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G.R. No. 61594 September 28, 1990 - PAKISTAN INTERNATIONAL AIRLINES
CORPORATION v. BLAS F. OPLE, ET AL.:

THIRD DIVISION

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

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, Petitioner, v. 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.:

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: jgc:chanrobles.com.ph

"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.

x          x           x

6. TERMINATION

x          x           x

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.
 x          x           x

10. APPLICABLE LAW: chanrob1es virtual 1aw library

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." cralaw virtua1aw library

Respondents then commenced training in Pakistan. After their training period, they
began discharging their job functions as flight 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 expiration of
the contracts of employment, PIA through Mr. Oscar Benares, counsel for and official 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 flight
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 benefits and bonuses, against PIA with the then Ministry of Labor and
Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE
hearing officer 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 officials 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
fixed 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 findings of fact and conclusions of the Regional Director
and affirmed 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 officer, 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 first 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.

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: jgc:chanrobles.com.ph

"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: jgc:chanrobles.com.ph

"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: jgc:chanrobles.com.ph

"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 first 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: chanrob1es virtual 1aw library

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.

x       x       x"

(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 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 filed 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, specified 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." cralaw virtua1aw library

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. 10 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. 11 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:jgc:chanrobles.com.ph

"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 fixed for a specific
project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or 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)

In 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 fixed 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 fixed period was not
necessarily unlawful: jgc:chanrobles.com.ph

"There can of course be no quarrel with the proposition that where from the
circumstances it is apparent that periods have been imposed to preclude acquisition of
tenurial security by the employee, they should be struck down or disregarded as
contrary to public policy, morals, etc. But where no such intent to circumvent the law is
shown, or stated otherwise, where the reason for the law does not exist, e.g. where it is
indeed the employee himself who insists upon a period or where the nature of the
engagement is such that, without being seasonal or for a specific project, a definite
date of termination is a sine qua non, would an agreement fixing a period be essentially
evil or illicit, therefore anathema? Would such an agreement come within the scope of
Article 280 which admittedly was enacted `to prevent the circumvention of the right of
the employee to be secured in . . (his) employment?’

As it is evident from even only the three examples already given that Article 280 of the
Labor Code, under a narrow and literal interpretation, not only fails to exhaust the
gamut of employment contracts to which the lack of a fixed period would be an
anomaly, but would also appear to restrict, without reasonable distinctions, the right of
an employee to freely stipulate with his employer the duration of his engagement, it
logically follows that such a literal interpretation should be eschewed or avoided. The
law must be given 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 head.

x          x           x

Accordingly, and since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly appears to have been,
as already observed, to prevent circumvention of the employee’s right to be secure in
his tenure, the clause in said article indiscriminately and completely ruling out all
written or oral agreements conflicting with the concept of regular employment as
defined therein should be construed to refer to the substantive evil that the Code itself
has singled out: agreements entered into precisely to circumvent security of tenure. It
should have no application to instances where a fixed period of employment was agreed
upon knowingly and voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent any other circumstances
vitiating his consent, or where it satisfactorily appears that the employer and employee
dealt with each other on more or less equal terms with no moral dominance whatever
being exercised by the former over the latter. Unless thus limited in its purview, the law
would be made to apply to purposes other than those explicitly stated by its framers; it
thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and
unintended consequences." cralaw virtua1aw library

(Emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or
absence of a substantial indication that the period specified 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 specification of
a fixed 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 fixed period of three (3) years specified 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 fixed 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
specifies, firstly, 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 first 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
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 flights 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. 14

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 qualification 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
qualification; 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.

Endnotes:

1. Rollo, pp. 12 and 17.

2. Id., p. 22.

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).