Pakistan International Airlines Corp. vs. Ople

A fixed-term employment contract that grants the employer the unilateral right to end the employment at any time and for any cause neutralizes the fixed period and reduces tenure to a facultative term at the employer’s option, thereby circumventing the security of tenure guaranteed by the Labor Code and rendering the stipulation void for being contrary to public policy. Furthermore, parties to an employment contract that is executed and substantially performed in the Philippines, and bears multiple other connections to the Philippines, cannot contract away the application of Philippine labor laws or the jurisdiction of Philippine tribunals by agreeing on a foreign governing law and exclusive foreign forum.

Pakistan International Airlines Corporation (PIA), a foreign corporation licensed to do business in the Philippines, executed two separate employment contracts with Filipino flight attendants Ethelynne B. Farrales and Maria Moonyeen Mamasig in Manila on 2 December 1978. The contracts became effective on 9 January 1979 and specified a fixed term of three years, extendible by mutual consent. Paragraph 6, however, provided that PIA could terminate the agreement at any time by giving one month’s written notice or by paying one month’s salary in lieu of notice. Paragraph 10 stipulated that the agreement would be governed by the laws of Pakistan and that only the courts of Karachi, Pakistan would have jurisdiction. After training in Pakistan, the employees were stationed in Manila and flew to destinations in the Middle East and Europe. On 1 August 1980, roughly one year and four months before the three-year period expired, PIA served termination letters effective 1 September 1980, invoking paragraph 6.

• Nature of the action: Private respondents Ethelynne B. Farrales and Maria Moonyeen Mamasig, Filipino flight attendants, filed a complaint for illegal dismissal and monetary claims against their foreign employer, PIA, a foreign corporation doing business in the Philippines.

• The Employment Contracts: On 2 December 1978, PIA executed in Manila two substantially identical employment agreements with Farrales and Mamasig. The contracts took effect on 9 January 1979. Paragraph 5 set a term of three (3) years, extendible by mutual consent. Paragraph 6 granted PIA the right to terminate the agreement at any time by giving one month’s written notice before the intended termination or, in lieu of notice, by paying one month’s wages. Paragraph 10 provided that the agreement would be construed and governed under the laws of Pakistan and that only the courts of Karachi, Pakistan would have jurisdiction over any disputes.

• Performance and termination: After training in Pakistan, the flight attendants worked with a base station in Manila, flying assignments to the Middle East and Europe. On 2 August 1980, approximately one year and four months into the three-year period, PIA’s local counsel and official, Oscar Benares, sent letters terminating their services effective 1 September 1980, citing clause 6(b).

• PIA’s allegations in the labor proceedings: In its position paper before the MOLE, PIA asserted that private respondents were habitual absentees, habitually brought in from abroad sizable quantities of “personal effects,” and that customs officials had discreetly warned PIA personnel. PIA maintained the terminations were valid under the employment agreement. No evidence was offered to support these allegations.

• MOLE’s findings: The Regional Director found that private respondents had attained regular employee status after rendering more than one year of continued service. The stipulation limiting employment to three years was declared null and void as violative of the Labor Code provisions on regular and casual employment. The dismissal, having been carried out without the requisite clearance from MOLE, was held illegal and warranted reinstatement with full backwages. The Deputy Minister affirmed, deleting only the option for PIA to pay salaries for the unexpired term in lieu of reinstatement.

• Lack of Jurisdiction: Petitioner PIA contended that the Regional Director of MOLE lacked jurisdiction over the illegal dismissal complaint, arguing that jurisdiction was vested exclusively in the Arbitration Branch of the National Labor Relations Commission.

• Denial of Due Process: Petitioner argued that the Regional Director’s order was null and void because it was rendered without a formal hearing, thus violating procedural due process.

• Validity of Contractual Stipulations: Petitioner invoked the autonomy of contracts, maintaining that the three-year fixed term in paragraph 5 and the termination-at-will clause in paragraph 6 were freely agreed upon and should govern the employment relationship, not the general provisions of the Labor Code.

• Choice of Law and Forum: Petitioner asserted that paragraph 10 of the agreement, stipulating Pakistani law as the governing law and the courts of Karachi as the exclusive venue, barred the application of Philippine labor laws and the exercise of jurisdiction by Philippine authorities.

• Jurisdiction: Public respondents and private respondents maintained that under the Labor Code provisions then in force, and Policy Instruction No. 14, the Regional Director had original jurisdiction over termination cases, especially those involving dismissal without the required prior clearance.

• Due Process: Respondents countered that petitioner had been given full opportunity to submit a position paper and evidence; petitioner’s refusal to present evidence did not constitute a denial of due process. Moreover, the applicable rule conclusively presumed a dismissal without clearance to be without just cause, obviating the need for any hearing.

• Circumvention of Security of Tenure: Private respondents argued that the combined effect of paragraphs 5 and 6 was to vest in the employer the unilateral power to shorten the tenure at any time, effectively denying them security of tenure and thereby contravening Articles 280 and 281 of the Labor Code, rendering the stipulations void for being contrary to public policy.

• Applicability of Philippine Law: Respondents asserted that because the contracts were executed in the Philippines, substantially performed there, and involved Filipino employees and a foreign corporation doing business locally, Philippine labor laws governed and Philippine tribunals could not be ousted of jurisdiction.

• Jurisdiction: Whether the Regional Director of the Ministry of Labor and Employment had jurisdiction over the illegal dismissal complaint, given petitioner’s claim that exclusive jurisdiction lay with the NLRC Arbitration Branch.

• Due Process: Whether the Regional Director’s order was rendered in violation of procedural due process in the absence of a formal oral hearing.

• Validity of the Fixed-Term and Termination Clauses: Whether paragraphs 5 and 6 of the employment contract, which established a three-year fixed term but simultaneously permitted termination at the employer’s option at any time, were valid stipulations or a circumvention of the security of tenure provisions of Articles 280 and 281 of the Labor Code.

• Choice of Law and Forum: Whether the contractual choice of Pakistani law and the exclusive jurisdiction of Karachi courts under paragraph 10 could oust Philippine labor authorities and courts of jurisdiction and prevent the application of Philippine labor laws.

• Jurisdiction: The Regional Director had jurisdiction. At the time the complaint was filed and the orders issued, Article 278(b) of the Labor Code required prior written clearance from the Department of Labor before terminating employees with at least one year of service. Rule XIV, Book 5 of the Implementing Rules granted the Regional Director authority to order immediate reinstatement and backwages where dismissal had been effected without clearance. Policy Instruction No. 14 further confirmed that termination cases fell under the Regional Director’s original jurisdiction.

• Due Process: No denial of due process occurred. PIA had been ordered to submit its position paper and evidence but chose to rely solely on the position paper. The opportunity to be heard was thus afforded, and PIA’s failure to present evidence could not be transformed into a procedural violation. Moreover, under the regulations then in effect, dismissal without prior clearance was conclusively presumed to be termination without just cause — a presumption that could not be overturned by any contrary proof, as held in Cebu Institute of Technology v. Minister of Labor and Employment. Hence, even without a full trial-type hearing, the order for reinstatement was proper.

• Validity of the Fixed-Term and Termination Clauses: The contractual provisions were void for circumventing security of tenure. While Article 1306 of the Civil Code recognizes the autonomy of contracting parties, stipulations contrary to law, morals, public order, or public policy are invalid. Applying the standard in Brent School, Inc. v. Zamora, a fixed-period employment contract is not per se unlawful; however, where the period is imposed precisely to preclude the acquisition of tenurial security, it must be struck down. Here, paragraphs 5 and 6, read together, showed that the three-year fixed term was effectively neutralized: the employer reserved the right to unilaterally shorten that term at any time and for any reason. The net result was employment at the pleasure of the employer, designed to prevent any security of tenure from vesting even during the limited three-year period, thus evading Articles 280 and 281 of the Labor Code.

• Choice of Law and Forum: The choice of Pakistani law and the exclusive Karachi forum could not be given effect. The employment relationship was heavily impressed with public interest, and Philippine labor laws and regulations cannot be rendered illusory by contractual stipulation. The contract exhibited multiple and substantive contacts with the Philippines: it was executed in Manila, partially performed here, the employees were Filipino citizens and residents, and PIA was licensed and doing business in the country, with the employees based in Manila between flights. These contacts made Philippine courts and administrative agencies a proper forum. Paragraph 10 could not oust Philippine agencies and courts of jurisdiction vested by Philippine law. Further, PIA did not plead and prove the contents of Pakistani law, giving rise to the presumption that Pakistani law is identical to Philippine law.

• Circumvention of Security of Tenure in Fixed-Term Employment — A fixed-period employment contract is not inherently void, but it becomes invalid when the term is employed as a mechanism to prevent the employee from acquiring tenure security. The controlling test is whether there is substantial indication that the fixed term was intended to evade Articles 280 and 281 of the Labor Code. A clause allowing the employer to terminate the contract at any time and for any cause, when coupled with a fixed period, effectively renders tenure facultative at the employer’s option and constitutes a prohibited circumvention. (Follows Brent School, Inc. v. Zamora, G.R. No. L-48494, February 5, 1990.)

• Incorporation of Law into Contracts — The autonomy of contracting parties is limited by the rule that provisions of applicable law, particularly those affecting public policy, are deemed written into every contract. Parties cannot contract away peremptory provisions of law dealing with matters imbued with public interest, including labor and employment.

• Conclusive Presumption for Unauthorized Dismissal (under pre-amendment rules) — Under the Labor Code provisions and implementing rules then applicable, a dismissal effected without prior clearance from the Department of Labor is conclusively presumed to be a termination without just cause, and no amount of contrary evidence can rebut that presumption. The Regional Director is mandated to order reinstatement and backwages. (Citing Cebu Institute of Technology v. Minister of Labor and Employment, 113 SCRA 257 (1982).)

• Presumption of Identity of Foreign Law — Where a party relies on foreign law but fails to plead and prove its content, the court will presume that the foreign law is the same as the law of the forum. (Citing Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961).)

• Substantial Connection Test for Choice of Law and Forum in Labor Contracts — In employment disputes with foreign elements, Philippine labor laws and the jurisdiction of Philippine tribunals apply where the contract bears multiple and substantial contacts with the Philippines, such as execution in the Philippines, partial performance in the Philippines, Filipino citizenship and residence of the employees, and the employer’s licensed business presence in the country. Contractual stipulations selecting a foreign governing law and exclusive foreign forum will not be enforced if they would oust Philippine agencies and courts of jurisdiction over matters vested with public interest.

• “The principle of party autonomy in contracts is not, however, an absolute principle. … [C]ounter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other.”

• “Examining the provisions of paragraphs 5 and 6 of the employment agreement … the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at the option of the employer PIA. … [B]ecause the net effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents … basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years, and thus to escape completely the thrust of Articles 280 and 281 of the Labor Code.”

• “Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties, upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and respondents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties.”

• Brent School, Inc. v. Zamora, G.R. No. L-48494, February 5, 1990 — The controlling authority on the validity of fixed-term employment contracts. It established that a fixed term is not per se unlawful unless imposed to circumvent security of tenure. The Court applied this ruling directly to hold that the combination of the fixed term and the employer’s unilateral termination power constituted a prohibited circumvention.

• Cebu Institute of Technology v. Minister of Labor and Employment, 113 SCRA 257 (1982) — Applied for the principle that under the implementing rules then in force, a dismissal without prior clearance is conclusively presumed to be without just cause and cannot be rebutted, thereby validating the Regional Director’s summary order of reinstatement.

• Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987) — Invoked by petitioner for the principle that contracts are the law between the parties; distinguished and subordinated to overriding public policy considerations in labor law.

• Commissioner of Internal Revenue v. United Lines Co., 5 SCRA 175 (1962) — Cited as authority for the rule that applicable law is deemed written into every contract.

• Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977) — Referenced in the analysis of how a termination-at-will clause neutralizes a fixed term and evades security of tenure.

• Miciano v. Brimo, 50 Phil. 867 (1924) and Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961) — Both cited for the long-settled rule that foreign law must be pleaded and proved; failure to do so triggers the presumption that it is identical to Philippine law.

• Article 1306, Civil Code — Permits contracting parties to establish such stipulations as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. The Court utilized the proviso to limit party autonomy where contractual stipulations undermine statutory security of tenure.

• Article 280, Labor Code — Guarantees that a regular employee may be terminated only for just cause or when authorized by law, and mandates reinstatement with backwages for unjust dismissal. Applied to confirm that private respondents acquired regular status and could not be dismissed at will.

• Article 281, Labor Code — Defines regular and casual employment and provides that any employee who has rendered at least one year of service is considered regular. Applied to establish that private respondents, having worked more than a year, enjoyed statutory protection, and that the attempted term limitation was void.

• Article 278(b), Labor Code (pre-amendment) — Prohibited termination of employees with at least one year of service without prior written clearance from the Department of Labor. The Court relied on this provision to uphold the Regional Director’s jurisdiction and the illegality of the dismissal.

• Rule XIV, Section 2, Book 5, Rules and Regulations Implementing the Labor Code — Stated that dismissal without prior clearance is conclusively presumed to be termination without just cause, requiring the Regional Director to order immediate reinstatement and backwages. Applied to reject the due process challenge.

• Policy Instruction No. 14 (23 April 1976) — Issued by the Secretary of Labor, explicitly placing termination cases under the original jurisdiction of the Regional Director. Used to confirm jurisdiction.

Fernan (C.J., Chairman), Gutierrez, Jr., Bidin, and Cortés, JJ., concurred.