Republic

SUPREME
Manila

of

the

Philippines
COURT

On November 20, 1981, private respondents filed a complaint against

the petitioner at the Ministry of Labor and Employment, Bacolod City
District Office, for overtime pay, illegal dismissal and reinstatement
with backwages. After the parties had presented their respective
evidence, Labor Arbiter Manuel M. Lucas, Jr., in a Decision dated July
16, 1982 (Ibid, pp. 29-31), ruled that the dismissal is warranted by the
cessation of business, but granted the private respondents separation
pay. Pertinent portion of the dispositive portion of the Decision reads:

ROSALINA PEREZ ABELLA/HDA. DANAO-RAMONA, petitioners,

vs.
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION,
ROMEO QUITCO and RICARDO DIONELE, SR., respondents.

In the instant case, the respondent closed its business

operation not by reason of business reverses or losses.
Accordingly, the award of termination pay in complainants'
favor is warranted.

PARAS, J.:

WHEREFORE, the respondent is hereby ordered to pay the

complainants separation pay at the rate of half-month salary
for every year of service, a fraction of six (6) months being
considered one (1) year. (Rollo pp. 29-30)

EN BANC
G.R. No. 71813

July 20, 1987

This is a petition for review on certiorari of the April 8, 1985 Resolution

of the Ministry of Labor and Employment affirming the July 16, 1982
Decision of the Labor Arbiter, which ruled in favor of granting
separation pay to private respondents.
On June 27, 1960, herein petitioner Rosalina Perez Abella leased a farm
land in Monteverde, Negros Occidental, known as Hacienda DanaoRamona, for a period of ten (10) years, renewable, at her option, for
another ten (10) years (Rollo, pp. 16-20).
On August 13, 1970, she opted to extend the lease contract for
another ten (10) years (Ibid, pp. 26-27).
During the existence of the lease, she employed the herein private
respondents. Private respondent Ricardo Dionele, Sr. has been a
regular farm worker since 1949 and he was promoted to Cabo in 1963.
On the other hand, private respondent Romeo Quitco started as a
regular employee in 1968 and was promoted to Cabo in November of
the same year.
Upon the expiration of her leasehold rights, petitioner dismissed
private respondents and turned over the hacienda to the owners
thereof on October 5, 1981, who continued the management,
cultivation and operation of the farm (Rollo, pp. 33; 89).

On appeal on August 11, 1982, the National Labor Relations

Commission, in a Resolution dated April 8, 1985 (Ibid, pp. 3940),
affirmed the decision and dismissed the appeal for lack of merit.
On May 22, 1985, petitioner filed a Motion for Reconsideration (Ibid,
pp. 41-45), but the same was denied in a Resolution dated June 10,
1985 (Ibid, p. 46). Hence, the present petition (Ibid, pp. 3-8).
The First Division of this Court, in a Resolution dated September 16,
1985, resolved to require the respondents to comment (Ibid, p. 58). In
compliance therewith, private respondents filed their Comment on
October 23, 1985 (Ibid, pp. 53-55); and the Solicitor General on
December 17, 1985 (Ibid, pp. 71-73-B).
On February 19, 1986, petitioner filed her Consolidated Reply to the
Comments of private and public respondents (Ibid, pp. 80-81).
The First Division of this Court, in a Resolution dated March 31, 1986,
resolved to give due course to the petition; and to require the parties
to submit simultaneous memoranda (Ibid., p. 83). In compliance
therewith, the Solicitor General filed his Memorandum on June 18,

1986 (Ibid, pp. 89-94); and petitioner on July 23, 1986 (Ibid, pp. 96194).
The petition is devoid of merit.
The sole issue in this case is
WHETHER OR NOT
SEPARATION PAY.

PRIVATE

RESPONDENTS

ARE

ENTITLED

TO

Petitioner claims that since her lease agreement had already expired,
she is not liable for payment of separation pay. Neither could she
reinstate the complainants in the farm as this is a complete cessation
or closure of a business operation, a just cause for employment
termination under Article 272 of the Labor Code.
On the other hand, the legal basis of the Labor Arbiter in granting
separation pay to the private respondents is Batas Pambansa Blg. 130,
amending the Labor Code, Section 15 of which, specifically provides:

losses or financial reverses, the separation pay shall be

equivalent to one (1) month pay or at least one-half (1/2)
month pay for every year of service whichever is higher. A
fraction of at least six (6) months shall be considered one (1)
whole year.1avvphi1
There is no question that Article 284 of the Labor Code as amended by
BP 130 is the law applicable in this case.
Article 272 of the same Code invoked by the petitioner pertains to the
just causes of termination. The Labor Arbiter does not argue the
justification of the termination of employment but applied Article 284
as amended, which provides for the rights of the employees under the
circumstances of termination.
Petitioner then contends that the aforequoted provision violates the
constitutional guarantee against impairment of obligations and
contracts, because when she leased Hacienda Danao-Ramona on June
27, 1960, neither she nor the lessor contemplated the creation of the
obligation to pay separation pay to workers at the end of the lease.

Sec 15 Articles 285 and 284 of the Labor Code are hereby
amended to read as follows:

Such contention is untenable.

xxx

This issue has been laid to rest in the case of Anucension v. National
Labor Union (80 SCRA 368-369 [1977]) where the Supreme Court ruled:

xxx

xxx

Art. 284. Closure of establishment and reduction of personnel.

The employer may also terminate the employment of any
employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establisment or undertaking
unless the closing is for the purpose of circumventing the
provisions of this title, by serving a written notice on the
workers and the Ministry of Labor and Employment at least one
(1) month before the intended date thereof. In case of
termination due to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be entitled to a
separation pay equivalent to at least his one (1) month pay or
to at least one (1) month pay for every year of service,
whichever is higher. In case of retrenchment to prevent losses
and in cases of closure or cessation of operations of
establishment or undertaking not due to serious business

It should not be overlooked, however, that the prohibition to

impair the obligation of contracts is not absolute and
unqualified. The prohibition is general, affording a broad
outline and requiring construction to fill in the details. The
prohibition is not to read with literal exactness like a
mathematical formula for it prohibits unreasonable impairment
only. In spite of the constitutional prohibition the State
continues to possess authority to safeguard the vital interests
of its people. Legislation appropriate to safeguard said interest
may modify or abrogate contracts already in effect. For not
only are existing laws read into contracts in order to fix the
obligations as between the parties but the reservation of
essential attributes of sovereign power is also read into
contracts as a postulate of the legal order. All contracts made
with reference to any matter that is subject to regulation under
the police power must be understood as made in reference to

the possible exercise of that power. Otherwise, important and

valuable reforms may be precluded by the simple device of
entering into contracts for the purpose of doing that which
otherwise maybe prohibited. ...
In order to determine whether legislation unconstitutionally
impairs contract of obligations, no unchanging yardstick,
applicable at all times and under all circumstances, by which
the validity of each statute may be measured or determined,
has been fashioned, but every case must be determined upon
its own circumstances. Legislation impairing the obligation of
contracts can be sustained when it is enacted for the
promotion of the general good of the people, and when the
means adopted must be legitimate, i.e. within the scope of the
reserved power of the state construed in harmony with the
constitutional limitation of that power. (Citing Basa vs.
Federacion Obrera de la Industria Tabaquera y Otros
Trabajadores de Filipinas [FOITAF] [L-27113], November 19,
1974; 61 SCRA 93,102-113]).
The purpose of Article 284 as amended is obvious-the protection of the
workers whose employment is terminated because of the closure of
establishment and reduction of personnel. Without said law, employees
like private respondents in the case at bar will lose the benefits to
which they are entitled for the thirty three years of service in the
case of Dionele and fourteen years in the case of Quitco. Although they
were absorbed by the new management of the hacienda, in the
absence of any showing that the latter has assumed the
responsibilities of the former employer, they will be considered as new
employees and the years of service behind them would amount to
nothing.
Moreover, to come under the constitutional prohibition, the law must
effect a change in the rights of the parties with reference to each other
and not with reference to non-parties.
As correctly observed by the Solicitor General, Article 284 as amended
refers to employment benefits to farm hands who were not parties to
petitioner's lease contract with the owner of Hacienda Danao-Ramona.
That contract cannot have the effect of annulling subsequent
legislation designed to protect the interest of the working class.

In any event, it is well-settled that in the implementation and

interpretation of the provisions of the Labor Code and its implementing
regulations, the workingman's welfare should be the primordial and
paramount consideration. (Volshel Labor Union v. Bureau of Labor
Relations, 137 SCRA 43 [1985]). It is the kind of interpretation which
gives meaning and substance to the liberal and compassionate spirit of
the law as provided for in Article 4 of the New Labor Code which states
that "all doubts in the implementation and interpretation of the
provisions of this Code including its implementing rules and regulations
shall be resolved in favor of labor." The policy is to extend the
applicability of the decree to a greater number of employees who can
avail of the benefits under the law, which is in consonance with the
avowed policy of the State to give maximum aid and protection to
labor. (Sarmiento v. Employees Compensation Commission, 144 SCRA
422 [1986] citing Cristobal v. Employees Compensation Commission,
103 SCRA 329; Acosta v. Employees Compensation Commission, 109
SCRA 209).
PREMISES CONSIDERED, the instant petition is hereby DISMISSED and
the July 16, 1982 Decision of the Labor Arbiter and the April 8, 1985
Resolution of the Ministry of Labor and Employment are hereby
AFFIRMED.
SO ORDERED.
ABELLA v. NLRC G.R. No. 71813 July 20, 1987
FACTS
PETITIONER Abella leased a farmland from Ramona for a period of 10
years and renewable for another 10 years at the option of the former.
Abella hired the private respondents Quitco and Dionele. Abella
renewed the lease for another ten years. At the expiration of the lease,
she dismissed both private respondents and turned over the hacienda
to the owners. Private respondents led a complaint against petitioner.
for overtime pay, reinstatement, and illegal dismissal. The Labor
Arbiter ruled that the dismissal was warranted by the cessation of
business, but the respondents are entitled to separation pay, invoking
Art. 284 of the Labor Code, as amended.

ISSUE Whether or not private respondents are entitled to separation

pay.
RULING The Court upheld the ruling of the Labor Arbiter that Article
284 is the applicable law in this case. Art 284, as amended refers to
employment benets to farm hands who were not parties to
petitioner's lease contract with the owner of Hacienda Danao-Ramona.
That contract cannot have the eect of annulling subsequent legislation
designed to protect the interest of the working class. It is well-settled
that in the implementation and interpretation of the provisions of the
Labor Code and its implementing regulations, the workingman's
welfare should be the primordial and paramount consideration. It is the

kind of interpretation which gives meaning and substance to the liberal

and compassionate spirit of the law as provided for in Article 4 of the
New Labor Code which states that "all doubts in the implementation
and interpretation of the provisions of this Code including its
implementing rules and regulations shall be resolved in favor of labor."
The policy is to extend the applicability of the decree to a greater
number of employees who can avail of the beneFts under the law,
which is in consonance with the avowed policy of the State to give
maximum aid and protection to labor.