THOUSAND
ONE HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of
ONE HUNDRED TWENTY ONE THOUSAND SIX HUNDRED
SEVENTY EIGHT & 93/100 (P121,678.93) Pesos for Jenny Agabon,
and ONE HUNDRED TWENTY THREE THOUSAND EIGHT
HUNDRED TWENTY EIGHT & 93/100 (P123,828.93) Pesos for
Virgilio Agabon, as per attached computation of Julieta C. Nicolas, OIC,
Research and Computation Unit, NCR.
SO ORDERED.[4]

On appeal, the NLRC reversed the Labor Arbiter because it found that the
petitioners had abandoned their work, and were not entitled to backwages and

separation pay. The other money claims awarded by the Labor Arbiter were also
denied for lack of evidence.[5]
Upon denial of their motion for reconsideration, petitioners filed a petition
for certiorari with the Court of Appeals.
The Court of Appeals in turn ruled that the dismissal of the petitioners was
not illegal because they had abandoned their employment but ordered the payment
of money claims. The dispositive portion of the decision reads:
WHEREFORE, the decision of the National Labor Relations
Commission is REVERSED only insofar as it dismissed petitioners
money claims. Private respondents are ordered to pay petitioners
holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as
well as their service incentive leave pay for said years, and to pay the
balance of petitioner Virgilio Agabons 13th month pay for 1998 in the
amount of P2,150.00.
SO ORDERED.[6]

Hence, this petition for review on the sole issue of whether petitioners were
illegally dismissed.[7]
Petitioners assert that they were dismissed because the private respondent
refused to give them assignments unless they agreed to work on a pakyaw basis
when they reported for duty on February 23, 1999. They did not agree on this
arrangement because it would mean losing benefits as Social Security System
(SSS) members. Petitioners also claim that private respondent did not comply with
the twin requirements of notice and hearing.[8]
Private respondent, on the other hand, maintained that petitioners were not
dismissed but had abandoned their work.[9] In fact, private respondent sent two
letters to the last known addresses of the petitioners advising them to report for
work. Private respondents manager even talked to petitioner Virgilio Agabon by
telephone sometime in June 1999 to tell him about the new assignment at Pacific
Plaza Towers involving 40,000 square meters of cornice installation work.
However, petitioners did not report for work because they had subcontracted to
perform installation work for another company. Petitioners also demanded for an
increase in their wage to P280.00 per day. When this was not granted, petitioners
stopped reporting for work and filed the illegal dismissal case.[10]

It is well-settled that findings of fact of quasi-judicial agencies like the


NLRC are accorded not only respect but even finality if the findings are supported
by substantial evidence. This is especially so when such findings were affirmed by
the Court of Appeals.[11] However, if the factual findings of the NLRC and the
Labor Arbiter are conflicting, as in this case, the reviewing court may delve into
the records and examine for itself the questioned findings.[12]
Accordingly, the Court of Appeals, after a careful review of the facts, ruled
that petitioners dismissal was for a just cause. They had abandoned their
employment and were already working for another employer.
To dismiss an employee, the law requires not only the existence of a just and
valid cause but also enjoins the employer to give the employee the opportunity to
be heard and to defend himself.[13] Article 282 of the Labor Code enumerates the
just causes for termination by the employer: (a) serious misconduct or willful
disobedience by the employee of the lawful orders of his employer or the latters
representative in connection with the employees work; (b) gross and habitual
neglect by the employee of his duties; (c) fraud or willful breach by the employee
of the trust reposed in him by his employer or his duly authorized representative;
(d) commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorized
representative; and (e) other causes analogous to the foregoing.
Abandonment is the deliberate and unjustified refusal of an employee to
resume his employment.[14] It is a form of neglect of duty, hence, a just cause for
termination of employment by the employer.[15] For a valid finding of
abandonment, these two factors should be present: (1) the failure to report for
work or absence without valid or justifiable reason; and (2) a clear intention to
sever employer-employee relationship, with the second as the more determinative
factor which is manifested by overt acts from which it may be deduced that the
employees has no more intention to work. The intent to discontinue the
employment must be shown by clear proof that it was deliberate and unjustified.[16]
In February 1999, petitioners were frequently absent having subcontracted
for an installation work for another company. Subcontracting for another company
clearly showed the intention to sever the employer-employee relationship with
private respondent. This was not the first time they did this. In January 1996, they
did not report for work because they were working for another company. Private
respondent at that time warned petitioners that they would be dismissed if this

happened again. Petitioners disregarded the warning and exhibited a clear


intention to sever their employer-employee relationship. The record of an
employee is a relevant consideration in determining the penalty that should be
meted out to him.[17]
In Sandoval Shipyard v. Clave,[18] we held that an employee who deliberately
absented from work without leave or permission from his employer, for the
purpose of looking for a job elsewhere, is considered to have abandoned his job.
We should apply that rule with more reason here where petitioners were absent
because they were already working in another company.
The law imposes many obligations on the employer such as providing just
compensation to workers, observance of the procedural requirements of notice and
hearing in the termination of employment. On the other hand, the law also
recognizes the right of the employer to expect from its workers not only good
performance, adequate work and diligence, but also good conduct [19] and loyalty.
The employer may not be compelled to continue to employ such persons whose
continuance in the service will patently be inimical to his interests.[20]
After establishing that the terminations were for a just and valid cause, we
now determine if the procedures for dismissal were observed.
The procedure for terminating an employee is found in Book VI, Rule I,
Section 2(d) of the Omnibus Rules Implementing the Labor Code:
Standards of due process: requirements of notice. In all cases of
termination of employment, the following standards of due process shall
be substantially observed:
I.
For termination of employment based on just causes as
defined in Article 282 of the Code:
(a)
A written notice served on the employee specifying the
ground or grounds for termination, and giving to said employee
reasonable opportunity within which to explain his side;
(b)
A hearing or conference during which the employee
concerned, with the assistance of counsel if the employee so desires, is
given opportunity to respond to the charge, present his evidence or rebut
the evidence presented against him; and

(c)
A written notice of termination served on the employee
indicating that upon due consideration of all the circumstances, grounds
have been established to justify his termination.
In case of termination, the foregoing notices shall be served on
the employees last known address.

Dismissals based on just causes contemplate acts or omissions attributable to


the employee while dismissals based on authorized causes involve grounds under
the Labor Code which allow the employer to terminate employees. A termination
for an authorized cause requires payment of separation pay. When the termination
of employment is declared illegal, reinstatement and full backwages are mandated
under Article 279. If reinstatement is no longer possible where the dismissal was
unjust, separation pay may be granted.
Procedurally, (1) if the dismissal is based on a just cause under Article 282,
the employer must give the employee two written notices and a hearing or
opportunity to be heard if requested by the employee before terminating the
employment: a notice specifying the grounds for which dismissal is sought a
hearing or an opportunity to be heard and after hearing or opportunity to be heard,
a notice of the decision to dismiss; and (2) if the dismissal is based on authorized
causes under Articles 283 and 284, the employer must give the employee and the
Department of Labor and Employment written notices 30 days prior to the
effectivity of his separation.
From the foregoing rules four possible situations may be derived: (1) the
dismissal is for a just cause under Article 282 of the Labor Code, for an authorized
cause under Article 283, or for health reasons under Article 284, and due process
was observed; (2) the dismissal is without just or authorized cause but due process
was observed; (3) the dismissal is without just or authorized cause and there was
no due process; and (4) the dismissal is for just or authorized cause but due process
was not observed.
In the first situation, the dismissal is undoubtedly valid and the employer
will not suffer any liability.
In the second and third situations where the dismissals are illegal, Article
279 mandates that the employee is entitled to reinstatement without loss of
seniority rights and other privileges and full backwages, inclusive of allowances,

and other benefits or their monetary equivalent computed from the time the
compensation was not paid up to the time of actual reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural
infirmity cannot be cured, it should not invalidate the dismissal. However, the
employer should be held liable for non-compliance with the procedural
requirements of due process.
The present case squarely falls under the fourth situation. The dismissal
should be upheld because it was established that the petitioners abandoned their
jobs to work for another company. Private respondent, however, did not follow the
notice requirements and instead argued that sending notices to the last known
addresses would have been useless because they did not reside there anymore.
Unfortunately for the private respondent, this is not a valid excuse because the law
mandates the twin notice requirements to the employees last known address. [21]
Thus, it should be held liable for non-compliance with the procedural requirements
of due process.
A review and re-examination of the relevant legal principles is appropriate
and timely to clarify the various rulings on employment termination in the light
of Serrano v. National Labor Relations Commission.[22]
Prior to 1989, the rule was that a dismissal or termination is illegal if the
employee was not given any notice. In the 1989 case of Wenphil Corp. v. National
Labor Relations Commission,[23] we reversed this long-standing rule and held that
the dismissed employee, although not given any notice and hearing, was not
entitled to reinstatement and backwages because the dismissal was for grave
misconduct and insubordination, a just ground for termination under Article 282.
The employee had a violent temper and caused trouble during office hours, defying
superiors who tried to pacify him. We concluded that reinstating the employee and
awarding backwages may encourage him to do even worse and will render a
mockery of the rules of discipline that employees are required to observe. [24] We
further held that:
Under the circumstances, the dismissal of the private respondent
for just cause should be maintained. He has no right to return to his
former employment.
However, the petitioner must nevertheless be held to account for
failure to extend to private respondent his right to an investigation before

causing his dismissal. The rule is explicit as above discussed. The


dismissal of an employee must be for just or authorized cause and after
due process. Petitioner committed an infraction of the second
requirement. Thus, it must be imposed a sanction for its failure to give a
formal notice and conduct an investigation as required by law before
dismissing petitioner from employment. Considering the circumstances
of this case petitioner must indemnify the private respondent the amount
of P1,000.00. The measure of this award depends on the facts of each
case and the gravity of the omission committed by the employer.[25]

The rule thus evolved: where the employer had a valid reason to dismiss an
employee but did not follow the due process requirement, the dismissal may be
upheld but the employer will be penalized to pay an indemnity to the employee.
This became known as the Wenphil or Belated Due Process Rule.
On January 27, 2000, in Serrano, the rule on the extent of the sanction was
changed. We held that the violation by the employer of the notice requirement in
termination for just or authorized causes was not a denial of due process that will
nullify the termination. However, the dismissal is ineffectual and the employer
must pay full backwages from the time of termination until it is judicially declared
that the dismissal was for a just or authorized cause.
The rationale for the re-examination of the Wenphil doctrine in Serrano was
the significant number of cases involving dismissals without requisite notices. We
concluded that the imposition of penalty by way of damages for violation of the
notice requirement was not serving as a deterrent. Hence, we now required
payment of full backwages from the time of dismissal until the time the Court finds
the dismissal was for a just or authorized cause.
Serrano was confronting the practice of employers to dismiss now and pay
later by imposing full backwages.
We believe, however, that the ruling in Serrano did not consider the full
meaning of Article 279 of the Labor Code which states:
ART. 279. Security of Tenure. In cases of regular employment,
the employer shall not terminate the services of an employee except for a
just cause or when authorized by this Title. An employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full backwages, inclusive

of allowances, and to his other benefits or their monetary equivalent


computed from the time his compensation was withheld from him up to
the time of his actual reinstatement.

This means that the termination is illegal only if it is not for any of the
justified or authorized causes provided by law. Payment of backwages and other
benefits, including reinstatement, is justified only if the employee was unjustly
dismissed.
The fact that the Serrano ruling can cause unfairness and injustice which
elicited strong dissent has prompted us to revisit the doctrine.
To be sure, the Due Process Clause in Article III, Section 1 of the
Constitution embodies a system of rights based on moral principles so deeply
imbedded in the traditions and feelings of our people as to be deemed fundamental
to a civilized society as conceived by our entire history. Due process is that which
comports with the deepest notions of what is fair and right and just. [26] It is a
constitutional restraint on the legislative as well as on the executive and judicial
powers of the government provided by the Bill of Rights.
Due process under the Labor Code, like Constitutional due process, has two
aspects: substantive, i.e., the valid and authorized causes of employment
termination under the Labor Code; and procedural, i.e., the manner of dismissal.
Procedural due process requirements for dismissal are found in the Implementing
Rules of P.D. 442, as amended, otherwise known as the Labor Code of the
Philippines in Book VI, Rule I, Sec. 2, as amended by Department Order Nos. 9
and 10.[27] Breaches of these due processrequirements violate the Labor Code.
Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.
Constitutional due process protects the individual from the government and
assures him of his rights in criminal, civil or administrative proceedings;
while statutory due process found in the Labor Code and Implementing Rules
protects employees from being unjustly terminated without just cause after notice
and hearing.
In Sebuguero v. National Labor Relations Commission,[28] the dismissal was
for a just and valid cause but the employee was not accorded due process. The
dismissal was upheld by the Court but the employer was sanctioned. The sanction

should be in the nature of indemnification or penalty, and depends on the facts of


each case and the gravity of the omission committed by the employer.
In Nath v. National Labor Relations Commission,[29] it was ruled that even if
the employee was not given due process, the failure did not operate to eradicate the
just causes for dismissal. The dismissal being for just cause, albeit without due
process, did not entitle the employee to reinstatement, backwages, damages and
attorneys fees.
Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services,
Inc. v. National Labor Relations Commission,[30] which opinion he reiterated
in Serrano, stated:
C.
Where there is just cause for dismissal but due process has not been
properly observed by an employer, it would not be right to order either the
reinstatement of the dismissed employee or the payment of backwages to him. In
failing, however, to comply with the procedure prescribed by law in terminating
the services of the employee, the employer must be deemed to have opted or, in
any case, should be made liable, for the payment of separation pay. It might be
pointed out that the notice to be given and the hearing to be conducted generally
constitute the two-part due process requirement of law to be accorded to the
employee by the employer. Nevertheless, peculiar circumstances might obtain in
certain situations where to undertake the above steps would be no more than a
useless formality and where, accordingly, it would not be imprudent to apply
the res ipsa loquitur rule and award, in lieu of separation pay, nominal damages to
the employee. x x x.[31]

After carefully analyzing the consequences of the divergent doctrines in the


law on employment termination, we believe that in cases involving dismissals for
cause but without observance of the twin requirements of notice and hearing, the
better rule is to abandon the Serrano doctrine and to follow Wenphil by holding
that the dismissal was for just cause but imposing sanctions on the employer. Such
sanctions, however, must be stiffer than that imposed in Wenphil. By doing so, this
Court would be able to achieve a fair result by dispensing justice not just to
employees, but to employers as well.
The unfairness of declaring illegal or ineffectual dismissals for valid or
authorized causes but not complying with statutory due process may have farreaching consequences.
This would encourage frivolous suits, where even the most notorious
violators of company policy are rewarded by invoking due process. This also

creates absurd situations where there is a just or authorized cause for dismissal but
a procedural infirmity invalidates the termination. Let us take for example a case
where the employee is caught stealing or threatens the lives of his co-employees or
has become a criminal, who has fled and cannot be found, or where serious
business losses demand that operations be ceased in less than a month.
Invalidating the dismissal would not serve public interest. It could also discourage
investments that can generate employment in the local economy.
The constitutional policy to provide full protection to labor is not meant to
be a sword to oppress employers. The commitment of this Court to the cause of
labor does not prevent us from sustaining the employer when it is in the right, as in
this case.[32] Certainly, an employer should not be compelled to pay employees for
work not actually performed and in fact abandoned.
The employer should not be compelled to continue employing a person who
is admittedly guilty of misfeasance or malfeasance and whose continued
employment is patently inimical to the employer. The law protecting the rights of
the laborer authorizes neither oppression nor self-destruction of the employer.[33]
It must be stressed that in the present case, the petitioners committed a grave
offense, i.e., abandonment, which, if the requirements of due process were
complied with, would undoubtedly result in a valid dismissal.
An employee who is clearly guilty of conduct violative of Article 282
should not be protected by the Social Justice Clause of the Constitution. Social
justice, as the term suggests, should be used only to correct an injustice. As the
eminent Justice Jose P. Laurel observed, social justice must be founded on
the recognition of the necessity of interdependence among diverse units of a
society and of the protection that should be equally and evenly extended to all
groups as a combined force in our social and economic life, consistent with the
fundamental and paramount objective of the state of promoting the health, comfort,
and quiet of all persons, and of bringing about the greatest good to the greatest
number.[34]
This is not to say that the Court was wrong when it ruled the way it did
in Wenphil, Serrano and related cases. Social justice is not based on rigid
formulas set in stone. It has to allow for changing times and circumstances.

Justice Isagani Cruz strongly asserts the need to apply a balanced approach
to labor-management relations and dispense justice with an even hand in every
case:
We have repeatedly stressed that social justice or any justice for
that matter is for the deserving, whether he be a millionaire in his
mansion or a pauper in his hovel. It is true that, in case of reasonable
doubt, we are to tilt the balance in favor of the poor to whom the
Constitution fittingly extends its sympathy and compassion. But never is
it justified to give preference to the poor simply because they are poor,
or reject the rich simply because they are rich, for justice must always be
served for the poor and the rich alike, according to the mandate of the
law.[35]

Justice in every case should only be for the deserving party. It should not be
presumed that every case of illegal dismissal would automatically be decided in
favor of labor, as management has rights that should be fully respected and
enforced by this Court. As interdependent and indispensable partners in nationbuilding, labor and management need each other to foster productivity and
economic growth; hence, the need to weigh and balance the rights and welfare of
both the employee and employer.
Where the dismissal is for a just cause, as in the instant case, the lack of
statutory due process should not nullify the dismissal, or render it illegal, or
ineffectual. However, the employer should indemnify the employee for the
violation of his statutory rights, as ruled in Reta v. National Labor Relations
Commission.[36] The indemnity to be imposed should be stiffer to discourage the
abhorrent practice of dismiss now, pay later, which we sought to deter in
the Serrano ruling. The sanction should be in the nature of indemnification or
penalty and should depend on the facts of each case, taking into special
consideration the gravity of the due process violation of the employer.
Under the Civil Code, nominal damages is adjudicated in order that a right
of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him.[37]
As enunciated by this Court in Viernes v. National Labor Relations
Commissions,[38] an employer is liable to pay indemnity in the form of nominal
damages to an employee who has been dismissed if, in effecting such dismissal,

the employer fails to comply with the requirements of due process. The Court,
after considering the circumstances therein, fixed the indemnity at P2,590.50,
which was equivalent to the employees one month salary. This indemnity is
intended not to penalize the employer but to vindicate or recognize the employees
right to statutory due process which was violated by the employer.[39]
The violation of the petitioners right to statutory due process by the private
respondent warrants the payment of indemnity in the form of nominal damages.
The amount of such damages is addressed to the sound discretion of the court,
taking into account the relevant circumstances. [40] Considering the prevailing
circumstances in the case at bar, we deem it proper to fix it at P30,000.00. We
believe this form of damages would serve to deter employers from future
violations of the statutory due process rights of employees. At the very least, it
provides a vindication or recognition of this fundamental right granted to the latter
under the Labor Code and its Implementing Rules.
Private respondent claims that the Court of Appeals erred in holding that it
failed to pay petitioners holiday pay, service incentive leave pay and 13 th month
pay.
We are not persuaded.
We affirm the ruling of the appellate court on petitioners money claims.
Private respondent is liable for petitioners holiday pay, service incentive leave pay
and 13thmonth pay without deductions.
As a general rule, one who pleads payment has the burden of proving it.
Even where the employee must allege non-payment, the general rule is that the
burden rests on the employer to prove payment, rather than on the employee to
prove non-payment. The reason for the rule is that the pertinent personnel files,
payrolls, records, remittances and other similar documents which will show that
overtime, differentials, service incentive leave and other claims of workers have
been paid are not in the possession of the worker but in the custody and absolute
control of the employer.[41]
In the case at bar, if private respondent indeed paid petitioners holiday pay
and service incentive leave pay, it could have easily presented documentary proofs
of such monetary benefits to disprove the claims of the petitioners. But it did not,
except with respect to the 13th month pay wherein it presented cash vouchers
showing payments of the benefit in the years disputed. [42] Allegations by private

respondent that it does not operate during holidays and that it allows its employees
10 days leave with pay, other than being self-serving, do not constitute proof of
payment. Consequently, it failed to discharge the onus probandi thereby making it
liable for such claims to the petitioners.
Anent the deduction of SSS loan and the value of the shoes from petitioner
Virgilio Agabons 13th month pay, we find the same to be unauthorized. The
evident intention of Presidential Decree No. 851 is to grant an additional income in
the form of the 13th month pay to employees not already receiving the same[43] so as
to further protect the level of real wages from the ravages of world-wide
inflation.[44] Clearly, as additional income, the 13th month pay is included in the
definition of wage under Article 97(f) of the Labor Code, to wit:
(f)
Wage paid to any employee shall mean the remuneration or
earnings, however designated, capable of being expressed in terms of money
whether fixed or ascertained on a time, task, piece , or commission basis, or other
method of calculating the same, which is payable by an employer to an employee
under a written or unwritten contract of employment for work done or to be done,
or for services rendered or to be rendered and includes the fair and reasonable
value, as determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the employee

from which an employer is prohibited under Article 113[45] of the same Code from
making any deductions without the employees knowledge and consent. In the
instant case, private respondent failed to show that the deduction of the SSS loan
and the value of the shoes from petitioner Virgilio Agabons 13 th month pay was
authorized by the latter. The lack of authority to deduct is further bolstered by the
fact that petitioner Virgilio Agabon included the same as one of his money claims
against private respondent.
The Court of Appeals properly reinstated the monetary claims awarded by
the Labor Arbiter ordering the private respondent to pay each of the petitioners
holiday pay for four regular holidays from 1996 to 1998, in the amount of
P6,520.00, service incentive leave pay for the same period in the amount of
P3,255.00 and the balance of Virgilio Agabons thirteenth month pay for 1998 in
the amount of P2,150.00.
WHEREFORE, in view of the foregoing, the petition is DENIED. The
decision of the Court of Appeals dated January 23, 2003, in CA-G.R. SP No.
63017, finding that petitioners Jenny and Virgilio Agabon abandoned their work,
and ordering private respondent to pay each of the petitioners holiday pay for four

regular holidays from 1996 to 1998, in the amount of P6,520.00, service incentive
leave pay for the same period in the amount of P3,255.00 and the balance of
Virgilio Agabons thirteenth month pay for 1998 in the amount of P2,150.00
is AFFIRMED with the MODIFICATION that private respondent Riviera Home
Improvements, Inc. is further ORDERED to pay each of the petitioners the
amount of P30,000.00 as nominal damages for non-compliance with statutory due
process.
No costs.

EN BANC
G.R. No. 170139, August 05, 2014
SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner, v. JOY C. CABILES, Respondent.
DECISION
LEONEN, J.:
This case involves an overseas Filipino worker with shattered dreams. It is our duty, given the facts and the law, to approximate justice for
her.
We are asked to decide a petition for review1 on certiorari assailing the Court of Appeals decision2dated June 27, 2005. This decision partially
affirmed the National Labor Relations Commissions resolution dated March 31, 2004, 3 declaring respondents dismissal illegal, directing
petitioner to pay respondents three-month salary equivalent to New Taiwan Dollar (NT$) 46,080.00, and ordering it to reimburse the
NT$3,000.00 withheld from respondent, and pay her NT$300.00 attorneys fees. 4
cralawre d

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement agency.5Responding to an ad it published, respondent,
Joy C. Cabiles, submitted her application for a quality control job in Taiwan. 6
cralawre d

Joys application was accepted. Joy was later asked to sign a one-year employment contract for a monthly salary of NT$15,360.00. 8 She
alleged that Sameer Overseas Agency required her to pay a placement fee of P70,000.00 when she signed the employment contract. 9
7

cralawred

Joy was deployed to work for Taiwan Wacoal, Co. Ltd. (Wacoal) on June 26, 1997. She alleged that in her employment contract, she agreed
to work as quality control for one year.11 In Taiwan, she was asked to work as a cutter.12
10

cralawre d

Sameer Overseas Placement Agency claims that on July 14, 1997, a certain Mr. Huwang from Wacoal informed Joy, without prior notice, that
she was terminated and that she should immediately report to their office to get her salary and passport.13 She was asked to prepare for
immediate repatriation.14
cralawre d

Joy claims that she was told that from June 26 to July 14, 1997, she only earned a total of NT$9,000. 15 According to her, Wacoal deducted
NT$3,000 to cover her plane ticket to Manila.16
cralawre d

On October 15, 1997, Joy filed a complaint17 with the National Labor Relations Commission against petitioner and Wacoal. She claimed that
she was illegally dismissed.18 She asked for the return of her placement fee, the withheld amount for repatriation costs, payment of her salary
for 23 months as well as moral and exemplary damages. 19 She identified Wacoal as Sameer Overseas Placement Agencys foreign principal. 20

cralawred

Sameer Overseas Placement Agency alleged that respondent's termination was due to her inefficiency, negligence in her duties, and her
failure to comply with the work requirements [of] her foreign [employer].21 The agency also claimed that it did not ask for a placement fee
of ?70,000.00.22 As evidence, it showed Official Receipt No. 14860 dated June 10, 1997, bearing the amount of ?20,360.00. 23 Petitioner added
that Wacoal's accreditation with petitioner had already been transferred to the Pacific Manpower & Management Services, Inc. (Pacific) as of
August 6, 1997.24 Thus, petitioner asserts that it was already substituted by Pacific Manpower.25
cralawred

Pacific Manpower moved for the dismissal of petitioners claims against it. 26 It alleged that there was no employer-employee relationship
between them.27 Therefore, the claims against it were outside the jurisdiction of the Labor Arbiter.28 Pacific Manpower argued that the
employment contract should first be presented so that the employers contractual obligations might be identified. 29 It further denied that it
assumed liability for petitioners illegal acts.30
cralawred

On July 29, 1998, the Labor Arbiter dismissed Joys complaint. 31 Acting Executive Labor Arbiter Pedro C. Ramos ruled that her complaint was
based on mere allegations.32 The Labor Arbiter found that there was no excess payment of placement fees, based on the official receipt
presented by petitioner.33 The Labor Arbiter found unnecessary a discussion on petitioners transfer of obligations to Pacific 34 and considered
the matter immaterial in view of the dismissal of respondents complaint. 35
cralawred

Joy appealed

36

to the National Labor Relations Commission.

In a resolution dated March 31, 2004, the National Labor Relations Commission declared that Joy was illegally dismissed. 38 It reiterated the
doctrine that the burden of proof to show that the dismissal was based on a just or valid cause belongs to the employer.39 It found that
Sameer Overseas Placement Agency failed to prove that there were just causes for termination. 40 There was no sufficient proof to show that
respondent was inefficient in her work and that she failed to comply with company requirements. 41 Furthermore, procedural due process was
not observed in terminating respondent.42
37

cralawre d

The National Labor Relations Commission did not rule on the issue of reimbursement of placement fees for lack of jurisdiction. 43 It refused to
entertain the issue of the alleged transfer of obligations to Pacific. 44 It did not acquire jurisdiction over that issue because Sameer Overseas
Placement Agency failed to appeal the Labor Arbiters decision not to rule on the matter.45
cralawred

The National Labor Relations Commission awarded respondent only three (3) months worth of salary in the amount of NT$46,080, the
reimbursement of the NT$3,000 withheld from her, and attorneys fees of NT$300. 46
cralawred

The Commission denied the agencys motion for reconsideration

47

dated May 12, 2004 through a resolution 48 dated July 2, 2004.

Aggrieved by the ruling, Sameer Overseas Placement Agency caused the filing of a petition 49 for certiorari with the Court of Appeals assailing
the National Labor Relations Commissions resolutions dated March 31, 2004 and July 2, 2004.
The Court of Appeals50 affirmed the decision of the National Labor Relations Commission with respect to the finding of illegal dismissal, Joys
entitlement to the equivalent of three months worth of salary, reimbursement of withheld repatriation expense, and attorneys fees. 51 The

Court of Appeals remanded the case to the National Labor Relations Commission to address the validity of petitioner's allegations against
Pacific.52 The Court of Appeals held, thus:
chanRoble svirtualLawlibrary

Although the public respondent found the dismissal of the complainant-respondent illegal, we should point out that the NLRC merely awarded
her three (3) months backwages or the amount of NT$46,080.00, which was based upon its finding that she was dismissed without due
process, a finding that we uphold, given petitioners lack of worthwhile discussion upon the same in the proceedings below or before us.
Likewise we sustain NLRCs finding in regard to the reimbursement of her fare, which is squarely based on the law; as well as the award of
attorneys fees.
But we do find it necessary to remand the instant case to the public respondent for further proceedings, for the purpose of addressing the
validity or propriety of petitioners third-party complaint against the transferee agent or the Pacific Manpower & Management Services, Inc.
and Lea G. Manabat. We should emphasize that as far as the decision of the NLRC on the claims of Joy Cabiles, is concerned, the same is
hereby affirmed with finality, and we hold petitioner liable thereon, but without prejudice to further hearings on its third party complaint
against Pacific for reimbursement.
WHEREFORE, premises considered, the assailed Resolutions are hereby partlyAFFIRMED in accordance with the foregoing discussion, but
subject to the caveat embodied in the last sentence. No costs.
SO ORDERED.53
Dissatisfied, Sameer Overseas Placement Agency filed this petition. 54

cralawred

We are asked to determine whether the Court of Appeals erred when it affirmed the ruling of the National Labor Relations Commission finding
respondent illegally dismissed and awarding her three months worth of salary, the reimbursement of the cost of her repatriation, and
attorneys fees despite the alleged existence of just causes of termination.
Petitioner reiterates that there was just cause for termination because there was a finding of Wacoal that respondent was inefficient in her
work.55 Therefore, it claims that respondents dismissal was valid. 56
cralawre d

Petitioner also reiterates that since Wacoals accreditation was validly transferred to Pacific at the time respondent filed her complaint, it
should be Pacific that should now assume responsibility for Wacoals contractual obligations to the workers originally recruited by petitioner.57

cralawred

Sameer Overseas Placement Agencys petition is without merit. We find for respondent.
I
Sameer Overseas Placement Agency failed to show that there was just cause for causing Joys dismissal. The employer, Wacoal, also failed to
accord her due process of law.
Indeed, employers have the prerogative to impose productivity and quality standards at work. 58They may also impose reasonable rules to
ensure that the employees comply with these standards. 59Failure to comply may be a just cause for their dismissal. 60 Certainly, employers
cannot be compelled to retain the services of an employee who is guilty of acts that are inimical to the interest of the employer.61 While the
law acknowledges the plight and vulnerability of workers, it does not authorize the oppression or self-destruction of the
employer.62 Management prerogative is recognized in law and in our jurisprudence.
This prerogative, however, should not be abused. It is tempered with the employees right to security of tenure.63 Workers are entitled to
substantive and procedural due process before termination. They may not be removed from employment without a valid or just cause as
determined by law and without going through the proper procedure.
Security of tenure for labor is guaranteed by our Constitution. 64

cralawred

Employees are not stripped of their security of tenure when they move to work in a different jurisdiction. With respect to the rights of
overseas Filipino workers, we follow the principle of lex loci contractus.
Thus, in Triple Eight Integrated Services, Inc. v. NLRC, 65 this court noted:

chanRoblesvirtualLa wlibrary

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana was working in Saudi Arabia, her
employment was subject to the laws of the host country. Apparently, petitioner hopes to make it appear that the labor laws of Saudi Arabia do
not require any certification by a competent public health authority in the dismissal of employees due to illness.
Again, petitioners argument is without merit.
First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in this jurisdiction.
There is no question that the contract of employment in this case was perfected here in the Philippines. Therefore, the Labor
Code, its implementing rules and regulations, and other laws affecting labor apply in this case. Furthermore, settled is the rule that
the courts of the forum will not enforce any foreign claim obnoxious to the forums public policy. Here in the Philippines, employment
agreements are more than contractual in nature. The Constitution itself, in Article XIII, Section 3, guarantees the special protection of
workers, to wit:
chanRoble svirtualLawlibrary

The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of
employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities,
including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage.
They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.
....

chanrobleslaw

This public policy should be borne in mind in this case because to allow foreign employers to determine for and by themselves whether an

overseas contract worker may be dismissed on the ground of illness would encourage illegal or arbitrary pre-termination of employment
contracts.66 (Emphasis supplied, citation omitted)
Even with respect to fundamental procedural rights, this court emphasized in PCL Shipping Philippines, Inc. v. NLRC,67 to wit:

chanRoblesvirtualLa wlibrary

Petitioners admit that they did not inform private respondent in writing of the charges against him and that they failed to conduct a formal
investigation to give him opportunity to air his side. However, petitioners contend that the twin requirements of notice and hearing applies
strictly only when the employment is within the Philippines and that these need not be strictly observed in cases of international maritime or
overseas employment.
The Court does not agree. The provisions of the Constitution as well as the Labor Code which afford protection to labor apply to
Filipino employees whether working within the Philippines or abroad. Moreover, the principle of lex loci contractus (the law of
the place where the contract is made) governs in this jurisdiction. In the present case, it is not disputed that the Contract of
Employment entered into by and between petitioners and private respondent was executed here in the Philippines with the approval of the
Philippine Overseas Employment Administration (POEA). Hence, the Labor Code together with its implementing rules and regulations and
other laws affecting labor apply in this case.68 (Emphasis supplied, citations omitted)
By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or authorized cause and after compliance with procedural
due process requirements.
Article 282 of the Labor Code enumerates the just causes of termination by the employer. Thus:

chanRoble svirtualLawlibrary

Art. 282. Termination by employer. An employer may terminate an employment for any of the following causes:

cralawla wlibrary

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his
work;
chanroble svirtuallawlibrary

(b) Gross and habitual neglect by the employee of his duties;

chanroble svirtuallawlibrary

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

chanroble svirtuallawlibrary

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly
authorized representatives; and
ChanRoblesVirtualawlibrary

(e) Other causes analogous to the foregoing.


Petitioners allegation that respondent was inefficient in her work and negligent in her duties 69 may, therefore, constitute a just cause for
termination under Article 282(b), but only if petitioner was able to prove it.
The burden of proving that there is just cause for termination is on the employer. The employer must affirmatively show rationally adequate
evidence that the dismissal was for a justifiable cause.70 Failure to show that there was valid or just cause for termination would necessarily
mean that the dismissal was illegal.71
cralawred

To show that dismissal resulting from inefficiency in work is valid, it must be shown that: 1) the employer has set standards of conduct and
workmanship against which the employee will be judged; 2) the standards of conduct and workmanship must have been communicated to the
employee; and 3) the communication was made at a reasonable time prior to the employees performance assessment.
This is similar to the law and jurisprudence on probationary employees, which allow termination of the employee only when there is just
cause or when [the probationary employee] fails to qualify as a regular employee in accordance with reasonable standards made known by
the employer to the employee at the time of his [or her] engagement.72
cralawre d

However, we do not see why the application of that ruling should be limited to probationary employment. That rule is basic to the idea of
security of tenure and due process, which are guaranteed to all employees, whether their employment is probationary or regular.
The pre-determined standards that the employer sets are the bases for determining the probationary employees fitness, propriety, efficiency,
and qualifications as a regular employee. Due process requires that the probationary employee be informed of such standards at the time of
his or her engagement so he or she can adjust his or her character or workmanship accordingly. Proper adjustment to fit the standards upon
which the employees qualifications will be evaluated will increase ones chances of being positively assessed for regularization by his or her
employer.
Assessing an employees work performance does not stop after regularization. The employer, on a regular basis, determines if an employee is
still qualified and efficient, based on work standards. Based on that determination, and after complying with the due process requirements of
notice and hearing, the employer may exercise its management prerogative of terminating the employee found unqualified.
The regular employee must constantly attempt to prove to his or her employer that he or she meets all the standards for employment. This
time, however, the standards to be met are set for the purpose of retaining employment or promotion. The employee cannot be expected to
meet any standard of character or workmanship if such standards were not communicated to him or her. Courts should remain vigilant on
allegations of the employers failure to communicate work standards that would govern ones employment if [these are] to discharge in good
faith [their] duty to adjudicate.73
cralawre d

In this case, petitioner merely alleged that respondent failed to comply with her foreign employers work requirements and was inefficient in
her work.74No evidence was shown to support such allegations. Petitioner did not even bother to specify what requirements were not met,
what efficiency standards were violated, or what particular acts of respondent constituted inefficiency.
There was also no showing that respondent was sufficiently informed of the standards against which her work efficiency and performance
were judged. The parties conflict as to the position held by respondent showed that even the matter as basic as the job title
was not clear.
The bare allegations of petitioner are not sufficient to support a claim that there is just cause for termination. There is no proof that
respondent was legally terminated.

Petitioner failed to comply with


the due process requirements
Respondents dismissal less than one year from hiring and her repatriation on the same day show not only failure on the part of petitioner to
comply with the requirement of the existence of just cause for termination. They patently show that the employers did not comply with the
due process requirement.
A valid dismissal requires both a valid cause and adherence to the valid procedure of dismissal. 75The employer is required to give the charged
employee at least two written notices before termination. 76 One of the written notices must inform the employee of the particular acts that
may cause his or her dismissal.77 The other notice must [inform] the employee of the employers decision.78 Aside from the notice
requirement, the employee must also be given an opportunity to be heard.79
cralawre d

Petitioner failed to comply with the twin notices and hearing requirements. Respondent started working on June 26, 1997. She was told that
she was terminated on July 14, 1997 effective on the same day and barely a month from her first workday. She was also repatriated on the
same day that she was informed of her termination. The abruptness of the termination negated any finding that she was properly notified and
given the opportunity to be heard. Her constitutional right to due process of law was violated.
II
Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for the unexpired portion of the employment contract that
was violated together with attorneys fees and reimbursement of amounts withheld from her salary.
Section 10 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, states that overseas
workers who were terminated without just, valid, or authorized cause shall be entitled to the full reimbursement of his placement fee with
interest of twelve (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months for every
year of the unexpired term, whichever is less.
Sec. 10. MONEY CLAIMS. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations
Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after filing of the
complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual, moral, exemplary and other forms of damages.
The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and
several. This provisions [sic] shall be incorporated in the contract for overseas employment and shall be a condition precedent for its approval.
The performance bond to be filed by the recruitment/placement agency, as provided by law, shall be answerable for all money claims or
damages that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers and directors
and partners as the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims
and damages.
Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected by any substitution,
amendment or modification made locally or in a foreign country of the said contract.
Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section shall be paid within
four (4) months from the approval of the settlement by the appropriate authority.
In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the workers shall be
entitled to the full reimbursement of his placement fee with interest of twelve (12%) per annum, plus his salaries for the unexpired portion of
his employment contract or for three (3) months for every year of the unexpired term, whichever is less.
....
(Emphasis supplied)

chanroble slaw

Section 15 of Republic Act No. 8042 states that repatriation of the worker and the transport of his [or her] personal belongings shall be the
primary responsibility of the agency which recruited or deployed the worker overseas. The exception is when termination of employment is
due solely to the fault of the worker,80 which as we have established, is not the case. It reads:
chanRoble svirtualLawlibrary

SEC. 15. REPATRIATION OF WORKERS; EMERGENCY REPATRIATION FUND. The repatriation of the worker and the transport of his personal
belongings shall be the primary responsibility of the agency which recruited or deployed the worker overseas. All costs attendant to
repatriation shall be borne by or charged to the agency concerned and/or its principal. Likewise, the repatriation of remains and transport of
the personal belongings of a deceased worker and all costs attendant thereto shall be borne by the principal and/or local agency. However, in
cases where the termination of employment is due solely to the fault of the worker, the principal/employer or agency shall not in any manner
be responsible for the repatriation of the former and/or his belongings.
....
The Labor Code81 also entitles the employee to 10% of the amount of withheld wages as attorneys fees when the withholding is unlawful.
The Court of Appeals affirmed the National Labor Relations Commissions decision to award respondent NT$46,080.00 or the three-month
equivalent of her salary, attorneys fees of NT$300.00, and the reimbursement of the withheld NT$3,000.00 salary, which answered for her
repatriation.
We uphold the finding that respondent is entitled to all of these awards. The award of the three-month equivalent of respondents
salary should, however, be increased to the amount equivalent to the unexpired term of the employment contract.
In Serrano v. Gallant Maritime Services, Inc. and Marlow Navigation Co., Inc.,82 this court ruled that the clause or for three (3) months for
every year of the unexpired term, whichever is less 83 is unconstitutional for violating the equal protection clause and substantive due
process.84
cralawred

A statute or provision which was declared unconstitutional is not a law. It confers no rights; it imposes no duties; it affords no protection; it
creates no office; it is inoperative as if it has not been passed at all.85
cralawred

We are aware that the clause or for three (3) months for every year of the unexpired term, whichever is less was reinstated in Republic Act
No. 8042 upon promulgation of Republic Act No. 10022 in 2010. Section 7 of Republic Act No. 10022 provides:
chanRoblesvirtualLa wlibrary

Section 7. Section 10 of Republic Act No. 8042, as amended, is hereby amended to read as follows:

chanRoblesvirtualLa wlibrary

SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission
(NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint,
the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas
deployment including claims for actual, moral, exemplary and other forms of damage. Consistent with this mandate, the NLRC shall endeavor
to update and keep abreast with the developments in the global services industry.
The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and
several. This provision shall be incorporated in the contract for overseas employment and shall be a condition precedent for its approval. The
performance bond to de [sic] filed by the recruitment/placement agency, as provided by law, shall be answerable for all money claims or
damages that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers and directors
and partners as the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims
and damages.
Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected by any substitution,
amendment or modification made locally or in a foreign country of the said contract.
Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section shall be paid within
thirty (30) days from approval of the settlement by the appropriate authority.
In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, or any unauthorized
deductions from the migrant workers salary, the worker shall be entitled to the full reimbursement if [sic] his placement fee and the
deductions made with interest at twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or
for three (3) months for every year of the unexpired term, whichever is less.
In case of a final and executory judgement against a foreign employer/principal, it shall be automatically disqualified, without further
proceedings, from participating in the Philippine Overseas Employment Program and from recruiting and hiring Filipino workers until and
unless it fully satisfies the judgement award.
Noncompliance with the mandatory periods for resolutions of case provided under this section shall subject the responsible officials to any or
all of the following penalties:
cralawlawlibrary

(a) The salary of any such official who fails to render his decision or resolution within the prescribed period shall be, or caused to be, withheld
until the said official complies therewith;
chanroblesvirtuallawlibrary

(b) Suspension for not more than ninety (90) days; or


(c) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.
Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official may have incured [sic]
under other existing laws or rules and regulations as a consequence of violating the provisions of this paragraph. (Emphasis supplied)
Republic Act No. 10022 was promulgated on March 8, 2010. This means that the reinstatement of the clause in Republic Act No. 8042 was not
yet in effect at the time of respondents termination from work in 1997. 86 Republic Act No. 8042 before it was amended by Republic Act No.
10022 governs this case.
When a law is passed, this court awaits an actual case that clearly raises adversarial positions in their proper context before considering a
prayer to declare it as unconstitutional.
However, we are confronted with a unique situation. The law passed incorporates the exact clause already declared as unconstitutional,
without any perceived substantial change in the circumstances.
This may cause confusion on the part of the National Labor Relations Commission and the Court of Appeals. At minimum, the existence of
Republic Act No. 10022 may delay the execution of the judgment in this case, further frustrating remedies to assuage the wrong done to
petitioner. Hence, there is a necessity to decide this constitutional issue.
Moreover, this court is possessed with the constitutional duty to [p]romulgate rules concerning the protection and enforcement of
constitutional rights.87 When cases become moot and academic, we do not hesitate to provide for guidance to bench and bar in situations
where the same violations are capable of repetition but will evade review. This is analogous to cases where there are millions of Filipinos
working abroad who are bound to suffer from the lack of protection because of the restoration of an identical clause in a provision previously
declared as unconstitutional.
In the hierarchy of laws, the Constitution is supreme. No branch or office of the government may exercise its powers in any manner
inconsistent with the Constitution, regardless of the existence of any law that supports such exercise. The Constitution cannot be trumped by
any other law. All laws must be read in light of the Constitution. Any law that is inconsistent with it is a nullity.
Thus, when a law or a provision of law is null because it is inconsistent with the Constitution, the nullity cannot be cured by reincorporation or
reenactment of the same or a similar law or provision. A law or provision of law that was already declared unconstitutional remains as such
unless circumstances have so changed as to warrant a reverse conclusion.
We are not convinced by the pleadings submitted by the parties that the situation has so changed so as to cause us to reverse binding
precedent.

Likewise, there are special reasons of judicial efficiency and economy that attend to these cases.
The new law puts our overseas workers in the same vulnerable position as they were prior toSerrano. Failure to reiterate the very ratio
decidendi of that case will result in the same untold economic hardships that our reading of the Constitution intended to avoid. Obviously, we
cannot countenance added expenses for further litigation that will reduce their hard-earned wages as well as add to the indignity of having
been deprived of the protection of our laws simply because our precedents have not been followed. There is no constitutional doctrine that
causes injustice in the face of empty procedural niceties. Constitutional interpretation is complex, but it is never unreasonable.
Thus, in a resolution88 dated October 22, 2013, we ordered the parties and the Office of the Solicitor General to comment on the
constitutionality of the reinstated clause in Republic Act No. 10022.
In its comment,89 petitioner argued that the clause was constitutional. 90 The legislators intended a balance between the employers and the
employees rights by not unduly burdening the local recruitment agency.91 Petitioner is also of the view that the clause was already declared
as constitutional in Serrano.92
cralawre d

The Office of the Solicitor General also argued that the clause was valid and constitutional. 93However, since the parties never raised the issue
of the constitutionality of the clause as reinstated in Republic Act No. 10022, its contention is that it is beyond judicial review. 94
cralawre d

On the other hand, respondent argued that the clause was unconstitutional because it infringed on workers right to contract.

95
cralawred

We observe that the reinstated clause, this time as provided in Republic Act. No. 10022, violates the constitutional rights to equal protection
and due process.96 Petitioner as well as the Solicitor General have failed to show any compelling change in the circumstances that would
warrant us to revisit the precedent.
We reiterate our finding in Serrano v. Gallant Maritime that limiting wages that should be recovered by an illegally dismissed
overseas worker to three months is both a violation of due process and the equal protection clauses of the Constitution.
Equal protection of the law is a guarantee that persons under like circumstances and falling within the same class are treated alike, in terms
of privileges conferred and liabilities enforced.97 It is a guarantee against undue favor and individual or class privilege, as well as hostile
discrimination or the oppression of inequality.98
cralawred

In creating laws, the legislature has the power to make distinctions and classifications.99 In exercising such power, it has a wide
discretion.100
cralawre d

The equal protection clause does not infringe on this legislative power.101 A law is void on this basis, only if classifications are made
arbitrarily.102 There is no violation of the equal protection clause if the law applies equally to persons within the same class and if there are
reasonable grounds for distinguishing between those falling within the class and those who do not fall within the class. 103 A law that does not
violate the equal protection clause prescribes a reasonable classification. 104
cralawred

A reasonable classification (1) must rest on substantial distinctions; (2) must be germane to the purposes of the law; (3) must not be limited
to existing conditions only; and (4) must apply equally to all members of the same class.105
cralawre d

The reinstated clause does not satisfy the requirement of reasonable classification.
In Serrano, we identified the classifications made by the reinstated clause. It distinguished between fixed-period overseas workers and fixedperiod local workers.106 It also distinguished between overseas workers with employment contracts of less than one year and overseas
workers with employment contracts of at least one year.107 Within the class of overseas workers with at least one-year employment contracts,
there was a distinction between those with at least a year left in their contracts and those with less than a year left in their contracts when
they were illegally dismissed.108
cralawred

The Congress classification may be subjected to judicial review. In Serrano, there is a legislative classification which impermissibly interferes
with the exercise of a fundamental right or operates to the peculiar disadvantage of a suspect class.109
cralawred

Under the Constitution, labor is afforded special protection. Thus, this court in Serrano, [i]mbued with the same sense of obligation to
afford protection to labor, . . . employ[ed] the standard of strict judicial scrutiny, for it perceive[d] in the subject clause a suspect
classification prejudicial to OFWs.111
110

cralawre d

We also noted in Serrano that before the passage of Republic Act No. 8042, the money claims of illegally terminated overseas and local
workers with fixed-term employment were computed in the same manner.112 Their money claims were computed based on the unexpired
portions of their contracts.113 The adoption of the reinstated clause in Republic Act No. 8042 subjected the money claims of illegally dismissed
overseas workers with an unexpired term of at least a year to a cap of three months worth of their salary.114 There was no such limitation on
the money claims of illegally terminated local workers with fixed-term employment. 115
cralawred

We observed that illegally dismissed overseas workers whose employment contracts had a term of less than one year were granted the
amount equivalent to the unexpired portion of their employment contracts. 116 Meanwhile, illegally dismissed overseas workers with
employment terms of at least a year were granted a cap equivalent to three months of their salary for the unexpired portions of their
contracts.117
cralawred

Observing the terminologies used in the clause, we also found that the subject clause creates a sub-layer of discrimination among OFWs
whose contract periods are for more than one year: those who are illegally dismissed with less than one year left in their contracts shall be
entitled to their salaries for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more remaining in
their contracts shall be covered by the reinstated clause, and their monetary benefits limited to their salaries for three months only.118
cralawre d

We do not need strict scrutiny to conclude that these classifications do not rest on any real or substantial distinctions that would justify
different treatments in terms of the computation of money claims resulting from illegal termination.
Overseas workers regardless of their classifications are entitled to security of tenure, at least for the period agreed upon in their contracts.
This means that they cannot be dismissed before the end of their contract terms without due process. If they were illegally dismissed, the
workers right to security of tenure is violated.
The rights violated when, say, a fixed-period local worker is illegally terminated are neither greater than nor less than the rights violated when
a fixed-period overseas worker is illegally terminated. It is state policy to protect the rights of workers without qualification as to the place of

employment.119In both cases, the workers are deprived of their expected salary, which they could have earned had they not been illegally
dismissed. For both workers, this deprivation translates to economic insecurity and disparity.120 The same is true for the distinctions between
overseas workers with an employment contract of less than one year and overseas workers with at least one year of employment contract,
and between overseas workers with at least a year left in their contracts and overseas workers with less than a year left in their contracts
when they were illegally dismissed.
For this reason, we cannot subscribe to the argument that [overseas workers] are contractual employees who can never acquire regular
employment status, unlike local workers121 because it already justifies differentiated treatment in terms of the computation of money
claims.122
cralawre d

Likewise, the jurisdictional and enforcement issues on overseas workers money claims do not justify a differentiated treatment in the
computation of their money claims.123 If anything, these issues justify an equal, if not greater protection and assistance to overseas workers
who generally are more prone to exploitation given their physical distance from our government.
We also find that the classifications are not relevant to the purpose of the law, which is to establish a higher standard of protection and
promotion of the welfare of migrant workers, their families and overseas Filipinos in distress, and for other purposes.124 Further, we find
specious the argument that reducing the liability of placement agencies redounds to the benefit of the [overseas] workers.125
cralawred

Putting a cap on the money claims of certain overseas workers does not increase the standard of protection afforded to them. On the other
hand, foreign employers are more incentivized by the reinstated clause to enter into contracts of at least a year because it gives them more
flexibility to violate our overseas workers rights. Their liability for arbitrarily terminating overseas workers is decreased at the expense of the
workers whose rights they violated. Meanwhile, these overseas workers who are impressed with an expectation of a stable job overseas for
the longer contract period disregard other opportunities only to be terminated earlier. They are left with claims that are less than what others
in the same situation would receive. The reinstated clause, therefore, creates a situation where the law meant to protect them makes
violation of rights easier and simply benign to the violator.
As Justice Brion said in his concurring opinion in Serrano:

chanRoble svirtualLawlibrary

Section 10 of R.A. No. 8042 affects these well-laid rules and measures, and in fact provides a hidden twist affecting the principal/employers
liability. While intended as an incentive accruing to recruitment/manning agencies, the law, as worded, simply limits the OFWs recovery in
wrongful dismissal situations. Thus, it redounds to the benefit of whoever may be liable, including the principal/employer the direct
employer primarily liable for the wrongful dismissal. In this sense, Section 10 read as a grant of incentives to recruitment/manning agencies
oversteps what it aims to do by effectively limiting what is otherwise the full liability of the foreign principals/employers.Section 10, in short,
really operates to benefit the wrong party and allows that party, without justifiable reason, to mitigate its liability for wrongful dismissals.
Because of this hidden twist, the limitation of liability under Section 10 cannot be an appropriate incentive, to borrow the term that R.A. No.
8042 itself uses to describe the incentive it envisions under its purpose clause.
What worsens the situation is the chosen mode of granting the incentive: instead of a grant that, to encourage greater efforts at recruitment,
is directly related to extra efforts undertaken, the law simply limits their liability for the wrongful dismissals of already deployed OFWs. This is
effectively a legally-imposed partial condonation of their liability to OFWs, justified solely by the laws intent to encourage greater deployment
efforts. Thus, the incentive, from a more practical and realistic view, is really part of a scheme to sell Filipino overseas labor at a bargain for
purposes solely of attracting the market. . . .
The so-called incentive is rendered particularly odious by its effect on the OFWs the benefits accruing to the recruitment/manning agencies
and their principals are taken from the pockets of the OFWs to whom the full salaries for the unexpired portion of the contract rightfully
belong. Thus, the principals/employers and the recruitment/manning agencies even profit from their violation of the security of tenure that an
employment contract embodies. Conversely, lesser protection is afforded the OFW, not only because of the lessened recovery afforded him or
her by operation of law, but also because this same lessened recovery renders a wrongful dismissal easier and less onerous to undertake; the
lesser cost of dismissing a Filipino will always be a consideration a foreign employer will take into account in termination of employment
decisions. . . .126
Further, [t]here can never be a justification for any form of government action that alleviates the burden of one sector, but imposes the same
burden on another sector, especially when the favored sector is composed of private businesses such as placement agencies, while the
disadvantaged sector is composed of OFWs whose protection no less than the Constitution commands. The idea that private business interest
can be elevated to the level of a compelling state interest is odious.127
cralawred

Along the same line, we held that the reinstated clause violates due process rights. It is arbitrary as it deprives overseas workers of their
monetary claims without any discernable valid purpose.128
cralawred

Respondent Joy Cabiles is entitled to her salary for the unexpired portion of her contract, in accordance with Section 10 of Republic Act No.
8042. The award of the three-month equivalence of respondents salary must be modified accordingly. Since she started working on June 26,
1997 and was terminated on July 14, 1997, respondent is entitled to her salary from July 15, 1997 to June 25, 1998. To rule otherwise would
be iniquitous to petitioner and other OFWs, and would, in effect, send a wrong signal that principals/employers and recruitment/manning
agencies may violate an OFWs security of tenure which an employment contract embodies and actually profit from such violation based on an
unconstitutional provision of law.129
cralawred

III
On the interest rate, the Bangko Sentral ng Pilipinas Circular No. 799 of June 21, 2013, which revised the interest rate for loan or forbearance
from 12% to 6% in the absence of stipulation, applies in this case. The pertinent portions of Circular No. 799, Series of 2013, read:
chanRoble svirtualLawlibrary

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
cralawlawlibrary

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence
of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of
the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.


Through the able ponencia of Justice Diosdado Peralta, we laid down the guidelines in computing legal interest in Nacar v. Gallery Frames:130

cralawre d

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
chanRoblesvirtualLa wlibrary

1.

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest fixed therein. 131
Circular No. 799 is applicable only in loans and forbearance of money, goods, or credits, and in judgments when there is no stipulation on the
applicable interest rate. Further, it is only applicable if the judgment did not become final and executory before July 1, 2013. 132
cralawre d

We add that Circular No. 799 is not applicable when there is a law that states otherwise. While the Bangko Sentral ng Pilipinas has the power
to set or limit interest rates,133 these interest rates do not apply when the law provides that a different interest rate shall be applied. [A]
Central Bank Circular cannot repeal a law. Only a law can repeal another law.134
cralawre d

For example, Section 10 of Republic Act No. 8042 provides that unlawfully terminated overseas workers are entitled to the reimbursement of
his or her placement fee with an interest of 12% per annum. Since Bangko Sentral ng Pilipinas circulars cannot repeal Republic Act No. 8042,
the issuance of Circular No. 799 does not have the effect of changing the interest on awards for reimbursement of placement fees from 12%
to 6%. This is despite Section 1 of Circular No. 799, which provides that the 6% interest rate applies even to judgments.
Moreover, laws are deemed incorporated in contracts. The contracting parties need not repeat them. They do not even have to be referred to.
Every contract, thus, contains not only what has been explicitly stipulated, but the statutory provisions that have any bearing on the
matter.135 There is, therefore, an implied stipulation in contracts between the placement agency and the overseas worker that in case the
overseas worker is adjudged as entitled to reimbursement of his or her placement fees, the amount shall be subject to a 12% interest per
annum. This implied stipulation has the effect of removing awards for reimbursement of placement fees from Circular No. 799s coverage.
The same cannot be said for awards of salary for the unexpired portion of the employment contract under Republic Act No. 8042. These
awards are covered by Circular No. 799 because the law does not provide for a specific interest rate that should apply.
In sum, if judgment did not become final and executory before July 1, 2013 and there was no stipulation in the contract providing for a
different interest rate, other money claims under Section 10 of Republic Act No. 8042 shall be subject to the 6% interest per annum in
accordance with Circular No. 799.
This means that respondent is also entitled to an interest of 6% per annum on her money claims from the finality of this judgment.
IV
Finally, we clarify the liabilities of Wacoal as principal and petitioner as the employment agency that facilitated respondents overseas
employment.
Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that the foreign employer and the local employment agency
are jointly and severally liable for money claims including claims arising out of an employer-employee relationship and/or damages. This
section also provides that the performance bond filed by the local agency shall be answerable for such money claims or damages if they were
awarded to the employee.
This provision is in line with the states policy of affording protection to labor and alleviating workers plight. 136

cralawred

In overseas employment, the filing of money claims against the foreign employer is attended by practical and legal complications. The
distance of the foreign employer alone makes it difficult for an overseas worker to reach it and make it liable for violations of the Labor Code.
There are also possible conflict of laws, jurisdictional issues, and procedural rules that may be raised to frustrate an overseas workers
attempt to advance his or her claims.
It may be argued, for instance, that the foreign employer must be impleaded in the complaint as an indispensable party without which no final
determination can be had of an action.137
cralawre d

The provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995 assures overseas workers that their
rights will not be frustrated with these complications.
The fundamental effect of joint and several liability is that each of the debtors is liable for the entire obligation.138 A final determination may,
therefore, be achieved even if only one of the joint and several debtors are impleaded in an action. Hence, in the case of overseas
employment, either the local agency or the foreign employer may be sued for all claims arising from the foreign employers labor law
violations. This way, the overseas workers are assured that someone the foreign employers local agent may be made to answer for
violations that the foreign employer may have committed.
The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas workers have recourse in law despite the circumstances of
their employment. By providing that the liability of the foreign employer may be enforced to the full extent 139 against the local agent, the
overseas worker is assured of immediate and sufficient payment of what is due them. 140
cralawre d

Corollary to the assurance of immediate recourse in law, the provision on joint and several liability in the Migrant Workers and Overseas
Filipinos Act of 1995 shifts the burden of going after the foreign employer from the overseas worker to the local employment agency.
However, it must be emphasized that the local agency that is held to answer for the overseas workers money claims is not left without
remedy. The law does not preclude it from going after the foreign employer for reimbursement of whatever payment it has made to the
employee to answer for the money claims against the foreign employer.
A further implication of making local agencies jointly and severally liable with the foreign employer is that an additional layer of protection is
afforded to overseas workers. Local agencies, which are businesses by nature, are inoculated with interest in being always on the lookout
against foreign employers that tend to violate labor law. Lest they risk their reputation or finances, local agencies must already have
mechanisms for guarding against unscrupulous foreign employers even at the level prior to overseas employment applications.
With the present state of the pleadings, it is not possible to determine whether there was indeed a transfer of obligations from petitioner to
Pacific. This should not be an obstacle for the respondent overseas worker to proceed with the enforcement of this judgment. Petitioner is
possessed with the resources to determine the proper legal remedies to enforce its rights against Pacific, if any.
V
Many times, this court has spoken on what Filipinos may encounter as they travel into the farthest and most difficult reaches of our planet to
provide for their families. In Prieto v. NLRC:141
cralawred

The Court is not unaware of the many abuses suffered by our overseas workers in the foreign land where they have ventured, usually with
heavy hearts, in pursuit of a more fulfilling future. Breach of contract, maltreatment, rape, insufficient nourishment, sub-human lodgings,
insults and other forms of debasement, are only a few of the inhumane acts to which they are subjected by their foreign employers, who
probably feel they can do as they please in their own country. While these workers may indeed have relatively little defense against
exploitation while they are abroad, that disadvantage must not continue to burden them when they return to their own territory to voice their
muted complaint. There is no reason why, in their very own land, the protection of our own laws cannot be extended to them in full measure
for the redress of their grievances.142
chanroble slaw

But it seems that we have not said enough.


We face a diaspora of Filipinos. Their travails and their heroism can be told a million times over; each of their stories as real as any other.
Overseas Filipino workers brave alien cultures and the heartbreak of families left behind daily. They would count the minutes, hours, days,
months, and years yearning to see their sons and daughters. We all know of the joy and sadness when they come home to see them all
grown up and, being so, they remember what their work has cost them. Twitter accounts, Facetime, and many other gadgets and online
applications will never substitute for their lost physical presence.
Unknown to them, they keep our economy afloat through the ebb and flow of political and economic crises. They are our true diplomats, they
who show the world the resilience, patience, and creativity of our people. Indeed, we are a people who contribute much to the provision of
material creations of this world.
This government loses its soul if we fail to ensure decent treatment for all Filipinos. We default by limiting the contractual wages that should
be paid to our workers when their contracts are breached by the foreign employers. While we sit, this court will ensure that our laws will
reward our overseas workers with what they deserve: their dignity.
Inevitably, their dignity is ours as well.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED with modification. Petitioner Sameer Overseas
Placement Agency is ORDERED to pay respondent Joy C. Cabiles the amount equivalent to her salary for the unexpired portion of her
employment contract at an interest of 6% per annum from the finality of this judgment. Petitioner is also ORDERED to reimburse respondent
the withheld NT$3,000.00 salary and pay respondent attorneys fees of NT$300.00 at an interest of 6% per annum from the finality of this
judgment.
The clause, or for three (3) months for every year of the unexpired term, whichever is less in Section 7 of Republic Act No. 10022 amending
Section 10 of Republic Act No. 8042 is declared unconstitutional and, therefore, null and void.
SO ORDERED.

FIRST DIVISION
G.R. No. 170087 August 31, 2006
ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO ACEDO,
DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and
Resolution of the Court of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515
dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court
reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, 3 in NLRC
NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, 4 in NLRCNCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and
Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as
Liaison Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial
operation of the company. 5
Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did she
attend any board meeting nor required to do so. She never prepared any legal document and never represented the
company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the
company. 6
In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of petitioner.
As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management administration
functions; represent the company in all dealings with government agencies, especially with the Bureau of Internal Revenue
(BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other matters pertaining to
the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7
For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00 plus
P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign a
prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation.
Timoteo Acedo, the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced that
nothing had changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji Kamura
and in charge of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a total
reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the company
was not earning well. On October 2001, petitioner did not receive her salary from the company. She made repeated followups with the company cashier but she was advised that the company was not earning well. 10
On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she is
no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal
before the labor arbiter.
Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was hired
in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As technical
consultant, petitioner performed her work at her own discretion without control and supervision of Kasei Corporation.
Petitioner had no daily time record and she came to the office any time she wanted. The company never interfered with her
work except that from time to time, the management would ask her opinion on matters relating to her profession. Petitioner
did not go through the usual procedure of selection of employees, but her services were engaged through a Board
Resolution designating her as technical consultant. The money received by petitioner from the corporation was her
professional fee subject to the 10% expanded withholding tax on professionals, and that she was not one of those reported
to the BIR or SSS as one of the companys employees. 12
Petitioners designation as technical consultant depended solely upon the will of management. As such, her consultancy
may be terminated any time considering that her services were only temporary in nature and dependent on the needs of the
corporation.
To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the
years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR, as
well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also submitted
showing that petitioners latest employer was Seiji Corporation. 13
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. finding complainant an employee of respondent corporation;
2. declaring complainants dismissal as illegal;
3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and
severally pay complainant her money claims in accordance with the following computation:
a. Backwages 10/2001 07/2002 275,000.00
(27,500 x 10 mos.)
b. Salary Differentials (01/2001 09/2001) 22,500.00
c. Housing Allowance (01/2001 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50

P957,742.50
If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional backwages
that would accrue up to actual payment of separation pay.
SO ORDERED. 14
On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which
reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to full
backwages from October 2001 to July 31, 2002;
2) The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of
P100,000.00 and P361,175.00 are deleted;
3) The award of 10% attorneys fees shall be based on salary differential award only;
4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED.
SO ORDERED. 15
On appeal, the Court of Appeals reversed the NLRC decision, thus:
WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated
April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the complaint filed by
private respondent against Kasei Corporation, et al. for constructive dismissal.
SO ORDERED. 16
The appellate court denied petitioners motion for reconsideration, hence, the present recourse.
The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between petitioner
and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally dismissed.
Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and the
Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions espoused by
the contending parties is supported by substantial evidence. 17
We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence of
an employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for
whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used
in reaching such end. In addition to the standard of right-of-control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an employer-employee
relationship.
However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the parties,
owing to the complexity of such a relationship where several positions have been held by the worker. There are instances
when, aside from the employers power to control the employee with respect to the means and methods by which the work is
to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true
classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employers power to control the
employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic
realities of the activity or relationship.
This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of
circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this case
where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the worker over the period of the latters
employment.
The control test initially found application in the case of Viaa v. Al-Lagadan and Piga, 19 and lately in Leonardo v. Court of
Appeals, 20 where we held that there is an employer-employee relationship when the person for whom the services are
performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end.
In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions prevailing between the
parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer
picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic
circumstances of the worker.
Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole
economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employers business;
(2) the extent of the workers investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the workers opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for
the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker
and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that
line of business. 23
The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued
employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing possible
employment relationships for purposes of the Federal Labor Standards Act is dependency. 25By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic
dependence of the worker on his employer.
By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under
the direct control and supervision of Seiji Kamura, the corporations Technical Consultant. She reported for work regularly
and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and
performing functions necessary and desirable for the proper operation of the corporation such as securing business permits
and other licenses over an indefinite period of engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation
because she had served the company for six years before her dismissal, receiving check vouchers indicating her
salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions
from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation
made a report to the SSS signed by Irene Ballesteros. Petitioners membership in the SSS as manifested by a copy of the
SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the
on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and
respondent corporation. 27
It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in
the latters line of business.
In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is
provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that

issues it. Together with the cash vouchers covering petitioners salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent.
We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter were
the formers employees. The coverage of Social Security Law is predicated on the existence of an employer-employee
relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as
Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioners job was as
Kamuras direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction
permits, license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with
corporate documents of the company, nor required to attend the meeting of the corporation. She was never privy to the
preparation of any document for the corporation, although once in a while she was required to sign prepared documentation
for the company. 30
The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly
withdrawn by Kamura himself from the records of the case. 31 Regardless of this fact, we are convinced that the allegations
in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any
retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make
solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation
does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility
and should be received with caution. 33
Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation.
She was selected and engaged by the company for compensation, and is economically dependent upon respondent for her
continued employment in that line of business. Her main job function involved accounting and tax services rendered to
respondent corporation on a regular basis over an indefinite period of engagement. Respondent corporation hired and
engaged petitioner for compensation, with the power to dismiss her for cause. More importantly, respondent corporation had
the power to control petitioner with the means and methods by which the work is to be accomplished.
The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to
September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages.
Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement. 34
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an
involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible,
unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. FlorendoFlores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to
continue working for her employer. Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.
In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as
we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of
the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable
employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and
protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social
justice and national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004 and
October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National

Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, isREINSTATED. The case
is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Franciscos full backwages from the time she
was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay for
every year of service, where a fraction of at least six months shall be considered as one whole year.
SO ORDERED.

G.R. No. L-48494 February 5, 1990


BRENT SCHOOL, INC., and REV. GABRIEL DIMACHE, petitioners,
vs.
RONALDO ZAMORA, the Presidential Assistant for Legal Affairs, Office of the President, and DOROTEO R.
ALEGRE, respondents.
Quasha, Asperilla, Ancheta, Pea & Nolasco for petitioners.
Mauricio G. Domogon for respondent Alegre.

NARVASA, J.:
The question presented by the proceedings at bar 1 is whether or not the provisions of the Labor Code, 2 as

amended,3 have anathematized "fixed period employment" or employment for a term.


The root of the controversy at bar is an employment contract in virtue of which Doroteo R. Alegre was engaged as athletic
director by Brent School, Inc. at a yearly compensation of P20,000.00. 4 The contract fixed a specific term for its

existence, five (5) years, i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976.
Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and September 14, 1974
reiterated the same terms and conditions, including the expiry date, as those contained in the original
contract of July 18, 1971. 5
Some three months before the expiration of the stipulated period, or more precisely on April 20,1976, Alegre was given a
copy of the report filed by Brent School with the Department of Labor advising of the termination of his services effective on
July 16, 1976. The stated ground for the termination was "completion of contract, expiration of the definite period of
employment." And a month or so later, on May 26, 1976, Alegre accepted the amount of P3,177.71, and signed a receipt
therefor containing the phrase, "in full payment of services for the period May 16, to July 17, 1976 as full payment of
contract."
However, at the investigation conducted by a Labor Conciliator of said report of termination of his services, Alegre protested
the announced termination of his employment. He argued that although his contract did stipulate that the same would
terminate on July 17, 1976, since his services were necessary and desirable in the usual business of his employer, and his
employment had lasted for five years, he had acquired the status of a regular employee and could not be removed except
for valid cause. 6 The Regional Director considered Brent School's report as an application for clearance to

terminate employment (not a report of termination), and accepting the recommendation of the Labor
Conciliator, refused to give such clearance and instead required the reinstatement of Alegre, as a
"permanent employee," to his former position without loss of seniority rights and with full back wages. The
Director pronounced "the ground relied upon by the respondent (Brent) in terminating the services of the
complainant (Alegre) . . . (as) not sanctioned by P.D. 442," and, quite oddly, as prohibited by Circular No.
8, series of 1969, of the Bureau of Private Schools. 7
Brent School filed a motion for reconsideration. The Regional Director denied the motion and forwarded the case to the
Secretary of Labor for review. 8 The latter sustained the Regional Director. 9 Brent appealed to the Office of the

President. Again it was rebuffed. That Office dismissed its appeal for lack of merit and affirmed the Labor
Secretary's decision, ruling that Alegre was a permanent employee who could not be dismissed except for
just cause, and expiration of the employment contract was not one of the just causes provided in the
Labor Code for termination of services. 10

The School is now before this Court in a last attempt at vindication. That it will get here.
The employment contract between Brent School and Alegre was executed on July 18, 1971, at a time when the Labor Code
of the Philippines (P.D. 442) had not yet been promulgated. Indeed, the Code did not come into effect until November 1,
1974, some three years after the perfection of the employment contract, and rights and obligations thereunder had arisen
and been mutually observed and enforced.
At that time, i.e., before the advent of the Labor Code, there was no doubt whatever about the validity of term employment. It
was impliedly but nonetheless clearly recognized by the Termination Pay Law, R.A. 1052,

1787.

12

11

as amended by R.A.

Basically, this statute provided that


In cases of employment, without a definite period, in a commercial, industrial, or agricultural
establishment or enterprise, the employer or the employee may terminate at any time the employment
with just cause; or without just cause in the case of an employee by serving written notice on the
employer at least one month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service of the employee,
whichever is longer, a fraction of at least six months being considered as one whole year.
The employer, upon whom no such notice was served in case of termination of employment without just
cause, may hold the employee liable for damages.
The employee, upon whom no such notice was served in case of termination of employment without just
cause, shall be entitled to compensation from the date of termination of his employment in an amount
equivalent to his salaries or wages corresponding to the required period of notice.

There was, to repeat, clear albeit implied recognition of the licitness of term employment. RA 1787 also enumerated what it
considered to be just causes for terminating an employment without a definite period, either by the employer or by the
employee without incurring any liability therefor.
Prior, thereto, it was the Code of Commerce which governed employment without a fixed period, and also implicitly
acknowledged the propriety of employment with a fixed period. Its Article 302 provided that
In cases in which the contract of employment does not have a fixed period, any of the parties may
terminate it, notifying the other thereof one month in advance.
The factor or shop clerk shall have a right, in this case, to the salary corresponding to said month.
The salary for the month directed to be given by the said Article 302 of the Code of Commerce to the factor or shop
clerk, was known as the mesada (from mes, Spanish for "month"). When Article 302 (together with many other
provisions of the Code of Commerce) was repealed by the Civil Code of the Philippines, Republic Act No. 1052
was enacted avowedly for the precise purpose of reinstating the mesada.
Now, the Civil Code of the Philippines, which was approved on June 18, 1949 and became effective on August 30,1950,
itself deals with obligations with a period in section 2, Chapter 3, Title I, Book IV; and with contracts of labor and for a piece
of work, in Sections 2 and 3, Chapter 3, Title VIII, respectively, of Book IV. No prohibition against term-or fixed-period
employment is contained in any of its articles or is otherwise deducible therefrom.
It is plain then that when the employment contract was signed between Brent School and Alegre on July 18, 1971, it was
perfectly legitimate for them to include in it a stipulation fixing the duration thereof Stipulations for a term were explicitly
recognized as valid by this Court, for instance, in Biboso v. Victorias Milling Co., Inc., promulgated on March 31,
1977, 13 and J. Walter Thompson Co. (Phil.) v. NLRC, promulgated on December 29,

1983. 14 TheThompson case involved an executive who had been engaged for a fixed period of three (3)

years. Biboso involved teachers in a private school as regards whom, the following pronouncement was
made:
What is decisive is that petitioners (teachers) were well aware an the time that their tenure was for a
limited duration. Upon its termination, both parties to the employment relationship were free to renew it or
to let it lapse. (p. 254)
Under American law 15 the principle is the same. "Where a contract specifies the period of its duration, it

terminates on the expiration of such period." 16 "A contract of employment for a definite period terminates
by its own terms at the end of such period." 17
The status of legitimacy continued to be enjoyed by fixed-period employment contracts under the Labor Code (Presidential
Decree No. 442), which went into effect on November 1, 1974. The Code contained explicit references to fixed period
employment, or employment with a fixed or definite period. Nevertheless, obscuration of the principle of licitness of term
employment began to take place at about this time
Article 320, entitled "Probationary and fixed period employment," originally stated that the "termination of employment of
probationary employees and those employed WITH A FIXED PERIOD shall be subject to such regulations as the Secretary
of Labor may prescribe." The asserted objective to was "prevent the circumvention of the right of the employee to be
secured in their employment as provided . . . (in the Code)."
Article 321 prescribed the just causes for which an employer could terminate "an employment without a definite period."
And Article 319 undertook to define "employment without a fixed period" in the following manner:

18

An employment shall be deemed to be without a definite period for purposes of this Chapter where the
employee has been engaged to perform activities which are usually necessary or desirable in the usual
business or trade of the employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the engagement
of the employee or where the work or service to be performed is seasonal in nature and the employment
is for the duration of the season.
The question immediately provoked by a reading of Article 319 is whether or not a voluntary agreement on a fixed term or
period would be valid where the employee "has been engaged to perform activities which are usually necessary or desirable
in the usual business or trade of the employer." The definition seems a non sequitur. From the premise that the duties of
an employee entail "activities which are usually necessary or desirable in the usual business or trade of the employer the"
conclusion does not necessarily follow that the employer and employee should be forbidden to stipulate any period of time
for the performance of those activities. There is nothing essentially contradictory between a definite period of an employment
contract and the nature of the employee's duties set down in that contract as being "usually necessary or desirable in the
usual business or trade of the employer." The concept of the employee's duties as being "usually necessary or desirable in
the usual business or trade of the employer" is not synonymous with or identical to employment with a fixed term. Logically,
the decisive determinant in term employment should not be the activities that the employee is called upon to perform, but
the day certain agreed upon by the parties for the commencement and termination of their employment relationship, a day
certain being understood to be "that which must necessarily come, although it may not be known
when." 19 Seasonal employment, and employment for a particular project are merely instances employment

in which a period, where not expressly set down, necessarily implied.


Of course, the term period has a definite and settled signification. It means, "Length of existence; duration. A point of time
marking a termination as of a cause or an activity; an end, a limit, a bound; conclusion; termination. A series of years,
months or days in which something is completed. A time of definite length. . . . the period from one fixed date to another
fixed date . . ." 20 It connotes a "space of time which has an influence on an obligation as a result of a

juridical act, and either suspends its demandableness or produces its extinguishment." 21 It should be
apparent that this settled and familiar notion of a period, in the context of a contract of employment, takes

no account at all of the nature of the duties of the employee; it has absolutely no relevance to the
character of his duties as being "usually necessary or desirable to the usual business of the employer," or
not.
Subsequently, the foregoing articles regarding employment with "a definite period" and "regular" employment were amended
by Presidential Decree No. 850, effective December 16, 1975.
Article 320, dealing with "Probationary and fixed period employment," was altered by eliminating the reference to persons
"employed with a fixed period," and was renumbered (becoming Article 271). The article

22

now reads:

. . . Probationary employment.Probationary employment shall not exceed six months from the date the
employee started working, unless it is covered by an apprenticeship agreement stipulating a longer
period. The services of an employee who has been engaged in a probationary basis may be terminated
for a just cause or when he fails to qualify as a regular employee in accordance with reasonable
standards made known by the employer to the employee at the time of his engagement. An employee
who is allowed to work after a probationary period shall be considered a regular employee.
Also amended by PD 850 was Article 319 (entitled "Employment with a fixed period," supra) by (a) deletingmention of
employment with a fixed or definite period, (b) adding a general exclusion clause declaring irrelevant written or oral
agreements "to the contrary," and (c) making the provision treat exclusively of "regular" and "casual" employment. As
revised, said article, renumbered 270,

23

now reads:

. . . Regular and Casual Employment.The provisions of written agreement to the contrary


notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer except where the employment has been fixed for
a specific project or undertaking the completion or termination of which has been determined at the time
of the engagement of the employee or where the work or service to be employed is seasonal in nature
and the employment is for the duration of the season.
An employment shall be deemed to he casual if it is not covered by the preceding
paragraph:provided, that, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the activity in
which he is employed and his employment shall continue while such actually exists.
The first paragraph is identical to Article 319 except that, as just mentioned, a clause has been added, to wit: "The
provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the
parties . . ." The clause would appear to be addressed inter alia to agreements fixing a definite period for
employment. There is withal no clear indication of the intent to deny validity to employment for a definite period.
Indeed, not only is the concept of regular employment not essentially inconsistent with employment for a fixed
term, as above pointed out, Article 272 of the Labor Code, as amended by said PD 850, still impliedly
acknowledged the propriety of term employment: it listed the "just causes" for which "an employer may
terminate employment without a definite period," thus giving rise to the inference that if the employment be with a
definite period, there need be no just cause for termination thereof if the ground be precisely the expiration of the
term agreed upon by the parties for the duration of such employment.
Still later, however, said Article 272 (formerly Article 321) was further amended by Batas Pambansa Bilang 130,24 to

eliminate altogether reference to employment without a definite period. As lastly amended, the opening
lines of the article (renumbered 283), now pertinently read: "An employer may terminate an employment
for any of the following just causes: . . . " BP 130 thus completed the elimination of every reference in the
Labor Code, express or implied, to employment with a fixed or definite period or term.

It is in the light of the foregoing description of the development of the provisions of the Labor Code bearing on term or fixedperiod employment that the question posed in the opening paragraph of this opinion should now be addressed. Is it then the
legislative intention to outlaw stipulations in employment contracts laying down a definite period therefor? Are such
stipulations in essence contrary to public policy and should not on this account be accorded legitimacy?
On the one hand, there is the gradual and progressive elimination of references to term or fixed-period employment in the
Labor Code, and the specific statement of the rule

25

that

. . . Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to
be regular where the employee has been engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer except where the employment has been fixed for
a specific project or undertaking the completion or termination of which has been determined at the time
of the engagement of the employee or where the work or service to be employed is seasonal in nature
and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph:provided, that, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the activity in
which he is employed and his employment shall continue while such actually exists.
There is, on the other hand, the Civil Code, which has always recognized, and continues to recognize, the validity and
propriety of contracts and obligations with a fixed or definite period, and imposes no restraints on the freedom of the parties
to fix the duration of a contract, whatever its object, be it specie, goods or services, except the general admonition against
stipulations contrary to law, morals, good customs, public order or public policy. 26Under the Civil Code, therefore, and

as a general proposition, fixed-term employment contracts are not limited, as they are under the present
Labor Code, to those by nature seasonal or for specific projects with pre-determined dates of completion;
they also include those to which the parties by free choice have assigned a specific date of termination.
Some familiar examples may be cited of employment contracts which may be neither for seasonal work nor for specific
projects, but to which a fixed term is an essential and natural appurtenance: overseas employment contracts, for one, to
which, whatever the nature of the engagement, the concept of regular employment will all that it implies does not appear
ever to have been applied, Article 280 of the Labor Code not withstanding; also appointments to the positions of dean,
assistant dean, college secretary, principal, and other administrative offices in educational institutions, which are by practice
or tradition rotated among the faculty members, and where fixed terms are a necessity, without which no reasonable rotation
would be possible. Similarly, despite the provisions of Article 280, Policy, Instructions No. 8 of the Minister of
Labor 27 implicitly recognize that certain company officials may be elected for what would amount to fixed

periods, at the expiration of which they would have to stand down, in providing that these officials," . . .
may lose their jobs as president, executive vice-president or vice-president, etc. because the stockholders
or the board of directors for one reason or another did not re-elect them."
There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have
been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as
contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where
the reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon a period or where the
nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine
qua non, would an agreement fixing a period be essentially evil or illicit, therefore anathema? Would such an agreement
come within the scope of Article 280 which admittedly was enacted "to prevent the circumvention of the right of the
employee to be secured in . . . (his) employment?"
As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and
literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be
an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate
with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or

avoided. The law must be given a reasonable interpretation, to preclude absurdity in its application. Outlawing the whole
concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employer's
using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face
or, more relevantly, curing a headache by lopping off the head.
It is a salutary principle in statutory construction that there exists a valid presumption that undesirable
consequences were never intended by a legislative measure, and that a construction of which the statute
is fairly susceptible is favored, which will avoid all objecionable mischievous, undefensible, wrongful, evil
and injurious consequences. 28

Nothing is better settled than that courts are not to give words a meaning which would
lead to absurd or unreasonable consequences. That s a principle that does back to In re
Allen decided oil October 27, 1903, where it was held that a literal interpretation is to be
rejected if it would be unjust or lead to absurd results. That is a strong argument against
its adoption. The words of Justice Laurel are particularly apt. Thus: "The fact that the
construction placed upon the statute by the appellants would lead to an absurdity is
another argument for rejecting it. . . ." 29
. . . We have, here, then a case where the true intent of the law is clear that calls for the
application of the cardinal rule of statutory construction that such intent of spirit must
prevail over the letter thereof, for whatever is within the spirit of a statute is within the
statute, since adherence to the letter would result in absurdity, injustice and
contradictions and would defeat the plain and vital purpose of the statute. 30
Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the
Labor Code clearly appears to have been, as already observed, to prevent circumvention of the employee's right to be
secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements
conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that
the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no
application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties,
without any force, duress or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other
on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. Unless thus
limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus
becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences.
Such interpretation puts the seal on Bibiso 31 upon the effect of the expiry of an agreed period of employment as

still good rulea rule reaffirmed in the recent case of Escudero vs. Office of the President (G.R. No.
57822, April 26, 1989) where, in the fairly analogous case of a teacher being served by her school a
notice of termination following the expiration of the last of three successive fixed-term employment
contracts, the Court held:
Reyes (the teacher's) argument is not persuasive. It loses sight of the fact that her employment was
probationary, contractual in nature, and one with a definitive period. At the expiration of the period
stipulated in the contract, her appointment was deemed terminated and the letter informing her of the
non-renewal of her contract is not a condition sine qua non before Reyes may be deemed to have
ceased in the employ of petitioner UST. The notice is a mere reminder that Reyes' contract of
employment was due to expire and that the contract would no longer be renewed. It is not a letter of
termination. The interpretation that the notice is only a reminder is consistent with the court's finding
in Labajo supra. ... 32
Paraphrasing Escudero, respondent Alegre's employment was terminated upon the expiration of his last contract with Brent
School on July 16, 1976 without the necessity of any notice. The advance written advice given the Department of Labor with

copy to said petitioner was a mere reminder of the impending expiration of his contract, not a letter of termination, nor an
application for clearance to terminate which needed the approval of the Department of Labor to make the termination of his
services effective. In any case, such clearance should properly have been given, not denied.
WHEREFORE, the public respondent's Decision complained of is REVERSED and SET ASIDE. Respondent Alegre's
contract of employment with Brent School having lawfully terminated with and by reason of the expiration of the agreed term
of period thereof, he is declared not entitled to reinstatement and the other relief awarded and confirmed on appeal in the
proceedings below. No pronouncement as to costs.
SO ORDERED.