SECOND DIVISION [G.R. No. 152456.

April 28, 2004]

SEVILLA TRADING COMPANY, petitioner, vs. A.V.A. TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, respondents.

DECISION
PUNO, J.:

On appeal is the Decision[1] of the Court of Appeals in CA-G.R. SP No. 63086 dated 27 November 2001 sustaining the
Decision[2] of Accredited Voluntary Arbitrator Tomas E. Semana dated 13 November 2000, as well as its subsequent
Resolution[3] dated 06 March 2002 denying petitioners Motion for Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla Trading Company (Sevilla Trading, for short), a domestic
corporation engaged in trading business, organized and existing under Philippine laws, added to the base figure, in its
computation of the 13th-month pay of its employees, the amount of other benefits received by the employees which are
beyond the basic pay. These benefits included:

(a) Overtime premium for regular overtime, legal and special holidays;

(b) Legal holiday pay, premium pay for special holidays;

(c) Night premium;

(d) Bereavement leave pay;

(e) Union leave pay;

(f) Maternity leave pay;

(g) Paternity leave pay;

(h) Company vacation and sick leave pay; and

(i) Cash conversion of unused company vacation and sick leave.

Petitioner claimed that it entrusted the preparation of the payroll to its office staff, including the computation and
payment of the 13th-month pay and other benefits. When it changed its person in charge of the payroll in the process of
computerizing its payroll, and after audit was conducted, it allegedly discovered the error of including non-basic pay or
other benefits in the base figure used in the computation of the 13th-month pay of its employees. It cited the Rules and
Regulations Implementing P.D. No. 851 (13th-Month Pay Law), effective December 22, 1975, Sec. 2(b) which stated that:

Basic salary shall include all remunerations or earnings paid by an employer to an employee for services rendered but
may not include cost-of-living allowances granted pursuant to P.D. No. 525 or Letter of Instruction No. 174, profit-sharing
payments, and all allowances and monetary benefits which are not considered or integrated as part of the regular or
basic salary of the employee at the time of the promulgation of the Decree on December 16, 1975.

Petitioner then effected a change in the computation of the thirteenth month pay, as follows:

13th-month pay = net basic pay

12 months

where:

net basic pay = gross pay (non-basic pay or other benefits)

Now excluded from the base figure used in the computation of the thirteenth month pay are the following:

a) Overtime premium for regular overtime, legal and special holidays;

b) Legal holiday pay, premium pay for special holidays;

c) Night premium;

d) Bereavement leave pay;

e) Union leave pay;

f) Maternity leave pay;

g) Paternity leave pay;

h) Company vacation and sick leave pay; and

i) Cash conversion of unused vacation/sick leave.

Hence, the new computation reduced the employees thirteenth month pay. The daily piece-rate workers represented by
private respondent Sevilla Trading Workers Union SUPER (Union, for short), a duly organized and registered union,
through the Grievance Machinery in their Collective Bargaining Agreement, contested the new computation and reduction
of their thirteenth month pay. The parties failed to resolve the issue.
On March 24, 2000, the parties submitted the issue of whether or not the exclusion of leaves and other related
benefits in the computation of 13th-month pay is valid to respondent Accredited Voluntary Arbitrator Tomas E. Semana
(A.V.A. Semana, for short) of the National Conciliation and Mediation Board, for consideration and resolution.
The Union alleged that petitioner violated the rule prohibiting the elimination or diminution of employees benefits as
provided for in Art. 100 of the Labor Code, as amended. They claimed that paid leaves, like sick leave, vacation leave,
paternity leave, union leave, bereavement leave, holiday pay and other leaves with pay in the CBA should be included in
the base figure in the computation of their 13th-month pay.
On the other hand, petitioner insisted that the computation of the 13 th-month pay is based on basic salary, excluding
benefits such as leaves with pay, as per P.D. No. 851, as amended. It maintained that, in adjusting its computation of the
13th-month pay, it merely rectified the mistake its personnel committed in the previous years.
A.V.A. Semana decided in favor of the Union. The dispositive portion of his Decision reads as follows:

WHEREFORE, premises considered, this Voluntary Arbitrator hereby declared that:

1. The company is hereby ordered to include sick leave and vacation leave, paternity leave, union leave, bereavement
leave and other leave with pay in the CBA, premium for work done on rest days and special holidays, and pay for regular
holidays in the computation of the 13th-month pay to all covered and entitled employees;

2. The company is hereby ordered to pay corresponding backwages to all covered and entitled employees arising from
the exclusion of said benefits in the computation of 13th-month pay for the year 1999.

Petitioner received a copy of the Decision of the Arbitrator on December 20, 2000. It filed before the Court of
Appeals, a Manifestation and Motion for Time to File Petition for Certiorari on January 19, 2001.A month later,
on February 19, 2001, it filed its Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure for the
nullification of the Decision of the Arbitrator. In addition to its earlier allegations, petitioner claimed that assuming the old
computation will be upheld, the reversal to the old computation can only be made to the extent of including non-basic
benefits actually included by petitioner in the base figure in the computation of their 13 th-month pay in the prior years. It
must exclude those non-basic benefits which, in the first place, were not included in the original computation. The
appellate court denied due course to, and dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the grounds of its appeal, as follows:
 1. THE DECISION OF THE RESPONDENT COURT TO REVERT TO THE OLD COMPUTATION OF THE 13TH-MONTH
PAY ON THE BASIS THAT THE OLD COMPUTATION HAD RIPENED INTO PRACTICE IS WITHOUT LEGAL
BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS TO CORRECT ERRORS IN COMPUTATION WHICH
WILL CAUSE GRAVE AND IRREPARABLE DAMAGE TO EMPLOYERS.[4]
First, we uphold the Court of Appeals in ruling that the proper remedy from the adverse decision of the arbitrator is a
petition for review under Rule 43 of the 1997 Rules of Civil Procedure, not a petition for certiorari under Rule 65. Section
1 of Rule 43 states:

RULE 43

Appeals from the Court of Tax Appeals and

Quasi-Judicial Agencies to the Court of Appeals

SECTION 1. Scope. This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-
judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission,
Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act
No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board,
Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration
Commission, and voluntary arbitrators authorized by law. [Emphasis supplied.]

It is elementary that the special civil action of certiorari under Rule 65 is not, and cannot be a substitute for an
appeal, where the latter remedy is available, as it was in this case. Petitioner Sevilla Trading failed to file an appeal within
the fifteen-day reglementary period from its notice of the adverse decision of A.V.A. Semana. It received a copy of the
decision of A.V.A. Semana on December 20, 2000, and should have filed its appeal under Rule 43 of the 1997 Rules of
Civil Procedure on or before January 4, 2001. Instead, petitioner filed on January 19, 2001 a Manifestation and Motion for
Time to File Petition for Certiorari, and on February 19, 2001, it filed a petition for certiorari under Rule 65 of the 1997
Rules of Civil Procedure. Clearly, petitioner Sevilla Trading had a remedy of appeal but failed to use it.
A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a petition for
review on certiorari under Rule 45 (Rule 43, in the case at bar) of the Rules of Court. Rule 65 is an independent action
that cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that under Rule 45 (Rule 43,
in the case at bar), especially if such loss or lapse was occasioned by ones own neglect or error in the choice of
remedies.[5]
Thus, the decision of A.V.A. Semana had become final and executory when petitioner Sevilla Trading filed its petition
for certiorari on February 19, 2001. More particularly, the decision of A.V.A. Semana became final and executory upon the
lapse of the fifteen-day reglementary period to appeal, or on January 5, 2001. Hence, the Court of Appeals is correct in
holding that it no longer had appellate jurisdiction to alter, or much less, nullify the decision of A.V.A. Semana.
Even assuming that the present petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure is a proper
action, we still find no grave abuse of discretion amounting to lack or excess of jurisdiction committed by A.V.A.
Semana. Grave abuse of discretion has been interpreted to mean such capricious and whimsical exercise of judgment as
is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by
reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. [6] We find nothing of that sort in
the case at bar.
On the contrary, we find the decision of A.V.A. Semana to be sound, valid, and in accord with law and
jurisprudence. A.V.A. Semana is correct in holding that petitioners stance of mistake or error in the computation of the
thirteenth month pay is unmeritorious. Petitioners submission of financial statements every year requires the services of a
certified public accountant to audit its finances. It is quite impossible to suggest that they have discovered the alleged
error in the payroll only in 1999. This implies that in previous years it does not know its cost of labor and operations. This
is merely basic cost accounting. Also, petitioner failed to adduce any other relevant evidence to support its
contention. Aside from its bare claim of mistake or error in the computation of the thirteenth month pay, petitioner
merely appended to its petition a copy of the 1997-2002 Collective Bargaining Agreement and an alleged corrected
computation of the thirteenth month pay. There was no explanation whatsoever why its inclusion of non-basic benefits in
the base figure in the computation of their 13 th-month pay in the prior years was made by mistake, despite the clarity of
statute and jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay Cable and Radio Corp. vs. NLRC,[7] which
petitioner Sevilla Trading invokes. In that case, this Court decided on the proper computation of the cost-of-living
allowance (COLA) for monthly-paid employees. Petitioner Corporation, pursuant to Wage Order No. 6 (effective 30
October 1984), increased the COLA of its monthly-paid employees by multiplying the P3.00 daily COLA by 22 days, which
is the number of working days in the company. The Union disagreed with the computation, claiming that the daily COLA
rate of P3.00 should be multiplied by 30 days, which has been the practice of the company for several years. We upheld
the contention of the petitioner corporation. To answer the Unions contention of company practice, we ruled that:

Payment in full by Petitioner Corporation of the COLA before the execution of the CBA in 1982 and in compliance with
Wage Orders Nos. 1 (26 March 1981) to 5 (11 June 1984), should not be construed as constitutive of voluntary employer
practice, which cannot now be unilaterally withdrawn by petitioner. To be considered as such, it should have been
practiced over a long period of time, and must be shown to have been consistent and deliberate . . . The test of long
practice has been enunciated thus:

. . . Respondent Company agreed to continue giving holiday pay knowing fully well that said employees are not covered
by the law requiring payment of holiday pay. (Oceanic Pharmacal Employees Union [FFW] vs. Inciong, 94 SCRA 270
[1979])

Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the implementation of the Wage
Orders. It was only when the Rules Implementing Wage Order No. 4 were issued on 21 May 1984 that a formula for the
conversion of the daily allowance to its monthly equivalent was laid down.

Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous application of the law . . .

In the above quoted case, the grant by the employer of benefits through an erroneous application of the law due to
absence of clear administrative guidelines is not considered a voluntary act which cannot be unilaterally
discontinued. Such is not the case now. In the case at bar, the Court of Appeals is correct when it pointed out that as
early as 1981, this Court has held in San Miguel Corporation vs. Inciong[8]that:

Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the basis in the
determination of his 13th-month pay. Any compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are deemed not
part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of Instruction No. 174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as part of the regular basic salary of the
employee at the time of the promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued by the then Labor
Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of the basic salary and in the
computation of the 13th-month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instruction No. 174 and profit
sharing payments indicate the intention to strip basic salary of other payments which are properly considered as fringe
benefits. Likewise, the catch-all exclusionary phrase all allowances and monetary benefits which are not considered or
integrated as part of the basic salary shows also the intention to strip basic salary of any and all additions which may be
in the form of allowances or fringe benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more empathic in
declaring that earnings and other remunerations which are not part of the basic salary shall not be included in the
computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud is dissipated
in the later and more controlling Supplementary Rules and Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer to an employee. A cursory perusal of the two sets of
Rules indicates that what has hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming tendency of the former rules to include all remunerations and
earnings within the definition of basic salary.

The all-embracing phrase earnings and other remunerations which are deemed not part of the basic salary includes within
its meaning payments for sick, vacation, or maternity leaves, premium for works performed on rest days and special
holidays, pay for regular holidays and night differentials. As such they are deemed not part of the basic salary and shall
not be considered in the computation of the 13th-month pay. If they were not so excluded, it is hard to find any earnings
and other remunerations expressly excluded in the computation of the 13 th-month pay. Then the exclusionary provision
would prove to be idle and with no purpose.

In the light of the clear ruling of this Court, there is, thus no reason for any mistake in the construction or application
of the law. When petitioner Sevilla Trading still included over the years non-basic benefits of its employees, such as
maternity leave pay, cash equivalent of unused vacation and sick leave, among others in the computation of the 13th-
month pay, this may only be construed as a voluntary act on its part. Putting the blame on the petitioners payroll
personnel is inexcusable.
In Davao Fruits Corporation vs. Associated Labor Unions, we likewise held that:[9]

The Supplementary Rules and Regulations Implementing P.D. No. 851 which put to rest all doubts in the computation of
the thirteenth month pay, was issued by the Secretary of Labor as early as January 16, 1976, barely one month after the
effectivity of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid the thirteenth month pay,
without excluding the subject items therein until 1981. Petitioner continued its practice in December 1981, after
promulgation of the aforequoted San Miguel decision on February 24, 1981, when petitioner purportedly discovered its
mistake.

From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the computation of its employees
thirteenth month pay, without the payments for sick, vacation and maternity leave, premium for work done on rest days
and special holidays, and pay for regular holidays. The considerable length of time the questioned items had been
included by petitioner indicates a unilateral and voluntary act on its part, sufficient in itself to negate any claim of
mistake.

A company practice favorable to the employees had indeed been established and the payments made pursuant thereto,
ripened into benefits enjoyed by them. And any benefit and supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the employer, by virtue of Sec. 10 of the Rules and Regulations
Implementing P.D. No. 851, and Art. 100 of the Labor Code of the Philippines which prohibit the diminution or elimination
by the employer of the employees existing benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]

With regard to the length of time the company practice should have been exercised to constitute voluntary employer
practice which cannot be unilaterally withdrawn by the employer, we hold that jurisprudence has not laid down any rule
requiring a specific minimum number of years. In the above quoted case of Davao Fruits Corporation vs. Associated
Labor Unions,[10] the company practice lasted for six (6) years. In another case, Davao Integrated Port Stevedoring
Services vs. Abarquez,[11] the employer, for three (3) years and nine (9) months, approved the commutation to cash of
the unenjoyed portion of the sick leave with pay benefits of its intermittent workers. While in Tiangco vs. Leogardo,
Jr.,[12] the employer carried on the practice of giving a fixed monthly emergency allowance from November 1976 to
February 1980, or three (3) years and four (4) months. In all these cases, this Court held that the grant of these benefits
has ripened into company practice or policy which cannot be peremptorily withdrawn. In the case at bar, petitioner Sevilla
Trading kept the practice of including non-basic benefits such as paid leaves for unused sick leave and vacation leave in
the computation of their 13th-month pay for at least two (2) years. This, we rule likewise constitutes voluntary employer
practice which cannot be unilaterally withdrawn by the employer without violating Art. 100 of the Labor Code:
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or
in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code.

IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 63086
dated 27 November 2001 and its Resolution dated 06 March 2002 are hereby AFFIRMED.
SO ORDERED.
Quisumbing, Austria-Martinez, and Tinga, JJ., concur.
Callejo, Sr., J., no part.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

MATLING INDUSTRIAL G.R. No. 157802

AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, Present:
CATHERINE SPENCER,
AND ALEX MANCILLA, CARPIO MORALES, Chairperson,
Petitioners, BRION,
BERSAMIN,
VILLARAMA, JR., and
-versus - SERENO, JJ.

Promulgated:
RICARDO R. COROS, October 13, 2010
Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the
Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular
employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13,
2002 [1]
and the resolution dated April 2, 2003,[2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial
and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission , whereby by the Court
of Appeals (CA) sustained the ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial and Commercial
Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10,
2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers
(petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.[3]

The petitioners moved to dismiss the complaint,[4] raising the ground, among others, that the complaint pertained
to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate
inasmuch as the respondent was a member of Matlings Board of Directors aside from being its Vice-President for Finance
and Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss,[5] insisting that his status as a member of Matlings Board of
Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of
stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock
he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even
assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitioners motion to dismiss,[6] ruling that the respondent was a
corporate officer because he was occupying the position of Vice President for Finance and Administration and at the same
time was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of
Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section 5,
paragraph (c) of Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,[7] urging that:

I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEES
MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION
THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.

II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF
JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondents complaint for illegal dismissal was
properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in Matling,
albeit high ranking and managerial, not being among the positions listed in Matlings Constitution and By-Laws.[8] The
NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that
the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said
case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-President for
Finance and Administration being held by complainant-appellant is not listed as among respondent's
corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that
the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective
evidence and position papers fully observing the requirements of due process, and resolve the same with
reasonable dispatch.
SO ORDERED.

The petitioners sought reconsideration,[9] reiterating that the respondent, being a member of the Board of Directors, was
a corporate officer whose removal was not within the LAs jurisdiction.
 The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine
copies of Matlings Amended Articles of Incorporation and By Laws to prove that the President of Matling was thereby
granted full power to create new offices and appoint the officers thereto, and the minutes of special meeting held on June
7, 1999 by Matlings Board of Directors to prove that the respondent was, indeed, a Member of the Board of Directors. [10]

Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for reconsideration.[11]

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714, contending
that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of
the LA.

In its assailed decision promulgated on September 13, 2002,[12] the CA dismissed the petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as a
corporate officer, the position must, if not listed in the by-laws, have been created by the corporation's
board of directors, and the occupant thereof appointed or elected by the same board of directors or
stockholders. This is the implication of the ruling in Tabang v. National Labor Relations Commission,
which reads:
The president, vice president, secretary and treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually
designate them as the officers of the corporation. However, other offices are sometimes
created by the charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional offices as may be
necessary.
It has been held that an 'office' is created by the charter of the corporation and the officer
is elected by the directors or stockholders. On the other hand, an 'employee' usually occupies
no office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such
employee.
This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporations board of directors but only by its president or executive
vice-president pursuant to the by-laws of the corporation. Moreover, Coros appointment to said position
was not made through any act of the board of directors or stockholders of the corporation. Consequently,
the position to which Coros was appointed and later on removed from, is not a corporate office despite
its nomenclature, but an ordinary office in the corporation.
Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.[13]

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a
stockholder/member of the Matlings Board of Directors as well as its Vice President for Finance and Administration; and
that the CA consequently erred in holding that the LA had jurisdiction.
The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

Ruling
The appeal fails.
I
The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the
LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases involving
all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by
Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies shall be disposed of
by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may
be provided in said agreements. (As amended by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the
jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate or
partnership relations between and among stockholders, members, or associates, or between any or all of them and the
corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and
between such corporation, partnership, or association and the State insofar as the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves the election or appointment of a director,
trustee, officer, or manager of such corporation, partnership, or association.[14] Such controversy, among others, is known
as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, [15] otherwise known as The Securities
Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to Section
5.2 of RA No. 8799, to wit:

5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate
the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed.

Considering that the respondents complaint for illegal dismissal was commenced on August 10, 2000, it might
come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a corporate,
not a regular, officer of Matling.

II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondents position as Vice President for Finance and Administration was a
corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute
cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a corporate office, having
been created by Matlings President pursuant to By-Law No. V, as amended,[16] to wit:

BY LAW NO. V

Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power to hire and discharge any or all
employees of the corporation; shall have full power to create new offices and to appoint the
officers thereto as he may deem proper and necessary in the operations of the corporation
and as the progress of the business and welfare of the corporation may demand; shall make
reports to the directors and stockholders and perform all such other duties and functions as are incident
to his office or are properly required of him by the Board of Directors. In case of the absence or disability
of the President, the Executive Vice President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the
offices was delegated by Matlings Board of Directors to its President through By-Law No. V, as amended; and that any
office the President created, like the position of the respondent, was as valid and effective a creation as that made by the
Board of Directors, making the office a corporate office. In justification, they cite Tabang v. National Labor Relations
Commission,[17] which held that other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional officers as may be
necessary.
The respondent counters that Matlings By-Laws did not list his position as Vice President for Finance and Administration
as one of the corporate offices; that Matlings By-Law No. III listed only four corporate officers, namely: President,
Executive Vice President, Secretary, and Treasurer; [18] that the corporate offices contemplated in the phrase and such
other officers as may be provided for in the by-laws found in Section 25 of the Corporation Code should be clearly and
expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt with Directors & Officerswhile its By-Law
No. V dealt with Officers proved that there was a differentiation between the officers mentioned in the two provisions,
with those classified under By-Law No. V being ordinary or non-corporate officers; and that the officer, to be considered
as a corporate officer, must be elected by the Board of Directors or the stockholders, for the President could only appoint
an employee to a position pursuant to By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and
such other officers as may be provided for in the by-laws. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall act as president and secretary or as
president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them by
law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a
greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation
shall constitute a quorum for the transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a
corporate act, except for the election of officers which shall require the vote of a majority of all the
members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as
a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office. Guerrea v. Lezama,[19] the first ruling on the matter, held that the only officers of a
corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate
officers could be considered only as employees or subordinate officials. Thus, it was held in Easycall Communications
Phils., Inc. v. King:[20]

An office is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by the
 action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner's
general manager, not by the board of directors of petitioner. It was also Malonzo who determined the
compensation package of respondent. Thus, respondent was an employee, not a corporate officer. The
CA was therefore correct in ruling that jurisdiction over the case was properly with the NLRC, not the SEC
(now the RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the
corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws.
Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character
either by the Corporation Codeor by the corporations By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling
clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code,
adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993,[21] to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation
and the Board has no power to create other Offices without amending first the corporate By-
laws. However, the Board may create appointive positions other than the positions of
corporate Officers, but the persons occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation Code and are not empowered to
exercise the functions of the corporate Officers, except those functions lawfully delegated to
them. Their functions and duties are to be determined by the Board of Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to
the President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in the
Board of Directors, and could not be delegated to subordinate officers or agents. [22] The office of Vice President for
Finance and Administration created by Matlings President pursuant to By Law No. V was an ordinary, not a corporate,
office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law
No. V merely allowed Matlings President to create non-corporate offices to be occupied by ordinary employees of Matling.
Such powers were incidental to the Presidents duties as the executive head of Matling to assist him in the daily
operations of the business.

The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not expressly
mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered corporate
offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-Laws. Thus,
the Court held therein that the position was a corporate office, and that the determination of the rights and liabilities
arising from the ouster from the position was an intra-corporate controversy within the SECs jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation, [23] which may be the more appropriate ruling, the position subject
of the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law enabling provision
authorizing the Board of Directors to create other offices that the Board of Directors might see fit to create. The Court
held there that the position was a corporate office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.

III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying on Paguio v.
National Labor Relations Commission[24] and Ongkingko v. National Labor Relations Commission,[25] the NLRC had no
jurisdiction over his complaint, considering that any case for illegal dismissal brought by a stockholder/officer against the
corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the context of
PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants were undeniably
corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of them
had been duly elected by the respective Boards of Directors. But the herein respondents position of Vice President for
Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of Vice President for
Finance and Administration created by Matlings Board of Directors. Lastly, the President, not the Board of Directors,
appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification or any exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations.[26]

However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason,
justice, and fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the Court
considers two elements instead, namely: (a) the status or relationship of the parties; and ( b) the nature of the question
that is the subject of their controversy.This was our thrust in Viray v. Court of Appeals:[27]

The establishment of any of the relationships mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in one
 case that the rule admits of no exceptions or distinctions is not that absolute. The better policy in
determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only the
SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person
leases an apartment owned by a corporation of which he is a stockholder, there should be no question
that a complaint for his ejectment for non-payment of rentals would still come under the jurisdiction of
the regular courts and not of the SEC. By the same token, if one person injures another in a vehicular
accident, the complaint for damages filed by the victim will not come under the jurisdiction of the SEC
simply because of the happenstance that both parties are stockholders of the same corporation. A
contrary interpretation would dissipate the powers of the regular courts and distort the meaning and
intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,[28] the Court reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners, members
or officers;
c) between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all stockholders or that the parties involved
are the stockholders and the corporation does not necessarily place the dispute within the ambit of the
jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a case should be to
consider concurrent factors such as the status or relationship of the parties or the nature of the question
that is the subject of their controversy. In the absence of any one of these factors, the SEC will not have
jurisdiction. Furthermore, it does not necessarily follow that every conflict between the corporation and
its stockholders would involve such corporate matters as only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers.[29]

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one hand, and
ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend on the
nature of the services performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had any
relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his
being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been
employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to
his last position as Vice President for Finance and Administration had been gradual but steady, as the following sequence
indicates:

1966 Bookkeeper
1968 Senior Accountant
 1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
1985 Asst. Vice President for Finance and Administration
1987 to April 17, 2000 Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice
President for Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an
employee of Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion.
Besides, his status of Director/stockholder was unaffected by his dismissal from employment as Vice President for Finance
and Administration.
In Prudential Bank and Trust Company v. Reyes,[30] a case involving a lady bank manager who had risen from the
ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the NLRC,
because she was deemed a regular employee of the bank. The Court observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963.
From that position she rose to become supervisor. Then in 1982, she was appointed Assistant Vice-
President which she occupied until her illegal dismissal on July 19, 1991. The banks contention that
she merely holds an elective position and that in effect she is not a regular employee is
belied by the nature of her work and her length of service with the Bank. As earlier stated, she
rose from the ranks and has been employed with the Bank since 1963 until the termination of her
employment in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is tasked,
among others, to collect checks drawn against overseas banks payable in foreign currency and to ensure
the collection of foreign bills or checks purchased, including the signing of transmittal letters covering the
same. It has been stated that the primary standard of determining regular employment is the reasonable
connection between the particular activity performed by the employee in relation to the usual trade or
business of the employer. Additionally, an employee is regular because of the nature of work and the
length of service, not because of the mode or even the reason for hiring them. As Assistant Vice-
President of the Foreign Department of the Bank she performs tasks integral to the operations of the
bank and her length of service with the bank totaling 28 years speaks volumes of her status as a regular
employee of the bank. In fine, as a regular employee, she is entitled to security of tenure; that is, her
services may be terminated only for a just or authorized cause. This being in truth a case of illegal
dismissal, it is no wonder then that the Bank endeavored to the very end to establish loss of trust and
confidence and serious misconduct on the part of private respondent but, as will be discussed later, to no
avail.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of
Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 167614 March 24, 2009

ANTONIO M. SERRANO, Petitioner,

vs.
Gallant MARITIME SERVICES, INC. and MARLOW NAVIGATION CO., INC., Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

For decades, the toil of solitary migrants has helped lift entire families and communities out of poverty. Their earnings
have built houses, provided health care, equipped schools and planted the seeds of businesses. They have woven
together the world by transmitting ideas and knowledge from country to country. They have provided the dynamic human
link between cultures, societies and economies. Yet, only recently have we begun to understand not only how much
international migration impacts development, but how smart public policies can magnify this effect.

United Nations Secretary-General Ban Ki-Moon

Global Forum on Migration and Development
Brussels, July 10, 20071

For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of Section 10, Republic Act (R.A.)
No. 8042,2 to wit:

Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just, valid or authorized cause as
defined by law or contract, the workers 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.

x x x x (Emphasis and underscoring supplied)

does not magnify the contributions of overseas Filipino workers (OFWs) to national development, but exacerbates the
hardships borne by them by unduly limiting their entitlement in case of illegal dismissal to their lump-sum salary either for
the unexpired portion of their employment contract "or for three months for every year of the unexpired term, whichever
is less" (subject clause). Petitioner claims that the last clause violates the OFWs' constitutional rights in that it impairs the
terms of their contract, deprives them of equal protection and denies them due process.

By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the December 8, 2004 Decision 3 and
April 1, 2005 Resolution4 of the Court of Appeals (CA), which applied the subject clause, entreating this Court to declare
the subject clause unconstitutional.

Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a Philippine
Overseas Employment Administration (POEA)-approved Contract of Employment with the following terms and conditions:

Duration of contract 12 months

Position Chief Officer

Basic monthly salary US$1,400.00

Hours of work 48.0 hours per week

 Overtime US$700.00 per month

Vacation leave with pay 7.00 days per month5

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment contract
for the position of Second Officer with a monthly salary of US$1,000.00, upon the assurance and representation of
respondents that he would be made Chief Officer by the end of April 1998.6

Respondents did not deliver on their promise to make petitioner Chief Officer. 7 Hence, petitioner refused to stay on as
Second Officer and was repatriated to the Philippines on May 26, 1998. 8

Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to March 19, 1999, but at the
time of his repatriation on May 26, 1998, he had served only two (2) months and seven (7) days of his contract, leaving
an unexpired portion of nine (9) months and twenty-three (23) days.

Petitioner filed with the Labor Arbiter (LA) a Complaint 9 against respondents for constructive dismissal and for payment of
his money claims in the total amount of US$26,442.73, broken down as follows:

May US$ 413.90

27/31,
1998 (5
days)
incl.
Leave
pay
June 2,590.00
01/30,
1998
July 2,590.00
01/31,
1998
August 2,590.00
01/31,
1998
Sept. 2,590.00
01/30,
1998
Oct. 2,590.00
01/31,
1998
Nov. 2,590.00
01/30,
1998
Dec. 2,590.00
01/31,
1998
Jan. 2,590.00
01/31,
1999
Feb. 2,590.00
01/28,
1999
Mar. 1,640.00
1/19,
1999
(19
days)
incl.
leave
pay
--------------------------------------------------------------------------------
25,382.23
Amount
adjusted
to chief
mate's
salary
(March 1,060.5010
19/31,
1998 to
April
1/30,
1998) +
----------------------------------------------------------------------------------------------
TOTAL US$ 26,442.7311
CLAIM

as well as moral and exemplary damages and attorney's fees.

The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding him
monetary benefits, to wit:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the complainant
(petitioner) by the respondents in the above-entitled case was illegal and the respondents are hereby ordered to
pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange
prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED SEVENTY U.S.
DOLLARS (US $8,770.00), representing the complainant’s salary for three (3) months of the
unexpired portion of the aforesaid contract of employment .1avvphi1

The respondents are likewise ordered to pay the complainant [petitioner], jointly and severally, in Philippine
Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S.
DOLLARS (US$ 45.00),12 representing the complainant’s claim for a salary differential. In addition, the
respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, at the
exchange rate prevailing at the time of payment, the complainant’s (petitioner's) claim for attorney’s fees
equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision.

The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit.

All other claims are hereby DISMISSED.

SO ORDERED.13 (Emphasis supplied)

In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary period of
three months only -- rather than the entire unexpired portion of nine months and 23 days of petitioner's
employment contract - applying the subject clause. However, the LA applied the salary rate of US$2,590.00,
 consisting of petitioner's "[b]asic salary, US$1,400.00/month + US$700.00/month, fixed overtime pay, +
US$490.00/month, vacation leave pay = US$2,590.00/compensation per month." 14

Respondents appealed15 to the National Labor Relations Commission (NLRC) to question the finding of the LA that
petitioner was illegally dismissed.

Petitioner also appealed16 to the NLRC on the sole issue that the LA erred in not applying the ruling of the Court
in Triple Integrated Services, Inc. v. National Labor Relations Commission 17 that in case of illegal dismissal, OFWs
are entitled to their salaries for the unexpired portion of their contracts. 18

In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit:

WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are hereby ordered to pay
complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of
payment the following:

1. Three (3) months salary

$1,400 x 3 US$4,200.00

2. Salary differential 45.00

US$4,245.00

3. 10% Attorney’s fees 424.50

TOTAL US$4,669.50

The other findings are affirmed.

SO ORDERED.19

The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by reducing the applicable salary
rate from US$2,590.00 to US$1,400.00 because R.A. No. 8042 "does not provide for the award of overtime pay, which
should be proven to have been actually performed, and for vacation leave pay."20

Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of the subject
clause.21 The NLRC denied the motion.22

Petitioner filed a Petition for Certiorari23 with the CA, reiterating the constitutional challenge against the subject
clause.24 After initially dismissing the petition on a technicality, the CA eventually gave due course to it, as directed by this
Court in its Resolution dated August 7, 2003 which granted the petition for certiorari, docketed as G.R. No. 151833, filed
by petitioner.

In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of the applicable salary rate;
however, the CA skirted the constitutional issue raised by petitioner. 25

His Motion for Reconsideration26 having been denied by the CA,27 petitioner brings his cause to this Court on the following
grounds:

The Court of Appeals and the labor tribunals have decided the case in a way not in accord with applicable decision of the
Supreme Court involving similar issue of granting unto the migrant worker back wages equal to the unexpired portion of
his contract of employment instead of limiting it to three (3) months

II
In the alternative that the Court of Appeals and the Labor Tribunals were merely applying their interpretation of Section
10 of Republic Act No. 8042, it is submitted that the Court of Appeals gravely erred in law when it failed to discharge its
judicial duty to decide questions of substance not theretofore determined by the Honorable Supreme Court, particularly,
the constitutional issues raised by the petitioner on the constitutionality of said law, which unreasonably, unfairly and
arbitrarily limits payment of the award for back wages of overseas workers to three (3) months.

III

Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court of Appeals gravely
erred in law in excluding from petitioner’s award the overtime pay and vacation pay provided in his contract since under
the contract they form part of his salary.28

On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old and sickly, and he intends
to make use of the monetary award for his medical treatment and medication. 29 Required to comment, counsel for
petitioner filed a motion, urging the court to allow partial execution of the undisputed monetary award and, at the same
time, praying that the constitutional question be resolved.30

Considering that the parties have filed their respective memoranda, the Court now takes up the full merit of the petition
mindful of the extreme importance of the constitutional question raised therein.

On the first and second issues

The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is not disputed. Likewise not
disputed is the salary differential of US$45.00 awarded to petitioner in all three fora. What remains disputed is only the
computation of the lump-sum salary to be awarded to petitioner by reason of his illegal dismissal.

Applying the subject clause, the NLRC and the CA computed the lump-sum salary of petitioner at the monthly rate of
US$1,400.00 covering the period of three months out of the unexpired portion of nine months and 23 days of his
employment contract or a total of US$4,200.00.

Impugning the constitutionality of the subject clause, petitioner contends that, in addition to the US$4,200.00 awarded by
the NLRC and the CA, he is entitled to US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for the
entire nine months and 23 days left of his employment contract, computed at the monthly rate of US$2,590.00. 31

The Arguments of Petitioner

Petitioner contends that the subject clause is unconstitutional because it unduly impairs the freedom of OFWs to
negotiate for and stipulate in their overseas employment contracts a determinate employment period and a fixed salary
package.32 It also impinges on the equal protection clause, for it treats OFWs differently from local Filipino workers (local
workers) by putting a cap on the amount of lump-sum salary to which OFWs are entitled in case of illegal dismissal, while
setting no limit to the same monetary award for local workers when their dismissal is declared illegal; that the disparate
treatment is not reasonable as there is no substantial distinction between the two groups; 33 and that it defeats Section
18,34 Article II of the Constitution which guarantees the protection of the rights and welfare of all Filipino workers,
whether deployed locally or overseas. 35

Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line with existing jurisprudence
on the issue of money claims of illegally dismissed OFWs. Though there are conflicting rulings on this, petitioner urges the
Court to sort them out for the guidance of affected OFWs.36

Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042 serves no other purpose but to
benefit local placement agencies. He marks the statement made by the Solicitor General in his Memorandum, viz.:

Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that
jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation.
Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the
acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino
migrant workers, liability for money claims was reduced under Section 10 of R.A. No. 8042. 37 (Emphasis supplied)
Petitioner argues that in mitigating the solidary liability of placement agencies, the subject clause sacrifices the well-being
of OFWs. Not only that, the provision makes foreign employers better off than local employers because in cases involving
the illegal dismissal of employees, foreign employers are liable for salaries covering a maximum of only three months of
the unexpired employment contract while local employers are liable for the full lump-sum salaries of their employees. As
petitioner puts it:

In terms of practical application, the local employers are not limited to the amount of backwages they have to give their
employees they have illegally dismissed, following well-entrenched and unequivocal jurisprudence on the matter. On the
other hand, foreign employers will only be limited to giving the illegally dismissed migrant workers the maximum of three
(3) months unpaid salaries notwithstanding the unexpired term of the contract that can be more than three (3) months. 38

Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives him of the salaries and
other emoluments he is entitled to under his fixed-period employment contract.39

The Arguments of Respondents

In their Comment and Memorandum, respondents contend that the constitutional issue should not be entertained, for this
was belatedly interposed by petitioner in his appeal before the CA, and not at the earliest opportunity, which was when
he filed an appeal before the NLRC.40

The Arguments of the Solicitor General

The Solicitor General (OSG)41 points out that as R.A. No. 8042 took effect on July 15, 1995, its provisions could not have
impaired petitioner's 1998 employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract, the
provisions thereof are deemed part of the minimum terms of petitioner's employment, especially on the matter of money
claims, as this was not stipulated upon by the parties. 42

Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of their employment, such that
their rights to monetary benefits must necessarily be treated differently. The OSG enumerates the essential elements that
distinguish OFWs from local workers: first, while local workers perform their jobs within Philippine territory, OFWs
perform their jobs for foreign employers, over whom it is difficult for our courts to acquire jurisdiction, or against whom it
is almost impossible to enforce judgment; and second, as held in Coyoca v. National Labor Relations Commission 43 and
Millares v. National Labor Relations Commission, 44 OFWs are contractual employees who can never acquire regular
employment status, unlike local workers who are or can become regular employees. Hence, the OSG posits that there are
rights and privileges exclusive to local workers, but not available to OFWs; that these peculiarities make for a reasonable
and valid basis for the differentiated treatment under the subject clause of the money claims of OFWs who are illegally
dismissed. Thus, the provision does not violate the equal protection clause nor Section 18, Article II of the Constitution. 45

Lastly, the OSG defends the rationale behind the subject clause as a police power measure adopted to mitigate the
solidary liability of placement agencies for this "redounds to the benefit of the migrant workers whose welfare the
government seeks to promote. The survival of legitimate placement agencies helps [assure] the government that migrant
workers are properly deployed and are employed under decent and humane conditions." 46

The Court's Ruling

The Court sustains petitioner on the first and second issues.

When the Court is called upon to exercise its power of judicial review of the acts of its co-equals, such as the Congress, it
does so only when these conditions obtain: (1) that there is an actual case or controversy involving a conflict of rights
susceptible of judicial determination;47 (2) that the constitutional question is raised by a proper party 48 and at the earliest
opportunity;49 and (3) that the constitutional question is the very lis mota of the case, 50otherwise the Court will dismiss
the case or decide the same on some other ground.51

Without a doubt, there exists in this case an actual controversy directly involving petitioner who is personally aggrieved
that the labor tribunals and the CA computed his monetary award based on the salary period of three months only as
provided under the subject clause.
The constitutional challenge is also timely. It should be borne in mind that the requirement that a constitutional issue be
raised at the earliest opportunity entails the interposition of the issue in the pleadings before a competent court, such
that, if the issue is not raised in the pleadings before that competent court, it cannot be considered at the trial and, if not
considered in the trial, it cannot be considered on appeal.52 Records disclose that the issue on the constitutionality of the
subject clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion for Partial Reconsideration with
said labor tribunal,53 and reiterated in his Petition for Certiorari before the CA.54 Nonetheless, the issue is deemed
seasonably raised because it is not the NLRC but the CA which has the competence to resolve the constitutional issue.
The NLRC is a labor tribunal that merely performs a quasi-judicial function – its function in the present case is limited to
determining questions of fact to which the legislative policy of R.A. No. 8042 is to be applied and to resolving such
questions in accordance with the standards laid down by the law itself;55 thus, its foremost function is to administer and
enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The CA, on the other hand, is vested with the
power of judicial review or the power to declare unconstitutional a law or a provision thereof, such as the subject
clause.56Petitioner's interposition of the constitutional issue before the CA was undoubtedly seasonable. The CA was
therefore remiss in failing to take up the issue in its decision.

The third condition that the constitutional issue be critical to the resolution of the case likewise obtains because the
monetary claim of petitioner to his lump-sum salary for the entire unexpired portion of his 12-month employment
contract, and not just for a period of three months, strikes at the very core of the subject clause.

Thus, the stage is all set for the determination of the constitutionality of the subject clause.

Does the subject clause violate Section 10,

Article III of the Constitution on non-impairment
of contracts?

The answer is in the negative.

Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract on the term of his
employment and the fixed salary package he will receive 57 is not tenable.

Section 10, Article III of the Constitution provides:

No law impairing the obligation of contracts shall be passed.

The prohibition is aligned with the general principle that laws newly enacted have only a prospective operation,58and
cannot affect acts or contracts already perfected;59 however, as to laws already in existence, their provisions are read into
contracts and deemed a part thereof.60 Thus, the non-impairment clause under Section 10, Article II is limited in
application to laws about to be enacted that would in any way derogate from existing acts or contracts by enlarging,
abridging or in any manner changing the intention of the parties thereto.

As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the employment
contract between petitioner and respondents in 1998. Hence, it cannot be argued that R.A. No. 8042, particularly the
subject clause, impaired the employment contract of the parties. Rather, when the parties executed their 1998
employment contract, they were deemed to have incorporated into it all the provisions of R.A. No. 8042.

But even if the Court were to disregard the timeline, the subject clause may not be declared unconstitutional on the
ground that it impinges on the impairment clause, for the law was enacted in the exercise of the police power of the
State to regulate a business, profession or calling, particularly the recruitment and deployment of OFWs, with the noble
end in view of ensuring respect for the dignity and well-being of OFWs wherever they may be employed. 61 Police power
legislations adopted by the State to promote the health, morals, peace, education, good order, safety, and general
welfare of the people are generally applicable not only to future contracts but even to those already in existence, for all
private contracts must yield to the superior and legitimate measures taken by the State to promote public welfare. 62

Does the subject clause violate Section 1,

Article III of the Constitution, and Section 18,
Article II and Section 3, Article XIII on labor
as a protected sector?
The answer is in the affirmative.

Section 1, Article III of the Constitution guarantees:

No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the
equal protection of the law.

Section 18,63 Article II and Section 3,64 Article XIII accord all members of the labor sector, without distinction as to place
of deployment, full protection of their rights and welfare.

To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to economic security and
parity: all monetary benefits should be equally enjoyed by workers of similar category, while all monetary obligations
should be borne by them in equal degree; none should be denied the protection of the laws which is enjoyed by, or
spared the burden imposed on, others in like circumstances. 65

Such rights are not absolute but subject to the inherent power of Congress to incorporate, when it sees fit, a system of
classification into its legislation; however, to be valid, the classification must comply with these requirements: 1) it is
based on substantial distinctions; 2) it is germane to the purposes of the law; 3) it is not limited to existing conditions
only; and 4) it applies equally to all members of the class.66

There are three levels of scrutiny at which the Court reviews the constitutionality of a classification embodied in a law: a)
the deferential or rational basis scrutiny in which the challenged classification needs only be shown to be rationally related
to serving a legitimate state interest;67 b) the middle-tier or intermediate scrutiny in which the government must show
that the challenged classification serves an important state interest and that the classification is at least substantially
related to serving that interest;68 and c) strict judicial scrutiny69 in which a legislative classification which impermissibly
interferes with the exercise of a fundamental right 70 or operates to the peculiar disadvantage of a suspect class71 is
presumed unconstitutional, and the burden is upon the government to prove that the classification is necessary to
achieve a compelling state interest and that it is the least restrictive means to protect such interest.72

Under American jurisprudence, strict judicial scrutiny is triggered by suspect classifications 73 based on race74 or
gender75 but not when the classification is drawn along income categories.76

It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v.
Bangko Sentral ng Pilipinas,77 the constitutionality of a provision in the charter of the Bangko Sentral ng Pilipinas (BSP), a
government financial institution (GFI), was challenged for maintaining its rank-and-file employees under the Salary
Standardization Law (SSL), even when the rank-and-file employees of other GFIs had been exempted from the SSL by
their respective charters. Finding that the disputed provision contained a suspect classification based on salary grade, the
Court deliberately employed the standard of strict judicial scrutiny in its review of the constitutionality of said provision.
More significantly, it was in this case that the Court revealed the broad outlines of its judicial philosophy, to wit:

Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition
and respect by the courts of justice except when they run afoul of the Constitution. The deference stops where the
classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution.
When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and
require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice.

Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial
scrutiny finds no support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities are
not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our
decisions. We should not place undue and fawning reliance upon them and regard them as indispensable mental crutches
without which we cannot come to our own decisions through the employment of our own endowments. We live in a
different ambience and must decide our own problems in the light of our own interests and needs, and of our qualities
and even idiosyncrasies as a people, and always with our own concept of law and justice. Our laws must be construed in
accordance with the intention of our own lawmakers and such intent may be deduced from the language of each law and
the context of other local legislation related thereto. More importantly, they must be construed to serve our own public
interest which is the be-all and the end-all of all our laws. And it need not be stressed that our public interest is distinct
and different from others.
xxxx

Further, the quest for a better and more "equal" world calls for the use of equal protection as a tool of effective judicial
intervention.

Equality is one ideal which cries out for bold attention and action in the Constitution. The Preamble proclaims "equality"
as an ideal precisely in protest against crushing inequities in Philippine society. The command to promote social justice in
Article II, Section 10, in "all phases of national development," further explicitated in Article XIII, are clear commands to
the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in the Philippine Constitution
no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality.

Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of
society, including labor. Under the policy of social justice, the law bends over backward to accommodate the interests of
the working class on the humane justification that those with less privilege in life should have more in law. And the
obligation to afford protection to labor is incumbent not only on the legislative and executive branches but also on the
judiciary to translate this pledge into a living reality. Social justice calls for the humanization of laws and the equalization
of social and economic forces by the State so that justice in its rational and objectively secular conception may at least be
approximated.

xxxx

Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing
the broad discretion given to Congress in exercising its legislative power. Judicial scrutiny would be based on the "rational
basis" test, and the legislative discretion would be given deferential treatment.

But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice
against persons favored by the Constitution with special protection, judicial scrutiny ought to be more
strict. A weak and watered down view would call for the abdication of this Court’s solemn duty to strike down any law
repugnant to the Constitution and the rights it enshrines. This is true whether the actor committing the unconstitutional
act is a private person or the government itself or one of its instrumentalities. Oppressive acts will be struck down
regardless of the character or nature of the actor.

xxxx

In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status. It is akin
to a distinction based on economic class and status, with the higher grades as recipients of a benefit specifically withheld
from the lower grades. Officers of the BSP now receive higher compensation packages that are competitive with the
industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The implications are
quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher in
rank - possessing higher and better education and opportunities for career advancement - are given higher compensation
packages to entice them to stay. Considering that majority, if not all, the rank-and-file employees consist of people whose
status and rank in life are less and limited, especially in terms of job marketability, it is they - and not the officers - who
have the real economic and financial need for the adjustment . This is in accord with the policy of the Constitution "to
free the people from poverty, provide adequate social services, extend to them a decent standard of living, and improve
the quality of life for all." Any act of Congress that runs counter to this constitutional desideratum deserves strict scrutiny
by this Court before it can pass muster. (Emphasis supplied)

Imbued with the same sense of "obligation to afford protection to labor," the Court in the present case also employs the
standard of strict judicial scrutiny, for it perceives in the subject clause a suspect classification prejudicial to OFWs.

Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a closer
examination reveals that the subject clause has a discriminatory intent against, and an invidious impact on, OFWs at two
levels:

First, OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one
year or more;
 Second, among OFWs with employment contracts of more than one year; and

Third, OFWs vis-à-vis local workers with fixed-period employment;

OFWs with employment contracts of less than one year vis-à-vis OFWs with employment contracts of one
year or more

As pointed out by petitioner,78 it was in Marsaman Manning Agency, Inc. v. National Labor Relations
Commission79 (Second Division, 1999) that the Court laid down the following rules on the application of the periods
prescribed under Section 10(5) of R.A. No. 804, to wit:

A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed
overseas contract worker, i.e., whether his salaries for the unexpired portion of his employment contract
or three (3) months’ salary for every year of the unexpired term, whichever is less, comes into play only
when the employment contract concerned has a term of at least one (1) year or more. This is evident from
the words "for every year of the unexpired term" which follows the words "salaries x x x for three
months." To follow petitioners’ thinking that private respondent is entitled to three (3) months salary only simply
because it is the lesser amount is to completely disregard and overlook some words used in the statute while giving effect
to some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care should be
taken that every part or word thereof be given effect since the law-making body is presumed to know the meaning of the
words employed in the statue and to have used them advisedly. Ut res magis valeat quam pereat. 80 (Emphasis supplied)

In Marsaman, the OFW involved was illegally dismissed two months into his 10-month contract, but was awarded his
salaries for the remaining 8 months and 6 days of his contract.

Prior to Marsaman, however, there were two cases in which the Court made conflicting rulings on Section 10(5). One
was Asian Center for Career and Employment System and Services v. National Labor Relations Commission (Second
Division, October 1998),81 which involved an OFW who was awarded a two-year employment contract, but was dismissed
after working for one year and two months. The LA declared his dismissal illegal and awarded him SR13,600.00 as lump-
sum salary covering eight months, the unexpired portion of his contract. On appeal, the Court reduced the award to
SR3,600.00 equivalent to his three months’ salary, this being the lesser value, to wit:

Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without just, valid or authorized cause
is entitled to his salary for the unexpired portion of his employment contract or for three (3) months for every year of the
unexpired term, whichever is less.

In the case at bar, the unexpired portion of private respondent’s employment contract is eight (8) months. Private
respondent should therefore be paid his basic salary corresponding to three (3) months or a total of SR3,600. 82

Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division, December
1998),83 which involved an OFW (therein respondent Erlinda Osdana) who was originally granted a 12-month contract,
which was deemed renewed for another 12 months. After serving for one year and seven-and-a-half months, respondent
Osdana was illegally dismissed, and the Court awarded her salaries for the entire unexpired portion of four and one-half
months of her contract.

The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:

Case Title Contract Period of Unexpired Period Applied in

Period Service Period the Computation
of the Monetary
Award

Skippers v. 6 months 2 months 4 months 4 months

Maguad84

Bahia Shipping 9 months 8 months 4 months 4 months

v. Reynaldo
 Chua 85

Centennial 9 months 4 months 5 months 5 months

Transmarine v.
dela Cruz l86

Talidano v. 12 months 3 months 9 months 3 months

Falcon87

Univan v. CA 88
12 months 3 months 9 months 3 months

Oriental v. CA 89
12 months more than 2 10 months 3 months
months

PCL v. NLRC90 12 months more than 2 more or less 9 3 months

months months

Olarte v. 12 months 21 days 11 months and 9 3 months

Nayona91 days

JSS v.Ferrer92 12 months 16 days 11 months and 24 3 months

days

Pentagon v. 12 months 9 months and 2 months and 23 2 months and 23

Adelantar93 7 days days days

Phil. Employ v. 12 months 10 months 2 months Unexpired portion

Paramio, et al.94

Flourish 2 years 26 days 23 months and 4 6 months or 3

Maritime v. days months for each
Almanzor 95 year of contract

Athenna 1 year, 10 1 month 1 year, 9 months 6 months or 3

Manpower v. months and and 28 days months for each
Villanos 96 28 days year of contract

As the foregoing matrix readily shows, the subject clause classifies OFWs into two categories. The first category includes
OFWs with fixed-period employment contracts of less than one year; in case of illegal dismissal, they are entitled to their
salaries for the entire unexpired portion of their contract. The second category consists of OFWs with fixed-period
employment contracts of one year or more; in case of illegal dismissal, they are entitled to monetary award equivalent to
only 3 months of the unexpired portion of their contracts.

The disparity in the treatment of these two groups cannot be discounted. In Skippers, the respondent OFW worked for
only 2 months out of his 6-month contract, but was awarded his salaries for the remaining 4 months. In contrast, the
respondent OFWs in Oriental and PCL who had also worked for about 2 months out of their 12-month contracts were
awarded their salaries for only 3 months of the unexpired portion of their contracts. Even the OFWs involved
in Talidano and Univan who had worked for a longer period of 3 months out of their 12-month contracts before being
illegally dismissed were awarded their salaries for only 3 months.

To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an employment contract of 10
months at a monthly salary rate of US$1,000.00 and a hypothetical OFW-B with an employment contract of 15 months
with the same monthly salary rate of US$1,000.00. Both commenced work on the same day and under the same
employer, and were illegally dismissed after one month of work. Under the subject clause, OFW-A will be entitled to
US$9,000.00, equivalent to his salaries for the remaining 9 months of his contract, whereas OFW-B will be entitled to only
US$3,000.00, equivalent to his salaries for 3 months of the unexpired portion of his contract, instead of US$14,000.00 for
the unexpired portion of 14 months of his contract, as the US$3,000.00 is the lesser amount.

The disparity becomes more aggravating when the Court takes into account jurisprudence that, prior to the effectivity
of R.A. No. 8042 on July 14, 1995,97 illegally dismissed OFWs, no matter how long the period of their employment
contracts, were entitled to their salaries for the entire unexpired portions of their contracts. The matrix below speaks for
itself:

Case Title Contract Period of Unexpired Period Applied in the

Period Service Period Computation of the
Monetary Award

ATCI v. CA, et 2 years 2 months 22 months 22 months

al.98

Phil. Integrated 2 years 7 days 23 months 23 months and 23 days

v. NLRC99 and 23 days

JGB v. NLC100 2 years 9 months 15 months 15 months

Agoy v. NLRC101 2 years 2 months 22 months 22 months

EDI v. NLRC, et 2 years 5 months 19 months 19 months

al.102

Barros v. NLRC, 12 months 4 months 8 months 8 months

et al.103

Philippine 12 months 6 months and 5 months and 5 months and 18 days

Transmarine v. 22 days 18 days
Carilla104

It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions thereof, were
treated alike in terms of the computation of their monetary benefits in case of illegal dismissal. Their claims were
subjected to a uniform rule of computation: their basic salaries multiplied by the entire unexpired portion of their
employment contracts.

The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of the money claims
of illegally dismissed OFWs based on their employment periods, in the process singling out one category whose
contracts have an unexpired portion of one year or more and subjecting them to the peculiar disadvantage of having their
monetary awards limited to their salaries for 3 months or for the unexpired portion thereof, whichever is less, but all the
while sparing the other category from such prejudice, simply because the latter's unexpired contracts fall short of one
year.

Among OFWs With Employment Contracts of More Than One Year

Upon closer examination of the terminology employed in the subject clause, the Court now has misgivings on the
accuracy of the Marsaman interpretation.

The Court notes that the subject clause "or for three (3) months for every year of the unexpired term, whichever is less"
contains the qualifying phrases "every year" and "unexpired term." By its ordinary meaning, the word "term" means a
limited or definite extent of time.105 Corollarily, that "every year" is but part of an "unexpired term" is significant in many
ways: first, the unexpired term must be at least one year, for if it were any shorter, there would be no occasion for such
unexpired term to be measured by every year ; and second, the original term must be more than one year, for otherwise,
whatever would be the unexpired term thereof will not reach even a year. Consequently, the more decisive factor in the
determination of when the subject clause "for three (3) months for every year of the unexpired term, whichever is less"
shall apply is not the length of the original contract period as held in Marsaman,106 but the length of the unexpired portion
of the contract period -- the subject clause applies in cases when the unexpired portion of the contract period is at least
one year, which arithmetically requires that the original contract period be more than one year.

Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs whose contract periods are for
more than one year: those who are illegally dismissed with less than one year left in their contracts shall be entitled to
their salaries for the entire unexpired portion thereof, while those who are illegally dismissed with one year or more
remaining in their contracts shall be covered by the subject clause, and their monetary benefits limited to their salaries for
three months only.

To concretely illustrate the application of the foregoing interpretation of the subject clause, the Court assumes
hypothetical OFW-C and OFW-D, who each have a 24-month contract at a salary rate of US$1,000.00 per month. OFW-C
is illegally dismissed on the 12th month, and OFW-D, on the 13th month. Considering that there is at least 12 months
remaining in the contract period of OFW-C, the subject clause applies to the computation of the latter's monetary
benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total salaries for the 12 months unexpired
portion of the contract, but to the lesser amount of US$3,000.00 or the latter's salaries for 3 months out of the 12-month
unexpired term of the contract. On the other hand, OFW-D is spared from the effects of the subject clause, for there are
only 11 months left in the latter's contract period. Thus, OFW-D will be entitled to US$11,000.00, which is equivalent to
his/her total salaries for the entire 11-month unexpired portion.

OFWs vis-à-vis Local Workers

With Fixed-Period Employment

As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally
dismissed OFWs was in place. This uniform system was applicable even to local workers with fixed-term employment.107

The earliest rule prescribing a uniform system of computation was actually Article 299 of the Code of Commerce
(1888),108 to wit:

Article 299. If the contracts between the merchants and their shop clerks and employees should have been made of a
fixed period, none of the contracting parties, without the consent of the other, may withdraw from the fulfillment of said
contract until the termination of the period agreed upon.

Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the exception of the
provisions contained in the following articles.

In Reyes v. The Compañia Maritima,109 the Court applied the foregoing provision to determine the liability of a shipping
company for the illegal discharge of its managers prior to the expiration of their fixed-term employment. The Court
therein held the shipping company liable for the salaries of its managers for the remainder of their fixed-term
employment.

There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of Commerce which provides:

Article 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or
voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious
matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or
proven negligence.

Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie, 110 in

which the Court held the shipping company liable for the salaries and subsistence allowance of its illegally dismissed
employees for the entire unexpired portion of their employment contracts.

While Article 605 has remained good law up to the present,111 Article 299 of the Code of Commerce was replaced by Art.
1586 of the Civil Code of 1889, to wit:

Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and for a certain work cannot
leave or be dismissed without sufficient cause, before the fulfillment of the contract. (Emphasis supplied.)

Citing Manresa, the Court in Lemoine v. Alkan112 read the disjunctive "or" in Article 1586 as a conjunctive "and" so as to
apply the provision to local workers who are employed for a time certain although for no particular skill. This
interpretation of Article 1586 was reiterated in Garcia Palomar v. Hotel de France Company. 113 And in both Lemoine and
Palomar, the Court adopted the general principle that in actions for wrongful discharge founded on Article 1586, local
workers are entitled to recover damages to the extent of the amount stipulated to be paid to them by the terms of their
contract. On the computation of the amount of such damages, the Court in Aldaz v. Gay114 held:

The doctrine is well-established in American jurisprudence, and nothing has been brought to our attention to the contrary
under Spanish jurisprudence, that when an employee is wrongfully discharged it is his duty to seek other employment of
the same kind in the same community, for the purpose of reducing the damages resulting from such wrongful discharge.
However, while this is the general rule, the burden of showing that he failed to make an effort to secure other
employment of a like nature, and that other employment of a like nature was obtainable, is upon the defendant. When an
employee is wrongfully discharged under a contract of employment his prima facie damage is the amount which he would
be entitled to had he continued in such employment until the termination of the period . (Howard vs. Daly, 61 N. Y., 362;
Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich., 43.)115 (Emphasis supplied)

On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term employment: Section 2
(Obligations with a Period), Chapter 3, Title I, and Sections 2 (Contract of Labor) and 3 (Contract for a Piece of Work),
Chapter 3, Title VIII, Book IV.116 Much like Article 1586 of the Civil Code of 1889, the new provisions of the Civil Code do
not expressly provide for the remedies available to a fixed-term worker who is illegally discharged. However, it is noted
that in Mackay Radio & Telegraph Co., Inc. v. Rich, 117 the Court carried over the principles on the payment of damages
underlying Article 1586 of the Civil Code of 1889 and applied the same to a case involving the illegal discharge of a local
worker whose fixed-period employment contract was entered into in 1952, when the new Civil Code was already in
effect.118

More significantly, the same principles were applied to cases involving overseas Filipino workers whose fixed-term
employment contracts were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v. Ople, 119involving
seafarers who were illegally discharged. In Teknika Skills and Trade Services, Inc. v. National Labor Relations
Commission,120 an OFW who was illegally dismissed prior to the expiration of her fixed-period employment contract as a
baby sitter, was awarded salaries corresponding to the unexpired portion of her contract. The Court arrived at the same
ruling in Anderson v. National Labor Relations Commission, 121 which involved a foreman hired in 1988 in Saudi Arabia for
a fixed term of two years, but who was illegally dismissed after only nine months on the job -- the Court awarded him
salaries corresponding to 15 months, the unexpired portion of his contract. In Asia World Recruitment, Inc. v. National
Labor Relations Commission,122 a Filipino working as a security officer in 1989 in Angola was awarded his salaries for the
remaining period of his 12-month contract after he was wrongfully discharged. Finally, in Vinta Maritime Co., Inc. v.
National Labor Relations Commission,123 an OFW whose 12-month contract was illegally cut short in the second month
was declared entitled to his salaries for the remaining 10 months of his contract.

In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who were illegally discharged were
treated alike in terms of the computation of their money claims: they were uniformly entitled to their salaries for the
entire unexpired portions of their contracts. But with the enactment of R.A. No. 8042, specifically the adoption of the
subject clause, illegally dismissed OFWs with an unexpired portion of one year or more in their employment contract have
since been differently treated in that their money claims are subject to a 3-month cap, whereas no such limitation is
imposed on local workers with fixed-term employment.

The Court concludes that the subject clause contains a suspect classification in that, in the computation of
the monetary benefits of fixed-term employees who are illegally discharged, it imposes a 3-month cap on
the claim of OFWs with an unexpired portion of one year or more in their contracts, but none on the claims
of other OFWs or local workers with fixed-term employment. The subject clause singles out one
classification of OFWs and burdens it with a peculiar disadvantage.

There being a suspect classification involving a vulnerable sector protected by the Constitution, the Court now subjects
the classification to a strict judicial scrutiny, and determines whether it serves a compelling state interest through the
least restrictive means.

What constitutes compelling state interest is measured by the scale of rights and powers arrayed in the Constitution and
calibrated by history.124 It is akin to the paramount interest of the state 125 for which some individual liberties must give
way, such as the public interest in safeguarding health or maintaining medical standards, 126 or in maintaining access to
information on matters of public concern.127

In the present case, the Court dug deep into the records but found no compelling state interest that the subject clause
may possibly serve.
The OSG defends the subject clause as a police power measure "designed to protect the employment of Filipino seafarers
overseas x x x. By limiting the liability to three months [sic], Filipino seafarers have better chance of getting hired by
foreign employers." The limitation also protects the interest of local placement agencies, which otherwise may be made to
shoulder millions of pesos in "termination pay."128

The OSG explained further:

Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that
jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation.
Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the
acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino
migrant workers, liability for money are reduced under Section 10 of RA 8042.

This measure redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The
survival of legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and
are employed under decent and humane conditions.129 (Emphasis supplied)

However, nowhere in the Comment or Memorandum does the OSG cite the source of its perception of the state interest
sought to be served by the subject clause.

The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in sponsorship of House Bill No.
14314 (HB 14314), from which the law originated; 130 but the speech makes no reference to the underlying reason for the
adoption of the subject clause. That is only natural for none of the 29 provisions in HB 14314 resembles the subject
clause.

On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to wit:

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
the complaint, the claim arising out of an employer-employee relationship or by virtue of any law or contract involving
Filipino workers for overseas employment including claims for actual, moral, exemplary and other forms of damages.

The liability of the principal and the recruitment/placement agency or any and all claims under this Section shall be joint
and several.

Any compromise/amicable settlement or voluntary agreement on any money claims exclusive of damages under this
Section shall not be less than fifty percent (50%) of such money claims: Provided, That any installment payments, if
applicable, to satisfy any such compromise or voluntary settlement shall not be more than two (2) months. Any
compromise/voluntary agreement in violation of this paragraph shall be null and void.

Non-compliance with the mandatory period for resolutions of cases provided under this Section shall subject the
responsible officials to any or all of the following penalties:

(1) The salary of any such official who fails to render his decision or resolution within the prescribed period shall
be, or caused to be, withheld until the said official complies therewith;

(2) Suspension for not more than ninety (90) days; or

(3) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.

Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official
may have incurred under other existing laws or rules and regulations as a consequence of violating the provisions of this
paragraph.

But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of money claims.
A rule on the computation of money claims containing the subject clause was inserted and eventually adopted as the 5th
paragraph of Section 10 of R.A. No. 8042. The Court examined the rationale of the subject clause in the transcripts of the
"Bicameral Conference Committee (Conference Committee) Meetings on the Magna Carta on OCWs (Disagreeing
Provisions of Senate Bill No. 2077 and House Bill No. 14314)." However, the Court finds no discernible state interest, let
alone a compelling one, that is sought to be protected or advanced by the adoption of the subject clause.

In fine, the Government has failed to discharge its burden of proving the existence of a compelling state interest that
would justify the perpetuation of the discrimination against OFWs under the subject clause.

Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the employment of OFWs by
mitigating the solidary liability of placement agencies, such callous and cavalier rationale will have to be rejected. There
can never be a justification for any form of government action that alleviates the burden of one sector, but imposes the
same burden on another sector, especially when the favored sector is composed of private businesses such as placement
agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the Constitution
commands. The idea that private business interest can be elevated to the level of a compelling state interest is odious.

Moreover, even if the purpose of the subject clause is to lessen the solidary liability of placement agencies vis-a-vis their
foreign principals, there are mechanisms already in place that can be employed to achieve that purpose without infringing
on the constitutional rights of OFWs.

The POEA Rules and Regulations Governing the Recruitment and Employment of Land-Based Overseas Workers, dated
February 4, 2002, imposes administrative disciplinary measures on erring foreign employers who default on their
contractual obligations to migrant workers and/or their Philippine agents. These disciplinary measures range from
temporary disqualification to preventive suspension. The POEA Rules and Regulations Governing the Recruitment and
Employment of Seafarers, dated May 23, 2003, contains similar administrative disciplinary measures against erring foreign
employers.

Resort to these administrative measures is undoubtedly the less restrictive means of aiding local placement agencies in
enforcing the solidary liability of their foreign principals.

Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of the right of petitioner and
other OFWs to equal protection.1avvphi1

Further, there would be certain misgivings if one is to approach the declaration of the unconstitutionality of the subject
clause from the lone perspective that the clause directly violates state policy on labor under Section 3, 131Article XIII of the
Constitution.

While all the provisions of the 1987 Constitution are presumed self-executing,132 there are some which this Court has
declared not judicially enforceable, Article XIII being one,133 particularly Section 3 thereof, the nature of which, this
Court, in Agabon v. National Labor Relations Commission,134 has described to be not self-actuating:

Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as self-executing in the
sense that these are automatically acknowledged and observed without need for any enabling legislation. However, to
declare that the constitutional provisions are enough to guarantee the full exercise of the rights embodied therein, and
the realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view presents the
dangerous tendency of being overbroad and exaggerated. The guarantees of "full protection to labor" and "security of
tenure", when examined in isolation, are facially unqualified, and the broadest interpretation possible suggests a blanket
shield in favor of labor against any form of removal regardless of circumstance. This interpretation implies an
unimpeachable right to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of the
framers. Subsequent legislation is still needed to define the parameters of these guaranteed rights to ensure the
protection and promotion, not only the rights of the labor sector, but of the employers' as well. Without specific and
pertinent legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at least the aims of
the Constitution.

Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive enforceable
right to stave off the dismissal of an employee for just cause owing to the failure to serve proper notice or hearing. As
manifested by several framers of the 1987 Constitution, the provisions on social justice require legislative enactments for
their enforceability.135 (Emphasis added)
Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable rights, for the violation of which
the questioned clause may be declared unconstitutional. It may unwittingly risk opening the floodgates of litigation to
every worker or union over every conceivable violation of so broad a concept as social justice for labor.

It must be stressed that Section 3, Article XIII does not directly bestow on the working class any actual enforceable right,
but merely clothes it with the status of a sector for whom the Constitution urges protection through executive or
legislative action and judicial recognition. Its utility is best limited to being an impetus not just for the executive and
legislative departments, but for the judiciary as well, to protect the welfare of the working class . And it was in fact
consistent with that constitutional agenda that the Court in Central Bank (now Bangko Sentral ng Pilipinas) Employee
Association, Inc. v. Bangko Sentral ng Pilipinas, penned by then Associate Justice now Chief Justice Reynato S. Puno,
formulated the judicial precept that when the challenge to a statute is premised on the perpetuation of prejudice against
persons favored by the Constitution with special protection -- such as the working class or a section thereof -- the Court
may recognize the existence of a suspect classification and subject the same to strict judicial scrutiny.

The view that the concepts of suspect classification and strict judicial scrutiny formulated in Central Bank Employee
Association exaggerate the significance of Section 3, Article XIII is a groundless apprehension. Central Bank applied
Article XIII in conjunction with the equal protection clause. Article XIII, by itself, without the application of the equal
protection clause, has no life or force of its own as elucidated in Agabon.

Along the same line of reasoning, the Court further holds that the subject clause violates petitioner's right to substantive
due process, for it deprives him of property, consisting of monetary benefits, without any existing valid governmental
purpose.136

The argument of the Solicitor General, that the actual purpose of the subject clause of limiting the entitlement of OFWs to
their three-month salary in case of illegal dismissal, is to give them a better chance of getting hired by foreign employers.
This is plain speculation. As earlier discussed, there is nothing in the text of the law or the records of the deliberations
leading to its enactment or the pleadings of respondent that would indicate that there is an existing governmental
purpose for the subject clause, or even just a pretext of one.

The subject clause does not state or imply any definitive governmental purpose; and it is for that precise reason that the
clause violates not just petitioner's right to equal protection, but also her right to substantive due process under Section
1,137 Article III of the Constitution.

The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired period of nine
months and 23 days of his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No.
8042.

On the Third Issue

Petitioner contends that his overtime and leave pay should form part of the salary basis in the computation of his
monetary award, because these are fixed benefits that have been stipulated into his contract.

Petitioner is mistaken.

The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE
Department Order No. 33, series 1996, provides a Standard Employment Contract of Seafarers, in which salary is
understood as the basic wage, exclusive of overtime, leave pay and other bonuses; whereas overtime pay is
compensation for all work "performed" in excess of the regular eight hours, and holiday pay is compensation for any work
"performed" on designated rest days and holidays.

By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and holiday pay in the
computation of petitioner's monetary award, unless there is evidence that he performed work during those periods. As
the Court held in Centennial Transmarine, Inc. v. Dela Cruz,138

However, the payment of overtime pay and leave pay should be disallowed in light of our ruling in Cagampan v. National
Labor Relations Commission, to wit:
The rendition of overtime work and the submission of sufficient proof that said was actually performed are conditions to
be satisfied before a seaman could be entitled to overtime pay which should be computed on the basis of 30% of the
basic monthly salary. In short, the contract provision guarantees the right to overtime pay but the entitlement to such
benefit must first be established.

In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is unwarranted since the
same is given during the actual service of the seamen.

WHEREFORE, the Court GRANTS the Petition. The subject clause "or for three months for every year of the unexpired
term, whichever is less" in the 5th paragraph of Section 10 of Republic Act No. 8042
is DECLAREDUNCONSTITUTIONAL; and the December 8, 2004 Decision and April 1, 2005 Resolution of the Court of
Appeals are MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his
employment contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per month.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 170139 August 5, 2014

SAMEER OVERSEAS PLACEMENT AGENCY, INC., Petitioner,

vs.
JOY C. CABILES, Respondent.

DECISION

LEONEN, J.:

This case involves an overseas Filipino worker with shattered dreams. It is our duty, given the facts and the law, to
approximate justice for her.

We are asked to decide a petition for review1 on certiorari assailing the Court of Appeals’ decision2 dated June 27, 2005.
This decision partially affirmed the National Labor RelationsCommission’s resolution dated March 31, 2004, 3 declaring
respondent’s dismissal illegal, directing petitioner to pay respondent’s three-month salary equivalent to New Taiwan Dollar
(NT$) 46,080.00, and ordering it to reimburse the NT$3,000.00 withheld from respondent, and pay her NT$300.00
attorney’s fees.4

Petitioner, Sameer Overseas Placement Agency, Inc., is a recruitment and placement agency. 5 Responding to an ad it
published, respondent, Joy C. Cabiles, submitted her application for a quality control job in Taiwan. 6

Joy’s application was accepted.7 Joy was later asked to sign a oneyear employment contract for a monthly salary of
NT$15,360.00.8 She alleged that Sameer Overseas Agency required her to pay a placement fee of ₱70,000.00 when she
signed the employment contract.9

Joy was deployed to work for TaiwanWacoal, Co. Ltd. (Wacoal) on June 26, 1997. 10 She alleged that in her employment
contract, she agreed to work as quality control for one year.11 In Taiwan, she was asked to work as a cutter.12

Sameer Overseas Placement Agencyclaims that on July 14, 1997, a certain Mr. Huwang from Wacoal informedJoy,
without prior notice, that she was terminated and that "she should immediately report to their office to get her salary and
passport."13 She was asked to "prepare for immediate repatriation."14

Joy claims that she was told that from June 26 to July 14, 1997, she only earned a total of NT$9,000. 15 According to her,
Wacoal deducted NT$3,000 to cover her plane ticket to Manila.16

On October 15, 1997, Joy filed a complaint17 with the National Labor Relations Commission against petitioner and Wacoal.
She claimed that she was illegally dismissed. 18 She asked for the return of her placement fee, the withheld amount for
repatriation costs, payment of her salary for 23 months as well as moral and exemplary damages. 19 She identified Wacoal
as Sameer Overseas Placement Agency’s foreign principal.20

Sameer Overseas Placement Agency alleged that respondent's termination was due to her inefficiency, negligence in her
duties, and her "failure to comply with the work requirements [of] her foreign [employer]." 21 The agency also claimed
that it did not ask for a placement fee of ₱70,000.00. 22 As evidence, it showedOfficial Receipt No. 14860 dated June 10,
1997, bearing the amount of ₱20,360.00.23 Petitioner added that Wacoal's accreditation with petitioner had already been
transferred to the Pacific Manpower & Management Services, Inc. (Pacific) as of August 6, 1997. 24 Thus, petitioner
asserts that it was already substituted by Pacific Manpower. 25

Pacific Manpower moved for the dismissal of petitioner’s claims against it. 26 It alleged that there was no employer-
employee relationship between them.27 Therefore, the claims against it were outside the jurisdiction of the Labor
Arbiter.28 Pacific Manpower argued that the employment contract should first be presented so that the employer’s
contractual obligations might be identified. 29 It further denied that it assumed liability for petitioner’s illegal acts. 30

On July 29, 1998, the Labor Arbiter dismissed Joy’s complaint.31 Acting Executive Labor Arbiter Pedro C.Ramos ruled that
her complaint was based on mereallegations.32 The Labor Arbiter found that there was no excess payment of placement
fees, based on the official receipt presented by petitioner.33 The Labor Arbiter found unnecessary a discussion on
petitioner’s transfer of obligations to Pacific 34 and considered the matter immaterial in view of the dismissal of
respondent’s complaint.35

Joy appealed36 to the National Labor Relations Commission.

In a resolution37 dated March 31, 2004, the National Labor Relations Commission declared that Joy was illegally
dismissed.38 It reiterated the doctrine that the burden of proof to show that the dismissal was based on a just or valid
cause belongs to the employer.39 It found that Sameer Overseas Placement Agency failed to prove that there were just
causes for termination.40 There was no sufficient proofto show that respondent was inefficient in her work and that she
failed to comply with company requirements.41 Furthermore, procedural dueprocess was not observed in terminating
respondent.42

The National Labor Relations Commission did not rule on the issue of reimbursement of placement fees for lack of
jurisdiction.43 It refused to entertain the issue of the alleged transfer of obligations to Pacific.44 It did not acquire
jurisdiction over that issue because Sameer Overseas Placement Agency failed to appeal the Labor Arbiter’s decision not
to rule on the matter.45

The National Labor Relations Commission awarded respondent only three (3) months worth of salaryin the amount of
NT$46,080, the reimbursement of the NT$3,000 withheld from her, and attorney’s fees of NT$300. 46

The Commission denied the agency’s motion for reconsideration47 dated May 12, 2004 through a resolution48dated July 2,
2004.

Aggrieved by the ruling, Sameer Overseas Placement Agency caused the filing of a petition 49 for certiorari with the Court
of Appeals assailing the National Labor Relations Commission’s resolutions dated March 31, 2004 and July 2, 2004.

The Court of Appeals50 affirmed the decision of the National Labor Relations Commission with respect to the finding of
illegal dismissal, Joy’s entitlement to the equivalent of three months worth of salary, reimbursement of withheld
repatriation expense, and attorney’s fees. 51 The Court of Appeals remanded the case to the National Labor Relations
Commission to address the validity of petitioner's allegations against Pacific. 52 The Court of Appeals held, thus: Although
the public respondent found the dismissal of the complainant-respondent illegal, we should point out that the NLRC
merely awarded her three (3) months backwages or the amount of NT$46,080.00, which was based upon its finding that
she was dismissed without due process, a finding that we uphold, given petitioner’s lack of worthwhile discussion upon
the same in the proceedings below or before us. Likewise we sustain NLRC’s finding in regard to the reimbursement of
her fare, which is squarely based on the law; as well as the award of attorney’s fees.

But we do find it necessary to remand the instant case to the public respondent for further proceedings, for the purpose
of addressing the validity or propriety of petitioner’s third-party complaint against the transferee agent or the Pacific
Manpower & Management Services, Inc. and Lea G. Manabat. We should emphasize that as far as the decision of the
NLRC on the claims of Joy Cabiles, is concerned, the same is hereby affirmed with finality, and we hold petitioner liable
thereon, but without prejudice to further hearings on its third party complaint against Pacific for reimbursement.

WHEREFORE, premises considered, the assailed Resolutions are hereby partly AFFIRMED in accordance with the
foregoing discussion, but subject to the caveat embodied inthe last sentence. No costs.

SO ORDERED.53

Dissatisfied, Sameer Overseas Placement Agency filed this petition. 54

We are asked to determine whether the Court of Appeals erred when it affirmed the ruling of the National Labor Relations
Commission finding respondent illegally dismissed and awarding her three months’ worth of salary, the reimbursement of
the cost ofher repatriation, and attorney’s fees despite the alleged existence of just causes of termination.

Petitioner reiterates that there was just cause for termination because there was a finding of Wacoal that respondent was
inefficient in her work.55

Therefore, it claims that respondent’s dismissal was valid.56

Petitioner also reiterates that since Wacoal’s accreditation was validly transferred to Pacific at the time respondent filed
her complaint, it should be Pacific that should now assume responsibility for Wacoal’s contractual obligations to the
workers originally recruited by petitioner.57

Sameer Overseas Placement Agency’spetition is without merit. We find for respondent.

Sameer Overseas Placement Agency failed to show that there was just cause for causing Joy’s dismissal. The employer,
Wacoal, also failed to accord her due process of law.

Indeed, employers have the prerogative to impose productivity and quality standards at work. 58 They may also impose
reasonable rules to ensure that the employees comply with these standards. 59 Failure to comply may be a just cause for
their dismissal.60 Certainly, employers cannot be compelled to retain the services of anemployee who is guilty of acts that
are inimical to the interest of the employer. 61 While the law acknowledges the plight and vulnerability of workers, it does
not "authorize the oppression or self-destruction of the employer."62 Management prerogative is recognized in law and in
our jurisprudence.

This prerogative, however, should not be abused. It is "tempered with the employee’s right to security of
tenure."63Workers are entitled to substantive and procedural due process before termination. They may not be removed
from employment without a validor just cause as determined by law and without going through the proper procedure.

Security of tenure for labor is guaranteed by our Constitution. 64

Employees are not stripped of their security of tenure when they move to work in a different jurisdiction. With respect to
the rights of overseas Filipino workers, we follow the principle of lex loci contractus.Thus, in Triple Eight Integrated
Services, Inc. v. NLRC,65 this court noted:

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana was working
in Saudi Arabia, her employment was subject to the laws of the host country. Apparently, petitioner hopes tomake it
appear that the labor laws of Saudi Arabia do not require any certification by a competent public health authority in the
dismissal of employees due to illness.

Again, petitioner’s argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in this
jurisdiction. There is no question that the contract of employment in this case was perfected here in the Philippines.
Therefore, the Labor Code, its implementing rules and regulations, and other laws affecting labor apply in this
case.Furthermore, settled is the rule that the courts of the forum will not enforce any foreign claim obnoxious to the
forum’s public policy. Herein the Philippines, employment agreements are more than contractual in nature. The
Constitution itself, in Article XIII, Section 3, guarantees the special protection of workers, to wit:

The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full
employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to selforganization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure,
humane conditions of work, and a living wage. Theyshall also participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law.

....

This public policy should be borne in mind in this case because to allow foreign employers to determine for and by
themselves whether an overseas contract worker may be dismissed on the ground of illness would encourage illegal or
arbitrary pretermination of employment contracts.66 (Emphasis supplied, citation omitted)

Even with respect to fundamental procedural rights, this court emphasized in PCL Shipping Philippines, Inc. v. NLRC, 67 to
wit:

Petitioners admit that they did notinform private respondent in writing of the charges against him and that they failed to
conduct a formal investigation to give him opportunity to air his side. However, petitioners contend that the twin
requirements ofnotice and hearing applies strictly only when the employment is within the Philippines and that these need
not be strictly observed in cases of international maritime or overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor Code which afford protection to labor
apply to Filipino employees whether working within the Philippines or abroad. Moreover, the principle of lex loci
contractus (the law of the place where the contract is made) governs in this jurisdiction. In the present case, it is not
disputed that the Contract of Employment entered into by and between petitioners and private respondent was executed
here in the Philippines with the approval of the Philippine Overseas Employment Administration (POEA). Hence, the Labor
Code together with its implementing rules and regulations and other laws affecting labor apply in this case. 68 (Emphasis
supplied, citations omitted)

By our laws, overseas Filipino workers (OFWs) may only be terminated for a just or authorized cause and after
compliance with procedural due process requirements.

Article 282 of the Labor Code enumerates the just causes of termination by the employer. Thus:

Art. 282. Termination by employer. An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or
representative in connection with his work;

(b) Gross and habitual neglect by the employee of his duties;

(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized
representative;

(d) Commission of a crime or offense by the employee against the person of his employer or any immediate
member of his family or his duly authorized representatives; and

(e) Other causes analogous to the foregoing.

Petitioner’s allegation that respondentwas inefficient in her work and negligent in her duties 69 may, therefore, constitute a
just cause for termination under Article 282(b), but only if petitioner was able to prove it.

The burden of proving that there is just cause for termination is on the employer. "The employer must affirmatively show
rationally adequate evidence that the dismissal was for a justifiable cause." 70 Failure to show that there was valid or just
cause for termination would necessarily mean that the dismissal was illegal. 71

To show that dismissal resulting from inefficiency in work is valid, it must be shown that: 1) the employer has set
standards of conduct and workmanship against which the employee will be judged; 2) the standards of conduct and
workmanship must have been communicated tothe employee; and 3) the communication was made at a reasonable time
prior to the employee’s performance assessment.
This is similar to the law and jurisprudence on probationary employees, which allow termination ofthe employee only
when there is "just cause or when [the probationary employee] fails to qualify as a regular employee in accordance with
reasonable standards made known by the employer to the employee at the time of his [or her] engagement." 72

However, we do not see why the application of that ruling should be limited to probationary employment. That rule is
basic to the idea of security of tenure and due process, which are guaranteed to all employees, whether their
employment is probationary or regular.

The pre-determined standards that the employer sets are the bases for determining the probationary employee’s fitness,
propriety, efficiency, and qualifications as a regular employee. Due process requires that the probationary employee be
informed of such standards at the time of his or her engagement so he or she can adjusthis or her character or
workmanship accordingly. Proper adjustment to fit the standards upon which the employee’s qualifications will be
evaluated will increase one’s chances of being positively assessed for regularization by his or her employer.

Assessing an employee’s work performance does not stop after regularization. The employer, on a regular basis,
determines if an employee is still qualified and efficient, based on work standards. Based on that determination, and after
complying with the due process requirements of notice and hearing, the employer may exercise its management
prerogative of terminating the employee found unqualified.

The regular employee must constantlyattempt to prove to his or her employer that he or she meets all the standards for
employment. This time, however, the standards to be met are set for the purpose of retaining employment or promotion.
The employee cannot be expected to meet any standard of character or workmanship if such standards were not
communicated to him or her. Courts should remain vigilant on allegations of the employer’s failure to communicatework
standards that would govern one’s employment "if [these are] to discharge in good faith [their] duty to adjudicate."73

In this case, petitioner merely alleged that respondent failed to comply with her foreign employer’s work requirements
and was inefficient in her work.74 No evidence was shown to support such allegations. Petitioner did not even bother to
specify what requirements were not met, what efficiency standards were violated, or what particular acts of respondent
constituted inefficiency.

There was also no showing that respondent was sufficiently informed of the standards against which her work efficiency
and performance were judged. The parties’ conflict as to the position held by respondent showed that even the matter as
basic as the job title was not clear.

The bare allegations of petitioner are not sufficient to support a claim that there is just cause for termination. There is no
proof that respondent was legally terminated.

Petitioner failed to comply with

the due process requirements

Respondent’s dismissal less than one year from hiring and her repatriation on the same day show not onlyfailure on the
partof petitioner to comply with the requirement of the existence of just cause for termination. They patently show that
the employersdid not comply with the due process requirement.

A valid dismissal requires both a valid cause and adherence to the valid procedure of dismissal. 75 The employer is
required to give the charged employee at least two written notices before termination. 76 One of the written notices must
inform the employee of the particular acts that may cause his or her dismissal. 77 The other notice must "[inform] the
employee of the employer’s decision."78 Aside from the notice requirement, the employee must also be given "an
opportunity to be heard."79

Petitioner failed to comply with the twin notices and hearing requirements. Respondent started working on June 26,
1997. She was told that she was terminated on July 14, 1997 effective on the same day and barely a month from her first
workday. She was also repatriated on the same day that she was informed of her termination. The abruptness of the
termination negated any finding that she was properly notified and given the opportunity to be heard. Her constitutional
right to due process of law was violated.

II
Respondent Joy Cabiles, having been illegally dismissed, is entitled to her salary for the unexpired portion ofthe
employment contract that was violated together with attorney’s fees and reimbursement of amounts withheld from her
salary.

Section 10 of Republic Act No. 8042,otherwise known as the Migrant Workers and Overseas Filipinos Act of1995, states
thatoverseas workers who were terminated without just, valid, or authorized cause "shall be entitled to the full
reimbursement of his placement fee with interest of twelve (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."

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 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 provisions [sic] 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/placementagency, 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 orpartnership for the aforesaid claims and damages.

Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected by
any substitution, amendment or modification made locally or in a foreign country of the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section
shall be paid within four (4) months from the approval of the settlement by the appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, the
workers shall be entitled to the full reimbursement of his placement fee with interest of twelve (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.

....

(Emphasis supplied)

Section 15 of Republic Act No. 8042 states that "repatriation of the worker and the transport of his [or her] personal
belongings shall be the primary responsibility of the agency which recruited or deployed the worker overseas." The
exception is when "termination of employment is due solely to the fault of the worker," 80 which as we have established, is
not the case. It reads: SEC. 15. REPATRIATION OF WORKERS; EMERGENCY REPATRIATION FUND. – The repatriation of
the worker and the transport of his personal belongings shall be the primary responsibility of the agency which recruited
or deployed the worker overseas. All costs attendant to repatriation shall be borne by or charged to the agency concerned
and/or its principal. Likewise, the repatriation of remains and transport of the personal belongings of a deceased worker
and all costs attendant thereto shall be borne by the principal and/or local agency. However, in cases where the
termination of employment is due solely to the fault of the worker, the principal/employer or agency shall not in any
manner be responsible for the repatriation of the former and/or his belongings.

....

The Labor Code81 also entitles the employee to 10% of the amount of withheld wages as attorney’s feeswhen the
withholding is unlawful.

The Court of Appeals affirmedthe National Labor Relations Commission’s decision to award respondent NT$46,080.00 or
the threemonth equivalent of her salary, attorney’s fees of NT$300.00, and the reimbursement of the withheld
NT$3,000.00 salary, which answered for her repatriation.
We uphold the finding that respondent is entitled to all of these awards. The award of the three-month equivalent of
respondent’s salary should, however, be increased to the amount equivalent to the unexpired term of the employment
contract.

In Serrano v. Gallant Maritime Services, Inc. and Marlow Navigation Co., Inc., 82 this court ruled that the clause "or for
three (3) months for every year of the unexpired term, whichever is less" 83 is unconstitutional for violating the equal
protection clause and substantive due process. 84

A statute or provision which was declared unconstitutional is not a law. It "confers no rights; it imposes no duties; it
affords no protection; it creates no office; it is inoperative as if it has not been passed at all." 85

We are aware that the clause "or for three (3) months for every year of the unexpired term, whichever is less"was
reinstated in Republic Act No. 8042 upon promulgation of Republic Act No. 10022 in 2010. Section 7 of Republic Act No.
10022 provides:

Section 7.Section 10 of Republic Act No. 8042, as amended, is hereby amended to read as follows:

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 damage. Consistent with this mandate, the NLRC shall endeavor to update and keep abreast with the
developments in the global services industry.

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 de [sic] 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.

Such liabilities shall continue during the entire period or duration of the employment contract and shall not be affected by
any substitution, amendment or modification made locally or in a foreign country of the said contract.

Any compromise/amicable settlement or voluntary agreement on money claims inclusive of damages under this section
shall be paid within thirty (30) days from approval of the settlement by the appropriate authority.

In case of termination of overseas employment without just, valid or authorized cause as defined by law or contract, or
any unauthorized deductions from the migrant worker’s salary, the worker shall be entitled to the full reimbursement if
[sic] his placement fee and the deductions made with interest at 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.

In case of a final and executory judgement against a foreign employer/principal, it shall be automatically disqualified,
without further proceedings, from participating in the Philippine Overseas Employment Program and from recruiting and
hiring Filipino workers until and unless it fully satisfies the judgement award.

Noncompliance with the mandatory periods for resolutions of case providedunder this section shall subject the responsible
officials to any or all of the following penalties:

(a) The salary of any such official who fails to render his decision or resolution within the prescribed period shall
be, or caused to be, withheld until the said official complies therewith;

(b) Suspension for not more than ninety (90) days; or

(c) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.
Provided, however,That the penalties herein provided shall be without prejudice to any liability which any such official
may have incured [sic] under other existing laws or rules and regulations as a consequence of violating the provisions of
this paragraph. (Emphasis supplied)

Republic Act No. 10022 was promulgated on March 8, 2010. This means that the reinstatement of the clause in Republic
Act No. 8042 was not yet in effect at the time of respondent’s termination from work in 1997. 86 Republic Act No. 8042
before it was amended byRepublic Act No. 10022 governs this case.

When a law is passed, this court awaits an actual case that clearly raises adversarial positions in their proper context
before considering a prayer to declare it as unconstitutional.

However, we are confronted with a unique situation. The law passed incorporates the exact clause already declared as
unconstitutional, without any perceived substantial change in the circumstances.

This may cause confusion on the part of the National Labor Relations Commission and the Court of Appeals.At minimum,
the existence of Republic Act No. 10022 may delay the execution of the judgment in this case, further frustrating
remedies to assuage the wrong done to petitioner.

Hence, there is a necessity to decide this constitutional issue.

Moreover, this court is possessed with the constitutional duty to "[p]romulgate rules concerning the protection and
enforcement of constitutional rights." 87 When cases become mootand academic, we do not hesitate to provide for
guidance to bench and bar in situations where the same violations are capable of repetition but will evade review. This is
analogous to cases where there are millions of Filipinos working abroad who are bound to suffer from the lack of
protection because of the restoration of an identical clause in a provision previously declared as unconstitutional.

In the hierarchy of laws, the Constitution is supreme. No branch or office of the government may exercise its powers in
any manner inconsistent with the Constitution, regardless of the existence of any law that supports such exercise. The
Constitution cannot be trumped by any other law. All laws must be read in light of the Constitution. Any law that is
inconsistent with it is a nullity.

Thus, when a law or a provision of law is null because it is inconsistent with the Constitution,the nullity cannot be cured
by reincorporation or reenactment of the same or a similar law or provision. A law or provision of law that was already
declared unconstitutional remains as such unless circumstances have sochanged as to warrant a reverse conclusion.

We are not convinced by the pleadings submitted by the parties that the situation has so changed so as to cause us to
reverse binding precedent.

Likewise, there are special reasons of judicial efficiency and economy that attend to these cases. The new law puts our
overseas workers in the same vulnerable position as they were prior to Serrano. Failure to reiterate the very ratio
decidendi of that case will result in the same untold economic hardships that our reading of the Constitution intended to
avoid. Obviously, we cannot countenance added expenses for further litigation thatwill reduce their hardearned wages as
well as add to the indignity of having been deprived of the protection of our laws simply because our precedents have not
been followed. There is no constitutional doctrine that causes injustice in the face of empty procedural niceties.
Constitutional interpretation is complex, but it is never unreasonable.

Thus, in a resolution88 dated October 22, 2013, we ordered the parties and the Office of the Solicitor General to comment
on the constitutionality of the reinstated clause in Republic Act No. 10022.

In its comment,89 petitioner argued that the clause was constitutional. 90 The legislators intended a balance between the
employers’ and the employees’ rights by not unduly burdening the local recruitment agency. 91Petitioner is also of the view
that the clause was already declared as constitutional in Serrano. 92

The Office of the Solicitor General also argued that the clause was valid and constitutional. 93 However, since the parties
never raised the issue of the constitutionality of the clause asreinstated in Republic Act No. 10022, its contention is that it
is beyond judicial review.94
On the other hand, respondentargued that the clause was unconstitutional because it infringed on workers’ right to
contract.95

We observe that the reinstated clause, this time as provided in Republic Act. No. 10022, violates the constitutional rights
to equal protection and due process.96 Petitioner as well as the Solicitor General have failed to show any compelling
changein the circumstances that would warrant us to revisit the precedent.

We reiterate our finding in Serrano v. Gallant Maritime that limiting wages that should be recovered by anillegally
dismissed overseas worker to three months is both a violation of due process and the equal protection clauses of the
Constitution.

Equal protection of the law is a guarantee that persons under like circumstances and falling within the same class are
treated alike, in terms of "privileges conferred and liabilities enforced."97 It is a guarantee against "undue favor and
individual or class privilege, as well as hostile discrimination or the oppression of inequality."98

In creating laws, the legislature has the power "to make distinctions and classifications." 99

In exercising such power, it has a wide discretion.100

The equal protection clause does not infringe on this legislative power.101 A law is void on this basis, only if classifications
are made arbitrarily.102 There is no violation of the equal protection clause if the law applies equally to persons within the
same class and if there are reasonable grounds for distinguishing between those falling within the class and those who do
not fall within the class.103 A law that does not violate the equal protection clause prescribesa reasonable classification. 104

A reasonable classification "(1) must rest on substantial distinctions; (2) must be germane to the purposes of the law; (3)
must not be limited to existing conditions only; and (4) must apply equally to all members of the same class." 105

The reinstated clause does not satisfy the requirement of reasonable classification.

In Serrano, we identified the classifications made by the reinstated clause. It distinguished between fixed-period overseas
workers and fixedperiod local workers.106 It also distinguished between overseas workers with employment contracts of
less than one year and overseas workers with employment contracts of at least one year. 107 Within the class of overseas
workers with at least one-year employment contracts, there was a distinction between those with at least a year left in
their contracts and those with less than a year left in their contracts when they were illegally dismissed.108

The Congress’ classification may be subjected to judicial review. In Serrano, there is a "legislative classification which
impermissibly interferes with the exercise of a fundamental right or operates to the peculiar disadvantage of a suspect
class."109

Under the Constitution, labor is afforded special protection.110 Thus, this court in Serrano, "[i]mbued with the same sense
of ‘obligation to afford protection to labor,’ . . . employ[ed] the standard of strict judicial scrutiny, for it perceive[d] in the
subject clause a suspect classification prejudicial to OFWs." 111

We also noted in Serranothat before the passage of Republic Act No. 8042, the money claims of illegally terminated
overseas and local workers with fixed-term employment werecomputed in the same manner.112 Their money claims were
computed based onthe "unexpired portions of their contracts." 113 The adoption of the reinstated clause in Republic Act
No. 8042 subjected the money claims of illegally dismissed overseas workers with an unexpired term of at least a year to
a cap of three months worth of their salary.114 There was no such limitation on the money claims of illegally terminated
local workers with fixed-term employment.115

We observed that illegally dismissed overseas workers whose employment contracts had a term of less than one year
were granted the amount equivalent to the unexpired portion of their employment contracts. 116 Meanwhile, illegally
dismissed overseas workers with employment terms of at least a year were granted a cap equivalent to three months of
their salary for the unexpired portions of their contracts.117

Observing the terminologies used inthe clause, we also found that "the subject clause creates a sub-layer of
discrimination among OFWs whose contract periods are for more than one year: those who are illegally dismissed with
less than one year left in their contracts shall be entitled to their salaries for the entire unexpired portion thereof, while
those who are illegally dismissed with one year or more remaining in their contracts shall be covered by the reinstated
clause, and their monetary benefits limited to their salaries for three months only." 118

We do not need strict scrutiny to conclude that these classifications do not rest on any real or substantial distinctions that
would justify different treatments in terms of the computation of money claims resulting from illegal termination.

Overseas workers regardless of their classifications are entitled to security of tenure, at least for the period agreed upon
in their contracts. This means that they cannot be dismissed before the end of their contract terms without due process.
If they were illegally dismissed, the workers’ right to security of tenure is violated.

The rights violated when, say, a fixed-period local worker is illegally terminated are neither greater than norless than the
rights violated when a fixed-period overseas worker is illegally terminated. It is state policy to protect the rights of
workers withoutqualification as to the place of employment.119 In both cases, the workers are deprived of their expected
salary, which they could have earned had they not been illegally dismissed. For both workers, this deprivation translates
to economic insecurity and disparity.120 The same is true for the distinctions between overseas workers with an
employment contract of less than one year and overseas workers with at least one year of employment contract, and
between overseas workers with at least a year left in their contracts and overseas workers with less than a year left in
their contracts when they were illegally dismissed.

For this reason, we cannot subscribe to the argument that "[overseas workers] are contractual employeeswho can never
acquire regular employment status, unlike local workers"121 because it already justifies differentiated treatment in terms
ofthe computation of money claims.122

Likewise, the jurisdictional and enforcement issues on overseas workers’ money claims do not justify a differentiated
treatment in the computation of their money claims. 123 If anything, these issues justify an equal, if not greater protection
and assistance to overseas workers who generally are more prone to exploitation given their physical distance from our
government.

We also find that the classificationsare not relevant to the purpose of the law, which is to "establish a higher standard of
protection and promotion of the welfare of migrant workers, their families and overseas Filipinos in distress, and for other
purposes."124 Further, we find specious the argument that reducing the liability of placement agencies "redounds to the
benefit of the [overseas] workers."125

Putting a cap on the money claims of certain overseas workers does not increase the standard of protection afforded to
them. On the other hand, foreign employers are more incentivizedby the reinstated clause to enter into contracts of at
least a year because it gives them more flexibility to violate our overseas workers’ rights. Their liability for arbitrarily
terminating overseas workers is decreased at the expense of the workers whose rights they violated. Meanwhile, these
overseas workers who are impressed with an expectation of a stable job overseas for the longer contract period disregard
other opportunities only to be terminated earlier. They are left with claims that are less than what others in the same
situation would receive. The reinstated clause, therefore, creates a situation where the law meant to protect them makes
violation of rights easier and simply benign to the violator.

As Justice Brion said in his concurring opinion in Serrano:

Section 10 of R.A. No. 8042 affects these well-laid rules and measures, and in fact provides a hidden twist affecting the
principal/employer’s liability. While intended as an incentive accruing to recruitment/manning agencies, the law, as
worded, simply limits the OFWs’ recovery in wrongfuldismissal situations. Thus, it redounds to the benefit of whoever may
be liable, including the principal/employer – the direct employer primarily liable for the wrongful dismissal. In this sense,
Section 10 – read as a grant of incentives to recruitment/manning agencies – oversteps what it aims to do by effectively
limiting what is otherwise the full liability of the foreign principals/employers. Section 10, in short, really operates to
benefit the wrong party and allows that party, without justifiable reason, to mitigate its liability for wrongful dismissals.
Because of this hidden twist, the limitation ofliability under Section 10 cannot be an "appropriate" incentive, to borrow the
term that R.A. No. 8042 itself uses to describe the incentive it envisions under its purpose clause.

What worsens the situation is the chosen mode of granting the incentive: instead of a grant that, to encourage greater
efforts at recruitment, is directly related to extra efforts undertaken, the law simply limits their liability for the wrongful
dismissals of already deployed OFWs. This is effectively a legally-imposed partial condonation of their liability to OFWs,
justified solely by the law’s intent to encourage greater deployment efforts. Thus, the incentive,from a more practical and
realistic view, is really part of a scheme to sell Filipino overseas labor at a bargain for purposes solely of attracting the
market. . . .

The so-called incentive is rendered particularly odious by its effect on the OFWs — the benefits accruing to the
recruitment/manning agencies and their principals are takenfrom the pockets of the OFWs to whom the full salaries for
the unexpired portion of the contract rightfully belong. Thus, the principals/employers and the recruitment/manning
agencies even profit from their violation of the security of tenure that an employment contract embodies. Conversely,
lesser protection is afforded the OFW, not only because of the lessened recovery afforded him or her by operation of law,
but also because this same lessened recovery renders a wrongful dismissal easier and less onerous to undertake; the
lesser cost of dismissing a Filipino will always bea consideration a foreign employer will take into account in termination of
employment decisions. . . .126

Further, "[t]here can never be a justification for any form of government action that alleviates the burden of one sector,
but imposes the same burden on another sector, especially when the favored sector is composed of private businesses
suchas placement agencies, while the disadvantaged sector is composed ofOFWs whose protection no less than the
Constitution commands. The idea thatprivate business interest can be elevated to the level of a compelling state interest
is odious."127

Along the same line, we held that the reinstated clause violates due process rights. It is arbitrary as it deprives overseas
workers of their monetary claims without any discernable valid purpose. 128

Respondent Joy Cabiles is entitled to her salary for the unexpired portion of her contract, in accordance with Section 10 of
Republic Act No. 8042. The award of the three-month equivalence of respondent’s salary must be modified accordingly.
Since she started working on June 26, 1997 and was terminated on July 14, 1997, respondent is entitled to her salary
from July 15, 1997 to June 25, 1998. "To rule otherwise would be iniquitous to petitioner and other OFWs, and would,in
effect, send a wrong signal that principals/employers and recruitment/manning agencies may violate an OFW’s security of
tenure which an employment contract embodies and actually profit from such violation based on an unconstitutional
provision of law."129

III

On the interest rate, the Bangko Sentral ng Pilipinas Circular No. 799 of June 21, 2013, which revised the interest rate for
loan or forbearance from 12% to 6% in the absence of stipulation,applies in this case. The pertinent portions of Circular
No. 799, Series of 2013, read: The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following
revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rateof interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Through the able ponencia of Justice Diosdado Peralta, we laid down the guidelines in computing legal interest in Nacar
v. Gallery Frames:130

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code),
but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein. 131

Circular No. 799 is applicable only in loans and forbearance of money, goods, or credits, and in judgments when there is
no stipulation on the applicable interest rate. Further, it is only applicable if the judgment did not become final and
executory before July 1, 2013.132

We add that Circular No. 799 is not applicable when there is a law that states otherwise. While the Bangko Sentral ng
Pilipinas has the power to set or limit interest rates,133 these interest rates do not apply when the law provides that a
different interest rate shall be applied. "[A] Central Bank Circular cannot repeal a law. Only a law can repeal another
law."134

For example, Section 10 of Republic Act No. 8042 provides that unlawfully terminated overseas workers are entitled to
the reimbursement of his or her placement fee with an interest of 12% per annum. Since Bangko Sentral ng Pilipinas
circulars cannotrepeal Republic Act No. 8042, the issuance of Circular No. 799 does not have the effect of changing the
interest on awards for reimbursement of placement fees from 12% to 6%. This is despite Section 1 of Circular No. 799,
which provides that the 6% interest rate applies even to judgments.

Moreover, laws are deemed incorporated in contracts. "The contracting parties need not repeat them. They do not even
have to be referred to. Every contract, thus, contains not only what has been explicitly stipulated, but the statutory
provisions that have any bearing on the matter."135 There is, therefore, an implied stipulation in contracts between the
placement agency and the overseasworker that in case the overseas worker is adjudged as entitled to reimbursement of
his or her placement fees, the amount shall be subject to a 12% interest per annum. This implied stipulation has the
effect of removing awards for reimbursement of placement fees from Circular No. 799’s coverage.

The same cannot be said for awardsof salary for the unexpired portion of the employment contract under Republic Act
No. 8042. These awards are covered by Circular No. 799 because the law does not provide for a specific interest rate that
should apply.

In sum, if judgment did not become final and executory before July 1, 2013 and there was no stipulation in the contract
providing for a different interest rate, other money claims under Section 10 of Republic Act No. 8042 shall be subject to
the 6% interest per annum in accordance with Circular No. 799.

This means that respondent is also entitled to an interest of 6% per annum on her money claims from the finality of this
judgment.

IV

Finally, we clarify the liabilities ofWacoal as principal and petitioner as the employment agency that facilitated
respondent’s overseas employment.

Section 10 of the Migrant Workers and Overseas Filipinos Act of 1995 provides that the foreign employer and the local
employment agency are jointly and severally liable for money claims including claims arising out of an employer-employee
relationship and/or damages. This section also provides that the performance bond filed by the local agency shall be
answerable for such money claims or damages if they were awarded to the employee.

This provision is in line with the state’s policy of affording protection to labor and alleviating workers’ plight.136

In overseas employment, the filing of money claims against the foreign employer is attended by practical and legal
complications.1âwphi1 The distance of the foreign employer alonemakes it difficult for an overseas worker to reach it and
make it liable for violations of the Labor Code. There are also possible conflict of laws, jurisdictional issues, and
procedural rules that may be raised to frustrate an overseas worker’sattempt to advance his or her claims.

It may be argued, for instance, that the foreign employer must be impleaded in the complaint as an indispensable party
without which no final determination can be had of an action. 137

The provision on joint and several liability in the Migrant Workers and Overseas Filipinos Act of 1995 assures overseas
workers that their rights will not be frustrated with these complications. The fundamental effect of joint and several
liability is that "each of the debtors is liable for the entire obligation." 138 A final determination may, therefore, be achieved
even if only oneof the joint and several debtors are impleaded in an action. Hence, in the case of overseas employment,
either the local agency or the foreign employer may be sued for all claims arising from the foreign employer’s labor law
violations. This way, the overseas workers are assured that someone — the foreign employer’s local agent — may be
made to answer for violationsthat the foreign employer may have committed.

The Migrant Workers and Overseas Filipinos Act of 1995 ensures that overseas workers have recourse in law despite the
circumstances of their employment. By providing that the liability of the foreign employer may be "enforced to the full
extent"139 against the local agent,the overseas worker is assured of immediate and sufficientpayment of what is due
them.140

Corollary to the assurance of immediate recourse in law, the provision on joint and several liability in the Migrant Workers
and Overseas Filipinos Act of 1995 shifts the burden of going after the foreign employer from the overseas worker to the
local employment agency. However, it must be emphasized that the local agency that is held to answer for the overseas
worker’s money claims is not leftwithout remedy. The law does not preclude it from going after the foreign employer for
reimbursement of whatever payment it has made to the employee to answer for the money claims against the foreign
employer.

A further implication of making localagencies jointly and severally liable with the foreign employer is thatan additional
layer of protection is afforded to overseas workers. Local agencies, which are businesses by nature, are inoculated with
interest in being always on the lookout against foreign employers that tend to violate labor law. Lest they risk their
reputation or finances, local agenciesmust already have mechanisms for guarding against unscrupulous foreign employers
even at the level prior to overseas employment applications.

With the present state of the pleadings, it is not possible to determine whether there was indeed a transfer of obligations
from petitioner to Pacific. This should not be an obstacle for the respondent overseas worker to proceed with the
enforcement of this judgment. Petitioner is possessed with the resources to determine the proper legal remedies to
enforce its rights against Pacific, if any.

Many times, this court has spoken on what Filipinos may encounter as they travel into the farthest and mostdifficult
reaches of our planet to provide for their families. In Prieto v. NLRC:141

The Court is not unaware of the many abuses suffered by our overseas workers in the foreign land where they have
ventured, usually with heavy hearts, in pursuit of a more fulfilling future. Breach of contract, maltreatment, rape,
insufficient nourishment, sub-human lodgings, insults and other forms of debasement, are only a few of the inhumane
acts towhich they are subjected by their foreign employers, who probably feel they can do as they please in their own
country. Whilethese workers may indeed have relatively little defense against exploitation while they are abroad, that
disadvantage must not continue to burden them when they return to their own territory to voice their muted complaint.
There is no reason why, in their very own land, the protection of our own laws cannot be extended to them in full
measure for the redress of their grievances.142
But it seems that we have not said enough.

We face a diaspora of Filipinos. Their travails and their heroism can be told a million times over; each of their stories as
real as any other. Overseas Filipino workers brave alien cultures and the heartbreak of families left behind daily. They
would count the minutes, hours, days, months, and years yearning to see their sons and daughters. We all know of the
joy and sadness when they come home to see them all grown up and, being so, they remember what their work has cost
them. Twitter accounts, Facetime, and many other gadgets and online applications will never substitute for their lost
physical presence.

Unknown to them, they keep our economy afloat through the ebb and flow of political and economic crises. They are our
true diplomats, they who show the world the resilience, patience, and creativity of our people. Indeed, we are a people
who contribute much to the provision of material creations of this world.

This government loses its soul if we fail to ensure decent treatment for all Filipinos. We default by limiting the contractual
wages that should be paid to our workers when their contracts are breached by the foreign employers. While we sit, this
court will ensure that our laws will reward our overseas workers with what they deserve: their dignity.

Inevitably, their dignity is ours as weil.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED with modification. Petitioner
Sameer Overseas Placement Agency is ORDERED to pay respondent Joy C. Cabiles the amount equivalent to her salary
for the unexpired portion of her employment contract at an interest of 6% per annum from the finality of this judgment.
Petitioner is also ORDERED to reimburse respondent the withheld NT$3,000.00 salary and pay respondent attorney's fees
of NT$300.00 at an interest of 6% per annum from the finality of this judgment.

The clause, "or for three (3) months for every year of the unexpired term, whichever is less" in Section 7 of Republic Act
No. 10022 amending Section 10 of Republic Act No. 8042 is declared unconstitutional and, therefore, null and void.

SO ORDERED.