G.R. No.

145587

October 26, 2007

EDI-STAFFBUILDERS INTERNATIONAL, INC. vs NATIONAL LABOR

RELATIONS COMMISSION and ELEAZAR S. GRAN
EDI is engaged in recruitment and placement of OFWs. ESI is another
recruitment agency which collaborated with EDI to process the documentation
and deployment of private respondent to Saudi Arabia.
Private respondent Gran was an OFW recruited by EDI, and deployed by ESI to
work for OAB, in Riyadh, Kingdom of Saudi Arabia.6
It appears that OAB asked EDI through its October 3, 1993 letter for curricula
vitae of qualified applicants for the position of "Computer Specialist."7 In a
facsimile transmission dated November 29, 1993, OAB informed EDI that, from
the applicants' curricula vitae submitted to it for evaluation, it selected Gran for
the position of "Computer Specialist." The faxed letter also stated that if Gran
agrees to the terms and conditions of employment contained in it, one of which
was a monthly salary of SR (Saudi Riyal) 2,250.00 (USD 600.00), EDI may
arrange for Gran's immediate dispatch.8
After accepting OAB's offer of employment, Gran signed an employment
contract9 that granted him a monthly salary of USD 850.00 for a period of two
years. Gran was then deployed to Riyadh, Kingdom of Saudi Arabia on February
7, 1994.
Upon arrival in Riyadh, Gran questioned the discrepancy in his monthly salary
his employment contract stated USD 850.00; while his Philippine Overseas
Employment Agency (POEA) Information Sheet indicated USD 600.00 only.
However, through the assistance of the EDI office in Riyadh, OAB agreed to pay
Gran USD 850.00 a month.10
After Gran had been working for about five months for OAB, his employment was
terminated through OAB's July 9, 1994 letter,11 on the following grounds:
1. Non-compliance to contract requirements by the recruitment agency
primarily on your salary and contract duration.

2. Non-compliance to pre-qualification requirements by the recruitment

agency[,] vide OAB letter ref. F-5751-93, dated October 3, 1993.12
3. Insubordination or disobedience to Top Management Order and/or
instructions (non-submittal of daily activity reports despite several
instructions).
On July 11, 1994, Gran received from OAB the total amount of SR 2,948.00
representing his final pay, and on the same day, he executed a
Declaration13 releasing OAB from any financial obligation or otherwise, towards
him.
After his arrival in the Philippines, Gran instituted a complaint, on July 21, 1994,
against ESI/EDI, OAB, Country Bankers Insurance Corporation, and Western
Guaranty Corporation with the NLRC, National Capital Region, Quezon City,
which was docketed as POEA ADJ (L) 94-06-2194 for underpayment of
wages/salaries and illegal dismissal.
The Ruling of the Labor Arbiter
In his February 10, 1998 Decision,14 Labor Arbiter Manuel R. Caday, to whom
Gran's case was assigned, ruled that there was neither underpayment nor illegal
dismissal.
The Labor Arbiter reasoned that there was no underpayment of salaries since
according to the POEA-Overseas Contract Worker (OCW) Information Sheet,
Gran's monthly salary was USD 600.00, and in his Confirmation of Appointment
as Computer Specialist, his monthly basic salary was fixed at SR 2,500.00, which
was equivalent to USD 600.00.
Arbiter Caday also cited the Declaration executed by Gran, to justify that Gran
had no claim for unpaid salaries or wages against OAB.
With regard to the issue of illegal dismissal, the Labor Arbiter found that Gran
failed to refute EDI's allegations; namely, (1) that Gran did not submit a single
activity report of his daily activity as dictated by company policy; (2) that he was
not qualified for the job as computer specialist due to his insufficient knowledge
in programming and lack of knowledge in ACAD system; (3) that Gran refused to
follow management's instruction for him to gain more knowledge of the job to

prove his worth as computer specialist; (4) that Gran's employment contract had
never been substituted; (5) and that Gran was paid a monthly salary of USD
850.00, and USD 350.00 monthly as food allowance.
Accordingly, the Labor Arbiter decided that Gran was validly dismissed from his
work due to insubordination, disobedience, and his failure to submit daily activity
reports.
Thus, on February 10, 1998, Arbiter Caday dismissed Gran's complaint for lack
of merit.
Dissatisfied, Gran filed an Appeal15 on April 6, 1998 with the NLRC, Third
Division. However, it appears from the records that Gran failed to furnish EDI with
a copy of his Appeal Memorandum.
The Ruling of the NLRC
The NLRC held that EDI's seemingly harmless transfer of Gran's contract to ESI
is actually "reprocessing," which is a prohibited transaction under Article 34 (b) of
the Labor Code. This scheme constituted misrepresentation through the
conspiracy between EDI and ESI in misleading Gran and even POEA of the
actual terms and conditions of the OFW's employment. In addition, it was found
that Gran did not commit any act that constituted a legal ground for dismissal.
The alleged non-compliance with contractual stipulations relating to Gran's salary
and contract duration, and the absence of pre-qualification requirements cannot
be attributed to Gran but to EDI, which dealt directly with OAB. In addition, the
charge of insubordination was not substantiated, and Gran was not even
afforded the required notice and investigation on his alleged offenses.
Thus, the NLRC reversed the Labor Arbiter's Decision and rendered a new one,
the dispositive portion of which reads:
WHEREFORE, the assailed decision is SET ASIDE. Respondents
Expertise Search International, Inc., EDI Staffbuilders Int'l., Inc. and Omar
Ahmed Ali Bin Bechr Est. (OAB) are hereby ordered jointly and severally
liable to pay the complainant Eleazar Gran the Philippine peso equivalent
at the time of actual payment of SIXTEEN THOUSAND ONE HUNDRED
FIFTY US DOLLARS (US$16,150.00) representing his salaries for the
unexpired portion of his contract.

SO ORDERED.16
Gran then filed a Motion for Execution of Judgment17 on March 29, 1999 with the
NLRC and petitioner receiving a copy of this motion on the same date.18
To prevent the execution, petitioner filed an Opposition19 to Gran's motion arguing
that the Writ of Execution cannot issue because it was not notified of the
appellate proceedings before the NLRC and was not given a copy of the
memorandum of appeal nor any opportunity to participate in the appeal.
Seeing that the NLRC did not act on Gran's motion after EDI had filed its
Opposition, petitioner filed, on August 26, 1999, a Motion for Reconsideration of
the NLRC Decision after receiving a copy of the Decision on August 16, 1999.20
The NLRC then issued a Resolution21 denying petitioner's Motion for
Reconsideration, ratiocinating that the issues and arguments raised in the motion
"had already been amply discussed, considered, and ruled upon" in the Decision,
and that there was "no cogent reason or patent or palpable error that warrant any
disturbance thereof."
Unconvinced of the NLRC's reasoning, EDI filed a Petition for Certiorari before
the CA. Petitioner claimed in its petition that the NLRC committed grave abuse of
discretion in giving due course to the appeal despite Gran's failure to perfect the
appeal.
The Ruling of the Court of Appeals
The CA subsequently ruled on the procedural and substantive issues of EDI's
petition.
On the procedural issue, the appellate court held that "Gran's failure to furnish a
copy of his appeal memorandum [to EDI was] a mere formal lapse, an excusable
neglect and not a jurisdictional defect which would justify the dismissal of his
appeal."22 The court also held that petitioner EDI failed to prove that private
respondent was terminated for a valid cause and in accordance with due
process; and that Gran's Declaration releasing OAB from any monetary
obligation had no force and effect. The appellate court ratiocinated that EDI had
the burden of proving Gran's incompetence; however, other than the termination
letter, no evidence was presented to show how and why Gran was considered to

be incompetent. The court held that since the law requires the recruitment
agencies to subject OFWs to trade tests before deployment, Gran must have
been competent and qualified; otherwise, he would not have been hired and
deployed abroad.
As for the charge of insubordination and disobedience due to Gran's failure to
submit a "Daily Activity Report," the appellate court found that EDI failed to show
that the submission of the "Daily Activity Report" was a part of Gran's duty or the
company's policy. The court also held that even if Gran was guilty of
insubordination, he should have just been suspended or reprimanded, but not
dismissed.
The CA also held that Gran was not afforded due process, given that OAB did
not abide by the twin notice requirement. The court found that Gran was
terminated on the same day he received the termination letter, without having
been apprised of the bases of his dismissal or afforded an opportunity to explain
his side.
Finally, the CA held that the Declaration signed by Gran did not bar him from
demanding benefits to which he was entitled. The appellate court found that the
Declaration was in the form of a quitclaim, and as such is frowned upon as
contrary to public policy especially where the monetary consideration given in the
Declaration was very much less than what he was legally entitled tohis
backwages amounting to USD 16,150.00.
As a result of these findings, on October 18, 2000, the appellate court denied the
petition to set aside the NLRC Decision.
Hence, this instant petition is before the Court.
The Issues
Petitioner raises the following issues for our consideration:
I. WHETHER THE FAILURE OF GRAN TO FURNISH A COPY OF HIS
APPEAL MEMORANDUM TO PETITIONER EDI WOULD CONSTITUTE A
JURISDICTIONAL DEFECT AND A DEPRIVATION OF PETITIONER
EDI'S RIGHT TO DUE PROCESS AS WOULD JUSTIFY THE DISMISSAL
OF GRAN'S APPEAL.

II. WHETHER PETITIONER EDI HAS ESTABLISHED BY WAY OF

SUBSTANTIAL EVIDENCE THAT GRAN'S TERMINATION WAS
JUSTIFIABLE BY REASON OF INCOMPETENCE. COROLLARY
HERETO, WHETHER THE PRIETO VS. NLRC RULING, AS APPLIED BY
THE COURT OF APPEALS, IS APPLICABLE IN THE INSTANT CASE.
III. WHETHER PETITIONER HAS ESTABLISHED BY WAY OF
SUBSTANTIAL EVIDENCE THAT GRAN'S TERMINATION WAS
JUSTIFIABLE BY REASON OF INSUBORDINATION AND
DISOBEDIENCE.
IV. WHETHER GRAN WAS AFFORDED DUE PROCESS PRIOR TO
TERMINATION.
V. WHETHER GRAN IS ENTITLED TO BACKWAGES FOR THE
UNEXPIRED PORTION OF HIS CONTRACT.23
The Court's Ruling
The petition lacks merit except with respect to Gran's failure to furnish EDI with
his Appeal Memorandum filed with the NLRC.
First Issue: NLRC's Duty is to Require Respondent to Provide Petitioner a
Copy of the Appeal
Petitioner EDI claims that Gran's failure to furnish it a copy of the Appeal
Memorandum constitutes a jurisdictional defect and a deprivation of due process
that would warrant a rejection of the appeal.
This position is devoid of merit.
In a catena of cases, it was ruled that failure of appellant to furnish a copy of
the appeal to the adverse party is not fatal to the appeal.
In Estrada v. National Labor Relations Commission,24 this Court set aside the
order of the NLRC which dismissed an appeal on the sole ground that the
appellant did not furnish the appellee a memorandum of appeal contrary to the
requirements of Article 223 of the New Labor Code and Section 9, Rule XIII of its
Implementing Rules and Regulations.

Also, in J.D. Magpayo Customs Brokerage Corp. v. NLRC, the order of dismissal
of an appeal to the NLRC based on the ground that "there is no showing
whatsoever that a copy of the appeal was served by the appellant on the
appellee"25was annulled. The Court ratiocinated as follows:
The failure to give a copy of the appeal to the adverse party was a mere
formal lapse, an excusable neglect. Time and again We have acted on
petitions to review decisions of the Court of Appeals even in the absence
of proof of service of a copy thereof to the Court of Appeals as required by
Section 1 of Rule 45, Rules of Court. We act on the petitions and simply
require the petitioners to comply with the rule.26 (Emphasis supplied.)
The J.D. Magpayo ruling was reiterated in Carnation Philippines Employees
Labor Union-FFW v. National Labor Relations Commission,27 Pagdonsalan v.
NLRC,28 and in Sunrise Manning Agency, Inc. v. NLRC.29
Thus, the doctrine that evolved from these cases is that failure to furnish the
adverse party with a copy of the appeal is treated only as a formal lapse, an
excusable neglect, and hence, not a jurisdictional defect. Accordingly, in such a
situation, the appeal should not be dismissed; however, it should not be given
due course either. As enunciated in J.D. Magpayo, the duty that is imposed on
the NLRC, in such a case, is to require the appellant to comply with the rule
that the opposing party should be provided with a copy of the appeal
memorandum.
While Gran's failure to furnish EDI with a copy of the Appeal Memorandum is
excusable, the abject failure of the NLRC to order Gran to furnish EDI with the
Appeal Memorandum constitutes grave abuse of discretion.
The records reveal that the NLRC discovered that Gran failed to furnish EDI a
copy of the Appeal Memorandum. The NLRC then ordered Gran to present proof
of service. In compliance with the order, Gran submitted a copy of Camp Crame
Post Office's list of mail/parcels sent on April 7, 1998.30 The post office's list
shows that private respondent Gran sent two pieces of mail on the same date:
one addressed to a certain Dan O. de Guzman of Legaspi Village, Makati; and
the other appears to be addressed to Neil B. Garcia (or Gran),31 of Ermita, Manila
both of whom are not connected with petitioner.

This mailing list, however, is not a conclusive proof that EDI indeed received a
copy of the Appeal Memorandum.
Sec. 5 of the NLRC Rules of Procedure (1990) provides for the proof and
completeness of service in proceedings before the NLRC:
Section 5.32 Proof and completeness of service.The return is prima
facie proof of the facts indicated therein.Service by registered mail is
complete upon receipt by the addressee or his agent; but if the
addressee fails to claim his mail from the post office within five (5) days
from the date of first notice of the postmaster, service shall take effect after
such time. (Emphasis supplied.)
Hence, if the service is done through registered mail, it is only deemed complete
when the addressee or his agent received the mail or after five (5) days from the
date of first notice of the postmaster. However, the NLRC Rules do not state what
would constitute proper proof of service.
Sec. 13, Rule 13 of the Rules of Court, provides for proofs of service:
Section 13. Proof of service.Proof of personal service shall consist of a
written admission of the party served or the official return of the server, or
the affidavit of the party serving, containing a full statement of the date,
place and manner of service. If the service is by ordinary mail, proof
thereof shall consist of an affidavit of the person mailing of facts showing
compliance with section 7 of this Rule. If service is made by registered
mail, proof shall be made by such affidavit and registry receipt issued
by the mailing office. The registry return card shall be filed
immediately upon its receipt by the sender, or in lieu thereof the
unclaimed letter together with the certified or sworn copy of the
notice given by the postmaster to the addressee (emphasis supplied).
Based on the foregoing provision, it is obvious that the list submitted by Gran is
not conclusive proof that he had served a copy of his appeal memorandum to
EDI, nor is it conclusive proof that EDI received its copy of the Appeal
Memorandum. He should have submitted an affidavit proving that he mailed the
Appeal Memorandum together with the registry receipt issued by the post office;
afterwards, Gran should have immediately filed the registry return card.

Hence, after seeing that Gran failed to attach the proof of service, the NLRC
should not have simply accepted the post office's list of mail and parcels sent;
but it should have required Gran to properly furnish the opposing parties
with copies of his Appeal Memorandum as prescribed in J.D. Magpayo and
the other cases. The NLRC should not have proceeded with the adjudication of
the case, as this constitutes grave abuse of discretion.
The glaring failure of NLRC to ensure that Gran should have furnished petitioner
EDI a copy of the Appeal Memorandum before rendering judgment reversing the
dismissal of Gran's complaint constitutes an evasion of the pertinent NLRC Rules
and established jurisprudence. Worse, this failure deprived EDI of procedural due
process guaranteed by the Constitution which can serve as basis for the
nullification of proceedings in the appeal before the NLRC. One can only surmise
the shock and dismay that OAB, EDI, and ESI experienced when they thought
that the dismissal of Gran's complaint became final, only to receive a copy of
Gran's Motion for Execution of Judgment which also informed them that Gran
had obtained a favorable NLRC Decision. This is not level playing field and
absolutely unfair and discriminatory against the employer and the job recruiters.
The rights of the employers to procedural due process cannot be cavalierly
disregarded for they too have rights assured under the Constitution.
However, instead of annulling the dispositions of the NLRC and remanding the
case for further proceedings we will resolve the petition based on the records
before us to avoid a protracted litigation.33
The second and third issues have a common matterwhether there was just
cause for Gran's dismissalhence, they will be discussed jointly.
Second and Third Issues: Whether Gran's dismissal is justifiable by reason
of incompetence, insubordination, and disobedience
In cases involving OFWs, the rights and obligations among and between the
OFW, the local recruiter/agent, and the foreign employer/principal are governed
by the employment contract. A contract freely entered into is considered law
between the parties; and hence, should be respected. In formulating the contract,
the parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.34

In the present case, the employment contract signed by Gran specifically states
that Saudi Labor Laws will govern matters not provided for in the contract (e.g.
specific causes for termination, termination procedures, etc.). Being the law
intended by the parties (lex loci intentiones) to apply to the contract, Saudi Labor
Laws should govern all matters relating to the termination of the employment of
Gran.
In international law, the party who wants to have a foreign law applied to a
dispute or case has the burden of proving the foreign law. The foreign law is
treated as a question of fact to be properly pleaded and proved as the judge or
labor arbiter cannot take judicial notice of a foreign law. He is presumed to know
only domestic or forum law.35
Unfortunately for petitioner, it did not prove the pertinent Saudi laws on the
matter; thus, the International Law doctrine ofpresumed-identity
approach or processual presumption comes into play.36 Where a foreign law is
not pleaded or, even if pleaded, is not proved, the presumption is that foreign law
is the same as ours.37 Thus, we apply Philippine labor laws in determining the
issues presented before us.
Petitioner EDI claims that it had proven that Gran was legally dismissed due to
incompetence and insubordination or disobedience.
This claim has no merit.
In illegal dismissal cases, it has been established by Philippine law and
jurisprudence that the employer should prove that the dismissal of employees or
personnel is legal and just.
Section 33 of Article 277 of the Labor Code38 states that:
ART. 277. MISCELLANEOUS PROVISIONS39
(b) Subject to the constitutional right of workers to security of tenure and
their right to be protected against dismissal except for a just and
authorized cause and without prejudice to the requirement of notice under
Article 283 of this Code, the employer shall furnish the worker whose
employment is sought to be terminated a written notice containing a
statement of the causes for termination and shall afford the latter ample

opportunity to be heard and to defend himself with the assistance of his

representative if he so desires in accordance with company rules and
regulations promulgated pursuant to guidelines set by the Department of
Labor and Employment. Any decision taken by the employer shall be
without prejudice to the right of the workers to contest the validity or
legality of his dismissal by filing a complaint with the regional branch of the
National Labor Relations Commission.The burden of proving that the
termination was for a valid or authorized cause shall rest on the
employer. x x x
In many cases, it has been held that in termination disputes or illegal dismissal
cases, the employer has the burden of proving that the dismissal is for just and
valid causes; and failure to do so would necessarily mean that the dismissal was
not justified and therefore illegal.40 Taking into account the character of the
charges and the penalty meted to an employee, the employer is bound to adduce
clear, accurate, consistent, and convincing evidence to prove that the dismissal is
valid and legal.41 This is consistent with the principle of security of tenure as
guaranteed by the Constitution and reinforced by Article 277 (b) of the Labor
Code of the Philippines.42
In the instant case, petitioner claims that private respondent Gran was validly
dismissed for just cause, due to incompetence and insubordination or
disobedience. To prove its allegations, EDI submitted two letters as evidence.
The first is the July 9, 1994 termination letter,43 addressed to Gran, from Andrea
E. Nicolaou, Managing Director of OAB. The second is an unsigned April 11,
1995 letter44 from OAB addressed to EDI and ESI, which outlined the reasons
why OAB had terminated Gran's employment.
Petitioner claims that Gran was incompetent for the Computer Specialist position
because he had "insufficient knowledge in programming and zero knowledge of
[the] ACAD system."45 Petitioner also claims that Gran was justifiably dismissed
due to insubordination or disobedience because he continually failed to submit
the required "Daily Activity Reports."46However, other than the abovementioned
letters, no other evidence was presented to show how and why Gran was
considered incompetent, insubordinate, or disobedient. Petitioner EDI had clearly
failed to overcome the burden of proving that Gran was validly dismissed.

Petitioner's imputation of incompetence on private respondent due to his

"insufficient knowledge in programming and zero knowledge of the ACAD
system" based only on the above mentioned letters, without any other evidence,
cannot be given credence.
An allegation of incompetence should have a factual foundation. Incompetence
may be shown by weighing it against a standard, benchmark, or criterion.
However, EDI failed to establish any such bases to show how petitioner found
Gran incompetent.
In addition, the elements that must concur for the charge of insubordination or
willful disobedience to prosper were not present.
In Micro Sales Operation Network v. NLRC, we held that:
For willful disobedience to be a valid cause for dismissal, the following twin
elements must concur: (1) the employee's assailed conduct must have
been willful, that is, characterized by a wrongful and perverse attitude; and
(2) the order violated must have been reasonable, lawful, made known to
the employee and must pertain to the duties which he had been engaged
to discharge.47
EDI failed to discharge the burden of proving Gran's insubordination or willful
disobedience. As indicated by the second requirement provided for in Micro
Sales Operation Network, in order to justify willful disobedience, we must
determine whether the order violated by the employee is reasonable, lawful,
made known to the employee, and pertains to the duties which he had been
engaged to discharge. In the case at bar, petitioner failed to show that the order
of the company which was violatedthe submission of "Daily Activity Reports"
was part of Gran's duties as a Computer Specialist. Before the Labor Arbiter, EDI
should have provided a copy of the company policy, Gran's job description, or
any other document that would show that the "Daily Activity Reports" were
required for submission by the employees, more particularly by a Computer
Specialist.
Even though EDI and/or ESI were merely the local employment or recruitment
agencies and not the foreign employer, they should have adduced additional
evidence to convincingly show that Gran's employment was validly and legally
terminated. The burden devolves not only upon the foreign-based employer but

also on the employment or recruitment agency for the latter is not only an agent
of the former, but is also solidarily liable with the foreign principal for any claims
or liabilities arising from the dismissal of the worker.48
Thus, petitioner failed to prove that Gran was justifiably dismissed due to
incompetence, insubordination, or willful disobedience.
Petitioner also raised the issue that Prieto v. NLRC,49 as used by the CA in its
Decision, is not applicable to the present case.
In Prieto, this Court ruled that "[i]t is presumed that before their deployment, the
petitioners were subjected to trade tests required by law to be conducted by the
recruiting agency to insure employment of only technically qualified workers for
the foreign principal."50 The CA, using the ruling in the said case, ruled that Gran
must have passed the test; otherwise, he would not have been hired. Therefore,
EDI was at fault when it deployed Gran who was allegedly "incompetent" for the
job.
According to petitioner, the Prieto ruling is not applicable because in the case at
hand, Gran misrepresented himself in his curriculum vitae as a Computer
Specialist; thus, he was not qualified for the job for which he was hired.
We disagree.
The CA is correct in applying Prieto. The purpose of the required trade test is to
weed out incompetent applicants from the pool of available workers. It is
supposed to reveal applicants with false educational backgrounds, and expose
bogus qualifications. Since EDI deployed Gran to Riyadh, it can be presumed
that Gran had passed the required trade test and that Gran is qualified for the
job. Even if there was no objective trade test done by EDI, it was still EDI's
responsibility to subject Gran to a trade test; and its failure to do so only
weakened its position but should not in any way prejudice Gran. In any case, the
issue is rendered moot and academic because Gran's incompetency is
unproved.
Fourth Issue: Gran was not Afforded Due Process
As discussed earlier, in the absence of proof of Saudi laws, Philippine Labor laws
and regulations shall govern the relationship between Gran and EDI. Thus, our

laws and rules on the requisites of due process relating to termination of

employment shall apply.
Petitioner EDI claims that private respondent Gran was afforded due process,
since he was allowed to work and improve his capabilities for five months prior to
his termination.51 EDI also claims that the requirements of due process, as
enunciated in Santos, Jr. v. NLRC,52 and Malaya Shipping Services, Inc. v.
NLRC,53 cited by the CA in its Decision, were properly observed in the present
case.
This position is untenable.
In Agabon v. NLRC,54 this Court held that:
Procedurally, (1) if the dismissal is based on a just cause under Article 282,
the employer must give the employee two written notices and a hearing or
opportunity to be heard if requested by the employee before terminating
the employment: a notice specifying the grounds for which dismissal is
sought a hearing or an opportunity to be heard and after hearing or
opportunity to be heard, a notice of the decision to dismiss; and (2) if the
dismissal is based on authorized causes under Articles 283 and 284, the
employer must give the employee and the Department of Labor and
Employment written notices 30 days prior to the effectivity of his
separation.
Under the twin notice requirement, the employees must be given two (2) notices
before their employment could be terminated: (1) a first notice to apprise the
employees of their fault, and (2) a second notice to communicate to the
employees that their employment is being terminated. In between the first and
second notice, the employees should be given a hearing or opportunity to defend
themselves personally or by counsel of their choice.55
A careful examination of the records revealed that, indeed, OAB's manner of
dismissing Gran fell short of the two notice requirement. While it furnished Gran
the written notice informing him of his dismissal, it failed to furnish Gran the
written notice apprising him of the charges against him, as prescribed by the
Labor Code.56 Consequently, he was denied the opportunity to respond to said
notice. In addition, OAB did not schedule a hearing or conference with Gran to
defend himself and adduce evidence in support of his defenses. Moreover, the

July 9, 1994 termination letter was effective on the same day. This shows that
OAB had already condemned Gran to dismissal, even before Gran was furnished
the termination letter. It should also be pointed out that OAB failed to give Gran
the chance to be heard and to defend himself with the assistance of a
representative in accordance with Article 277 of the Labor Code. Clearly, there
was no intention to provide Gran with due process. Summing up, Gran was
notified and his employment arbitrarily terminated on the same day, through the
same letter, and for unjustified grounds. Obviously, Gran was not afforded due
process.
Pursuant to the doctrine laid down in Agabon,57 an employer is liable to pay
nominal damages as indemnity for violating the employee's right to statutory due
process. Since OAB was in breach of the due process requirements under the
Labor Code and its regulations, OAB, ESI, and EDI, jointly and solidarily, are
liable to Gran in the amount of PhP 30,000.00 as indemnity.
Fifth and Last Issue: Gran is Entitled to Backwages
We reiterate the rule that with regard to employees hired for a fixed period of
employment, in cases arising before the effectivity of R.A. No. 804258 (Migrant
Workers and Overseas Filipinos Act) on August 25, 1995, that when the contract
is for a fixed term and the employees are dismissed without just cause, they are
entitled to the payment of their salaries corresponding to the unexpired portion of
their contract.59 On the other hand, for cases arising after the effectivity of R.A.
No. 8042, when the termination of employment is without just, valid or authorized
cause as defined by law or contract, the worker shall be entitled to the full
reimbursement of his placement fee with interest of twelve percent (12%) per
annum, plus his salaries for the unexpired portion of his employment contract or
for three (3) months for every year of the unexpired term whichever is less.60
In the present case, the employment contract provides that the employment
contract shall be valid for a period of two (2) years from the date the employee
starts to work with the employer.61 Gran arrived in Riyadh, Saudi Arabia and
started to work on February 7, 1994;62 hence, his employment contract is until
February 7, 1996. Since he was illegally dismissed on July 9, 1994, before the
effectivity of R.A. No. 8042, he is therefore entitled to backwages corresponding
to the unexpired portion of his contract, which was equivalent to USD 16,150.

Petitioner EDI questions the legality of the award of backwages and mainly relies
on the Declaration which is claimed to have been freely and voluntarily executed
by Gran. The relevant portions of the Declaration are as follows:
I, ELEAZAR GRAN (COMPUTER SPECIALIST) AFTER RECEIVING MY
FINAL SETTLEMENT ON THIS DATE THE AMOUNT OF:
S.R. 2,948.00 (SAUDI RIYALS TWO THOUSAND NINE
HUNDRED FORTY EIGHT ONLY)
REPRESENTING COMPLETE PAYMENT (COMPENSATION) FOR THE
SERVICES I RENDERED TO OAB ESTABLISHMENT.
I HEREBY DECLARE THAT OAB EST. HAS NO FINANCIAL OBLIGATION
IN MY FAVOUR AFTER RECEIVING THE ABOVE MENTIONED AMOUNT
IN CASH.
I STATE FURTHER THAT OAB EST. HAS NO OBLIGATION TOWARDS
ME IN WHATEVER FORM.
I ATTEST TO THE TRUTHFULNESS OF THIS STATEMENT BY AFFIXING
MY SIGNATURE VOLUNTARILY.
SIGNED.
ELEAZAR GRAN
Courts must undertake a meticulous and rigorous review of quitclaims or waivers,
more particularly those executed by employees. This requirement was clearly
articulated by Chief Justice Artemio V. Panganiban in Land and Housing
Development Corporation v. Esquillo:
Quitclaims, releases and other waivers of benefits granted by laws or
contracts in favor of workers should be strictly scrutinized to protect the
weak and the disadvantaged. The waivers should be carefully
examined, in regard not only to the words and terms used, but also
the factual circumstances under which they have been
executed.63 (Emphasis supplied.)

This Court had also outlined in Land and Housing Development Corporation,
citing Periquet v. NLRC,64 the parameters for valid compromise agreements,
waivers, and quitclaims:
Not all waivers and quitclaims are invalid as against public policy. If the
agreement was voluntarily entered into and represents a reasonable
settlement, it is binding on the parties and may not later be disowned
simply because of a change of mind. It is only where there is clear proof
that the waiver was wangled from an unsuspecting or gullible person, or
the terms of settlement are unconscionable on its face, that the law will
step in to annul the questionable transaction. But where it is shown that
the person making the waiver did so voluntarily, with full
understanding of what he was doing, and the consideration for the
quitclaim is credible and reasonable, the transaction must be
recognized as a valid and binding undertaking. (Emphasis supplied.)
Is the waiver and quitclaim labeled a Declaration valid? It is not.
The Court finds the waiver and quitclaim null and void for the following reasons:
1. The salary paid to Gran upon his termination, in the amount of SR 2,948.00, is
unreasonably low. As correctly pointed out by the court a quo, the payment of SR
2,948.00 is even lower than his monthly salary of SR 3,190.00 (USD 850.00). In
addition, it is also very much less than the USD 16,150.00 which is the amount
Gran is legally entitled to get from petitioner EDI as backwages.
2. The Declaration reveals that the payment of SR 2,948.00 is actually the
payment for Gran's salary for the services he rendered to OAB as Computer
Specialist. If the Declaration is a quitclaim, then the consideration should be
much much more than the monthly salary of SR 3,190.00 (USD 850.00)
although possibly less than the estimated Gran's salaries for the remaining
duration of his contract and other benefits as employee of OAB. A quitclaim will
understandably be lower than the sum total of the amounts and benefits that can
possibly be awarded to employees or to be earned for the remainder of the
contract period since it is a compromise where the employees will have to forfeit
a certain portion of the amounts they are claiming in exchange for the early
payment of a compromise amount. The court may however step in when such
amount is unconscionably low or unreasonable although the employee voluntarily

agreed to it. In the case of the Declaration, the amount is unreasonably small
compared to the future wages of Gran.
3. The factual circumstances surrounding the execution of the Declaration would
show that Gran did not voluntarily and freely execute the document. Consider the
following chronology of events:
a. On July 9, 1994, Gran received a copy of his letter of termination;
b. On July 10, 1994, Gran was instructed to depart Saudi Arabia and
required to pay his plane ticket;65
c. On July 11, 1994, he signed the Declaration;
d. On July 12, 1994, Gran departed from Riyadh, Saudi Arabia; and
e. On July 21, 1994, Gran filed the Complaint before the NLRC.
The foregoing events readily reveal that Gran was "forced" to sign the
Declaration and constrained to receive the amount of SR 2,948.00 even if it was
against his willsince he was told on July 10, 1994 to leave Riyadh on July 12,
1994. He had no other choice but to sign the Declaration as he needed the
amount of SR 2,948.00 for the payment of his ticket. He could have entertained
some apprehensions as to the status of his stay or safety in Saudi Arabia if he
would not sign the quitclaim.
4. The court a quo is correct in its finding that the Declaration is a contract of
adhesion which should be construed against the employer, OAB. An adhesion
contract is contrary to public policy as it leaves the weaker partythe employee
in a "take-it-or-leave-it" situation. Certainly, the employer is being unjust to the
employee as there is no meaningful choice on the part of the employee while the
terms are unreasonably favorable to the employer.66
Thus, the Declaration purporting to be a quitclaim and waiver is unenforceable
under Philippine laws in the absence of proof of the applicable law of Saudi
Arabia.

In order to prevent disputes on the validity and enforceability of quitclaims and

waivers of employees under Philippine laws, said agreements should contain the
following:
1. A fixed amount as full and final compromise settlement;
2. The benefits of the employees if possible with the corresponding amounts,
which the employees are giving up in consideration of the fixed compromise
amount;
3. A statement that the employer has clearly explained to the employee in
English, Filipino, or in the dialect known to the employeesthat by signing the
waiver or quitclaim, they are forfeiting or relinquishing their right to receive the
benefits which are due them under the law; and
4. A statement that the employees signed and executed the document voluntarily,
and had fully understood the contents of the document and that their consent
was freely given without any threat, violence, duress, intimidation, or undue
influence exerted on their person.
It is advisable that the stipulations be made in English and Tagalog or in
the dialect known to the employee. There should be two (2) witnesses to the
execution of the quitclaim who must also sign the quitclaim. The document
should be subscribed and sworn to under oath preferably before any
administering official of the Department of Labor and Employment or its regional
office, the Bureau of Labor Relations, the NLRC or a labor attach in a foreign
country. Such official shall assist the parties regarding the execution of the
quitclaim and waiver.67 This compromise settlement becomes final and binding
under Article 227 of the Labor Code which provides that:
[A]ny compromise settlement voluntarily agreed upon with the
assistance of the Bureau of Labor Relations or the regional office of the
DOLE, shall be final and binding upon the parties and the NLRC or any
court "shall not assume jurisdiction over issues involved therein except in
case of non-compliance thereof or if there is prima facieevidence that the
settlement was obtained through fraud, misrepresentation, or coercion.

It is made clear that the foregoing rules on quitclaim or waiver shall apply only to
labor contracts of OFWs in the absence of proof of the laws of the foreign country
agreed upon to govern said contracts. Otherwise, the foreign laws shall apply.
WHEREFORE, the petition is DENIED. The October 18, 2000 Decision in CAG.R. SP No. 56120 of the Court of Appeals affirming the January 15, 1999
Decision and September 30, 1999 Resolution of the NLRC
is AFFIRMED with the MODIFICATION that petitioner EDI-Staffbuilders
International, Inc. shall pay the amount of PhP 30,000.00 to respondent Gran as
nominal damages for non-compliance with statutory due process.
No costs.
SO ORDERED.

ATCI OVERSEAS CORPORATION, AMALIA G. IKDAL and MINISTRY

OF PUBLIC HEALTH-KUWAIT versus MA. JOSEFA ECHIN,
G.R. No. 178551
October 11, 2010

Josefina Echin was hired by ATCI Overseas Corporation in behalf of

Ministry of Public Health of Kuwait, as medical technologist under a 2-year
contract, with a monthly salary of US$1,200.00.Under the MOA, all newly-hired
employees undergo a probationary period of one (1) year and are covered by
Kuwaits Civil Service Board Employment Contract No. 2.
Echin was deployed on February 17, 2000 but was terminated from
employment on February 11, 2001, she not having allegedly passed the
probationary period.

As the Ministry denied respondents request for reconsideration, she returned

to the Philippines shouldering her own air fare.
Thereafter, Echin filed with the NLRC a complaint for illegal dismissal
against ATCI as the local recruitment agency, Ikdal, and the Ministry, as the foreign
principal. The Labor Arbiter held that she was illegally dismissed and ordered
ATCI to pay her.
On appeal of ATCI, the NLRC affirmed the Labor Arbiters decision so they
appealed to the CA, contending that their principal, the Ministry, being a foreign
government agency, is immune from suit and, as such, the immunity extended to
them; and that Echin was validly dismissed for her failure to meet the performance
rating within the one-year period as required under Kuwaits Civil Service Laws.
However, the appellate court affirmed the NLRC Resolution.
In brushing aside petitioners contention that they only acted as agent of the
Ministry and that they cannot be held jointly and solidarily liable with it, the
appellate court noted that under the law, a private employment agency shall assume
all responsibilities for the implementation of the contract of employment of an
overseas worker, hence, it can be sued jointly and severally with the foreign
principal for any violation of the recruitment agreement or contract of
employment.
As to Ikdals liability, the appellate court held that under Sec. 10 of Republic
Act No. 8042, the Migrant and Overseas Filipinos Act of 1995, corporate officers,
directors and partners of a recruitment agency may themselves be jointly and
solidarily liable with the recruitment agency for money claims and damages
awarded to overseas workers.

Petitioners motion for reconsideration having been denied by the appellate

court by Resolution[7] of June 27, 2007, the present petition for review on certiorari
was filed.
Petitioners maintain that they should not be held liable because respondents
employment contract specifically stipulates that her employment shall be governed
by the Civil Service Law and Regulations of Kuwait. They thus conclude that it
was patent error for the labor tribunals and the appellate court to apply the Labor
Code provisions governing probationary employment in deciding the present case.
Further, petitioners argue that even the Philippine Overseas Employment Act
(POEA) Rules relative to master employment contracts (Part III, Sec. 2 of the
POEA Rules and Regulations) accord respect to the customs, practices, company
policies and labor laws and legislation of the host country.
Finally, petitioners posit that assuming arguendo that Philippine labor laws
are applicable, given that the foreign principal is a government agency which is
immune from suit, as in fact it did not sign any document agreeing to be held
jointly and solidarily liable, petitioner ATCI cannot likewise be held liable, more so
since the Ministrys liability had not been judicially determined as jurisdiction was
not acquired over it.
The petition fails.
Petitioner ATCI, as a private recruitment agency, cannot evade responsibility
for the money claims of Overseas Filipino workers (OFWs) which it deploys
abroad by the mere expediency of claiming that its foreign principal is a

government agency clothed with immunity from suit, or that such foreign
principals liability must first be established before it, as agent, can be held jointly
and solidarily liable.
In providing for the joint and solidary liability of private recruitment
agencies with their foreign principals, Republic Act No. 8042 precisely affords the
OFWs with a recourse and assures them of immediate and sufficient payment of
what is due them. Skippers United Pacific v. Maguad[8] explains:
. . . [T]he obligations covenanted in the recruitment agreement
entered into by and between the local agent and its foreign principal
are not coterminous with the term of such agreement so that if either
or both of the parties decide to end the agreement, the responsibilities of
such parties towards the contracted employees under the agreement do
not at all end, but the same extends up to and until the expiration of the
employment contracts of the employees recruited and employed pursuant
to the said recruitment agreement.Otherwise, this will render nugatory
the very purpose for which the law governing the employment of
workers for foreign jobs abroad was enacted. (emphasis supplied)

The imposition of joint and solidary liability is in line with the policy of the state to
protect and alleviate the plight of the working class. [9] Verily, to allow petitioners to
simply invoke the immunity from suit of its foreign principal or to wait for the
judicial determination of the foreign principals liability before petitioner can be
held liable renders the law on joint and solidary liability inutile.
As to petitioners contentions that Philippine labor laws on probationary
employment are not applicable since it was expressly provided in respondents
employment contract, which she voluntarily entered into, that the terms of her
engagement shall be governed by prevailing Kuwaiti Civil Service Laws and

Regulations as in fact POEA Rules accord respect to such rules, customs and
practices of the host country, the same was not substantiated.
Indeed, a contract freely entered into is considered the law between the
parties who can establish stipulations, clauses, terms and conditions as they may
deem convenient, including the laws which they wish to govern their respective
obligations, as long as they are not contrary to law, morals, good customs, public
order or public policy.
It is hornbook principle, however, that the party invoking the application of a
foreign law has the burden of proving the law, under the doctrine of processual
presumption which, in this case, petitioners failed to discharge. The Courts ruling
in EDI-Staffbuilders Intl., v. NLRC[10] illuminates:
In the present case, the employment contract signed by Gran
specifically states that Saudi Labor Laws will govern matters not
provided for in the contract (e.g. specific causes for termination,
termination procedures, etc.). Being the law intended by the parties (lex
loci intentiones) to apply to the contract, Saudi Labor Laws should
govern all matters relating to the termination of the employment of Gran.
In international law, the party who wants to have a foreign law
applied to a dispute or case has the burden of proving the foreign
law. The foreign law is treated as a question of fact to be properly
pleaded and proved as the judge or labor arbiter cannot take
judicial notice of a foreign law. He is presumed to know only domestic
or
forum
law.
Unfortunately for petitioner, it did not prove the pertinent Saudi
laws on the matter; thus, the International Law doctrine
of presumed-identity approach or processual presumption comes into
play. Where a foreign law is not pleaded or, even if pleaded, is not
proved, the presumption is that foreign law is the same as ours.

Thus, we apply Philippine labor laws in determining the issues

presented before us. (emphasis and underscoring supplied)

The Philippines does not take judicial notice of foreign laws, hence, they
must not only be alleged; they must be proven. To prove a foreign law, the party
invoking it must present a copy thereof and comply with Sections 24 and 25
of Rule 132 of the Revised Rules of Court which reads:
SEC. 24. Proof of official record. The record of public documents
referred to in paragraph (a) of Section 19, when admissible for any
purpose, may be evidenced by an official publication thereof or by a
copy attested by the officer having the legal custody of the record, or by
his deputy, and accompanied, if the record is not kept in the Philippines,
with a certificate that such officer has the custody. If the office in which
the record is kept is in a foreign country, the certificate may be made
by a secretary of the embassy or legation, consul general, consul,
vice consul, or consular agent or by any officer in the foreign service
of the Philippines stationed in the foreign country in which the
record is kept, and authenticated by the seal of his office. (emphasis
supplied)

SEC. 25. What attestation of copy must state. Whenever a copy of

a document or record is attested for the purpose of the evidence, the
attestation must state, in substance, that the copy is a correct copy of the
original, or a specific part thereof, as the case may be. The attestation
must be under the official seal of the attesting officer, if there be any, or
if he be the clerk of a court having a seal, under the seal of such court.

To prove the Kuwaiti law, petitioners submitted the following: MOA

between respondent and the Ministry, as represented by ATCI, which provides that
the employee is subject to a probationary period of one (1) year and that the host
countrys Civil Service Laws and Regulations apply; a translated copy [11] (Arabic to

English) of the termination letter to respondent stating that she did not pass the
probation terms, without specifying the grounds therefor, and a translated copy of
the certificate of termination,[12] both of which documents were certified by Mr.
Mustapha Alawi, Head of the Department of Foreign Affairs-Office of Consular
Affairs Inslamic Certification and Translation Unit; and respondents letter[13] of
reconsideration to the Ministry, wherein she noted that in her first eight (8) months
of employment, she was given a rating of Excellent albeit it changed due to
changes in her shift of work schedule.
These documents, whether taken singly or as a whole, do not sufficiently
prove that respondent was validly terminated as a probationary employee under
Kuwaiti civil service laws. Instead of submitting a copy of the pertinent
Kuwaiti labor laws duly authenticated and translated by Embassy officials
thereat, as required under the Rules, what petitioners submitted were mere
certifications attesting only to the correctness of the translations of the MOA
and the termination letter which does not prove at all that Kuwaiti civil
service laws differ from Philippine laws and that under such Kuwaiti laws,
respondent was validly terminated.Thus the subject certifications read:
xxxx
This is to certify that the herein attached translation/s from Arabic to
English/Tagalog and or vice versa was/were presented to this Office for
review and certification and the same was/were found to be in
order. This Office, however, assumes no responsibility as to the
contents of the document/s.
This certification is being issued upon request of the interested party for
whatever legal purpose it may serve. (emphasis supplied)

Respecting Ikdals joint and solidary liability as a corporate officer, the same
is in order too following the express provision of R.A. 8042 on money claims, viz:
SEC. 10. Money Claims.Notwithstanding any provision of law to
the contrary, the Labor Arbiters of the National Labor Relations
Commission (NLRC) shall have the original and exclusive jurisdiction to
hear and decide, within ninety (90) calendar days after the filing of the
complaint, the claims arising out of an employer-employee relationship
or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual moral, exemplary and
other forms of damages.
The liability of the principal/employer and the recruitment/placement
agency for any and all claims under this section shall be joint and
several. This provision shall be incorporated in the contract for overseas
employment and shall be a condition precedent for its approval. The
performance bond to be filed by the recruitment/placement agency, as
provided by law, shall be answerable for all money claims or damages
that may be awarded to the workers. If the recruitment/placement
agency is a juridical being, the corporate officers and directors and
partners as the case may be, shall themselves be jointly and
solidarily liable with the corporation or partnership for the
aforesaid claims and damages. (emphasis and underscoring supplied)

WHEREFORE, the petition is DENIED.

SO ORDERED.

DOUGLAS
MILLARES
and
ROGELIO
LAGDA, petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, TRANSGLOBAL MARITIME AGENCY, INC. and ESSO INTERNATIONAL
SHIPPING CO., LTD. respondents.
RESOLUTION
KAPUNAN, J.:

On March 14, 2000, the Court promulgated its decision in the aboveentitled case, ruling in favor of the petitioners. The dispositive portion reads,
as follows:
WHEREFORE, premises considered, the assailed Decision, dated June 1, 1993, of
the National Labor Relations Commission is hereby REVERSED and SET
ASIDE and a new judgment is hereby rendered ordering the private respondents to:
(1) Reinstate petitioners Millares and Lagda to their former positions without loss of
seniority rights, and to pay full backwages computed from the time of illegal dismissal
to the time of actual reinstatement;

(2) Alternatively, if reinstatement is not possible, pay petitioners Millares and Lagda
separation 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
credited contributions as provided under the Consecutive Enlistment Incentive Plan.
SO ORDERED.

[1]

A motion for reconsideration was consequently filed by the private

respondents to which petitioners filed an Opposition thereto.
[2]

[3]

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

Subsequently, the Filipino Association for Mariners Employment, Inc.

(FAME) filed a Motion for 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 for Reconsideration of our decision.
In both motions, the private respondents and FAME respectively pray in
the main that the Court reconsider its ruling that Filipino seafarers are
considered regular employees within the context of Article 280 of the Labor
Code. They claim that the decision may establish a precedent that will
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
Shipping Company LTD. (Esso International, for brevity) through its local manning
agency, private respondent 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 occupied until 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 private respondent 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., (now Esso International) through Michael J. Estaniel,
informing him of his intention to avail of the optional retirement plan under the
Consecutive Enlistment Incentive Plan (CEIP) considering that 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,
denied petitioner Millares request for optional retirement on the following grounds, to
wit: (1) he was employed on a contractual basis; (2) his contract of enlistment (COE)
did not provide for retirement before the age of sixty (60) years; and (3) he did not
comply with the requirement for claiming 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 from August 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 has corrected the deficiency in its manpower
requirement specifically in the Chief Engineer rank by promoting a First Assistant
Engineer to this position as a result of (his) previous leave of absence which expired
last August 8, 1989. The adjustment in said rank was required in order to meet
manpower 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 is equivalent to abandonment of his position, he had been
dropped from the roster of crew members effective September 1, 1989.
On the other hand, petitioner Lagda was employed by private respondent Esso
International as wiper/oiler in June 1969. He was promoted as Chief Engineer in
1980, a position he continued to occupy until his last COE expired on April 10,
1989. He was then receiving a monthly salary of US$1,939.00.
On May 16, 1989, petitioner Lagda applied for a leave of absence from June 19, 1989
up to the whole month of August 1989. On June 14, 1989, respondent Trans-Globals

President, Michael J. Estaniel, approved petitioner Lagdas leave of absence from June
22, 1989 to July 20, 1989 and 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
of respondent 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 the optional early retirement scheme on the same grounds upon which
petitioner Millares request was denied.
On August 3, 1989, he requested for an extension of his leave of absence up to August
26, 1989 and the same was approved. However, on September 27, 1989, respondent
Esso International, through H. Regenboog, Personnel Administrator, advised
petitioner Lagda that in view of his unavailability for contractual sea service, he had
been dropped from the roster of crew members effective September 1, 1989.
On October 5, 1989, petitioners Millares and Lagda filed a complaint-affidavit,
docketed as POEA (M) 89-10-9671, for illegal dismissal and non-payment of
employee benefits against private respondents Esso International and Trans-Global,
before the POEA.
[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
and overseas contract workers are not covered by the term regular employment as
defined under Article 280 of the Labor Code. The POEA, which is tasked with
protecting the rights of the Filipino workers for overseas employment to fair and
equitable recruitment and employment practices and to ensure their welfare,
prescribes a standard employment contract for seamen on board 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 a fixed 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 Labor Code notwithstanding. There is,
therefore, no reason to disturb the POEA Administrators finding that complainantsappellants 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 is terminated at the expiration of the contract period.
[6]

Undaunted, the petitioners elevated their case to this Court and

successfully obtained the favorable action, which is now vehemently being
assailed.
[7]

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 WHOSE
EMPLOYMENTS ARE TERMINATED EVERYTIME THEIR CONTRACTS OF
EMPLOYMENT EXPIRE?
II. ASSUMING THAT PETITIONERS ARE REGULAR EMPLOYEES, WERE
THEY DISMISSED WITHOUT JUST CAUSE SO AS TO BE ENTITLED TO
REINSTATEMENT AND BACKWAGES, INCLUDING PAYMENT OF 100% OF
THEIR TOTAL CREDITED CONTRIBUTIONS TO THE CONSECUTIVE
ENLISTMENT INCENTIVE PLAN (CEIP)?
III. DOES THE PROVISION OF THE POEA STANDARD CONTRACT FOR
SEAFARERS ON BOARD FOREIGN VESSELS (SEC. C., DURATION OF
CONTRACT) PRECLUDE THE ATTAINMENT BY SEAMEN OF THE STATUS
OF REGULAR EMPLOYEES?
IV. DOES THE DECISION OF THE COURT IN G.R. NO. 110524 CONTRAVENE
INTERNATIONAL MARITIME LAW, ALLEGEDLY PART OF THE LAW OF THE
LAND UNDER SECTION 2, ARTICLE II OF THE CONSTITUTION?
V. DOES THE SAME DECISION OF THE COURT CONSTITUTE A DEPARTURE
FROM ITS RULING IN COYOCA VS. NLRC (G.R. NO. 113658, March 31, 1995)?
[8]

In answer to the private respondents Second Motion for Reconsideration

and to FAMEs Motion for Reconsideration in Intervention, petitioners maintain
that they are regular employees as 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 private respondents,
they should be considered as regular employees pursuant to Article 280, Par.
1 of the Labor Code. Other justifications for this ruling include the fact that
petitioners have rendered over twenty (20) years of service, as admitted by
the private respondents; that they were recipients of Merit Pay which is an
express acknowledgment by the private respondents that petitioners are
regular and not just contractual employees; that petitioners were registered
under the Social Security System (SSS).
[9]

[10]

[11]

The petitioners further state that the case of Coyoca v. NLRC which the
private respondents invoke 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 manning industry to
our economy, these seafarers are supposed to be considered as Heroes of
the Republic whose rights must be protected. Finally, the first motion for
reconsideration has already been denied with finality by this Court and it is
about time that the Court should write finis to this case.
[12]

[13]

The private respondents, on the other hand, contend that: (a) the ruling
holding petitioners as regular employees was not in accord with the decision
in Coyoca v. NLRC, 243 SCRA 190; (b) Art. 280 is not applicable as what
applies is the POEA Rules and Regulations Governing Overseas
Employment; (c) seafarers are not regular employees based on international
maritime practice; (d) grave consequences would result on the future of
seafarers and manning agencies if the ruling is not reconsidered; (e) there
was no dismissal committed; (f) a dismissed seafarer is not 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 credited to their account under the CEIP.
[14]

Meanwhile, Intervenor Filipino Association of Mariners Employment

(FAME) avers that our decision, if not reconsidered, will have negative

consequences in the employment of Filipino Seafarers overseas which, in

turn, might lead to the demise of the manning industry in the Philippines. As
intervenor FAME puts it:
xxx
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 increasing demand for (and supply of) Chinese seafarers, with some
commentators suggesting that this may be a long-term alternative to the
Philippines. Moreover, the political changes within the former 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 had already
lost some 6,300 slots to other Asian, East Europe and Chinese competition for the last
two years;
7.2 The Philippine stands to lose an annual foreign income estimated at U.S.
DOLLARS TWO HUNDRED 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 be declared regular
employees;
7.3 Some 195,917 (as of 1998) deployed overseas Filipino seafarers will be rendered
jobless should we lose the market;
7.4 Some 360 manning agencies (as of 30 June 2000) whose principals may no longer
be doing business 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 fees paid 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 their breadwinners will be rendered jobless; and
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 contract workers as they will become regular employees with all its
concomitant effects.
[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 our decision and has called for a reexamination of our ruling.
[16]

Considering all the arguments presented by the private respondents, the

Intervenor FAME and the OSG, we agree that there is a need to reconsider
our position with respect to the status of seafarers which we considered as
regular employees under Article 280 of the Labor Code. We, therefore,
partially grant the second motion for reconsideration.
In Brent School Inc. v. Zamora, the Supreme Court stated that Article 280
of the Labor Code does not apply to overseas employment.
[17]

In the light of the foregoing description of the development of the provisions of the
Labor Code bearing on term or fixed-period employment that the question posed in
the opening paragraph of this opinion should now be addressed. Is it then the
legislative intention to outlaw stipulations in employment contracts laying down a
definite period therefor? Are such stipulations in essence contrary 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 contrary
notwithstanding 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 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 service to be employee 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 a regular employee
with respect to the activity in which 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 to recognize, 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, whatever its object, be it specific, goods or services, except
the general admonition against stipulations contrary 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 they are under the
present Labor Code, to those by natural seasonal or for specific projects with
predetermined dates of completion; they also include those to which the parties by
free choice have assigned a specific date of termination.
Some familiar examples may be cited of employment contract which may be
neither for seasonal work nor for specific projects, but to which a fixed term is an
essential and natural appurtenance: overseas employment contracts, for one, to
which, whatever the nature of the engagement, the concept of regular
employment with all that it implies does not appear ever to have been
applied. Article 280 of the Labor Code notwithstanding also appointments to the
positions of dean, assistant dean, college secretary, principal, and other administrative
offices in educational institutions, which are by practice or tradition rotated among the
faculty members, and where fixed terms are a necessity without which no reasonable
rotation would be possible.Similarly, despite the provisions of Article 280, Policy
Instructions. No. 8 of the Minister of Labor implicitly recognize that certain company
officials may be elected for what would amount to fix periods, at the expiration of
which they would have to stand down, in providing that these officials, xxx may lose
their jobs as president, executive vice-president or vice-president, etc. because the
stockholders or the board of directors for one reason or another did not reelect them.

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 disregard 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 exists, 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 xxx 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 within 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 a 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 of the
head.
It is a salutary principle in statutory construction that there exists a valid presumption
that undesirable consequences were never intended by a legislative measure, and that
a construction of which the statute is fairly susceptible is favored, which will avoid all
objectionable, mischievous, indefensible, wrongful, evil, and injurious consequences.
Nothing is better settled than that courts are not to give words a meaning which would
lead to absurd or unreasonable consequences. That is a principle that goes back to In
re Allen decided on October 27, 1902, where it was held that a literal interpretation is
to be rejected if it would be unjust or lead to absurd results. That is a strong argument
against its adoption. The words of Justice 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
the application of the cardinal rule of statutory construction that such intent of spirit
must prevail over the letter thereof, for whatever is within the spirit of a statute is
within the statute, since adherence to the letter would result in absurdity, injustice and
contradictions and would defeat the 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 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.
Again, in Pablo Coyoca v. NLRC, the Court also held that a seafarer is
not a regular employee and is not entitled to separation pay. His employment
is governed by the POEA Standard Employment Contract for Filipino Seamen.
[18]

XXX. In this connection, it is important to note that neither does the POEA standard
employment 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 respondent complied with the terms of contract

when it paid petitioner P42,315.00 which, in our opinion, is a reasonable amount, as

compensation for his illness.
Lastly, petitioner claims that he eventually became a regular employee of private
respondent and thus falls within the purview of Articles 284 and 95 of the Labor
Code. In support of this contention, petitioner cites the case of Worth Shipping
Service, Inc., et al. v. NLRC, et al., wherein we held that the crew members of the
shipping company had attained regular status and thus, were entitled to separation
pay. However, the facts of said case differ from the present. In Worth, we held that the
principal and agent had operational control and management over the MV 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. They can not be considered as regular employees
under Article 280 of the Labor Code. Their employment is governed by the
contracts they sign everytime they are rehired and their employment is
terminated when the contract expires. Their employment is contractually fixed
for a certain period of time. They fall under the exception of Article 280 whose
employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of
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. We
need not depart from the rulings of the Court in the two aforementioned cases
which indeed constitute stare decisis with respect to the employment status of
seafarers.
[19]

Petitioners insist that they should be considered regular employees, since

they have rendered services which are usually necessary and desirable to the
business of their employer, and that they have rendered more than twenty(20)
years of service. While this may be true, the Brent case has, however, held
that there are certain forms of employment which also require the
performance of usual and desirable functions and which exceed one year but
do not necessarily attain regular employment status under Article 280.
Overseas workers including seafarers fall under this type of employment
which are governed by the mutual agreements of the parties.
[20]

In this jurisdiction and as clearly stated in the Coyoca case, Filipino

seamen are governed by the Rules and Regulations of the POEA. The
Standard Employment Contract governing the employment 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 in no 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 and shall be stated in the Crew Contract. Any extension of the Contract period
shall be subject to the mutual consent of the parties.
Moreover, it is an accepted maritime industry practice that employment of
seafarers are for a fixed 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 the employment status
must be contractual only or for a certain period of time.Seafarers spend most
of their time at sea and understandably, they can not stay for a long and an
indefinite period of time at sea. Limited access to shore society during the
employment will have an adverse impact on the seafarer. The national,
cultural and lingual diversity among the crew during the COE is a reality that
necessitates the limitation of its period.
[21]

[22]

Petitioners make much of the fact that they have been continually re-hired
or their contracts renewed 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 and benefits appurtenant to it.
Such contention is untenable. Undeniably, this circumstance of continuous
re-hiring was dictated by practical considerations that experienced crew
members are more preferred. Petitioners were only given priority or
preference because of their experience and qualifications but this does not
detract the fact that herein petitioners are contractual employees. They can
not be considered regular employees. We quote with favor the explanation of
the NLRC in this wise:

Xxx The reference to permanent and probationary masters and employees in these
papers is a 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-rehire. This is the only logical conclusion possible because the parties cannot and should
not violate POEAs requirement that a contract of enlistment shall be for a limited
period only; not exceeding twelve (12)months.
[23]

From all the foregoing, we hereby state that petitioners are not considered
regular or permanent employees under Article 280 of the Labor
Code. Petitioners employment have automatically ceased upon the expiration
of their contracts of enlistment (COE). Since there was no dismissal to speak
of, it follows that petitioners are not entitled to reinstatement or payment of
separation pay 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 the CEIP. Considering that we have
declared that petitioners are contractual employees, their compensation and
benefits are covered by the contracts they signed and the CEIP is part and
parcel 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 same company for as long as
their services were needed. For those who remained loyal to them, they were
duly rewarded with this additional remuneration under the CEIP, if
eligible. While this is an act of benevolence on the part of the employer, it can
not, however, be denied that this is part of the benefits accorded to the
employees for services rendered. Such right to the benefits is vested 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 to employment after June 30, 1973. Upon
[24]

eligibility, an amount shall be credited to his account as it provides, among

others:
III. Distribution of Benefits
A. Retirement, Death and Disability
When the employment of an employee terminates because of his
retirement, death or permanent and total disability, a percentage of the
total amount credited to his account 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 is
due to accident, and not due to
misconduct.
xxx
B. Voluntary Termination
When an employee voluntary terminates his employment with at least 36 months of
credited service 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 of credited service in excess of 36, will be distributed to him
provided (1) the employee has completed 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 Companys agent
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 reason other than one in A and B above, without any misconduct on his
part, a percentage of the total amount credited to his account will be
distributed to him in accordance with the following.
Credited Service Percentage
36 months 50%
48 75%
60 100%
When the employment of an employee is terminated due to his poorperformance, misconduct, unavailability, etc., or if employee is not offered
re-engagement for similar reasons, no distribution of any portion of
employees account will ever be made to him (or his eligible survivor[s]).
It must be recalled that on June 21, 1989, Millares wrote a letter to his
employer informing his intention to avail of the optional retirement plan under
the CEIP considering that he has rendered more than twenty (20) years of
continuous service. Lagda, likewise, manifested the same intention in a letter
dated June 26, 1989. Private respondent, however, denied their requests for
benefits under the CEIP since: (1) the contract of enlistment (COE) did not
provide for retirement before 60 years of age; and that (2) petitioners failed to
submit a written notice of their intention to terminate their employment within
thirty (30) days from the last disembarkation date 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 and
unavailability for contractual sea service, respectively, they were disqualified
from receiving any benefits under the CEIP.
[25]

In our March 14, 2000 Decision, we, however, found that petitioners
Millares and Lagda were not 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
private respondents 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. Granting arguendo 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 for assignment as they were
still questioning the denial of private respondents of their desire to avail of the
optional early retirement policy, which they believed in good faith to exist.
[26]

Neither can we consider petitioners guilty of poor performance or

misconduct since they were recipients 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 private respondent considered as belated written notices of
termination, we find such assertion specious. Notwithstanding, we could
conveniently consider the petitioners eligible under Section III-B of the 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 and circumstances of the case. As the CEIP provides:
III. Distribution of Benefits
xxx
E. Distribution of Accounts

When an employee terminates under conditions that would qualify for a distribution
of more than one 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 their termination
falls under the first paragraph of Section III-C for which they are entitled to
100% of the total amount credited to their accounts. The private respondents
can not now renege on their commitment under the CEIP to reward deserving
and loyal employees as the petitioners in this case.
In taking cognizance of private respondents Second Motion for
Reconsideration, the Court hereby suspends the rules to make them
conformable to law and justice and to subserve an overriding public interest.
IN VIEW OF THE FOREGOING, THE COURT Resolved to Partially
GRANT Private Respondents Second Motion for Reconsideration and
Intervenor FAMES Motion for Reconsideration in Intervention. The Decision of
the National Labor Relations Commission dated June 1, 1993 is hereby
REINSTATED with MODIFICATION. The Private Respondents, Trans-Global
Maritime Agency, Inc. and Esso International Shipping Co.,Ltd. are hereby
jointly and severally ORDERED to pay petitioners One Hundred Percent
(100%) of their total credited contributions as provided under the Consecutive
Enlistment Incentive Plan(CEIP).
SO ORDERED.

[G.R. No. 118506. April 18, 1997]

NORMA MABEZA, petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION, PETER NG/HOTEL SUPREME, respondents.
DECISION
KAPUNAN, J.:

This petition seeking the nullification of a resolution of public respondent

National Labor Relations Commission dated April 28, 1994 vividly illustrates
why courts should be ever vigilant in the preservation of the constitutionally
enshrined rights of the working class. Without the protection accorded by our

laws and the tempering of courts, the natural and historical inclination of
capital to ride roughshod over the rights of labor would run unabated.
The facts of the case at bar, culled from the conflicting versions of
petitioner and private respondent, are illustrative.
Petitioner Norma Mabeza contends that around the first week of May,
1991, she and her co-employees at the Hotel Supreme in Baguio City were
asked by the hotel's management to sign an instrument attesting to the latter's
compliance with minimum wage and other labor standard provisions of law.
[1]

The instrument provides:[2]

JOINT AFFIDAVIT
We, SYLVIA IGANA, HERMINIGILDO AQUINO, EVELYN OGOY,
MACARIA JUGUETA, ADELAIDA NONOG, NORMA MABEZA,
JONATHAN PICART and JOSE DIZON, all of legal ages (sic), Filipinos and
residents of Baguio City, under oath, depose and say:
1. That we are employees of Mr. Peter L. Ng of his Hotel Supreme situated at No. 416
Magsaysay Ave., Baguio City;
2. That the said Hotel is separately operated from the Ivy's Grill and Restaurant;
3. That we are all (8) employees in the hotel and assigned in each respective shifts;
4. That we have no complaints against the management of the Hotel Supreme as we
are paid accordingly and that we are treated well.
5. That we are executing this affidavit voluntarily without any force or intimidation
and for the purpose of informing the authorities concerned and to dispute the alleged
report of the Labor Inspector of the Department of Labor and Employment conducted
on the said establishment on February 2, 1991.
IN WITNESS WHEREOF, we have hereunto set our hands this 7th day of
May, 1991 at Baguio City, Philippines.
(Sgd.) (Sgd.) (Sgd.)

SYLVIA IGAMA HERMINIGILDO AQUINO EVELYN OGOY

(Sgd) (Sgd.) (Sgd.)
MACARIA JUGUETA ADELAIDA NONOG NORMA MABEZA
(Sgd) (Sgd.)
JONATHAN PICART JOSE DIZON
SUBSCRIBED AND SWORN to before me this 7th day of May, 1991, at
Baguio City, Philippines.
Asst. City Prosecutor
Petitioner signed the affidavit but refused to go to the City Prosecutor's
Office to swear to the veracity and contents of the affidavit as instructed by
management. The affidavit was nevertheless submitted on the same day to
the Regional Office of the Department of Labor and Employment in Baguio
City.
As gleaned from the affidavit, the same was drawn by management for the
sole purpose of refuting findings of the Labor Inspector of DOLE (in an
inspection of respondent's establishment on February 2, 1991) apparently
adverse to the private respondent.
[3]

After she refused to proceed to the City Prosecutor's Office - on the same
day the affidavit was submitted to the Cordillera Regional Office of DOLE petitioner avers that she was ordered by the hotel management to turn over
the keys to her living quarters and to remove her belongings from the hotel
premises. According to her, respondent strongly chided her for refusing to
proceed to the City Prosecutor's Office to attest to the affidavit. She thereafter
reluctantly filed a leave of absence from her job which was denied by
management. When she attempted to return to work on May 10, 1991, the
hotel's cashier, Margarita Choy, informed her that she should not report to
work
and,
instead,
continue
with
her
unofficial
leave
of
absence. Consequently, on May 13, 1991, three days after her attempt to
return to work, petitioner filed a complaint for illegal dismissal before the
[4]

[5]

Arbitration Branch of the National Labor Relations Commission - CAR Baguio

City. In addition to her complaint for illegal dismissal, she alleged
underpayment of wages, non-payment of holiday pay, service incentive leave
pay, 13th month pay, night differential and other benefits. The complaint was
docketed as NLRC Case No. RAB-CAR-05-0198-91 and assigned to Labor
Arbiter Felipe P. Pati.
Responding to the allegations made in support of petitioner's complaint for
illegal dismissal, private respondent Peter Ng alleged before Labor Arbiter Pati
that petitioner "surreptitiously left (her job) without notice to the
management" and that she actually abandoned her work. He maintained that
there was no basis for the money claims for underpayment and other benefits
as these were paid in the form of facilities to petitioner and the hotel's other
employees. Pointing to the Affidavit of May 7, 1991, the private respondent
asserted that his employees actually have no problems with management. In
a supplemental answer submitted eleven (11) months after the original
complaint for illegal dismissal was filed, private respondent raised a new
ground, loss of confidence, which was supported by a criminal complaint for
Qualified Theft he filed before the prosecutor's office of the City of Baguio
against petitioner on July 4, 1991.
[6]

[7]

[8]

On May 14, 1993, Labor Arbiter Pati rendered a decision dismissing

petitioner's complaint on the ground of loss of confidence. His disquisitions in
support of his conclusion read as follows:
It appears from the evidence of respondent that complainant carted away or
stole one (1) blanket, 1 piece bedsheet, 1 piece thermos, 2 pieces towel
(Exhibits '9', '9-A,' '9-B,' '9-C' and '10' pages 12-14 TSN, December 1, 1992).
In fact, this was the reason why respondent Peter Ng lodged a criminal
complaint against complainant for qualified theft and perjury. The fiscal's
office finding a prima facie evidence that complainant committed the crime of
qualified theft issued a resolution for its filing in court but dismissing the
charge of perjury (Exhibit '4' for respondent and Exhibit 'B-7' for
complainant). As a consequence, complainant was charged in court for the
said crime (Exhibit '5' for respondent and Exhibit 'B-6' for the complainant).

With these pieces of evidence, complainant committed serious misconduct

against her employer which is one of the just and valid grounds for an
employer to terminate an employee (Article 282 of the Labor Code as
amended).
[9]

On April 28, 1994, respondent NLRC promulgated its assailed

Resolution affirming the Labor Arbiter's decision. The resolution substantially
incorporated the findings of the Labor Arbiter. Unsatisfied, petitioner
instituted the instant special civil action for certiorari under Rule 65 of the
Rules of Court on the following grounds:
[10]

[11]

[12]

1. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL

LABOR RELATIONS COMMISSION COMMITTED A PATENT
AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF
DISCRETION IN ITS FAILURE TO CONSIDER THAT THE
ALLEGED LOSS OF CONFIDENCE IS A FALSE CAUSE AND
AN AFTERTHOUGHT ON THE PART OF THE RESPONDENTEMPLOYER TO JUSTIFY, ALBEIT ILLEGALLY, THE
DISMISSAL OF THE COMPLAINANT FROM HER
EMPLOYMENT;
2. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL
LABOR RELATIONS COMMISSION COMMITTED A PATENT
AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF
DISCRETION IN ADOPTING THE RULING OF THE LABOR
ARBITER THAT THERE WAS NO UNDERPAYMENT OF
WAGES AND BENEFITS ON THE BASIS OF EXHIBIT "8" (AN
UNDATED SUMMARY OF COMPUTATION PREPARED BY
ALLEGEDLY BY RESPONDENT'S EXTERNAL ACCOUNTANT)
WHICH IS TOTALLY INADMISSIBLE AS AN EVIDENCE TO
PROVE PAYMENT OF WAGES AND BENEFITS;
3. WITH ALL DUE RESPECT, THE HONORABLE NATIONAL
LABOR RELATIONS COMMISSION COMMITTED A PATENT
AND PALPABLE ERROR AMOUNTING TO GRAVE ABUSE OF
DISCRETION IN FAILING TO CONSIDER THE EVIDENCE
ADDUCED BEFORE THE LABOR ARBITER AS

CONSTITUTING UNFAIR LABOR PRACTICE COMMITTED BY

THE RESPONDENT.
The Solicitor General, in a Manifestation in lieu of Comment dated August
8, 1995 rejects private respondent's principal claims and defenses and urges
this Court to set aside the public respondent's assailed resolution.
[13]

We agree.
It is settled that in termination cases the employer bears the burden of
proof to show that the dismissal is for just cause, the failure of which would
mean that the dismissal is not justified and the employee is entitled to
reinstatement.
[14]

In the case at bar, the private respondent initially claimed that petitioner
abandoned her job when she failed to return to work on May 8,
1991. Additionally, in order to strengthen his contention that there existed
sufficient cause for the termination of petitioner, he belatedly included a
complaint for loss of confidence, supporting this with charges that petitioner
had stolen a blanket, a bedsheet and two towels from the hotel. Appended to
his last complaint was a suit for qualified theft filed with the Baguio City
prosecutor's office.
[15]

From the evidence on record, it is crystal clear that the circumstances

upon which private respondent anchored his claim that petitioner "abandoned"
her job were not enough to constitute just cause to sanction the termination of
her services under Article 283 of the Labor Code. For abandonment to arise,
there must be concurrence of two things: 1) lack of intention to work; and 2)
the presence of overt acts signifying the employee's intention not to work.
[16]

[17]

In the instant case, respondent does not dispute the fact that petitioner
tried to file a leave of absence when she learned that the hotel management
was displeased with her refusal to attest to the affidavit. The fact that she
made this attempt clearly indicates not an intention to abandon but an
intention to return to work after the period of her leave of absence, had it been
granted, shall have expired.

Furthermore, while absence from work for a prolonged period may

suggest abandonment in certain instances, mere absence of one or two days
would not be enough to sustain such a claim. The overt act (absence) ought
to unerringly point to the fact that the employee has no intention to return to
work, which is patently not the case here. In fact, several days after she had
been advised to take an informal leave, petitioner tried to resume working with
the hotel, to no avail. It was only after she had been repeatedly rebuffed that
she filed a case for illegal dismissal. These acts militate against the private
respondent's claim that petitioner abandoned her job. As the Solicitor General
in his manifestation observed:
[18]

Petitioner's absence on that day should not be construed as abandonment of

her job. She did not report because the cashier told her not to report anymore,
and that private respondent Ng did not want to see her in the hotel
premises. But two days later or on the 10th of May, after realizing that she had
to clarify her employment status, she again reported for work. However, she
was prevented from working by private respondents.
[19]

We now come to the second cause raised by private respondent to

support his contention that petitioner was validly dismissed from her job.
Loss of confidence as a just cause for dismissal was never intended to
provide employers with a blank check for terminating their employees. Such a
vague, all-encompassing pretext as loss of confidence, if unqualifiedly given
the seal of approval by this Court, could readily reduce to barren form the
words of the constitutional guarantee of security of tenure. Having this in
mind, loss of confidence should ideally apply only to cases involving
employees occupying positions of trust and confidence or to those situations
where the employee is routinely charged with the care and custody of the
employer's money or property. To the first class belong managerial
employees, i.e., those vested with the powers or prerogatives to lay down
management policies and/or to hire, transfer, suspend, lay-off, recall,
discharge, assign or discipline employees or effectively recommend such
managerial actions; and to the second class belong cashiers, auditors,
property custodians, etc., or those who, in the normal and routine exercise of
their functions, regularly handle significant amounts of money or
property. Evidently, an ordinary chambermaid who has to sign out for linen

and other hotel property from the property custodian each day and who has to
account for each and every towel or bedsheet utilized by the hotel's guests at
the end of her shift would not fall under any of these two classes of employees
for which loss of confidence, if ably supported by evidence, would normally
apply. Illustrating this distinction, this Court, in Marina Port Services, Inc. vs.
NLRC, has stated that:
[20]

To be sure, every employee must enjoy some degree of trust and confidence
from the employer as that is one reason why he was employed in the first
place. One certainly does not employ a person he distrusts. Indeed, even the
lowly janitor must enjoy that trust and confidence in some measure if only
because he is the one who opens the office in the morning and closes it at
night and in this sense is entrusted with the care or protection of the
employer's property. The keys he holds are the symbol of that trust and
confidence.
By the same token, the security guard must also be considered as enjoying the
trust and confidence of his employer, whose property he is safeguarding. Like
the janitor, he has access to this property. He too, is charged with its care and
protection.
Notably, however, and like the janitor again, he is entrusted only with
the physical task of protecting that property. The employer's trust and
confidence in him is limited to that ministerial function. He is not entrusted, in
the Labor Arbiter's words, 'with the duties of safekeeping and safeguarding
company policies, management instructions, and company secrets such as
operation devices.' He is not privy to these confidential matters, which are
shared only in the higher echelons of management. It is the persons on such
levels who, because they discharge these sensitive duties, may be considered
holding positions of trust and confidence. The security guard does not belong
in such category.
[21]

More importantly, we have repeatedly held that loss of confidence should

not be simulated in order to justify what would otherwise be, under the
provisions of law, an illegal dismissal. "It should not be used as a subterfuge
for causes which are illegal, improper and unjustified. It must be genuine, not
a mere afterthought to justify an earlier action taken in bad faith."
[22]

In the case at bar, the suspicious delay in private respondent's filing of

qualified theft charges against petitioner long after the latter exposed the
hotel's scheme (to avoid its obligations as employer under the Labor Code) by
her act of filing illegal dismissal charges against the private respondent would
hardly warrant serious consideration of loss of confidence as a valid ground
for dismissal. Notably, the Solicitor General has himself taken a position
opposite the public respondent and has observed that:
If petitioner had really committed the acts charged against her by private
respondents (stealing supplies of respondent hotel), private respondents should
have confronted her before dismissing her on that ground. Private respondents
did not do so. In fact, private respondent Ng did not raise the matter when
petitioner went to see him on May 9, 1991, and handed him her application for
leave. It took private respondents 52 days or up to July 4, 1991 before finally
deciding to file a criminal complaint against petitioner, in an obvious attempt
to build a case against her.
The manipulations of private respondents should not be countenanced.

[23]

Clearly, the efforts to justify petitioner's dismissal - on top of the private

respondent's scheme of inducing his employees to sign an affidavit absolving
him from possible violations of the Labor Code - taints with evident bad faith
and deliberate malice petitioner's summary termination from employment.
Having said this, we turn to the important question of whether or not the
dismissal by the private respondent of petitioner constitutes an unfair labor
practice.
The answer in this case must inevitably be in the affirmative.
The pivotal question in any case where unfair labor practice on the part of
the employer is alleged is whether or not the employer has exerted pressure,
in the form of restraint, interference or coercion, against his employee's right
to institute concerted action for better terms and conditions of
employment. Without doubt, the act of compelling employees to sign an
instrument indicating that the employer observed labor standards provisions of
law when he might have not, together with the act of terminating or coercing

those who refuse to cooperate with the employer's scheme constitutes unfair
labor practice. The first act clearly preempts the right of the hotel's workers to
seek better terms and conditions of employment through concerted action.
We agree with the Solicitor General's observation in his manifestation that
"[t]his actuation... is analogous to the situation envisaged in paragraph (f) of
Article 248 of the Labor Code" which distinctly makes it an unfair labor
practice "to dismiss, discharge or otherwise prejudice or discriminate against
an employee for having given or being about to give testimony" under the
Labor Code. For in not giving positive testimony in favor of her employer,
petitioner had reserved not only her right to dispute the claim and proffer
evidence in support thereof but also to work for better terms and conditions of
employment.
[24]

[25]

For refusing to cooperate with the private respondent's scheme, petitioner

was obviously held up as an example to all of the hotel's employees, that they
could only cause trouble to management at great personal
inconvenience. Implicit in the act of petitioner's termination and the
subsequent filing of charges against her was the warning that they would not
only be deprived of their means of livelihood, but also possibly, their personal
liberty.
This Court does not normally overturn findings and conclusions of quasijudicial agencies when the same are ably supported by the evidence on
record. However, where such conclusions are based on a misperception of
facts or where they patently fly in the face of reason and logic, we will not
hesitate to set aside those conclusions. Going into the issue of petitioner's
money claims, we find one more salient reason in this case to set things right:
the labor arbiter's evaluation of the money claims in this case incredibly
ignores existing law and jurisprudence on the matter. Its blatant onesidedness simply raises the suspicion that something more than the facts, the
law and jurisprudence may have influenced the decision at the level of the
Arbiter.
Labor Arbiter Pati accepted hook, line and sinker the private respondent's
bare claim that the reason the monetary benefits received by petitioner
between 1981 to 1987 were less than minimum wage was because petitioner

did not factor in the meals, lodging, electric consumption and water she
received during the period in her computations. Granting that meals and
lodging were provided and indeed constituted facilities, such facilities could
not be deducted without the employer complying first with certain legal
requirements. Without satisfying these requirements, the employer simply
cannot deduct the value from the employee's wages. First, proof must be
shown that such facilities are customarily furnished by the trade. Second, the
provision of deductible facilities must be voluntarily accepted in writing by the
employee. Finally, facilities must be charged at fair and reasonable value.
[26]

[27]

These requirements were not met in the instant case. Private respondent
"failed to present any company policy or guideline to show that the meal and
lodging . . . (are) part of the salary;" he failed to provide proof of the
employee's written authorization; and, he failed to show how he arrived at the
valuations.
[28]

[29]

Curiously, in the case at bench, the only valuations relied upon by the
labor arbiter in his decision were figures furnished by the private respondent's
own accountant, without corroborative evidence. On the pretext that records
prior to the July 16, 1990 earthquake were lost or destroyed, respondent failed
to produce payroll records, receipts and other relevant documents, where he
could have, as has been pointed out in the Solicitor General's manifestation,
"secured certified copies thereof from the nearest regional office of the
Department of Labor, the SSS or the BIR."
[30]

More significantly, the food and lodging, or the electricity and water
consumed by the petitioner were not facilities but supplements. A benefit or
privilege granted to an employee for the convenience of the employer is not a
facility. The criterion in making a distinction between the two not so much lies
in the kind (food, lodging) but the purpose. Considering, therefore, that hotel
workers are required to work different shifts and are expected to be available
at various odd hours, their ready availability is a necessary matter in the
operations of a small hotel, such as the private respondent's hotel.
[31]

It is therefore evident that petitioner is entitled to the payment of the

deficiency in her wages equivalent to the full wage applicable from May 13,
1988 up to the date of her illegal dismissal.

Additionally, petitioner is entitled to payment of service incentive leave pay,

emergency cost of living allowance, night differential pay, and 13th month pay
for the periods alleged by the petitioner as the private respondent has never
been able to adduce proof that petitioner was paid the aforestated benefits.
However, the claims covering the period of October 1987 up to the time of
filing the case on May 13, 1988 are barred by prescription as P.D. 442 (as
amended) and its implementing rules limit all money claims arising out of
employer-employee relationship to three (3) years from the time the cause of
action accrues.
[32]

We depart from the settled rule that an employee who is unjustly

dismissed from work normally should be reinstated without loss of seniority
rights and other privileges. Owing to the strained relations between petitioner
and private respondent, allowing the former to return to her job would only
subject her to possible harassment and future embarrassment. In the instant
case, separation pay equivalent to one month's salary for every year of
continuous service with the private respondent would be proper, starting with
her job at the Belfront Hotel.
In addition to separation pay, backwages are in order. Pursuant to R.A.
6715 and our decision in Osmalik Bustamante, et al. vs. National Labor
Relations Commission, petitioner is entitled to full backwages from the time of
her illegal dismissal up to the date of promulgation of this decision without
qualification or deduction.
[33]

Finally, in dismissal cases, the law requires that the employer must furnish
the employee sought to be terminated from employment with two written
notices before the same may be legally effected. The first is a written notice
containing a statement of the cause(s) for dismissal; the second is a notice
informing the employee of the employer's decision to terminate him stating the
basis of the dismissal. During the process leading to the second notice, the
employer must give the employee ample opportunity to be heard and defend
himself, with the assistance of counsel if he so desires.
Given the seriousness of the second cause (qualified theft) of the
petitioner's dismissal, it is noteworthy that the private respondent never even

bothered to inform petitioner of the charges against her. Neither was petitioner
given the opportunity to explain the loss of the articles. It was only almost two
months after petitioner had filed a complaint for illegal dismissal, as an
afterthought, that the loss was reported to the police and added as a
supplemental answer to petitioner's complaint. Clearly, the dismissal of
petitioner without the benefit of notice and hearing prior to her termination
violated her constitutional right to due process. Under the circumstances, an
award of One Thousand Pesos (P1,000.00) on top of payment of the
deficiency in wages and benefits for the period aforestated would be proper.
WHEREFORE, premises considered, the RESOLUTION of the National
Labor Relations Commission dated April 24, 1994 is REVERSED and SET
ASIDE, with costs. For clarity, the economic benefits due the petitioner are
hereby summarized as follows:
1) Deficiency wages and the applicable ECOLA from May 13, 1988 up to the
date of petitioner's illegal dismissal;
2) Service incentive leave pay; night differential pay and 13th month pay for
the same period;
3) Separation pay equal to one month's salary for every year of petitioner's
continuous service with the private respondent starting with her job at the
Belfront Hotel;
4) Full backwages, without qualification or deduction, from the date of
petitioner's illegal dismissal up to the date of promulgation of this decision
pursuant to our ruling in Bustamante vs.NLRC.
[34]

5) P1.000.00.
SO ORDERED

[G.R. No. 157634. May 16, 2005]

MAYON HOTEL & RESTAURANT, PACITA O. PO and/or JOSEFA PO

LAM, petitioners, vs. ROLANDO ADANA, CHONA BUMALAY,
ROGER BURCE, EDUARDO ALAMARES, AMADO ALAMARES,
EDGARDO TORREFRANCA, LOURDES CAMIGLA, TEODORO
LAURENARIA, WENEFREDO LOVERES, LUIS GUADES, AMADO
MACANDOG, PATERNO LLARENA, GREGORIO NICERIO, JOSE
ATRACTIVO,
MIGUEL
TORREFRANCA,
and
SANTOS
BROOLA, respondents.
DECISION
PUNO, J.:

This is a petition for certiorari to reverse and set aside the Decision issued
by the Court of Appeals (CA) in CA-G.R. SP No. 68642, entitled Rolando
Adana, Wenefredo Loveres, et. al. vs. National Labor Relations Commission
(NLRC), Mayon Hotel & Restaurant/Pacita O. Po, et al., and the
Resolution denying petitioners motion for reconsideration. The assailed CA
[1]

[2]

decision reversed the NLRC Decision which had dismissed all of respondents
complaints, and reinstated the Joint Decision of the Labor Arbiter which
ruled that respondents were illegally dismissed and entitled to their money
claims.
[3]

[4]

The facts, culled from the records, are as follows:

[5]

Petitioner Mayon Hotel & Restaurant is a single proprietor business

registered in the name of petitioner Pacita O. Po, whose mother, petitioner
Josefa Po Lam, manages the establishment. The hotel and restaurant
employed about sixteen (16) employees.
[6]

[7]

Records show that on various dates starting in 1981, petitioner hotel and
restaurant hired the following people, all respondents in this case, with the
following jobs:
[8]

1. Wenefredo Loveres

Accountant and Officer-in-charge

2. Paterno Llarena

Front Desk Clerk

3. Gregorio Nicerio

Supervisory Waiter

4. Amado Macandog

Roomboy

5. Luis Guades

Utility/Maintenance Worker

6. Santos Broola

Roomboy

7. Teodoro Laurenaria

Waiter

8. Eduardo Alamares

Roomboy/Waiter

9. Lourdes Camigla

Cashier

10. Chona Bumalay

Cashier

11. Jose Atractivo

Technician

12. Amado Alamares

Dishwasher and Kitchen Helper

13. Roger Burce

Cook

14. Rolando Adana

Waiter

15. Miguel Torrefranca

Cook

16. Edgardo Torrefranca

Cook

Due to the expiration and non-renewal of the lease contract for the rented
space occupied by the said hotel and restaurant at Rizal Street, the hotel
operations of the business were suspended on March 31, 1997. The
operation of the restaurant was continued in its new location at Elizondo
Street, Legazpi City, while waiting for the construction of a new Mayon Hotel &
Restaurant at Pearanda Street, Legazpi City. Only nine (9) of the sixteen
(16) employees continued working in the Mayon Restaurant at its new site.
[9]

[10]

[11]

On various dates of April and May 1997, the 16 employees filed

complaints for underpayment of wages and other money claims against
petitioners, as follows:
[12]

Wenefredo Loveres, Luis Guades, Amado Macandog and Jose Atractivo for illegal
dismissal, underpayment of wages, nonpayment of holiday and rest day pay; service
incentive leave pay (SILP) and claims for separation pay plus damages;
Paterno Llarena and Gregorio Nicerio for illegal dismissal with claims for
underpayment of wages; nonpayment of cost of living allowance (COLA) and
overtime pay; premium pay for holiday and rest day; SILP; nightshift differential pay
and separation pay plus damages;
Miguel Torrefranca, Chona Bumalay and Lourdes Camigla for underpayment of
wages; nonpayment of holiday and rest day pay and SILP;

Rolando Adana, Roger Burce and Amado Alamares for underpayment of wages;
nonpayment of COLA, overtime, holiday, rest day, SILP and nightshift differential
pay;
Eduardo Alamares for underpayment of wages, nonpayment of holiday, rest day and
SILP and night shift differential pay;
Santos Broola for illegal dismissal, underpayment of wages, overtime pay, rest day
pay, holiday pay, SILP, and damages; and
[13]

Teodoro Laurenaria for underpayment of wages; nonpayment of COLA and overtime

pay; premium pay for holiday and rest day, and SILP.
On July 14, 2000, Executive Labor Arbiter Gelacio L. Rivera, Jr. rendered
a Joint Decision in favor of the employees. The Labor Arbiter awarded
substantially all of respondents money claims, and held that respondents
Loveres, Macandog and Llarena were entitled to separation pay, while
respondents Guades, Nicerio and Alamares were entitled to their retirement
pay. The Labor Arbiter also held that based on the evidence presented,
Josefa Po Lam is the owner/proprietor of Mayon Hotel & Restaurant and the
proper respondent in these cases.
On appeal to the NLRC, the decision of the Labor Arbiter was reversed,
and all the complaints were dismissed.
Respondents filed a motion for reconsideration with the NLRC and when
this was denied, they filed a petition for certiorari with the CA which rendered
the now assailed decision.
After their motion for reconsideration was denied, petitioners now come to
this Court, seeking the reversal of the CA decision on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION (SECOND
DIVISION) BY HOLDING THAT THE FINDINGS OF FACT OF THE NLRC WERE
NOT SUPPORTED BY SUBSTANTIAL EVIDENCE DESPITE AMPLE AND
SUFFICIENT EVIDENCE SHOWING THAT THE NLRC DECISION IS INDEED
SUPPORTED BY SUBSTANTIAL EVIDENCE;
II. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE JOINT
DECISION OF THE LABOR ARBITER WHICH RULED THAT PRIVATE
RESPONDENTS WERE ILLEGALLY DISMISSED FROM THEIR EMPLOYMENT,
DESPITE THE FACT THAT THE REASON WHY PRIVATE RESPONDENTS WERE
OUT OF WORK WAS NOT DUE TO THE FAULT OF PETITIONERS BUT TO
CAUSES BEYOND THE CONTROL OF PETITIONERS.

III. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE AWARD

OF MONETARY BENEFITS BY THE LABOR ARBITER IN HIS JOINT DECISION IN
FAVOR OF THE PRIVATE RESPONDENTS, INCLUDING THE AWARD OF
DAMAGES TO SIX (6) OF THE PRIVATE RESPONDENTS, DESPITE THE FACT
THAT THE PRIVATE RESPONDENTS HAVE NOT PROVEN BY SUBSTANTIAL
EVIDENCE THEIR ENTITLEMENT THERETO AND ESPECIALLY THE FACT THAT
THEY WERE NOT ILLEGALLY DISMISSED BY THE PETITIONERS.
IV. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PACITA
ONG PO IS THE OWNER OF THE BUSINESS ESTABLISHMENT, PETITIONER
MAYON HOTEL AND RESTAURANT, THUS DISREGARDING THE CERTIFICATE
OF REGISTRATION OF THE BUSINESS ESTABLISHMENT ISSUED BY THE
LOCAL GOVERNMENT, WHICH IS A PUBLIC DOCUMENT, AND THE
UNQUALIFIED ADMISSIONS OF COMPLAINANTS-PRIVATE RESPONDENTS.[14]

In essence, the petition calls for a review of the following issues:

1. Was it correct for petitioner Josefa Po Lam to be held liable as the owner
of petitioner Mayon Hotel & Restaurant, and the proper respondent in this
case?
2. Were respondents Loveres, Guades, Macandog, Atractivo, Llarena and
Nicerio illegally dismissed?
3. Are respondents entitled to their money claims due to underpayment of
wages, and nonpayment of holiday pay, rest day premium, SILP, COLA,
overtime pay, and night shift differential pay?
It is petitioners contention that the above issues have already been
threshed out sufficiently and definitively by the NLRC. They therefore assail
the CAs reversal of the NLRC decision, claiming that based on the ruling
in Castillo v. NLRC, it is non sequitur that the CA should re-examine the
factual findings of both the NLRC and the Labor Arbiter, especially as in this
case the NLRCs findings are allegedly supported by substantial evidence.
[15]

We do not agree.
There is no denying that it is within the NLRCs competence, as an
appellate agency reviewing decisions of Labor Arbiters, to disagree with and
set aside the latters findings. But it stands to reason that the NLRC should
state an acceptable cause therefore, otherwise it would be a whimsical,
capricious, oppressive, illogical, unreasonable exercise of quasi-judicial
prerogative, subject to invalidation by the extraordinary writ of certiorari. And
when the factual findings of the Labor Arbiter and the NLRC are diametrically
opposed and this disparity of findings is called into question, there is,
[16]

[17]

necessarily, a re-examination of the factual findings to ascertain which opinion

should be sustained. As ruled inAsuncion v. NLRC,
[18]

[19]

Although, it is a legal tenet that factual findings of administrative bodies are entitled
to great weight and respect, we are constrained to take a second look at the facts
before us because of the diversity in the opinions of the Labor Arbiter and the NLRC.
A disharmony between the factual findings of the Labor Arbiter and those of the
NLRC opens the door to a review thereof by this Court.
[20]

The CA, therefore, did not err in reviewing the records to determine which
opinion was supported by substantial evidence.
Moreover, it is explicit in Castillo v. NLRC that factual findings of
administrative bodies like the NLRC are affirmed only if they are supported
by substantial evidence that is manifest in the decision and on the
records. As stated in Castillo:
[21]

[A]buse of discretion does not necessarily follow from a reversal by the NLRC of a
decision of a Labor Arbiter. Mere variance in evidentiary assessment between the
NLRC and the Labor Arbiter does not automatically call for a full review of the facts
by this Court. The NLRCs decision, so long as it is not bereft of substantial support
from the records, deserves respect from this Court. As a rule, the original and
exclusive jurisdiction to review a decision or resolution of respondent NLRC in a
petition for certiorari under Rule 65 of the Rules of Court does not include a
correction of its evaluation of the evidence but is confined to issues of jurisdiction or
grave abuse of discretion. Thus, the NLRCs factual findings, if supported by
substantial evidence, are entitled to great respect and even finality, unless petitioner is
able to show that it simply and arbitrarily disregarded the evidence before it or had
misappreciated the evidence to such an extent as to compel a contrary conclusion if
such evidence had been properly appreciated. (citations omitted)
[22]

After careful review, we find that the reversal of the NLRCs decision was in
order precisely because it was not supported by substantial evidence.
1.

Ownership by Josefa Po Lam

The Labor Arbiter ruled that as regards the claims of the employees,
petitioner Josefa Po Lam is, in fact, the owner of Mayon Hotel & Restaurant.
Although the NLRC reversed this decision, the CA, on review, agreed with the
Labor Arbiter that notwithstanding the certificate of registration in the name of
Pacita Po, it is Josefa Po Lam who is the owner/proprietor of Mayon Hotel &

Restaurant, and the proper respondent in the complaints filed by the

employees. The CA decision states in part:
[Despite] the existence of the Certificate of Registration in the name of Pacita Po, we
cannot fault the labor arbiter in ruling that Josefa Po Lam is the owner of the subject
hotel and restaurant. There were conflicting documents submitted by Josefa herself.
She was ordered to submit additional documents to clearly establish ownership of the
hotel and restaurant, considering the testimonies given by the [respondents] and the
non-appearance and failure to submit her own position paper by Pacita Po. But Josefa
did not comply with the directive of the Labor Arbiter. The ruling of the Supreme
Court in Metropolitan Bank and Trust Company v. Court of Appeals applies to Josefa
Po Lam which is stated in this wise:
When the evidence tends to prove a material fact which imposes a liability on a party,
and he has it in his power to produce evidence which from its very nature must
overthrow the case made against him if it is not founded on fact, and he refuses to
produce such evidence, the presumption arises that the evidence[,] if produced, would
operate to his prejudice, and support the case of his adversary.
Furthermore, in ruling that Josefa Po Lam is the real owner of the hotel and restaurant,
the labor arbiter relied also on the testimonies of the witnesses, during the hearing of
the instant case. When the conclusions of the labor arbiter are sufficiently
corroborated by evidence on record, the same should be respected by appellate
tribunals, since he is in a better position to assess and evaluate the credibility of the
contending parties. (citations omitted)
[23]

Petitioners insist that it was error for the Labor Arbiter and the CA to have
ruled that petitioner Josefa Po Lam is the owner of Mayon Hotel &
Restaurant. They allege that the documents they submitted to the Labor
Arbiter sufficiently and clearly establish the fact of ownership by petitioner
Pacita Po, and not her mother, petitioner Josefa Po Lam. They contend that
petitioner Josefa Po Lams participation was limited to merely (a) being the
overseer; (b) receiving the month-to-month and/or year-to-year financial
reports prepared and submitted by respondent Loveres; and (c) visitation of
the premises. They also put emphasis on the admission of the respondents
in their position paper submitted to the Labor Arbiter, identifying petitioner
Josefa Po Lam as the manager, and Pacita Po as the owner. This, they
claim, is a judicial admission and is binding on respondents. They protest the
reliance the Labor Arbiter and the CA placed on their failure to submit
additional documents to clearly establish ownership of the hotel and
restaurant, claiming that there was no need for petitioner Josefa Po Lam to
[24]

[25]

submit additional documents considering that the Certificate of Registration is

the best and primary evidence of ownership.
We disagree with petitioners. We have scrutinized the records and find the
claim that petitioner Josefa Po Lam is merely the overseer is not borne out by
the evidence.
First. It is significant that only Josefa Po Lam appeared in the
proceedings with the Labor Arbiter. Despite receipt of the Labor Arbiters
notice and summons, other notices and Orders, petitioner Pacita Po failed to
appear in any of the proceedings with the Labor Arbiter in these cases, nor file
her position paper. It was only on appeal with the NLRC that Pacita Po
signed the pleadings. The apathy shown by petitioner Pacita Po is contrary
to human experience as one would think that the owner of an establishment
would naturally be concerned when ALL her employees file complaints
against her.
[26]

[27]

Second. The records of the case belie petitioner Josefa Po Lams claim
that she is merely an overseer. The findings of the Labor Arbiter on this
question were based on credible, competent and substantial evidence. We
again quote the Joint Decision on this matter:
Mayon Hotel and Restaurant is a [business name] of an enterprise. While [petitioner]
Josefa Po Lam claims that it is her daughter, Pacita Po, who owns the hotel and
restaurant when the latter purchased the same from one Palanos in 1981, Josefa failed
to submit the document of sale from said Palanos to Pacita as allegedly the sale was
only verbal although the license to operate said hotel and restaurant is in the name of
Pacita which, despite our Order to Josefa to present the same, she failed to comply (p.
38, tsn. August 13, 1998). While several documentary evidences were submitted by
Josefa wherein Pacita was named therein as owner of the hotel and restaurant (pp. 64,
65, 67 to 69; vol. I, rollo)[,] there were documentary evidences also that were
submitted by Josefa showing her ownership of said enterprise (pp. 468 to 469; vol.
II, rollo). While Josefa explained her participation and interest in the business as
merely to help and assist her daughter as the hotel and restaurant was near the formers
store, the testimonies of [respondents] and Josefa as well as her demeanor during the
trial in these cases proves (sic) that Josefa Po Lam owns Mayon Hotel and
Restaurant. [Respondents] testified that it was Josefa who exercises all the acts and
manifestation of ownership of the hotel and restaurant like transferring employees
from the Greatwall Palace Restaurant which she and her husband Roy Po Lam
previously owned; it is Josefa to whom the employees submits (sic) reports, draws
money for payment of payables and for marketing, attending (sic) to Labor Inspectors
during ocular inspections. Except for documents whereby Pacita Po appears as the
owner of Mayon Hotel and Restaurant, nothing in the record shows any circumstance

or manifestation that Pacita Po is the owner of Mayon Hotel and Restaurant. The least
that can be said is that it is absurd for a person to purchase a hotel and restaurant in
the very heart of the City ofLegazpi verbally. Assuming this to be true, when
[petitioners], particularly Josefa, was directed to submit evidence as to the ownership
of Pacita of the hotel and restaurant, considering the testimonies of [respondents], the
former should [have] submitted the lease contract between the owner of the building
where Mayon Hotel and Restaurant was located at Rizal St., Legazpi City and Pacita
Po to clearly establish ownership by the latter of said enterprise. Josefa failed. We are
not surprised why some employers employ schemes to mislead Us in order to evade
liabilities. We therefore consider and hold Josefa Po Lam as the owner/proprietor of
Mayon Hotel and Restaurant and the proper respondent in these cases.
[28]

Petitioners reliance on the rules of evidence, i.e., the certificate of

registration being the best proof of ownership, is misplaced. Notwithstanding
the certificate of registration, doubts were cast as to the true nature of
petitioner Josefa Po Lams involvement in the enterprise, and the Labor Arbiter
had the authority to resolve this issue. It was therefore within his jurisdiction to
require the additional documents to ascertain who was the real owner of
petitioner Mayon Hotel & Restaurant.
Article 221 of the Labor Code is clear: technical rules are not binding, and
the application of technical rules of procedure may be relaxed in labor cases
to serve the demand of substantial justice. The rule of evidence prevailing in
court of law or equity shall not be controlling in labor cases and it is the spirit
and intention of the Labor Code that the Labor Arbiter shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively
and without regard to technicalities of law or procedure, all in the interest of
due process. Labor laws mandate the speedy administration of justice, with
least attention to technicalities but without sacrificing the fundamental
requisites of due process.
[29]

[30]

[31]

Similarly, the fact that the respondents complaints contained no allegation

that petitioner Josefa Po Lam is the owner is of no moment. To apply the
concept of judicial admissions to respondents who are but lowly employees would be to exact compliance with technicalities of law that is contrary to the
demands of substantial justice. Moreover, the issue of ownership was an
issue that arose only during the course of the proceedings with the Labor
Arbiter, as an incident of determining respondents claims, and was well within
his jurisdiction.
[32]

Petitioners were also not denied due process, as they were given sufficient
opportunity to be heard on the issue of ownership. The essence of due
process in administrative proceedings is simply an opportunity to explain ones
[33]

side or an opportunity to seek reconsideration of the action or ruling

complained of. And there is nothing in the records which would suggest that
petitioners had absolute lack of opportunity to be heard. Obviously, the
choice not to present evidence was made by petitioners themselves.
[34]

[35]

[36]

But more significantly, we sustain the Labor Arbiter and the CA because
even when the case was on appeal with the NLRC, nothing was submitted to
negate the Labor Arbiters finding that Pacita Po is not the real owner of the
subject hotel and restaurant. Indeed, no such evidence was submitted in the
proceedings with the CA nor with this Court. Considering that petitioners
vehemently deny ownership by petitioner Josefa Po Lam, it is most telling that
they continue to withhold evidence which would shed more light on this issue.
We therefore agree with the CA that the failure to submit could only mean that
if produced, it would have been adverse to petitioners case.
[37]

Thus, we find that there is substantial evidence to rule that petitioner

Josefa Po Lam is the owner of petitioner Mayon Hotel & Restaurant.
2.

Illegal Dismissal: claim for separation pay

Of the sixteen employees, only the following filed a case for illegal
dismissal: respondents Loveres, Llarena, Nicerio, Macandog, Guades,
Atractivo and Broola.
[38]

The Labor Arbiter found that there was illegal dismissal, and granted
separation pay to respondents Loveres, Macandog and Llarena. As
respondents Guades, Nicerio and Alamares were already 79, 66 and 65 years
old respectively at the time of the dismissal, the Labor Arbiter granted
retirement benefits pursuant to Article 287 of the Labor Code as amended.
The Labor Arbiter ruled that respondent Atractivo was not entitled to
separation pay because he had been transferred to work in the restaurant
operations in Elizondo Street, but awarded him damages. Respondents
Loveres, Llarena, Nicerio, Macandog and Guades were also awarded
damages.
[39]

[40]

The NLRC reversed the Labor Arbiter, finding that no clear act of
termination is attendant in the case at bar and that respondents did not submit
any evidence to that effect, but the finding and conclusion of the Labor Arbiter
[are] merely based on his own surmises and conjectures. In turn, the NLRC
was reversed by the CA.
[41]

It is petitioners contention that the CA should have sustained the NLRC

finding that none of the above-named respondents were illegally dismissed, or

entitled to separation or retirement pay. According to petitioners, even the

Labor Arbiter and the CA admit that when the illegal dismissal case was filed
by respondents on April 1997, they had as yet no cause of action. Petitioners
therefore conclude that the filing by respondents of the illegal dismissal case
was premature and should have been dismissed outright by the Labor Arbiter.
Petitioners also claim that since the validity of respondents dismissal is a
factual question, it is not for the reviewing court to weigh the conflicting
evidence.
[42]

[43]

We do not agree. Whether respondents are still working for

petitioners IS a factual question. And the records are unequivocal that since
April 1997, when petitioner Mayon Hotel & Restaurant suspended its hotel
operations and transferred its restaurant operations in Elizondo Street,
respondents Loveres, Macandog, Llarena, Guades and Nicerio have not been
permitted to work for petitioners. Respondent Alamares, on the other hand,
was also laid-off when the Elizondo Street operations closed, as were all the
other respondents. Since then, respondents have not been permitted to work
nor recalled, even after the construction of the new premises at Pearanda
Street and the reopening of the hotel operations with the restaurant in this
new site. As stated by the Joint Decision of the Labor Arbiter on July 2000, or
more than three (3) years after the complaint was filed:
[44]

[F]rom the records, more than six months had lapsed without [petitioner] having
resumed operation of the hotel. After more than one year from the temporary closure
of Mayon Hotel and the temporary transfer to another site of Mayon Restaurant, the
building which [petitioner] Josefa allege[d] w[h]ere the hotel and restaurant will be
transferred has been finally constructed and the same is operated as a hotel with bar
and restaurant nevertheless, none of [respondents] herein who were employed at
Mayon Hotel and Restaurant which was also closed on April 30, 1998 was/were
recalled by [petitioner] to continue their services...
Parenthetically, the Labor Arbiter did not grant separation pay to the other
respondents as they had not filed an amended complaint to question the
cessation of their employment after the closure of Mayon Hotel & Restaurant
on March 31, 1997.
[45]

The above factual finding of the Labor Arbiter was never refuted by
petitioners in their appeal with the NLRC. It confounds us, therefore, how the
NLRC could have so cavalierly treated this uncontroverted factual finding by
ruling that respondents have not introduced any evidence to show that they
were illegally dismissed, and that the Labor Arbiters finding was based on
conjecture. It was a serious error that the NLRC did not inquire as to
[46]

the legality of the cessation of employment. Article 286 of the Labor Code is
clear there is termination of employment when an otherwise bona
fide suspension of work exceeds six (6) months. The cessation of
employment for more than six months was patent and the employer has the
burden of proving that the termination was for a just or authorized cause.
[47]

[48]

Moreover, we are not impressed by any of petitioners attempts to

exculpate themselves from the charges. First, in the proceedings with the
Labor Arbiter, they claimed that it could not be illegal dismissal because the
lay-off was merely temporary (and due to the expiration of the lease contract
over the old premises of the hotel). They specificallyinvoked Article 286 of
the Labor Code to argue that the claim for separation pay was premature and
without legal and factual basis. Then, because the Labor Arbiter had ruled
that there was already illegal dismissal when the lay-off had exceeded the sixmonth period provided for in Article 286, petitioners raise this novel argument,
to wit:
[49]

It is the firm but respectful submission of petitioners that reliance on Article 286 of
the Labor Code is misplaced, considering that the reason why private respondents
were out of work was not due to the fault of petitioners. The failure of petitioners to
reinstate the private respondents to their former positions should not likewise be
attributable to said petitioners as the private respondents did not submit any evidence
to prove their alleged illegal dismissal. The petitioners cannot discern why they
should be made liable to the private respondents for their failure to be reinstated
considering that the fact that they were out of work was not due to the fault of
petitioners but due to circumstances beyond the control of petitioners, which are the
termination and non-renewal of the lease contract over the subject premises. Private
respondents, however, argue in their Comment that petitioners themselves sought the
application of Article 286 of the Labor Code in their case in their Position Paper filed
before the Labor Arbiter. In refutation, petitioners humbly submit that even if they
invoke Article 286 of the Labor Code, still the fact remains, and this bears stress and
emphasis, that the temporary suspension of the operations of the establishment arising
from the non-renewal of the lease contract did not result in the termination of
employment of private respondents and, therefore, the petitioners cannot be faulted if
said private respondents were out of work, and consequently, they are not entitled to
their money claims against the petitioners.
[50]

It is confounding how petitioners have fashioned their arguments. After

having admitted, in effect, that respondents have been laid-off since April
1997, they would have this Court excuse their refusal to reinstate respondents
or grant them separation pay because these same respondents purportedly
have not proven the illegality of their dismissal.

Petitioners arguments reflect their lack of candor and the blatant attempt
to use technicalities to muddle the issues and defeat the lawful claims of their
employees. First, petitioners admit that since April 1997, when hotel
operations were suspended due to the termination of the lease of the old
premises, respondents Loveres, Macandog, Llarena, Nicerio and
Guades have not been permitted to work. Second, even after six
months of what should have been just a temporary lay-off, the same
respondents were still not recalled to work. As a matter of fact, the Labor
Arbiter even found that as of the time when he rendered his Joint Decision on
July 2000 or more than three (3) years after the supposed temporary layoff, the employment of all of the respondents with petitioners had
ceased, notwithstanding that the new premises had been completed and the
same operated as a hotel with bar and restaurant.
This is
clearly dismissal or the permanent severance or complete separation of the
worker from the service on the initiative of the employer regardless of the
reasons therefor.
[51]

On this point, we note that the Labor Arbiter and the CA are in accord that
at the time of the filing of the complaint, respondents had no cause of action
to file the case for illegal dismissal. According to the CA and the Labor Arbiter,
the lay-off of the respondents was merely temporary, pending construction of
the new building at Pearanda Street.
[52]

While the closure of the hotel operations in April of 1997 may have been
temporary, we hold that the evidence on record belie any claim of petitioners
that the lay-off of respondents on that same date was merely temporary. On
the contrary, we find substantial evidence that petitioners intended the
termination to be permanent. First, respondents Loveres, Macandog,
Llarena, Guades, Nicerio and Alamares filed the complaint for illegal
dismissal immediately after the closure of the hotel operations in Rizal
Street, notwithstanding the alleged temporary nature of the closure of the
hotel operations, and petitioners allegations that the employees assigned to
the hotel operations knew about this beforehand. Second, in their position
paper submitted to the Labor Arbiter, petitioners invoked Article 286 of the
Labor Code to assert that the employer-employee relationship was merely
suspended, and therefore the claim for separation pay was premature and
without legal or factual basis. But they made no mention of any intent to
recall these respondents to work upon completion of the new premises.
Third, the various pleadings on record show that petitioners held
respondents, particularly Loveres, as responsible for mismanagement of the
establishment and for abuse of trust and confidence. Petitioner Josefa Po
Lams affidavit on July 21, 1998, for example, squarely blamed respondents,
[53]

specifically Loveres, Bumalay and Camigla, for abusing her leniency and
causing petitioner Mayon Hotel & Restaurant to sustain continuous losses
until it is closed. She then asserts that respondents are not entitled to
separation pay for they were not terminated and if ever the business ceased
to operate it was because of losses. Again, petitioners make the same
allegation in their memorandum on appeal with the NLRC, where they alleged
that three (3) years prior to the expiration of the lease in 1997, the operation of
the Hotel had been sustaining consistent losses, and these were solely
attributed to respondents, but most especially due to Loveress
mismanagement and abuse of petitioners trust and confidence. Even the
petition filed in this court made reference to the separation of the respondents
due to severe financial losses and reverses, again imputing it to respondents
mismanagement. The
vehemence
of
petitioners
accusation
of
mismanagement against respondents, especially against Loveres, is
inconsistent with the desire to recall them to work. Fourth, petitioners
memorandum on appeal also averred that the case was filed not because of
the business being operated by them or that they were supposedly not
receiving benefits from the Labor Code which is true, but because of the fact
that the source of their livelihood, whether legal or immoral, was stopped
on March 31, 1997, when the owner of the building terminated the Lease
Contract. Fifth, petitioners had inconsistencies in their pleadings (with the
NLRC, CA and with this Court) in referring to the closure, i.e., in the petition
filed with this court, they assert that there is no illegal dismissal because there
was only a temporary cessation or suspension of operations of the hotel and
restaurant due to circumstances beyond the control of petitioners, and that is,
the non-renewal of the lease contract... And yet, in the same petition, they
also assert that: (a) the separation of respondents was due to severe financial
losses and reverses leading to the closure of the business; and
(b) petitioner Pacita Po had to close shop and was bankrupt and has no
liquidity to put up her own building to house Mayon Hotel & Restaurant.
Sixth, and finally, the uncontroverted finding of the Labor Arbiter that
petitioners terminated all the other respondents, by not employing them when
the Hotel and Restaurant transferred to its new site on Pearanda Street.
Indeed, in this same memorandum, petitioners referred to all respondents
as former employees of Mayon Hotel & Restaurant.
[54]

[55]

[56]

[57]

[58]

[59]

[60]

[61]

[62]

These factors may be inconclusive individually, but when taken together,

they lead us to conclude that petitioners really intended to dismiss all
respondents and merely used the termination of the lease (on Rizal
Street premises) as a means by which they could terminate their employees.

Moreover, even assuming arguendo that the cessation of employment on

April 1997 was merely temporary, it became dismissal by operation of law
when petitioners failed to reinstate respondents after the lapse of six (6)
months, pursuant to Article 286 of the Labor Code.
We are not impressed by petitioners claim that severe business losses
justified their failure to reinstate respondents. The evidence to prove this fact
is inconclusive. But more important, serious business losses do not excuse
the employer from complying with the clearance or report required under
Article 283 of the Labor Code and its implementing rules before terminating
the employment of its workers. In the absence of justifying circumstances,
the failure of petitioners to observe the procedural requirements set out under
Article 284, taints their actuations with bad faith, especially since they claimed
that they have been experiencing losses in the three years before 1997. To
say the least, if it were true that the lay-off was temporary but then serious
business losses prevented the reinstatement of respondents, then petitioners
should have complied with the requirements of written notice. The
requirement of law mandating the giving of notices was intended not only to
enable the employees to look for another employment and therefore ease the
impact of the loss of their jobs and the corresponding income, but more
importantly, to give the Department of Labor and Employment (DOLE) the
opportunity to ascertain the verity of the alleged authorized cause of
termination.
[63]

[64]

And even assuming that the closure was due to a reason beyond the
control of the employer, it still has to accord its employees some relief in the
form of severance pay.
[65]

While we recognize the right of the employer to terminate the services of

an employee for a just or authorized cause, the dismissal of employees must
be made within the parameters of law and pursuant to the tenets of fair play.
And in termination disputes, the burden of proof is always on the employer
to prove that the dismissal was for a just or authorized cause. Where there is
no showing of a clear, valid and legal cause for termination of employment,
the law considers the case a matter of illegal dismissal.
[66]

[67]

[68]

Under these circumstances, the award of damages was proper. As a rule,

moral damages are recoverable where the dismissal of the employee was
attended by bad faith or fraud or constituted an act oppressive to labor, or was
done in a manner contrary to morals, good customs or public policy. We
believe that the dismissal of the respondents was attended with bad faith and
meant to evade the lawful obligations imposed upon an employer.
[69]

To rule otherwise would lead to the anomaly of respondents being

terminated from employment in 1997 as a matter of fact, but without legal
redress. This runs counter to notions of fair play, substantial justice and the
constitutional mandate that labor rights should be respected. If doubts exist
between the evidence presented by the employer and the employee, the
scales of justice must be tilted in favor of the latter the employer must
affirmatively show rationally adequate evidence that the dismissal was for a
justifiable cause. It is a time-honored rule that in controversies between a
laborer and his master, doubts reasonably arising from the evidence, or in the
interpretation of agreements and writing should be resolved in the formers
favor. The policy is to extend the doctrine 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 of labor.
[70]

[71]

[72]

We therefore reinstate the Labor Arbiters decision with the following

modifications:
(a)

Separation pay for the illegal dismissal of respondents Loveres,

Macandog and Llarena; (Santos Broola cannot be granted separation pay
as he made no such claim);

(b)

Retirement pay for respondents Guades, Nicerio, and Alamares, who at

the time of dismissal were entitled to their retirement benefits pursuant to
Article 287 of the Labor Code as amended; and
[73]

(c)

3.

Damages for respondents Loveres, Macandog, Llarena, Guades, Nicerio,

Atractivo, and Broola.

Money claims

The CA held that contrary to the NLRCs ruling, petitioners had not
discharged the burden of proving that the monetary claims of the respondents
have been paid. The CA thus reinstated the Labor Arbiters grant of
respondents monetary claims, including damages.
[74]

Petitioners assail this ruling by repeating their long and convoluted

argument that as there was no illegal dismissal, then respondents are not
entitled to their monetary claims or separation pay and damages. Petitioners
arguments are not only tiring, repetitive and unconvincing, but confusing and
confused entitlement to labor standard benefits is a separate and distinct

concept from payment of separation pay arising from illegal dismissal, and are
governed by different provisions of the Labor Code.
We agree with the CA and the Labor Arbiter. Respondents have set out
with particularity in their complaint, position paper, affidavits and other
documents the labor standard benefits they are entitled to, and which they
alleged that petitioners have failed to pay them. It was therefore petitioners
burden to prove that they have paid these money claims. One who pleads
payment has the burden of proving it, and even where the employees must
allege nonpayment, the general rule is that the burden rests on the defendant
to prove nonpayment, rather than on the plaintiff to prove non payment. This
petitioners failed to do.
[75]

We also agree with the Labor Arbiter and the CA that the documents
petitioners submitted, i.e., affidavits executed by some of respondents during
an ocular inspection conducted by an inspector of the DOLE; notices of
inspection result and Facility Evaluation Orders issued by DOLE, are not
sufficient to prove payment. Despite repeated orders from the Labor Arbiter,
petitioners failed to submit the pertinent employee files, payrolls, records,
remittances and other similar documents which would show that respondents
rendered work entitling them to payment for overtime work, night shift
differential, premium pay for work on holidays and rest day, and payment of
these as well as the COLA and the SILP documents which are not in
respondents possession but in the custody and absolute control of petitioners.
By choosing not to fully and completely disclose information and present the
necessary documents to prove payment of labor standard benefits due to
respondents, petitioners failed to discharge the burden of proof. Indeed,
petitioners failure to submit the necessary documents which as employers are
in their possession, inspite of orders to do so, gives rise to the presumption
that their presentation is prejudicial to its cause. As aptly quoted by the CA:
[76]

[77]

[78]

[79]

[80]

[W]hen the evidence tends to prove a material fact which imposes a liability on a
party, and he has it in his power to produce evidence which from its very nature must
overthrow the case made against him if it is not founded on fact, and he refuses to
produce such evidence, the presumption arises that the evidence, if produced, would
operate to his prejudice, and support the case of his adversary.
[81]

Petitioners next claim that the cost of the food and snacks provided to
respondents as facilities should have been included in reckoning the payment
of respondents wages. They state that although on the surface respondents
appeared to receive minimal wages, petitioners had granted respondents
other benefits which are considered part and parcel of their wages and are

allowed under existing laws. They claim that these benefits make up for
whatever inadequacies there may be in compensation. Specifically, they
invoked Sections 5 and 6, Rule VII-A, which allow the deduction of facilities
provided by the employer through an appropriate Facility Evaluation Order
issued by the Regional Director of the DOLE. Petitioners also aver that they
give five (5) percent of the gross income each month as incentives. As proof
of compliance of payment of minimum wages, petitioners submitted the Notice
of Inspection Results issued in 1995 and 1997 by the DOLE Regional Office.
[82]

[83]

[84]

[85]

The cost of meals and snacks purportedly provided to respondents cannot

be deducted as part of respondents minimum wage. As stated in the Labor
Arbiters decision:
[86]

While [petitioners] submitted Facility Evaluation Orders (pp. 468, 469; vol. II, rollo)
issued by the DOLE Regional Office whereby the cost of meals given by [petitioners]
to [respondents] were specified for purposes of considering the same as part of their
wages, We cannot consider the cost of meals in the Orders as applicable to
[respondents]. [Respondents] were not interviewed by the DOLE as to the quality and
quantity of food appearing in the applications of [petitioners] for facility evaluation
prior to its approval to determine whether or not [respondents] were indeed given such
kind and quantity of food. Also, there was no evidence that the quality and quantity of
food in the Orders were voluntarily accepted by [respondents]. On the contrary; while
some [of the respondents] admitted that they were given meals and merienda, the
quality of food serve[d] to them were not what were provided for in the Orders and
that it was only when they filed these cases that they came to know about said Facility
Evaluation Orders (pp. 100; 379[,] vol. II, rollo; p. 40, tsn[,] June 19, 1998).
[Petitioner] Josefa herself, who applied for evaluation of the facility (food) given to
[respondents], testified that she did not inform [respondents] concerning said Facility
Evaluation Orders (p. 34, tsn[,] August 13, 1998).
Even granting that meals and snacks were provided and indeed
constituted facilities, such facilities could not be deducted without compliance
with certain legal requirements. As stated in Mabeza v. NLRC, the employer
simply cannot deduct the value from the employee's wages without satisfying
the following: (a) proof that such facilities are customarily furnished by the
trade; (b) the provision of deductible facilities is voluntarily accepted in writing
by the employee; and (c) the facilities are charged at fair and reasonable
value. The records are clear that petitioners failed to comply with these
requirements. There was no proof of respondents written authorization.
Indeed, the Labor Arbiter found that while the respondents admitted that they
were given meals and merienda, the quality of food served to them was not
what was provided for in the Facility Evaluation Orders and it was only when
[87]

they filed the cases that they came to know of this supposed Facility
Evaluation Orders. Petitioner Josefa Po Lam herself admitted that she did
not inform the respondents of the facilities she had applied for.
[88]

[89]

Considering the failure to comply with the above-mentioned legal

requirements, the Labor Arbiter therefore erred when he ruled that the cost of
the meals actually provided to respondents should be deducted as part of
their salaries, on the ground that respondents have availed themselves of the
food given by petitioners. The law is clear that mere availment is not
sufficient to allow deductions from employees wages.
[90]

More important, we note the uncontroverted testimony of respondents on

record that they were required to eat in the hotel and restaurant so that they
will not go home and there is no interruption in the services of Mayon Hotel &
Restaurant. As ruled in Mabeza, food or snacks or other convenience
provided by the employers are deemed as supplements if they are granted for
the convenience of the employer. The criterion in making a distinction
between a supplement and a facility does not so much lie in the kind (food,
lodging) but the purpose. Considering, therefore, that hotel workers are
required to work different shifts and are expected to be available at various
odd hours, their ready availability is a necessary matter in the operations of a
small hotel, such as petitioners business. The deduction of the cost of meals
from respondents wages, therefore, should be removed.
[91]

[92]

We also do not agree with petitioners that the five (5) percent of the gross
income of the establishment can be considered as part of the respondents
wages. We quote with approval the Labor Arbiter on this matter, to wit:
While complainants, who were employed in the hotel, receive[d] various amounts as
profit share, the same cannot be considered as part of their wages in determining their
claims for violation of labor standard benefits. Although called profit share[,] such is
in the nature of share from service charges charged by the hotel. This is more
explained by [respondents] when they testified that what they received are not fixed
amounts and the same are paid not on a monthly basis (pp. 55, 93, 94, 103, 104; vol.
II, rollo). Also, [petitioners] failed to submit evidence that the amounts received by
[respondents] as profit share are to be considered part of their wages and had been
agreed by them prior to their employment. Further, how can the amounts receive[d]
by [respondents] be considered as profit share when the same [are] based on the gross
receipt of the hotel[?] No profit can as yet be determined out of the gross receipt of an
enterprise. Profits are realized after expenses are deducted from the gross income.
On the issue of the proper minimum wage applicable to respondents, we
sustain the Labor Arbiter. We note that petitioners themselves have admitted

that the establishment employs more or less sixteen (16) employees,

therefore they are estopped from claiming that the applicable minimum
wage should be for service establishments employing 15 employees or less.
[93]

As for petitioners repeated invocation of serious business losses, suffice to

say that this is not a defense to payment of labor standard benefits. The
employer cannot exempt himself from liability to pay minimum wages because
of poor financial condition of the company. The payment of minimum wages is
not dependent on the employers ability to pay.
[94]

Thus, we reinstate the award of monetary claims granted by the Labor

Arbiter.
4.

Conclusion

There is no denying that the actuations of petitioners in this case have

been reprehensible. They have terminated the respondents employment in an
underhanded manner, and have used and abused the quasi-judicial and
judicial processes to resist payment of their employees rightful claims, thereby
protracting this case and causing the unnecessary clogging of dockets of the
Court. They have also forced respondents to unnecessary hardship and
financial expense. Indeed, the circumstances of this case would have called
for exemplary damages, as the dismissal was effected in a wanton,
oppressive or malevolent manner, and public policy requires that these acts
must be suppressed and discouraged.
[95]

[96]

Nevertheless, we cannot agree with the Labor Arbiter in granting

exemplary damages of P10,000.00 each to all respondents. While it is true
that other forms of damages under the Civil Code may be awarded to illegally
dismissed employees, any award of moral damages by the Labor Arbiter
cannot be based on the Labor Code but should be grounded on the Civil
Code. And the law is clear that exemplary damages can only be awarded if
plaintiff shows proof that he is entitled to moral, temperate or compensatory
damages.
[97]

[98]

[99]

As only respondents Loveres, Guades, Macandog, Llarena, Nicerio,

Atractivo and Broola specifically claimed damages from petitioners, then only
they are entitled to exemplary damages.[sjgs1]
Finally, we rule that attorneys fees in the amount to P10,000.00 should be
granted to each respondent. It is settled that in actions for recovery of wages
or where an employee was forced to litigate and incur expenses to protect his

rights and interest, he is entitled to an award of attorney's fees.

undoubtedly falls within this rule.

[100]

This case

IN VIEW WHEREOF, the petition is hereby DENIED. The Decision

of January 17, 2003 of the Court of Appeals in CA-G.R. SP No. 68642
upholding the Joint Decision of July 14, 2000 of the Labor Arbiter in RAB V
Case Nos. 04-00079-97 and 04-00080-97 is AFFIRMED, with the following
MODIFICATIONS:
(1)
(2)

Granting separation pay of one-half (1/2) month for every year of service to
respondents Loveres, Macandog and Llarena;
Granting retirement pay for respondents Guades, Nicerio, and Alamares;

(3)

Removing the deductions for food facility from the amounts due to all
respondents;

(4)

Awarding moral damages of P20,000.00 each for respondents Loveres,

Macandog, Llarena, Guades, Nicerio, Atractivo, and Broola;

(5)

Deleting the award of exemplary damages of P10,000.00 from all

respondents except Loveres, Macandog, Llarena, Guades, Nicerio, Atractivo,
and Broola; and

(6)

Granting attorneys fees of P10,000.00 each to all respondents.

The case is REMANDED to the Labor Arbiter for the RECOMPUTATION of

the total monetary benefits awarded and due to the employees concerned in
accordance with the decision. The Labor Arbiter is ORDERED to submit his
compliance thereon within thirty (30) days from notice of this decision, with
copies furnished to the parties.
SO ORDERED.