National Fed to Woodbridge

7/28/2019 National Fed to Woodbridge

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THIRD DIVISION

G.R. No. 103586 July 21, 1994

NATIONAL FEDERATION OF LABOR, petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION and FRANKLIN BAKER COMPANYOF THE PHILIPPINES (DAVAO PLANT), respondents.

Jose Espinas for petitioner.

Siguion-Reyna, Montecillo & Ongsiako for private respondent.

FELICIANO, J.:

Between 1 November 1983 and 1 November 1984, Wage Orders Nos. 3, 4, 5 and 6were promulgated by the then President Ferdinand E. Marcos. Wage Order No. 3became effective as of 1 November 1983; Wage Order No. 4, as of 1 May 1984; WageOrder No. 5, as of 16 June 1984; and Wage Order No. 6 went into effect on 1November 1984. All these Wage Orders increased the statutory minimum wages ofworkers with differing increases being specified for agricultural plantation and non-agricultural workers.

Before the effectivity of Wage Order No. 3, the wage rates of regular employees and of

casual (or non-regular) employees of private respondent Franklin Baker Company of thePhilippines (Davao Plant) ("Company") were such that there was a positive differentialbetween the two (2) in the amount of P4.56. The effect of the implementation of thesuccessive Wage Orders upon the daily wage rates of these two (2) groups ofemployees was summarized by petitioner in the following table:

Effectivity Wage of Wage ofGap

Date Regulars Casuals

Before W.O. No. 3 P22.56 P18.00 P4.56After W.O. No. 3 1 Nov. 1983 22.56 20.00 2.56After W.O. No. 4 1 May 1984 32.64 31.00 1.64After W.O. No. 5 16 June 1984 34.00 34.00 0.001

Upon the effectivity of Wage Order No. 5, grievance meetings were held by petitionerNational Federation of Labor ("NFL") and private respondent Company sometime inJune 1984, addressing the impact which implementation of the various Wage Ordershad on the wage structure of the Company.


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On 21 June 1984, all the casual or non-regular employees of private respondentCompany (at least in its Davao Plant) were "regularized," or converted into regularemployees, pursuant to the request of petitioner NFL.

On 1 July 1984, the effectivity date of the 1984 Collective Bargaining Agreement

between NFL and the Company, all regular employees of the Company received anincrease of P1.84 in their daily wage; the regular daily wage of the regular employeesthus became P35.84 as against P34.00 per day for non-regular employees.

As a result of the implementation of Wage Order No. 6, casual employees received anincrease of their daily wage from P34.00 to P36.00. At the same time, the Companyunilaterally granted an across-the-board increase of P2.00 in the daily rate of all regularemployees, thus increasing their daily wage from P35.84 to P37.84. Further, on 1 July1985, the anniversary date of the increases under the CBA, all regular employees whowere members of the collective bargaining unit got a raise of P1.76 in their basic dailywage, which pushed that daily wage from P37.84 to P39.60, as against the non-

regular's basic wage of P36.00 per day. Finally, by November 1987, the lowest paidregular employee had a basic daily rate of P64.64, or P10.64 more than the statutoryminimum wage paid to a non-regular employee.

The development of the wage scales of the Company's employees after the effectivitydate of Wage Order No. 5 is presented in the following table:

Effectivity Wage of Wage ofGap

Date Regulars Casuals

After W.O. No. 5 16 June 1984 34.00 34.00 0.00CBA Increase 1 July 1984 35.84 34.00 1.84

After W.O. No. 6 1 Nov. 1984 37.84 36.00 1.84CBA Anniversary 1 July 1985 39.60 36.00 3.60

Increase

Meantime, while the above wage developments were unfolding, the Companyexperienced a work output slow down. The Company directed some 205 workers toexplain the reduction in their work output. The workers failed to comply and they wereaccordingly issued notices of dismissal by the Company. As a response to itsdecreasing productivity levels, the Company suspended operations on 16 August 1984.

Operations were resumed on 14 September 1984; the Company, however, refused totake back the 205 dismissed employees. Petitioner Union then went on strike alleging alock-out on the part of the Company and demanding rectification of the wage distortion.The case was certified by the Secretary of Labor to the National Labor RelationsCommission ("NLRC") for compulsory conciliation.

On 19 June 1985, the Union and the Company reached an agreement with respect tothe lock-out issue. The agreement, which was approved by the NLRC En Banc, granted


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the 205 employees "financial assistance" equivalent to thirty (30) days' separation pay.This left unresolved only the wage distortion issue.

On 11 November 1987, the NLRC En Bancrendered a decision which in effect foundthe existence of wage distortion and required the Company to pay a P1.00 wage

increase effective 1 May 1984:

In the computation submitted by the Union, there is a need to restore the P2.56 gapbetween non-regulars or "casuals" and "regular workers." This difference in the basicwage of these workers was existing at the time of the conclusion of the collectivebargaining agreement and before the implementation of Wage Orders No. 4 & 5. Theimprecise claim of respondent that there is P3.60 gap between non-regular and regularsmay not be sustained because as aforestated, this amount represents negotiated wageincrease which should not be considered covered and in compliance with the wageorders. Considering, however, the present economic conditions and the outlay involved incorrecting the distortion in the wages of respondent's workers, this Commission, in theexercise of its arbitral powers, feels that an increase of P1.00 on the present basic wageof regular workers would significantly rectify or minimize the distortion in the wage

structure of respondent company caused by the implementation of the various wageorders. Respondent is, therefore, required to implement the P1.00 wage increaseeffective May 1, 1984 when Wage Order 4 took effect. 2(Emphasis supplied)

On motion for partial reconsideration filed by the Company, the above quoted portion ofthe NLRC En Banc's decision was reconsidered and set aside by the NLRC FifthDivision. 3The Fifth Division of the NLRC in effect found that while a wage distortion didexist commencing 16 June 1984, the distortion persisted only for a total of fifteen (15)days and accordingly required private respondent company to pay "a wage increase ofP2.00 per day to all regular workers effective June 16, 1984 up to June 30, 1984 or atotal of fifteen (15) days." 4The rest of the decision of 11 November 1987 was leftuntouched.

In its decision dated 16 December 1991, the NLRC (Fifth Division) said:

. . . At the time Wage Order No. 4 was implemented on May 1, 1984, casual employeeswere increased to P34.00 per day, placing them on equal salary footing with the regularemployees who were likewise receiving P34.00 per day. But effective July 1, 1984 whenthe 1984 CBA took effect, the regular employees of the company admittedly received thebasic wage of P35.84 or an increase of P1.84 as against the daily wage of P34.00 of thecasual employees.

Thus, the apparent wage distortion did not last long but only for 15 days, that is fromJune 16, 1984 when Wage Order No. 5 took effect and lasted only up to June 30, 1984.

From July 1, 1984, the regular employees received an increase of P1.84 making theirdaily wage P35.84 as against the wage of casual employees of P34.00 per day. And asrightly pointed out respondent-movant, the difference in the wage scale between the two(2) groups of employees was maintained even after the implementation of Wage OrderNo. 6 which took effect on November 1, 1984. 5(Emphasis supplied)

The bottom line issue presented to the Court is thus whether or not, under the facts assummarized above, the NLRC (Fifth Division) committed a grave abuse of discretion


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amounting to lack or excess of jurisdiction, when it concluded that the wage distortionhad ceased to exist, after 1 July 1984.

The principal contention of petitioner NFL is that a wage distortion in the wage structureof private respondent Company continued to exist although a gap of P1.84 between the

daily wage rate of regular employees and that of casual employees had been re-establishedupon the effectivity of the CBA increase on 1 July 1984. The original claimof NFL was that the initial prior to effectivity of Wage Order No. 3 differential ofP4.56 in the wage rate of regular employees and that of casual employees, should bere-created this time between the wage rates of the newly"regularized" employees (i.e.,the casual employees regularized by the Company on 21 June 1984) and the "old"regular employees (employees who, allegedly, had been regular employees for at leastthree [3] years before the "regularization" of the casuals). 6NFL stresses that seniority isa valid basis of distinction between differing groups of employees, under the LaborCode.

We note that neither the Wage Orders noted above, nor the Implementing Rulespromulgated by the Department of Labor and Employment, set forth a clear and specificnotion of "wage distortion." What the Wage Orders and the Implementing Rules did wassimply to recognize that implementation of the Wage Orders could result in a "distortionof the wage structure" of an employer, and to direct the employer and the union tonegotiate with each other to correct the distortion. Thus, Section 6 of Wage Order No. 3,dated 7 November 1983, provided as follows:

Sec. 6. Where the application of the minimum wage rate prescribed herein results indistortions of the wage structure of an establishment, the employer and the union shallnegotiate to correct the distortions.Any dispute arising from wage distortions shall beresolved through the grievance procedure under their collective bargaining agreement or

through conciliation.

In case where there is no collective bargaining agreement or recognized labororganization, the employer shall endeavor to correct such distortions in consultation withtheir workers. Any dispute shall be resolved through conciliation by the appropriateRegional Office of the Ministry of Labor and Employment or through arbitration by theNLRC Arbitration Branch having jurisdiction over the work-place. 7(Emphasis supplied)

In its Resolution dated 11 November 1987, the NLRC En Bancprovided someelaboration of the notion of wage distortion, in the following terms:

Wage distortion presupposes a classification of positions and ranking of these positions

at various levels. One visualizes a hierarchy of positions with corresponding ranksbasically in terms of wages and other emoluments. Where a significant change occurs atthe lowest level of positions in terms of basic wage without a corresponding change in theother level in the hierarchy of positions, negating as a result thereof the distinctionbetween one level of position from the next higher level, and resulting in a disparity[should be "parity"] between the lowest level [and] the next higher level or rank, betweennew entrants and old hires, there exists a wage distortion.


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The various issuances on wages anticipated this occurrence so that it had beencommonly provided for in these issuances that negotiations may be initiated for the

purposes of correcting the resulting distortion. 8(Emphases and brackets supplied)

A statutory definition of "wage distortion" is now found in Article 124 of the Labor Codeas amended by Republic Act. No. 6727 (dated 9 June 1989) which reads as follows:

Article 124. Standards/Criteria for Minimum Wage Fixing . . .

xxx xxx xxx

As used herein, a wage distortion shall mean a situation where an increase in prescribedwage rates results in the elimination or severecontraction ofintentional quantitativedifferences in wage or salary rates between and among employee groups in anestablishment as to effectively obliterate the distinctions embodied in such wagestructure based on skills, length of service, or other logical bases of differentiation. 9(Emphasis supplied)

From the above quoted material, it will be seen that the concept of wage distortionassumes an existing grouping or classification of employees which establishesdistinctions among such employees on some relevant or legitimate basis. Thisclassification is reflected in a differing wage rate for each of the existing classes ofemployees. The wage distortion anticipated in Wage Orders Nos. 3, 4, 5 and 6 was a"distortion" (or "compression") which ensued from the impact of those Wage Ordersupon the different wage rates of the several classes of employees. Thus distortionensued where the result of implementation of one or another of the several WageOrders was the total elimination or the severe reduction of the differential or gap existingbetween the wage rates of the differing classes of employees. 10

It is important to note that the remedy contemplated in the Wage Orders, and now inArticle 124 of the Labor Code, for a wage distortion consisted of negotiations betweenemployer and employees for the rectification of the distortion by re-adjusting the wagerates of the differing classes of employees. As a practical matter, this ordinarily meant awage increase for one or more of the affected classes of employees so that some gapor differential would bere-established. There was no legal requirement that the historical gap which existedbefore the implementation of the Wage Orders be restored in precisely the same formor amount.

Applying the above concept to the case at bar, we note that there did exist a two-fold

classification of employees within the private respondent Company: regularemployeeson the one hand and casual (ornon-regular) employees on the other. As can be seenfrom the figures referred to earlier, the differential between these two (2) classes ofemployees existing before Wage Order No. 3 was reduced to zero upon the effectivityof Wage Order No. 5 on 16 June 1984. Obviously, distortion consisting of completeelimination of the wage rate differential had occurred. It is equally clear, however,that fifteen (15) days later, on 1 July 1984, upon effectivity of the wage increasestipulated in the collective bargaining agreement between the parties, a gap or


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differential of P1.84 was re-created. This restored differential persisted after theeffectivity of Wage Order No. 6 on 1 November 1984. By operation of the same CBA, by1 July 1985, the wage differential had grown to P3.60.

We believe and so hold that the re-establishment of a significant gap or differential

between regular employees and casual employees by operation of the CBA was morethan substantial compliance with the requirements of the several Wage Orders (and ofArticle 124 of the Labor Code). That this re-establishment of a significant differentialwas the result of collective bargaining negotiations, rather than of a special grievanceprocedure, is not a legal basis for ignoring it. The NLRC En Bancwas in serious errorwhen it disregarded the differential of P3.60 which had been restored by 1 July 1985upon the ground that such differential "represent[ed] negotiated wage increase[s] whichshould not be considered covered and in compliance with the Wage Orders." 11TheWage Orders referred to above had provided for the crediting of increases in wages orallowances granted or paid by employers within a specified time against the statutorilyprescribed increases in minimum wages. 12A similar provision recognizing crediting of

increases in daily basic wage rates granted by employers pursuant to collectivebargaining agreements, is set out in Section 4(d) of R.A. No. 6727, a statute whichsought to "rationalize wage policy determination by establishing the mechanism andproper standards therefor ." InApex Mining Company, Inc. v. National LaborRelations Commission, 13the Supreme Court said:

It is important to note that the creditability provisions in Wage Orders Nos. 5 and 6 (aswell as the parallel provisions in Wage Orders Nos. 2, 3 and 4) are grounded in animportant public policy. That public policy may be seen to be the encouragementofemployers to grant wage and allowance increases to their employees higher than theminimum rates of increases prescribed by statute or administrative regulation.To obliterate the creditability provisions in the Wage Orders through interpretation orotherwise, and to compel employers simply to add legislated increases in salaries orallowances without regard to what is already being paid, would be to penalize employerswho grant their workers more than the statutorily prescribed minimum rates of increases.Clearly, this would be counter-productive so far as securing the interests of labor isconcerned. The creditability provisions in the Wage Orders prevent the penalizing ofemployers who are industry leaders and who do not wait for statutorily prescribedincreases in salary or allowances and pay their workers more than what the law orregulations require. 14(Emphases in the original)

We believe that the same public policy requires recognition and validation, as it were, ofwage increases given by employers either unilaterally or as a result of collectivebargaining negotiations, in the effort to correct wage distortions.

We consider, still further, that the "regularization" of the casual or non-regularemployees on 21 June 1984 which was unilaterally effected by the Company (albeitupon the request of petitioner NFL), in conjunction with the coming into effect of theincreases in daily wage stipulated in the CBA, had the effect of rendering the wholeproblem of wage distortion academic. The act of"regularization" eliminated theclassification scheme in respect of which the wage distortion had existed.


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Petitioner NFL's principal contention that the wage distortion persisted with respect tothe "old" regular employees and the "newly regularized" employees, is realistically aclaim or demand that the classification of "regular" employees be broken down into asub-classification of "new regulars" and "old regulars." A basic problem with thiscontention is that, per the record of this case and during the period of time here

relevant, there was in fact no pre-existing sub-classification of regular employees into"new regulars" and "old regulars" ( i.e., on the basis of seniority or longevity) in theCompany. It follows that, as pointed out by the Solicitor-General, 15no wage distortionwithin the meaning of Wage Orders Nos. 3 through 6 (and of Article 124 of the LaborCode) continued beyond the "regularization" of the casual employees on21 June 1984. It may be though here again the record is silent that the Companyhad some other sub-grouping of regular employees on the basis, for instance, of thekind of functions discharged by employees (e.g., rank and file; supervisory; middlemanagement; senior management; highly technical, etc.).

The basic point which needs to be stressed is that whether or not a new or additional

scheme of classification of employees for compensation purposes should beestablished by the Company (and the legitimacy or viability of the bases of distinctionthere embodied) is properly a matter for management judgment and discretion, andultimately, perhaps, a subject matter for bargaining negotiations between employer andemployees. It is assuredly something that falls outside the concept of "wage distortion."The Wage Orders and Article 124 as amended do not require the establishment of newclassifications or sub-classifications by the employer. The NLRC is not authorizedunilaterally to impose, directly or indirectly, under the guise of rectifying a "wagedistortion," upon an employer a new scheme of classification of employees where nonehas been established either by management decision or by collective bargaining.

We conclude that petitioner NFL has not shown any grave abuse of discretionamounting to lack of excess of jurisdiction on the part of the NLRC in rendering itsdecision (through its Fifth Division) dated 16 December 1991.

WHEREFORE, the Petition forCertiorariis hereby DISMISSED for lack of merit. Nopronouncement as to costs.

SO ORDERED.

Bidin, Romero, Melo and Vitug, JJ., concur.


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FIRST DIVISION

[G.R. No. 147816. May 9, 2003]

EFREN P. PAGUIO,petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION,METROMEDIA TIMES CORPORATION, ROBINA Y. GOKONGWEI, LIBERATO GOMEZ,JR., YOLANDA E. ARAGON, FREDERICK D. GO and ALDA IGLESIA, respondents.

D E C I S I O N

VITUG,J.:

On 22 June 1992, respondent Metromedia Times Corporation entered, for the fifth time, into anagreement with petitioner Efren P. Paguio, appointing the latter to be an account executive of the

firm.1

[1] Again, petitioner was to solicit advertisements for "The Manila Times," a newspaper ofgeneral circulation, published by respondent company. Petitioner, for his efforts, was to receive

1[1] The letter contract dated 22 June 1992 read -

Dear Mr. Paguio:

This letter is to appoint you as Account Executive for The Manila Times for a period of twelve(12) months effective July 1, 1992 to June 30, 1993, and to set forth the terms and conditions ofyour contract.

1. As account executive, you will use your best efforts to obtain advertisements exclusively forus and for such projects that The Manila Times may decide to do from time to time.

2. You are authorized to solicit advertisements and quote advertising rates in accordance withand subject to all the terms and conditions in our rate cards.

3. All advertisements are subject to acceptance by us and we reserve the right in our absolutediscretion to reject or omit any advertisements.

4. You will be paid fifteen (15) percent commission on direct advertisements less correspondingwithholding tax.

5. You will be paid ten (10) percent commission on agency advertisements based on gross adrevenues less agency commission and corresponding withholding tax.

6. Walk-in advertisements, not solicited by the Advertising staff, are not commissionable.

7. All payments must be paid direct to Metromedia Times Corporation. In no case, however,will commission be paid until and unless the advertisements, whether agency or direct, have beenpaid for, subject to the corresponding withholding taxes authorized by law.


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On 15 August 1992, barely two months after the renewal of his contract, petitioner received thefollowing notice from respondent firm -

Dear Mr. Paguio,

Please be advised of our decision to terminate your services as Account Executive of ManilaTimes effective September 30, 1992.

This is in accordance with our contract signed last July 1, 1992.3[3]

Apart from vague allegations of misconduct on which he was not given the opportunity to defendhimself, i.e., pirating clients from his co-executives and failing to produce results, no definitecause for petitioners termination was given. Aggrieved, petitioner filed a case before the laborarbiter, asking that his dismissal be declared unlawful and that his reinstatement, withentitlement to backwages without loss of seniority rights, be ordered. Petitioner also prayed thatrespondent company officials be held accountable for acts of unfair labor practice, for

P500,000.00 moral damages and for P200,000.00 exemplary damages.

In their defense, respondent Metromedia Times Corporation asserted that it did not enter into anyagreement with petitioner outside of the contract of services under Articles 1642 and 1644 of theCivil Code of the Philippines.4[4] Asserting their right to terminate the contract with petitioner,respondents pointed to the last provision thereof stating that both parties could opt to end thecontract provided that either party would serve, thirty days prior to the intended date oftermination, the corresponding notice to the other.

The labor arbiter found for petitioner and declared his dismissal illegal. The arbiter orderedrespondent Metromedia Times Corporation and its officers to reinstate petitioner to his former

position, without loss of seniority rights, and to pay him his commissions and other remunerationaccruing from the date of dismissal on 15 August 1992 up until his reinstatement. He likewiseadjudged that Liberato I. Gomez, general manager of respondent corporation, be held liable topetitioner for moral damages in the amount of P20,000.00.

On appeal, the National Labor Relations Commission (NLRC) reversed the ruling of the laborarbiter and declared the contractual relationship between the parties as being for a fixed-termemployment. The NLRC declared a fixed-term employment to be lawful as long as it wasagreed upon knowingly and voluntarily by the parties, without any force, duress or improperpressure being brought to bear upon the worker and absent any other circumstances vitiating his

3[3] Rollo, p. 43.

4[4] Article 1642 of the Civil Code provides: "The contract of lease may be of things, or of workand service."

Article 1644 provides: "In the lease of work or service, one of the parties binds himself toexecute a piece of work or to render to the other some service for a price certain, but the relationof principal and agent does not exist between them."


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consent."5[5] The finding of the NLRC was primarily hinged on the assumption that petitioner, onaccount of his educated stature, having indeed personally prepared his pleadings without the aidof counsel, was an unlikely victim of a lopsided contract. Rejecting the assertion of petitionerthat he was a regular employee, the NLRC held: "The decisive determinant would not be theactivities that the employee (was) called upon to perform but rather, the day certain agreed upon

by the parties for the commencement and termination of their employment relationship, a daycertain being understood to be that which (would) necessarily come, although it (might) not beknown when."6[6]

Petitioner appealed the ruling of the NLRC before the Court of Appeals which upheld in toto thefindings of the commission. In his petition for review on certiorari, petitioner raised thefollowing issues for resolution:

WHETHER OR NOT PETITIONER'S CONTRACT WITH PRIVATE RESPONDENTSCOMPANY IS FOR A FIXED PERIOD.

WHETHER OR NOT PETITIONER'S DISMISSAL IS LEGAL.

WHETHER OR NOT PETITIONER IS ENTITLED TO BACKWAGES AND MORALDAMAGES.7[7]

The crux of the matter would entail the determination of the nature of contractual relationshipbetween petitioner and respondent company - was it or was it not one of regular employment?

A regular employment, whether it is one or not, is aptly gauged from the concurrence, or thenon-concurrence, of the following factors - a) the manner of selection and engagement of theputative employee, b) the mode of payment of wages, c) the presence or absence of the power of

dismissal; and d) the presence or absence of the power to control the conduct of the putativeemployee or the power to control the employee with respect to the means or methods by whichhis work is to be accomplished.8[8] The "control test" assumes primacy in the overallconsideration. Under this test, an employment relation obtains where work is performed orservices are rendered under the control and supervision of the party contracting for the service,not only as to the result of the work but also as to the manner and details of the performancedesired.9[9]

5[5] Rollo, NLRC Decision dated 15 December 1998, p. 82.

6[6] Rollo, p. 85.

7[7] Rollo, p. 18.

8[8] Hijos de F. Escano, Inc., vs. NLRC G.R. No. 59229, 22 August 1991, 201 SCRA 63; Ecal vs.NLRC, G.R. Nos. 92777-78, 13 March 1991, 195 SCRA 224.

9[9] Iloilo Chinese Commercial School vs. Fabrigar, L-16600, 27 December 1961, 3 SCRA 712.


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An indicum of regular employment, rightly taken into account by the labor arbiter, was thereservation by respondent Metromedia Times Corporation not only of the right to control theresults to be achieved but likewise the manner and the means used in reaching that end.10[10]Metromedia Times Corporation exercised such control by requiring petitioner, among otherthings, to submit a daily sales activity report and also a monthly sales report as well. Various

solicitation letters would indeed show that Robina Gokongwei, company president, Alda Iglesia,the advertising manager, and Frederick Go, the advertising director, directed and monitored thesales activities of petitioner.

The Labor Code, in Article 280 thereof, provides:

ART. 280. Regular and Casual Employment. The provisions of written agreement to thecontrary notwithstanding and regardless of the oral agreement of the parties, an employmentshall be deemed to be regular where the employee has been engaged to perform activities whichare usually necessary or desirable in the usual business or trade of the employer, except wherethe 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 orwhere the work or services to be performed is seasonal in nature and the employment is for theduration of the season.

An employment shall be deemed to be casual if it is not covered by the proceeding paragraph:Provided, That, any employee who has rendered at least one year of service, whether suchservice is continuous or broken, shall be considered a regular employee with respect to theactivity in which he is employed and his employment shall continue while such activity exists.

Thus defined, a regular employee is one who is engaged to perform activities which arenecessary and desirable in the usual business or trade of the employer as against those which are

undertaken for a specific project or are seasonal. Even in these latter cases, where such personhas rendered at least one year of service, regardless of the nature of the activity performed or ofwhether it is continuous or intermittent, the employment is considered regular as long as theactivity exists, it not being indispensable that he be first issued a regular appointment or beformally declared as such before acquiring a regular status.11[11]

That petitioner performed activities which were necessary and desirable to the business of theemployer, and that the same went on for more than a year, could hardly be denied. Petitionerwas an account executive in soliciting advertisements, clearly necessary and desirable, for thesurvival and continued operation of the business of respondent corporation. Robina Gokongwei,its President, herself admitted that the income generated from paid advertisements was thelifeblood of the newspaper's existence. Implicitly, respondent corporation recognizedpetitioners invaluable contribution to the business when it renewed, not just once but five times,its contract with petitioner.

10[10] Cosmopolitan Funeral Homes, Inc., vs. Maalat, G.R. No. 86693, 02 July 1990, 187 SCRA108.

11[11] Article 280, Labor Code.


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Respondent company cannot seek refuge under the terms of the agreement it has entered intowith petitioner. The law, in defining their contractual relationship, does so, not necessarily orexclusively upon the terms of their written or oral contract, but also on the basis of the nature ofthe work petitioner has been called upon to perform.12[12] The law affords protection to anemployee, and it will not countenance any attempt to subvert its spirit and intent. A stipulation

in an agreement can be ignored as and when it is utilized to deprive the employee of his securityof tenure.13[13] The sheer inequality that characterizes employer-employee relations, where thescales generally tip against the employee, often scarcely provides him real and better options.

The real question that should thus be posed is whether or not petitioner has been justly dismissedfrom service. A lawful dismissal must meet both substantive and procedural requirements; infine, the dismissal must be for a just or authorized cause and must comply with the rudimentarydue process of notice and hearing. It is not shown that respondent company has fully bothereditself with either of these requirements in terminating the services of petitioner. The notice oftermination recites no valid or just cause for the dismissal of petitioner nor does it appear that hehas been given an opportunity to be heard in his defense.

The evidence, however, found by the appellate court is wanting that would indicate bad faith ormalice on the part of respondents, particularly by respondent Liberato I. Gomez, and the awardof moral damages must thus be deleted.

WHEREFORE, the instant petition is GRANTED. The decision of the Court of Appeals inC.A. G.R. SP No. 527773 and that of the National Labor Relations Commission are hereby SETASIDE and that of the Labor Arbiter is REINSTATED except with respect to the P20,000.00moral damages adjudged against respondent Liberato I. Gomez which award is deleted.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

12[12] A.M. Oreta and Co., Inc., vs. NLRC, et al., G.R. No. 74004, 10 August 1989, 176 SCRA218.

13[13] Cielo vs. NLRC, G.R. No. 78693, 28 January 1991, 193 SCRA 410.


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SPECIAL FIRST DIVISION

[G.R. No. 110524. July 29, 2002]

DOUGLAS MILLARES and ROGELIO LAGDA,petitioners, vs.NATIONAL LABORRELATIONS COMMISSION, TRANS-GLOBAL MARITIME AGENCY, INC. and ESSOINTERNATIONAL SHIPPING CO., LTD. respondents.

R E S O L U T I O N

KAPUNAN,J.:

On March 14, 2000, the Court promulgated its decision in the above-entitled case, ruling in favorof the petitioners. The dispositive portion reads, as follows:

WHEREFORE, premises considered, the assailed Decision, dated June 1, 1993, of the NationalLabor Relations Commission is hereby REVERSED and SET ASIDE and a new judgment ishereby rendered ordering the private respondents to:

(1) Reinstate petitioners Millares and Lagda to their former positions without loss ofseniority rights, and to pay full backwages computed from the time of illegal dismissal to thetime of actual reinstatement;

(2) Alternatively, if reinstatement is not possible, pay petitioners Millares and Lagdaseparation pay equivalent to one months salary for every year of service; and,

(3) Jointly and severally pay petitioners One Hundred Percent (100%) of their total creditedcontributions as provided under the Consecutive Enlistment Incentive Plan.

SO ORDERED.i[1]

A motion for reconsideration was consequently filedii[2] by the private respondents to whichpetitioners filed an Opposition thereto.iii[3]

In a Minute Resolution dated June 28, 2000, the Court resolved to deny the motion forreconsideration with finality.iv[4]

Subsequently, the Filipino Association for Mariners Employment, Inc. (FAME) filed a Motionfor Leave to Intervene and to Admit a Motion for Reconsideration in Intervention.

Private respondents, meanwhile, also filed a Motion for Leave to File a Second Motion forReconsideration of our decision.


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In both motions, the private respondents and FAME respectively pray in the main that the Courtreconsider its ruling that Filipino seafarers are considered regular employees within the contextof Article 280 of the Labor Code. They claim that the decision may establish a precedent thatwill adversely affect the maritime industry.

The Court resolved to set the case for oral arguments to enable the parties to present their sides.

To recall, the facts of the case are, as follows:

Petitioner Douglas Millares was employed by private respondent ESSO International ShippingCompany LTD. (Esso International, for brevity) through its local manning agency, privaterespondent Trans-Global Maritime Agency, Inc. (Trans-Global, for brevity) on November 16,1968 as a machinist. In 1975, he was promoted as Chief Engineer which position he occupieduntil he opted to retire in 1989. He was then receiving a monthly salary of US $1,939.00.

On June 13, 1989, petitioner Millares applied for a leave of absence for the period July 9 to

August 7, 1989. In a letter dated June 14, 1989, Michael J. Estaniel, President of privaterespondent Trans-Global, approved the request for leave of absence. On June 21, 1989,petitioner Millares wrote G.S. Hanly, Operations Manager of Exxon International Co., (nowEsso International) through Michael J. Estaniel, informing him of his intention to avail of theoptional retirement plan under the Consecutive Enlistment Incentive Plan (CEIP) consideringthat he had already rendered more than twenty (20) years of continuous service. On July 13,1989 respondent Esso International, through W.J. Vrints, Employee Relations Manager, deniedpetitioner Millares request for optional retirement on the following grounds, to wit: (1) he wasemployed on a contractual basis; (2) his contract of enlistment (COE) did not provide forretirement before the age of sixty (60) years; and (3) he did not comply with the requirement forclaiming benefits under the CEIP, i.e., to submit a written advice to the company of his intention

to terminate his employment within thirty (30) days from his last disembarkation date.

On August 9, 1989, petitioner Millares requested for an extension of his leave of absence fromAugust 9 to 24, 1989. On August 19, 1989, Roy C. Palomar, Crewing Manager, Ship Group A,Trans-global, wrote petitioner Millares advising him that respondent Esso International hascorrected the deficiency in its manpower requirement specifically in the Chief Engineer rank bypromoting a First Assistant Engineer to this position as a result of (his) previous leave of absencewhich expired last August 8, 1989. The adjustment in said rank was required in order to meetmanpower schedules as a result of (his) inability.

On September 26, 1989, respondent Esso International, through H. Regenboog, Personnel

Administrator, advised petitioner Millares that in view of his absence without leave, which isequivalent to abandonment of his position, he had been dropped from the roster of crew memberseffective September 1, 1989.

On the other hand, petitioner Lagda was employed by private respondent Esso International aswiper/oiler in June 1969. He was promoted as Chief Engineer in 1980, a position he continuedto occupy until his last COE expired on April 10, 1989. He was then receiving a monthly salaryof US$1,939.00.


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On May 16, 1989, petitioner Lagda applied for a leave of absence from June 19, 1989 up to thewhole month of August 1989. On June 14, 1989, respondent Trans-Globals President, MichaelJ. Estaniel, approved petitioner Lagdas leave of absence from June 22, 1989 to July 20, 1989and advised him to report for re-assignment on July 21, 1989.

On June 26, 1989, petitioner Lagda wrote a letter to G.S. Stanley, Operations Manager ofrespondent Esso International, through respondent Trans-Globals President Michael J. Estaniel,informing him of his intention to avail of the optional early retirement plan in view of his twenty(20) years continuous service in the complaint.

On July 13, 1989, respondent Trans-global denied petitioner Lagdas request for availment of theoptional early retirement scheme on the same grounds upon which petitioner Millares requestwas denied.

On August 3, 1989, he requested for an extension of his leave of absence up to August 26, 1989and the same was approved. However, on September 27, 1989, respondent Esso International,

through H. Regenboog, Personnel Administrator, advised petitioner Lagda that in view of hisunavailability for contractual sea service, he had been dropped from the roster of crewmembers effective September 1, 1989.

On October 5, 1989, petitioners Millares and Lagda filed a complaint-affidavit, docketed asPOEA (M) 89-10-9671, for illegal dismissal and non-payment of employee benefits againstprivate respondents Esso International and Trans-Global, before the POEA.v[5]

On July 17, 1991, the POEA rendered a decision dismissing the complaint for lack of merit.

On appeal to the NLRC, the decision of the POEA was affirmed on June 1, 1993 with the

following disquisition:

The first issue must be decided in the negative. Complainants-appellants, as seamen andoverseas contract workers are not covered by the term regular employment as defined underArticle 280 of the Labor Code. The POEA, which is tasked with protecting the rights of theFilipino workers for overseas employment to fair and equitable recruitment and employmentpractices and to ensure their welfare, prescribes a standard employment contract for seamen onboard ocean-going vessels for a fixed period but in no case to exceed twelve (12) months (Part 1,Sec. C). This POEA policy appears to be in consonance with the international maritime practice.Moreover, the Supreme Court in Brent School, Inc. vs. Zamora, 181 SCRA 702, had held that afixed term is essential and natural appurtenance of overseas employment contracts to which the

concept of regular employment with all that it implies is not applicable, Article 280 of the LaborCode notwithstanding. There is, therefore, no reason to disturb the POEA Administratorsfinding that complainants-appellants were hired on a contractual basis and for a definite period.Their employment is thus governed by the contracts they sign each time they are re-hired and isterminated at the expiration of the contract period. vi[6]

Undaunted, the petitioners elevated their case to this Courtvii[7] and successfully obtained thefavorable action, which is now vehemently being assailed.


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At the hearing on November 15, 2000, the Court defined the issues for resolution in this case,namely:

I. ARE PETITIONERS REGULAR OR CONTRACTUAL EMPLOYEES WHOSEEMPLOYMENTS ARE TERMINATED EVERYTIME THEIR CONTRACTS OF

EMPLOYMENT EXPIRE?

II. ASSUMING THAT PETITIONERS ARE REGULAR EMPLOYEES, WERE THEYDISMISSED WITHOUT JUST CAUSE SO AS TO BE ENTITLED TO REINSTATEMENTAND BACKWAGES, INCLUDING PAYMENT OF 100% OF THEIR TOTAL CREDITEDCONTRIBUTIONS TO THE CONSECUTIVE ENLISTMENT INCENTIVE PLAN (CEIP)?

III. DOES THE PROVISION OF THE POEA STANDARD CONTRACT FORSEAFARERS ON BOARD FOREIGN VESSELS (SEC. C., DURATION OF CONTRACT)PRECLUDE THE ATTAINMENT BY SEAMEN OF THE STATUS OF REGULAREMPLOYEES?

IV. DOES THE DECISION OF THE COURT IN G.R. NO. 110524 CONTRAVENEINTERNATIONAL MARITIME LAW, ALLEGEDLY PART OF THE LAW OF THE LANDUNDER SECTION 2, ARTICLE II OF THE CONSTITUTION?

V. DOES THE SAME DECISION OF THE COURT CONSTITUTE A DEPARTUREFROM ITS RULING IN COYOCA VS. NLRC(G.R. NO. 113658, March 31, 1995)?viii[8]

In answer to the private respondents Second Motion for Reconsideration and to FAMEsMotion for Reconsideration in Intervention, petitioners maintain that they are regular employeesas found by the Court in the March 14, 2000 Decision. Considering that petitioners performed

activities which are usually necessary or desirable in the usual business or trade of privaterespondents, they should be considered as regular employees pursuant to Article 280, Par. 1 ofthe Labor Code.ix[9] Other justifications for this ruling include the fact that petitioners haverendered over twenty (20) years of service, as admitted by the private respondents; x[10] that theywere recipients of Merit Pay which is an express acknowledgment by the private respondentsthat petitioners are regular and not just contractual employees; xi[11] that petitioners were registeredunder the Social Security System (SSS).

The petitioners further state that the case ofCoyoca v. NLRCxii[12] which the private respondentsinvoke is not applicable to the case at bar as the factual milieu in that case is not the same.Furthermore, private respondents fear that our judicial pronouncement will spell the death of the

manning industry is far from real. Instead, with the valuable contribution of the manningindustry to our economy, these seafarers are supposed to be considered as Heroes of theRepublic whose rights must be protected.xiii[13] Finally, the first motion for reconsideration hasalready been denied with finality by this Court and it is about time that the Court should writefinis to this case.

The private respondents, on the other hand, contend that: (a) the ruling holding petitioners asregular employees was not in accord with the decision in Coyoca v. NLRC, 243 SCRA 190; (b)


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Art. 280 is not applicable as what applies is the POEA Rules and Regulations GoverningOverseas Employment; (c) seafarers are not regular employees based on international maritimepractice; (d) grave consequences would result on the future of seafarers and manning agencies ifthe ruling is not reconsidered; (e) there was no dismissal committed; (f) a dismissed seafarer isnot entitled to back wages and reinstatement, that being not allowed under the POEA rules and

the Migrant Workers Act; and, (g) petitioners are not entitled to claim the total amount creditedto their account under the CEIP.xiv[14]

Meanwhile, Intervenor Filipino Association of Mariners Employment (FAME) avers that ourdecision, if not reconsidered, will have negative consequences in the employment of FilipinoSeafarers overseas which, in turn, might lead to the demise of the manning industry in thePhilippines. As intervenor FAME puts it:

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7.1 Foreign principals will start looking for alternative sources for seafarers to man their ships.

AS reported by the BIMCO/ISF study, there is an expectancy that there will be an increasingdemand for (and supply of) Chinese seafarers, with some commentators suggesting that this maybe a long-term alternative to the Philippines. Moreover, the political changes within theformer Eastern Bloc have made new sources of supply available to the international market.Intervenors recent survey among its members shows that 50 Philippine manning companies hadalready lost some 6,300 slots to other Asian, East Europe and Chinese competition for the lasttwo years;

7.2 The Philippine stands to lose an annual foreign income estimated at U.S. DOLLARS TWOHUNDRED SEVENTY FOUR MILLION FIVE HUNDRED FORTY NINE THOUSAND (US$274,549,000.00) from the manning industry and another US DOLLARS FOUR BILLION SIX

HUNDRED FIFTY MILLION SEVEN HUNDRED SIX THOUSAND (US$ 4,650,760,000.00)from the land-based sector if seafarers and equally situated land-based contract workers will bedeclared regular employees;

7.3 Some 195,917 (as of 1998) deployed overseas Filipino seafarers will be rendered joblessshould we lose the market;

7.4 Some 360 manning agencies (as of 30 June 2000) whose principals may no longer be doingbusiness with them will close their shops;

7.5 The contribution to the Overseas Workers Welfare Administration by the sector, which is

USD 25.00 per contract and translates to US DOLLARS FOUR MILLION (US$4,000,000.00)annually, will be drastically reduced. This is not to mention the processing feespaid to POEA, Philippine Regulatory Commission (PRC), Department of Foreign Affairs (DFA)and Maritime Industry Authority (MARINA) for the documentation of these seafarers;

7.6 Worst, some 195,917 (as of 1998) families will suffer socially and economically, as theirbreadwinners will be rendered jobless; and


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7.7 It will considerably slow down the governments program of employment generation,considering that, as expected foreign employers will now avoid hiring Filipino overseas contractworkers as they will become regular employees with all its concomitant effects.xv[15]

Significantly, the Office of the Solicitor General, in a departure from its original position in this

case, has now taken the opposite view. It has expressed its apprehension in sustaining ourdecision and has called for a re-examination of our ruling.xvi[16]

Considering all the arguments presented by the private respondents, the Intervenor FAME andthe OSG, we agree that there is a need to reconsider our position with respect to the status ofseafarers which we considered as regular employees under Article 280 of the Labor Code. We,therefore, partially grant the second motion for reconsideration.

InBrent School Inc. v. Zamora,xvii[17] the Supreme Court stated that Article 280 of the Labor Codedoes not apply to overseas employment.

In the light of the foregoing description of the development of the provisions of the Labor Codebearing on term or fixed-period employment that the question posed in the opening paragraph ofthis opinion should now be addressed. Is it then the legislative intention to outlaw stipulations inemployment contracts laying down a definite period therefor? Are such stipulations in essencecontrary to public policy and should not on this account be accorded legitimacy?

On the other 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 that:

Regular and Casual Employment The provisions of written agreement to the contrarynotwithstanding 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 areusually necessary or desirable in the usual business or trade of the employer except where theemployment has been fixed for a specific project or undertaking the completion or termination ofwhich has been determined at the time of the engagement of the employee or where the work orservice to be employee is seasonal in nature and the employment is for the duration of theseason.

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 serviceis continuous or broken, shall be considered a regular employee with respect to the activity inwhich 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 torecognize, 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, whateverits object, be it specific, goods or services, except the general admonition against stipulationscontrary to law, morals, good customs, public order or public policy. Under the Civil code,therefore, and as a general proposition, fixed-term employment contracts are not limited, as theyare under the present Labor Code, to those by natural seasonal or for specific projects with


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Nothing is better settled than that courts are not to give words a meaning which would lead toabsurd or unreasonable consequences. That is a principle that goes back to In re Allen decidedon October 27, 1902, where it was held that a literal interpretation is to be rejected if it would beunjust or lead to absurd results. That is a strong argument against its adoption. The words ofJustice Laurel are particularly apt. Thus: the appellants would lead to an absurdity is another

argument for rejecting it.

Xxx We have, here, then a case where the true intent of the law is clear that calls for theapplication of the cardinal rule of statutory construction that such intent of spirit must prevailover the letter thereof, for whatever is within the spirit of a statute is within the statute, sinceadherence to the letter would result in absurdity, injustice and contradictions and would defeatthe plain and vital purpose of the statute.

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 employees right to be secure in his

tenure, the clause in said article indiscriminately and completely ruling out all written ororal 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 applyto 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.

Again, in Pablo Coyoca v. NLRC,xviii[18] the Court also held that a seafarer is not a regularemployee and is not entitled to separation pay. His employment is governed by the POEAStandard Employment Contract for Filipino Seamen.

XXX. In this connection, it is important to note that neither does the POEA standardemployment contract for Filipino seamen provide for such benefits.

As a Filipino seaman, petitioner is governed by the Rules and Regulations Governing

Overseas Employment and the said Rules do not provide for separation or termination

pay.What is embodied in petitioners contract is the payment of compensation arising from

permanent partial disability during the period of employment. We find that private respondentcomplied with the terms of contract when it paid petitioner P42,315.00 which, in our opinion, isa reasonable amount, as compensation for his illness.

Lastly, petitioner claims that he eventually became a regular employee of private respondent andthus falls within the purview of Articles 284 and 95 of the Labor Code. In support of thiscontention, petitioner cites the case ofWorth Shipping Service, Inc., et al.v. NLRC, et al.,


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wherein we held that the crew members of the shipping company had attained regular status andthus, were entitled to separation pay. However, the facts of said case differ from the present. InWorth, we held that the principal and agent had operational control and management over theMV Orient Carrier and thus, were the actual employers of their crew members.

From the foregoing cases, it is clear that seafarers are considered contractual employees. Theycan not be considered as regular employees under Article 280 of the Labor Code. Theiremployment is governed by the contracts they sign everytime they are rehired and theiremployment is terminated when the contract expires. Their employment is contractually fixedfor a certain period of time. They fall under the exception of Article 280 whose employment hasbeen fixed for a specific project or undertaking the completion or termination of which has beendetermined at the time of engagement of the employee or where the work or services to beperformed is seasonal in nature and the employment is for the duration of the season.xix[19] Weneed not depart from the rulings of the Court in the two aforementioned cases which indeedconstitutestare decisis with respect to the employment status of seafarers.

Petitioners insist that they should be considered regular employees, since they have renderedservices which are usually necessary and desirable to the business of their employer, and thatthey have rendered more than twenty(20) years of service. While this may be true, theBrentcase has, however, held that there are certain forms of employment which also require theperformance of usual and desirable functions and which exceed one year but do not necessarilyattain regular employment status under Article 280.xx[20] Overseas workers including seafarers fallunder this type of employment which are governed by the mutual agreements of the parties.

In this jurisdiction and as clearly stated in the Coyoca case, Filipino seamen are governed by theRules and Regulations of the POEA. The Standard Employment Contract governing theemployment of All Filipino seamen on Board Ocean-Going Vessels of the POEA, particularly in

Part I, Sec. C specifically provides that the contract of seamen shall be for a fixed period. And inno case should the contract of seamen be longer than 12 months. It reads:

Section C. Duration of Contract

The period of employment shall be for a fixed period but in no case to exceed 12 months andshall be stated in the Crew Contract. Any extension of the Contract period shall be subject to themutual consent of the parties.

Moreover, it is an accepted maritime industry practice that employment of seafarers are for afixed period only. Constrained by the nature of their employment which is quite peculiar and

unique in itself, it is for the mutual interest of both the seafarer and the employer why theemployment status must be contractual only or for a certain period of time. Seafarers spend mostof their time at sea and understandably, they can not stay for a long and an indefinite period oftime at sea.xxi[21] Limited access to shore society during the employment will have an adverseimpact on the seafarer. The national, cultural and lingual diversity among the crew during theCOE is a reality that necessitates the limitation of its period.xxii[22]


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Petitioners make much of the fact that they have been continually re-hired or their contractsrenewed before the contracts expired (which has admittedly been going on for twenty (20)years). By such circumstance they claim to have acquired regular status with all the rights andbenefits appurtenant to it.

Such contention is untenable. Undeniably, this circumstance of continuous re-hiring wasdictated by practical considerations that experienced crew members are more preferred.Petitioners were only given priority or preference because of their experience and qualificationsbut this does not detract the fact that herein petitioners are contractual employees. They can notbe considered regular employees. We quote with favor the explanation of the NLRC in thiswise:

Xxx The reference to permanent and probationary masters and employees in these papers isa misnomer and does not alter the fact that the contracts for enlistment between complainants-appellants and respondent-appellee Esso International were for a definite periods of time,ranging from 8 to 12 months. Although the use of the terms permanent and probationary is

unfortunate, what is really meant is eligible for-re-hire. This is the only logical conclusionpossible because the parties cannot and should not violate POEAs requirement that a contract ofenlistment shall be for a limited period only; not exceeding twelve (12)months. xxiii[23]

From all the foregoing, we hereby state that petitioners are not considered regular or permanentemployees under Article 280 of the Labor Code. Petitioners employment have automaticallyceased upon the expiration of their contracts of enlistment (COE). Since there was no dismissalto speak of, it follows that petitioners are not entitled to reinstatement or payment of separationpay or backwages, as provided by law.

With respect to the benefits under the Consecutive Enlistment Incentive Plan (CEIP), we hold

that the petitioners are still entitled to receive 100% of the total amount credited to him under theCEIP. Considering that we have declared that petitioners are contractual employees, theircompensation and benefits are covered by the contracts they signed and the CEIP is part andparcel of the contract.

The CEIP was formulated to entice seamen to stay long in the company. As the name implies,the program serves as an incentive for the employees to renew their contracts with the samecompany for as long as their services were needed. For those who remained loyal to them, theywere duly rewarded with this additional remuneration under the CEIP, if eligible. While this isan act of benevolence on the part of the employer, it can not, however, be denied that this is partof the benefits accorded to the employees for services rendered. Such right to the benefits isvested upon them upon their eligibility to the program.

The CEIP provides that an employee becomes covered under the Plan when he completes thirty-six (36) months or an equivalent of three (3) years of credited service with respect toemployment after June 30, 1973.xxiv[24] Upon eligibility, an amount shall be credited to his accountas it provides, among others:

III. Distribution of Benefits


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A. Retirement, Death and Disability

When the employment of an employee terminates because of his retirement, deathor permanent and total disability, a percentage of the total amount credited to hisaccount will be distributed to him (or his eligible survivor(s) in accordance with

the following:

Reason for Termination Percentage

a) Attainment of mandatory retire- 100%ment age of 60.

b) Permanent and total disability, 100%while under contract, that is

not due to accident or misconduct.

c) Permanent and total disability, 100%while under contract, that isdue to accident, and not due to

misconduct.

xxx

B. Voluntary Termination

When an employee voluntary terminates his employment with at least 36 months of creditedservice without any misconduct on his part, 18 percent of the total amount credited to his

account, plus an additional of one percent for each month (up to a maximum of 164 months ofcredited service in excess of 36, will be distributed to him provided (1) the employee hascompleted his last Contract of Enlistment and (2) employee advises the company in writing,within 30 days, from his last disembarkation date, of his intention to terminate his employment.(To advise the Company in writing means that the original letter must be sent to the Companysagent in the Philippines, a copy sent to the Company in New York).

xxx

C. Other Terminations

When the employment of an employee is terminated by the Company for a reasonother than one in A and B above, without any misconduct on his part, a percentageof the total amount credited to his account will be distributed to him in accordancewith the following.

Credited Service Percentage

36 months 50%


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48 75%60 100%

When the employment of an employee is terminated due to his poor-performance,misconduct, unavailability, etc., or if employee is not offered re-engagement for

similar reasons, no distribution of any portion of employees account will ever bemade to him (or his eligible survivor[s]).

It must be recalled that on June 21, 1989, Millares wrote a letter to his employer informing hisintention to avail of the optional retirement plan under the CEIP considering that he has renderedmore than twenty (20) years of continuous service. Lagda, likewise, manifested the sameintention in a letter dated June 26, 1989. Private respondent, however, denied their requests forbenefits under the CEIP since: (1) the contract of enlistment (COE) did not provide forretirement before 60 years of age; and that (2) petitioners failed to submit a written notice oftheir intention to terminate their employment within thirty (30) days from the last disembarkationdate pursuant to the provision on Voluntary Termination of the CEIP. Petitioners were

eventually dropped from the roster of crew members and on grounds of abandonment andunavailability for contractual sea service, respectively, they were disqualified from receivingany benefits under the CEIP.xxv[25]

In our March 14, 2000 Decision, we, however, found that petitioners Millares and Lagda werenot guilty of abandonment or unavailability for contractual sea service, as we have stated:

The absence of petitioners was justified by the fact that they secured the approval of privaterespondents to take a leave of absence after the termination of their last contracts of enlistment.Subsequently, petitioners sought for extensions of their respective leaves of absence. Grantingarguendo that their subsequent requests for extensions were not approved, it cannot be said that

petitioners were unavailable or had abandoned their work when they failed to report back forassignment as they were still questioning the denial of private respondents of their desire to availof the optional early retirement policy, which they believed in good faith to exist.xxvi[26]

Neither can we consider petitioners guilty of poor performance or misconduct since they wererecipients of Merit Pay Awards for their exemplary performances in the company.

Anent the letters dated June 21, 1989 (for Millares) and June 26, 1989 (for Lagda) which privaterespondent considered as belated written notices of termination, we find such assertion specious.Notwithstanding, we could conveniently consider the petitioners eligible under Section III-B ofthe CEIP (Voluntary Termination), but this would, however, award them only a measly amount

of benefits which to our mind, the petitioners do not rightfully deserve under the facts andcircumstances of the case. As the CEIP provides:

III. Distribution of Benefits

xxx

E. Distribution of Accounts


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When an employee terminates under conditions that would qualify for a distribution of more thanone specified in A, B or C above, the largest single amount, only, will be distributed.

Since petitioners termination of employment under the CEIP do not fall under Section III-A(Retirement, Death and Disability) or Section III-B (Voluntary Termination), nor could they be

considered under the second paragraph of Section III-C, as earlier discussed; it follows that theirtermination falls under the first paragraph of Section III-C for which they are entitled to 100% ofthe total amount credited to their accounts. The private respondents can not now renege on theircommitment under the CEIP to reward deserving and loyal employees as the petitioners in thiscase.

In taking cognizance of private respondents Second Motion for Reconsideration, the Courthereby suspends the rules to make them conformable to law and justice and to subserve anoverriding public interest.

IN VIEW OF THE FOREGOING, THE COURT Resolved to Partially GRANT Private

Respondents Second Motion for Reconsideration and Intervenor FAMES Motion forReconsideration in Intervention. The Decision of the National Labor Relations Commissiondated June 1, 1993 is hereby REINSTATED with MODIFICATION. The Private Respondents,Trans-Global Maritime Agency, Inc. and Esso International Shipping Co.,Ltd. are hereby jointlyand severally ORDERED to pay petitioners One Hundred Percent (100%) of their total creditedcontributions as provided under the Consecutive Enlistment Incentive Plan(CEIP).

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, and Ynares-Santiago, JJ., concur.

Austria-Martinez, J., no part. Did not participate in the Decision.


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FIRST DIVISION

G.R. No. 74246 January 26, 1989

MARIWASA MANUFACTURING, INC., and ANGEL T. DAZO, petitioners,vs.HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister of Ministry ofLabor and Employment judgment, and JOAQUIN A. DEQUILA, respondents.

Cruz, Agabin, Atienza & Alday for petitioners.

The Solicitor General of public respondent.

Norberto M. Alensuela, Sr. for private respondent.

NARVASA, J.:

There is no dispute about the facts in this case, and the only question for the Court iswhether or not, Article 282 of the Labor Code notwithstanding, probationaryemployment may validly be extended beyond the prescribed six-month period byagreement of the employer and the employee.

Private respondent Joaquin A. Dequila (or Dequilla) was hired on probation by petitioner

Mariwasa Manufacturing, Inc. (hereafter, Mariwasa only) as a general utility worker onJanuary 10, 1979. Upon the expiration of the probationary period of six months, Dequilawas informed by his employer that his work had proved unsatisfactory and had failed tomeet the required standards. To give him a chance to improve his performance andqualify for regular employment, instead of dispensing with his service then and there,with his written consent Mariwasa extended his probation period for another threemonths from July 10 to October 9, 1979. His performance, however, did not improveand on that account Mariwasa terminated his employment at the end of the extendedperiod. 1

Dequila thereupon filed with the Ministry of Labor against Mariwasa and its Vice-

President for Administration, Angel T. Dazo, a complaint for illegal dismissal andviolation of Presidential Decrees Nos. 928 and 1389. 2 His complaint was dismissedafter hearing by Director Francisco L. Estrella, Director of the Ministry's National CapitalRegion, who ruled that the termination of Dequila's employment was in thecircumstances justified and rejected his money claims for insufficiency of evidence. 3 Onappeal to the Office of the Minister, however, said disposition was reversed.Respondent Deputy Minister Vicente Leogardo, Jr. held that Dequila was already aregular employee at the time of his dismissal, therefore, could not have been lawfully


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dismissed for failure to meet company standards as a probationary worker. He wasordered reinstated to his former position without loss of seniority and with full backwages from the date of his dismissal until actually reinstated. 4 This last order appearslater to have been amended so as to direct payment of Dequila's back wages from thedate of his dismissal to December 20, 1982 only. 5

Mariwasa and Dazo, now petitioners, thereafter be sought this Court to review Hon.Leogardo's decision on certiorariand prohibition, urging its reversal for having beenrendered with grave abuse of discretion and/or without or in excess of jurisdiction. 6

The petition, as well as the parties' comments subsequently submitted all underscorethe fact that the threshold issue here is, as first above stated, the legal one of whetheremployer and employee may by agreement extend the probationary period ofemployment beyond the six months prescribed in Art. 282 of the Labor Code, whichprovides that:

Art. 282. Probationary Employment. Probationary employment shall not exceed six (6)months from the date the employee started working, unless it is covered by anapprenticeship agreement stipulating a longer period. The services of an employee whohas been engaged on a probationary basis may be terminated for a just cause or whenhe fails to qualify as a regular employee in accordance with reasonable standards madeknown by the employer to the employee at the time of his engagement. An employeewho is allowed to work after probationary period shall be considered a regular employee.'

The Court agrees with the Solicitor General, who takes the same position as thepetitioners, that such an extension may lawfully be covenanted, notwithstanding theseemingly restrictive language of the cited provision. Buiser vs. Leogardo, Jr. 7recognized agreements stipulating longer probationary periods as constituting lawfulexceptions to the statutory prescription limiting such periods to six months, when itupheld as valid an employment contract between an employer and two of its employeesthat provided for an eigthteen-month probation period. This Court there held:

'It is petitioners' submission that probationary employment cannot exceed six (6) months,the only exception being apprenticeship and learnership agreements as provided in theLabor Code; that the Policy Instruction of the Minister of Labor and Employment nor anyagreement of the parties could prevail over this mandatory requirement of the law; thatthis six months prescription of the Labor Code was mandated to give further efficacy tothe constitutionally-guaranteed security of tenure of workers; and that the law does notallow any discretion on the part of the Minister of Labor and Employment to extend theprobationary period for a longer period except in the aforecited instances. Finally,petitioners maintain that since they are regular employees, they can only be removed or

dismissed for any of the just and valid causes enumerated under Article 283. of the LaborCode.

We reject petitioners' contentions. They have no basis in law.

Generally, the probationary period of employment is limited to six (6) months. Theexception to this general rule is when the parties to an employment contract may agreeotherwise, such as when the same is established by company policy or when the same isrequired by the nature of work to be performed by the employee. In the latter case, there


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is recognition of the exercise of managerial prerogatives in requiring a longer period ofprobationary employment, such as in the present case where the probationary periodwas set for eighteen (18) months, i.e. from May, 1980 to October, 1981 inclusive,especially where the employee must learn a particular kind of work such as selling, orwhen the job requires certain qualifications, skills experience or training.

x x x

We therefore, hold and rule that the probationary employment of petitioners set toeighteen (18) months is legal and valid and that the Regional Director and the DeputyMinister of Labor and Employment committed no abuse of discretion in ruling accordingly.

The single difference between Buiserand the present case: that in the former involvedan eighteen-month probationary period stipulated in the original contract of employment,whereas the latter refers to an extension agreed upon at or prior to the expiration of thestatutory six-month period, is hardly such as to warrant or even suggest a differentruling here. In both cases the parties' agreements in fact resulted in extensions of theperiod prescribed by law. That in this case the inability of the probationer to make the

grade became apparent only at or about the end of the six-month period, hence anextension could not have been pre-arranged as was done in Buiserassumes noadverse significance, given the lack, as pointed out by the Solicitor General, of anyindication that the extension to which Dequila gave his agreement was a merestratagem of petitioners to avoid the legal consequences of a probationary periodsatisfactorily completed.

For aught that appears of record, the extension of Dequila's probation was exgratia, anact of liberality on the part of his employer affording him a second chance to make goodafter having initially failed to prove his worth as an employee. Such an act cannot nowunjustly be turned against said employer's account to compel it to keep on its payroll

one who could not perform according to its work standards. The law, surely, was nevermeant to produce such an inequitable result.

By voluntarily agreeing to an extension of the probationary period, Dequila in effectwaived any benefit attaching to the completion of said period if he still failed to make thegrade during the period of extension. The Court finds nothing in the law which by anyfair interpretation prohibits such a waiver. And no public policy protecting the employeeand the security of his tenure is served by prescribing voluntary agreements which, byreasonably extending the period of probation, actually improve and further aprobationary employee's prospects of demonstrating his fitness for regular employment.

Having reached the foregoing conclusions, the Court finds it unnecessary to considerand pass upon the additional issue raised in the Supplemental Petition 8 that the backwages adjudged in favor of private respondent Dequila were erroneously computed.

WHEREFORE, the petition is granted. The orders of the public respondent complainedof are reversed and set aside. Private respondent's complaint against petitioners forillegal dismissal and violation of Presidential Decrees 928 and 1389 is dismissed forlack of merit, without pronouncement as to costs.


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SO ORDERED.

Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.


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THIRD DIVISION

G.R. No. 72222 January 30, 1989

INTERNATIONAL CATHOLIC MIGRATION COMMISSION, petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION and BERNADETTE GALANG,respondents.

FERNAN, C.J.:

The issue to be resolved in the instant case is whether or not an employee who was

terminated during the probationary period of her employment is entitled to her salary forthe unexpired portion of her six-month probationary employment.

The facts of the case are undisputed.

Petitioner International Catholic Migration Commission (ICMC), a non-profit organizationdedicated to refugee service at the Philippine Refugee Processing Center in Morong,Bataan engaged the services of private respondent Bernadette Galang on January 24,1983 as a probationary cultural orientation teacher with a monthly salary of P2,000.00.

Three (3) months thereafter, or on April 22, 1983, private respondent was informed,

orally and in writing, that her services were being terminated for her failure to meet theprescribed standards of petitioner as reflected in the performance evaluation of hersupervisors during the teacher evaluation program she underwent along with othernewly-hired personnel.

Despite her termination, records show that private respondent did not leave the ICMCrefugee camp at Morong, Bataan, but instead stayed thereat for a few days beforeleaving for Manila, during which time, she was observed by petitioner to be allegedlyacting strangely.

On July 24, 1983, private respondent returned to Morong, Bataan on board the service

bus of petitioner to accomplish the clearance requirements. In the evening of that sameday, she was found at the Freedom Park of Morong wet and shivering from the rain andacting bizarrely. She was then taken to petitioner's hospital where she was given thenecessary medical attention.

Two (2) days later, or on July 26, 1983, she was taken to her residence in Manilaaboard petitioner's service bus. Thru a letter, her father expressed appreciation topetitioner for taking care of her daughter. On that same day, her father received, on her


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behalf, the proportionate amount of her 13th month pay and the equivalent of her twoweek pay.

On August 22, 1983, private respondent filed a complaint 1 for illegal dismissal, unfairlabor practice and unpaid wages against petitioner with the then Ministry of Labor and

Employment, praying for reinstatement with backwages, exemplary and moraldamages.

On October 8, 1983, after the parties submitted their respective position papers andother pleadings, Labor Arbiter Pelagio A. Carpio rendered his decision dismissing thecomplaint for illegal dismissal as well as the complaint for moral and exemplarydamages but ordering the petitioner to pay private respondent the sum of P6,000.00 aspayment for the last three (3) months of the agreed employment period pursuant to herverbal contract of employment. 2

Both parties appealed the decision to the National Labor Relations Commission. In her

appeal, private respondent contended that her dismissal was illegal considering that itwas effected without valid cause. On the other hand, petitioner countered that privaterespondent who was employed for a probationary period of three (3) months could notrightfully be awarded P6,000.00 because her services were terminated for failure toqualify as a regular employee in accordance with the reasonable standards prescribedby her employer.

On August 22, 1985, the NLRC, by a majority vote of Commissioners Guillermo C.Medina and Gabriel M. Gatchalian, sustained the decision of the Labor Arbiter and thusdismissed both appeals for lack of merit. Commissioner Miguel Varela, on the otherhand, dissented and voted for the reversal of the Labor Arbiter's decision for lack of

legal basis considering that the termination of services of complainant, now privaterespondent, was effected during her probationary period on valid grounds made knownto her. 3

Dissatisfied, petitioner filed the instant petition.

Petitioner maintains that private respondent is not entitled to the award of salary for theunexpired three-month portion of the probationary period since her services wereterminated during such period when she failed to qualify as a regular employee inaccordance with the reasonable standards prescribed by petitioner; that having beenterminated on valid grounds during her probationary period, or specifically on April 24,

1983, petitioner is not liable to private respondent for services not rendered during theunexpired three-month period, otherwise, unjust enrichment of her part would result;that under Article 282 (now Article 281) of the Labor Code, if the employer finds that theprobationary employees does not meet the standards of employment set for theposition, the probationary employee may be terminated at any time within the six-monthperiod, without need of exhausting raid entire six-month term. 4


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The Solicitor General, on the other hand, contends that a probationary employment forsix (6) months, as in the case of herein private respondent, is an employment for adefinite period of time and, as such, the employer is duty-bound to allow theprobationary employee to work until the termination of the probationary employmentbefore her re- employment could be refused; that when petitioner disrupted the

probationary employment of private respondent, without giving her the opportunity toimprove her method of instruction within the said period, it held itself liable to pay hersalary for the unexpired portion of such employment by way of damages pursuant to thegeneral provisions of civil law that he who in any manner contravenes the terms of hisobligation without any valid cause shall be liable for damages; 5 that, as held in Madrigalv. Ogilvie, et al,6 the damages so awarded are equivalent to her salary for theunexpired portion of her employment for a fixed period. 7

We find for petitioner.

There is justifiable basis for the reversal of public respondent's award of salary for the

unexpired three-month portion of private respondent's six-month probationaryemployment in the light of its express finding that there was no illegal dismissal. Thereis no dispute that private respondent was terminated during her probationary period ofemployment for failure to qualify as a regular member of petitioner's teaching staff inaccordance with its reasonable standards. Records show that private respondent wasfound by petitioner to be deficient in classroom management, teacher-studentrelationship and teaching techniques. 8 Failure to qualify as a regular employee inaccordance with the reasonable standards of the employer is a just cause forterminating a probationary employee specifically recognized under Article 282 (now

Article 281) of the Labor Code which provides thus:

ART. 281. Probationary employment. Probationary employment shall not exceed sixmonths from the date the employee started working, unless it is covered by anapprenticeship agreement stipulating a longer period. The services of an employer whohas been engaged in a probationary basis may be terminated for a just cause or when hefails to qualify as a regular employer in accordance with reasonable standard madeknown by the employer to the employer at the time of his engagement. An employee whois allowed to work after a probationary period shall be considered a regular employee.(Emphasis supplied.)

It must be noted that notwithstanding the finding of legality of the termination of privaterespondent, public respondent justified the award of salary for the unexpired portion ofthe probationary employment on the ground that a probationary employment for six (6)months is an employment for a "definite period" which requires the employer to exhaust

the entire probationary period to give the employee the opportunity to meet the requiredstandards.

The legal basis of public respondent is erroneous. A probationary employee, asunderstood under Article 282 (now Article 281) of the Labor Code, is one who is on trialby an employer during which the employer determines whether or not he is qualified forpermanent employment. A probationary appointment is made to afford the employer anopportunity to observe the fitness of a probationer while at work, and to ascertain


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whether he will become a proper and efficient employee. 9 The word "probationary", asused to describe the period of employment, implies the purpose of the term or period,but not its length. 10

Being in the nature of a "trial period" 11 the essence of a probationary period of

employment fundamentally lies in the purpose or objective sought to be attained by boththe employer and the employee during said period. The length of time is immaterial indetermining the correlative rights of both in dealing with each other during said period.While the employer, as stated earlier, observes the fitness, propriety and efficiency of aprobationer to ascertain whether he is qualified for permanent employment, theprobationer, on the other, seeks to prove to the employer, that he has the qualificationsto meet the reasonable standards for permanent employment.

It is well settled that the employer has the right or is at liberty to choose who will behired and who will be denied employment. In that sense, it is within the exercise of theright to select his employees that the employer may set or fix a probationary period

within which the latter may test and observe the conduct of the former before hiring himpermanently. The equality of right that exists between the employer and the employeeas to the nature of the probationary employment was aptly emphasized by this Court inGrand Motor Parts Corporation v. Minister of Labor, et al. , 130 SCRA 436 (1984), citingthe 1939 case ofPampanga Bus. Co., Inc. v. Pambusco Employees Union, Inc. 68 Phil.541, thus:

The right of a laborer to sell his labor to such persons as he may choose is, in itsessence, the same as the right of an employer to purchase labor from any person whomit chooses. The employer and the employee have thus an equality of right guaranteed bythe Constitution. If the employer can compel the employee to work against the latter's will,this is servitude. If the employee can compel the employer to give him work against the

employer's will, this is oppression.

As the law now stands, Article 281 of the Labor Code gives ample authority to theemployer to terminate a probationary employee for a just cause or when he fails toqualify as a regular employee in accordance with reasonable standards made known bythe employe

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