THIRD DIVISION

[G.R. No. 61594. September 28, 1990.]

PAKISTAN INTERNATIONAL AIRLINES CORPORATION , petitioner, vs.

HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON.
VICENTE LEOGARDO, JR., in his capacity as Deputy Minister;
ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG ,
respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Ledesma, Saludo & Associates for private respondents.

DECISION

FELICIANO , J : p

On 2 December 1978, petitioner Pakistan International Airlines Corporation

("PIA"), a foreign corporation licensed to do business in the Philippines, executed in
Manila two (2) separate contracts of employment, one with private respondent
Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The
contracts, which became effective on 9 January 1979, provided in pertinent portion as
follows:
"5. DURATION OF EMPLOYMENT AND PENALTY
This agreement is for a period of three (3) years, but can be extended by
the mutual consent of the parties.

xxx xxx xxx

6. TERMINATION
xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the

right to terminate this agreement at any time by giving the EMPLOYEE notice in
writing in advance one month before the intended termination or in lieu thereof,
by paying the EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

This agreement shall be construed and governed under and by the laws
of Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction
to consider any matter arising out of or under this agreement."
Respondents then commenced training in Pakistan. After their training period,
they began discharging their job functions as ight attendants, with base station in
Manila and flying assignments to different parts of the Middle East and Europe.
On 2 August 1980, roughly one (1) year and four (4) months prior to the
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 expiration of the contracts of employment, PIA through Mr. Oscar Benares, counsel for
and o cial of the local branch of PIA, sent separate letters both dated 1 August 1980
to private respondents Farrales and Mamasig advising both that their services as ight
stewardesses would be terminated "effective 1 September 1980, conformably to
clause 6 (b) of the employment agreement [they had] executed with [PIA]." 2
On 9 September 1980, private respondents Farrales and Mamasig jointly
instituted a complaint, docketed as NCR-STF-9-5151-80, for illegal dismissal and non-
payment of company bene ts and bonuses, against PIA with the then Ministry of Labor
and Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE
hearing o cer Atty. Jose M. Pascual ordered the parties to submit their position
papers and evidence supporting their respective positions. The PIA submitted its
position paper, 3 out no evidence, and there claimed that both private respondents
were habitual absentees; that both were in the habit of bringing in from abroad sizeable
quantities of "personal effects"; and that PIA personnel at the Manila International
Airport had been discreetly warned by customs o cials to advise private respondents
to discontinue that practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the employment contract.
In his Order dated 22 January 1981, Regional Director Francisco L. Estrella
ordered the reinstatement of private respondents with full backwages or, in the
alternative, the payment to them of the amounts equivalent to their salaries for the
remainder of the xed three-year period of their employment contracts; the payment to
private respondent Mamasig of an amount equivalent to the value of a round trip ticket
Manila-USA-Manila; and payment of a bonus to each of the private respondents
equivalent to their one-month salary. 4 The Order stated that private respondents had
attained the status of regular employees after they had rendered more than a year of
continued service; that the stipulation limiting the period of the employment contract to
three (3) years was null and void as violative of the provisions of the Labor Code and its
implementing rules and regulations on regular and casual employment; and that the
dismissal, having been carried out without the requisite clearance from the MOLE, was
illegal and entitled private respondents to reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy
Minister, MOLE, adopted the ndings of fact and conclusions of the Regional Director
and a rmed the latter's award save for the portion thereof giving PIA the option, in lieu
of reinstatement, "to pay each of the complainants [private respondents] their salaries
corresponding to the unexpired portion of the contract[s] [of employment] . . ." 5
In the instant Petition for Certiorari, petitioner PIA assails the award of the
Regional Director and the Order of the Deputy Minister as having been rendered without
jurisdiction; for having been rendered without support in the evidence of record since,
allegedly, no hearing was conducted by the hearing o cer, Atty. Jose M. Pascual; and
for having been issued in disregard and in violation of petitioner's rights under the
employment contracts with private respondents.
1. Petitioner's rst contention is that the Regional Director, MOLE, had no
jurisdiction over the subject matter of the complaint initiated by private respondents
for illegal dismissal, jurisdiction over the same being lodged in the Arbitration Branch of
the National Labor Relations Commission ("NLRC"). It appears to us beyond dispute,
however, that both at the time the complaint was initiated in September 1980 and at
the time the Orders assailed were rendered on January 1981 (by Regional Director
Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.), the
Regional Director had jurisdiction over termination cases.
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 Article 278 of the Labor Code, as it then existed, forbade the termination of the
services of employees with at least one (1) year of service without prior clearance from
the Department of Labor and Employment:
"Art. 278. Miscellaneous Provisions — . . .
(b) With or without a collective agreement, no employer may shut
down his establishment or dismiss or terminate the employment of employees
with at least one year of service during the last two (2) years, whether such
service is continuous or broken, without prior written authority issued in
accordance with such rules and regulations as the Secretary may promulgate . .
." (Emphasis supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made
clear that in case of a termination without the necessary clearance, the Regional
Director was authorized to order the reinstatement of the employee concerned and the
payment of backwages; necessarily, therefore, the Regional Director must have been
given jurisdiction over such termination cases:
"Section 2. Shutdown or dismissal without clearance. — Any
shutdown or dismissal without prior clearance shall be conclusively presumed
to be termination of employment without a just cause. The Regional Director
shall, in such case order the immediate reinstatement of the employee and the
payment of his wages from the time of the shutdown or dismissal until the time
of reinstatement." (Emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was
similarly very explicit about the jurisdiction of the Regional Director over termination of
employment cases:
"Under PD 850, termination cases — with or without CBA — are now
placed under the original jurisdiction of the Regional Director. Preventive
suspension cases, now made cognizable for the rst time, are also placed under
the Regional Director. Before PD 850, termination cases where there was a CBA
were under the jurisdiction of the grievance machinery and voluntary arbitration,
while termination cases where there was no CBA were under the jurisdiction of
the Conciliation Section.
In more details, the major innovations introduced by PD 850 and its
implementing rules and regulations with respect to termination and preventive
suspension cases are:
1. The Regional Director is now required to rule on every application
for clearance, whether there is opposition or not, within ten days from receipt
thereof.
xxx xxx xxx"

(Emphasis supplied)

2. The second contention of petitioner PIA is that, even if the Regional

Director had jurisdiction, still his order was null and void because it had been issued in
violation of petitioner's right to procedural due process. 6 This claim, however, cannot
be given serious consideration. Petitioner was ordered by the Regional Director to
submit not only its position paper but also such evidence in its favor as it might have.
Petitioner opted to rely solely upon its position paper; we must assume it had no
evidence to sustain its assertions. Thus, even if no formal or oral hearing was
conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
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 PIA was able to appeal his case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due process must be
rejected. At the time the complaint was led by private respondents on 21 September
1980 and at the time the Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, speci ed that a "dismissal without prior
clearance shall be conclusively presumed to be termination of employment without a
just cause", and the Regional Director was required in such case to "order the
immediate reinstatement of the employee and the payment of his wages from the time
of the shutdown or dismissal until . . . reinstatement." In other words, under the then
applicable rule, the Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive ( juris et de jure) character of
the presumption created by such applicable law and regulation. In Cebu Institute of
Technology v . Minister of Labor and Employment, 8 the Court pointed out that "under
Rule 14, Section 2, of the Implementing Rules and Regulations, the termination of [an
employee] which was without previous clearance from the Ministry of Labor is
conclusively presumed to be without [just] cause . . . [ a presumption which] cannot be
overturned by any contrary proof however strong."

3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its

contract of employment with private respondents Farrales and Mamasig, arguing that
its relationship with them was governed by the provisions of its contract rather than by
the general provisions of the Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship,
extendible by agreement between the parties; while paragraph 6 provided that,
notwithstanding any other provision in the contract, PIA had the right to terminate the
employment agreement at any time by giving one-month's notice to the employee or, in
lieu of such notice, one-month's salary.
A contract freely entered into should, of course, be respected, as PIA argues,
since a contract is the law between the parties. 1 0 The principle of party autonomy in
contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil
Code is that the contracting parties may establish such stipulations as they may deem
convenient, " provided they are not contrary to law, morals, good customs, public order
or public policy." Thus, counter-balancing the principle of autonomy of contracting
parties is the equally general rule that provisions of applicable law, especially
provisions relating to matters affected with public policy, are deemed written into the
contract. 1 1 Put a little differently, the governing principle is that parties may not
contract away applicable provisions of law especially peremptory provisions dealing
with matters heavily impressed with public interest. The law relating to labor and
employment is clearly such an area and parties are not at liberty to insulate themselves
and their relationships from the impact of labor laws and regulations by simply
contracting with each other. It is thus necessary to appraise the contractual provisions
invoked by petitioner PIA in terms of their consistency with applicable Philippine law
and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect
held that paragraph 5 of that employment contract was inconsistent with Articles 280
and 281 of the Labor Code as they existed at the time the contract of employment was
entered into, and hence refused to give effect to said paragraph 5. These Articles read
as follows:
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 "Art. 280. Security of Tenure. — In cases of regular employment, the
employer shall not terminate the services of an employee except for a just cause
or when authorized by this Title. An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of seniority rights and to his
backwages computed from the time his compensation was withheld from him
up to the time his reinstatement.
Article 281. Regular and Casual Employment. — The provisions of
written agreement to the contrary notwithstanding and regardless of the oral
agreements of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except
where the employment has been xed for a speci c project or undertaking the
completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: provided, that, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered as regular employee with respect to the activity in which he is
employed and his employment shall continue while such actually exists."
(Emphasis supplied)
I n Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had
occasion to examine in detail the question of whether employment for a xed term has
been outlawed under the above quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and 281, the Court reached
the conclusion that a contract providing for employment with a xed period was not
necessarily unlawful:
"There can of course be no quarrel with the proposition that where from
the circumstances it is apparent that periods have been imposed to preclude
acquisition of tenurial security by the employee, they should be struck down or
disregarded as contrary to public policy, morals, etc. But where no such intent to
circumvent the law is shown, or stated otherwise, where the reason for the law
does not exist, e.g. where it is indeed the employee himself who insists upon a
period or where the nature of the engagement is such that, without being
seasonal or for a speci c project, a de nite date of termination is a sine qua
non, would an agreement xing a period be essentially evil or illicit, therefore
anathema? Would such an agreement come within the scope of Article 280
which admittedly was enacted `to prevent the circumvention of the right of the
employee to be secured in . . (his) employment?'
As it is evident from even only the three examples already given that
Article 280 of the Labor Code, under a narrow and literal interpretation, not only
fails to exhaust the gamut of employment contracts to which the lack of a xed
period would be an anomaly, but would also appear to restrict, without
reasonable distinctions, the right of an employee to freely stipulate with his
employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given
reasonable interpretation, to preclude absurdity in its application. Outlawing the
whole concept of term employment and subverting to boot the principle of
freedom of contract to remedy the evil of employers' using it as a means to
prevent their employees from obtaining security of tenure is like cutting off the
nose to spite the face or, more relevantly, curing a headache by lopping off the
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 head.

xxx xxx xxx

Accordingly, and since the entire purpose behind the development of
legislation culminating in the present Article 280 of the Labor Code clearly
appears to have been, as already observed, to prevent circumvention of the
employee's right to be secure in his tenure, the clause in said article
indiscriminately and completely ruling out all written or oral agreements
con icting with the concept of regular employment as de ned 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 xed period of employment was
agreed upon knowingly and voluntarily by the parties, without any force, duress
or improper pressure being brought to bear upon the employee and absent any
other circumstances vitiating his consent, or where it satisfactorily appears that
the employer and employee dealt with each other on more or less equal terms
with no moral dominance whatever being exercised by the former over the latter.
Unless thus limited in its purview, the law would be made to apply to purposes
other than those explicitly stated by its framers; it thus becomes pointless and
arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences."
(Emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or
absence of a substantial indication that the period speci ed in an employment
agreement was designed to circumvent the security of tenure of regular employees
which is provided for in Articles 280 and 281 of the Labor Code. This indication must
ordinarily rest upon some aspect of the agreement other than the mere speci cation of
a xed term of the employment agreement, or upon evidence aliunde of the intent to
evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement
between petitioner PIA and private respondents, we consider that those provisions
must be read together and when so read, the xed period of three (3) years speci ed in
paragraph 5 will be seen to have been effectively neutralized by the provisions of
paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the
xed three (3)-year period ostensibly granted by paragraph 5 by rendering such period
in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to
be authorized to shorten that term, at any time and for any cause satisfactory to itself,
to a one-month period, or even less by simply paying the employee a month's salary.
Because the net effect of paragraphs 5 and 6 of the agreement here involved is to
render the employment of private respondents Farrales and Mamasig basically
employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5
and 6 were intended to prevent any security of tenure from accruing in favor of private
respondents even during the limited period of three (3) years, 13 and thus to escape
completely the thrust of Articles 280 and 281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement
which speci es, rstly, the law of Pakistan as the applicable law of the agreement and,
secondly, lays the venue for settlement of any dispute arising out of or in connection
with the agreement "only [in] courts of Karachi, Pakistan". The rst clause of paragraph
10 cannot be invoked to prevent the application of Philippine labor laws and regulations
to the subject matter of this case, i.e., the employer-employee relationship between
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 petitioner PIA and private respondents. We have already pointed out that relationship is
much affected with public interest and that the otherwise applicable Philippine laws
and regulations cannot be rendered illusory by the parties agreeing upon some other
law to govern their relationship. Neither may petitioner invoke the second clause of
paragraph 10, specifying the Karachi courts as the sole venue for the settlement of
disputes between the contracting parties. Even a cursory scrutiny of the relevant
circumstances of this case will show the multiple and substantive contacts between
Philippine law and Philippine courts, on the one hand, and the relationship between the
parties, upon the other: the contract was not only executed in the Philippines, it was
also performed here, at least partially; private respondents are Philippine citizens and
residents, while petitioner, although a foreign corporation, is licensed to do business
(and actually doing business) and hence resident in the Philippines; lastly, private
respondents were based in the Philippines in between their assigned ights to the
Middle East and Europe. All the above contacts point to the Philippine courts and
administrative agencies as a proper forum for the resolution of contractual disputes
between the parties. Under these circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine agencies and courts of the
jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner
PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it
must therefore be presumed that the applicable provisions of the law of Pakistan are
the same as the applicable provisions of Philippine law. 1 4

We conclude that private respondents Farrales and Mamasig were illegally

dismissed and that public respondent Deputy Minister, MOLE, had not committed any
grave abuse of discretion nor any act without or in excess of jurisdiction in ordering
their reinstatement with backwages. Private respondents are entitled to three (3) years
backwages without quali cation or deduction. Should their reinstatement to their
former or other substantially equivalent positions not be feasible in view of the length
of time which has gone by since their services were unlawfully terminated, petitioner
should be required to pay separation pay to private respondents amounting to one (1)
month's salary for every year of service rendered by them, including the three (3) years
service putatively rendered.
ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of merit,
and the Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except
that (1) private respondents are entitled to three (3) years backwages, without
deduction or quali cation; and (2) should reinstatement of private respondents to their
former positions or to substantially equivalent positions not be feasible, then petitioner
shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-
month's salary for every year of service actually rendered by them and for the three (3)
years putative service by private respondents. The Temporary Restraining Order issued
on 13 September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Footnotes
1. Rollo, pp. 12 and 17.
2. Id., p. 22.

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 3. Id., pp. 36-41.
4. Id., p. 43.
5. Id., p. 64.
6. Rollo, p. 6.
7. See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R. No. 82895, 7 November
1989.
8. 113 SCRA 257 (1982).
9. Rollo, p. 8.
10. Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).

11. Commissioner of Internal Revenue v. United Lines Co., 5 SCRA 175 (1962).
12. G.R. No. L-48494, promulgated 5 February 1990.
13. See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).
14. Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal Revenue v. Fisher, 110 Phil.
686 (1961).

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