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.

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:

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 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-95151-80, 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 but 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.

Art. 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:

Sec. 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 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:

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
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 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 dismiss 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-months 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:

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.

Art. 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:

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.

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 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. (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 ernployment 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 the 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 dispute; 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 respondents, 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.