Arcilla vs. San Sebastian College-Recoletos, Manila

When a full-time employee's probationary status overlaps with a fixed-term contract not specifically used for the fixed term it offers, the probationary nature of the employment prevails, and the employer cannot simply invoke the expiration of the fixed term to terminate the employee. The employment may only be terminated for a just or authorized cause or due to the employee's failure to meet the reasonable standards made known to the employee at the time of the engagement.

San Sebastian College-Recoletos, Manila is a private educational institution operated by the Augustinian Recollect Fathers and duly authorized by the Commission on Higher Education. Vanessa Laura Arcilla is a master's degree holder in counseling psychology, a certified specialist in counseling psychology, a registered guidance counselor, and a registered psychometrician. The case involves the tension between two constitutionally enshrined principles: the protection of labor under Article XIII, Section 3 of the Constitution, and the academic freedom enjoyed by institutions of higher learning under Article XIV, Section 5(2). The Court recognized the need to strike a balance between these principles, acknowledging that while institutions of higher learning have the prerogative to determine who may teach, they cannot be arbitrary in doing so.

Vanessa Laura Arcilla, a master's degree holder in counseling psychology and a registered guidance counselor and psychometrician, was appointed by San Sebastian College-Recoletos, Manila on December 17, 2014 as a full-time probationary faculty member of the College of Arts and Sciences' Area of Psychology for the second semester of School Year 2014 to 2015. The employment contract stated that her appointment commenced on November 21, 2014 and would end on March 31, 2015, unless extended by San Sebastian. The contract also stated that its renewal or extension was discretionary upon San Sebastian, and that her appointment could be revoked before the expiration period if she violated the employment contract or committed acts inimical to San Sebastian's interests, students, or moral values.

San Sebastian did not assign any classes to Arcilla for the summer semester, but reappointed her on April 24, 2015 for the first semester of School Year 2015 to 2016. Her contract for the period of June 1, 2015 until October 31, 2015 had the same terms and conditions as the first contract. San Sebastian did not reappoint Arcilla for the following semester. On October 9, 2015, the college dean told her that she could not be given a teaching load purportedly due to a low turnout of enrollees. In an October 21, 2015 letter, Arcilla was informed that her probationary contract would not be renewed.

After undergoing conciliation-mediation conferences, San Sebastian paid Arcilla P15,278.21 as 13th month pay for 2015 and returned P3,750.00 as refund for the over-deduction from her salary. The Labor Arbiter, the National Labor Relations Commission, and the Court of Appeals consistently found that the nature of Arcilla's employment was both probationary and for a fixed term. The Court of Appeals found that Arcilla completed her second semester, or one year of service, when she received the notice of nonrenewal, and that there was no illegal dismissal since she was still under probation and the fixed period of her probationary contract had expired. The Court of Appeals also affirmed the National Labor Relations Commission's finding that there was no evidence that the Department of Labor and Employment was notified of any retrenchment scheme, and that Arcilla was not paid the required separation pay.

• Propriety of Direct Appeal: Petitioner argued that she was correct in filing a petition for review before the Supreme Court instead of moving for reconsideration of the Court of Appeals' Decision, since a motion for reconsideration was not a condition precedent for the filing of a petition for review, and the issue she brought was a pure question of law.
• Timeliness of Respondent's Petition: Petitioner claimed that respondent's Petition for Certiorari with the Court of Appeals was filed out of time, since respondent's counsel received a copy of the National Labor Relations Commission's Resolution on February 17, 2017, such that respondent should have had until April 18, 2017 to file its Petition, but only did so on April 21, 2017.
• Illegal Dismissal: Petitioner argued that respondent illegally dismissed her, citing Mercado vs. AMA Computer College-Parañaque City, Inc. for the proposition that the probationary status of teachers should not be disregarded simply because their contract terms were fixed, and that her employment could only be terminated for a just cause or for failing to qualify as a regular employee based on reasonable standards made known at the time of engagement.
• Circumvention of the Law: Petitioner asserted that respondent was attempting to circumvent the law on probationary employment, and that respondent implemented an illegal dismissal, not a retrenchment.

• Improper Service: Respondent countered that the National Labor Relations Commission's Resolution was improperly served on the security guard of the building where respondent's counsel held office, and that this did not constitute valid service under the 2011 NLRC Rules of Procedure and the Rules of Court.
• Motion for Reconsideration Required: Respondent posited that petitioner should have moved for reconsideration of the Court of Appeals' Decision before filing a petition before the Supreme Court because she raises questions of fact.
• Discretion Not to Renew: Respondent argued that it had full discretion not to renew petitioner's contract after the fixed term had expired, since petitioner's employment was probationary and had not attained permanent status.

• Propriety of Direct Appeal: Whether petitioner was correct in filing a petition for review before the Supreme Court without first moving for reconsideration of the Court of Appeals' Decision.
• Timeliness of Respondent's Petition: Whether respondent's Petition for Certiorari with the Court of Appeals was filed out of time.
• Illegal Dismissal: Whether the Court of Appeals erred in ruling that the National Labor Relations Commission gravely abused its discretion in finding that petitioner was illegally dismissed.

• Propriety of Direct Appeal: Yes. The remedy from the Court of Appeals' ruling in a labor case is to file a petition for review on certiorari before the Supreme Court under Rule 45 of the Rules of Court, which limits review to questions of law. The Court examined the correctness of the assailed Court of Appeals decision in the same context that the petition for certiorari it ruled upon was presented to it.
• Timeliness of Respondent's Petition: Not directly resolved. The Court did not rule on this procedural issue, instead focusing on the substantive question of whether the Court of Appeals correctly determined the presence or absence of grave abuse of discretion in the National Labor Relations Commission's Decision.
• Illegal Dismissal: Yes. The Court of Appeals erred in finding that the National Labor Relations Commission gravely abused its discretion in reversing the Labor Arbiter's dismissal of petitioner's Complaint. The National Labor Relations Commission's findings had basis in the evidence, the applicable law, and jurisprudence, and the Court of Appeals failed to point to any just or authorized cause for petitioner's termination.

• Propriety of Direct Appeal: For labor cases originating from the National Labor Relations Commission, the remedy is to file a petition for certiorari before the Court of Appeals under Rule 65, establishing grave abuse of discretion. The remedy from the Court of Appeals' ruling is to file a petition for review on certiorari before the Supreme Court under Rule 45. Citing Montoya vs. Transmed Manila Corporation, the Court explained that in a Rule 45 review, the question to ask is whether the Court of Appeals correctly determined whether the National Labor Relations Commission committed grave abuse of discretion in ruling on the case, not whether the National Labor Relations Commission's decision on the merits was correct.

• Illegal Dismissal: The Court defined grave abuse of discretion, citing Alafriz vs. Nable, as "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." Applying Quebral vs. Angbus Construction, Inc. to labor cases, the Court noted that grave abuse of discretion may be ascribed to the National Labor Relations Commission when its findings and conclusions are not supported by substantial evidence. Since the National Labor Relations Commission's ruling had basis in the evidence and the applicable law and jurisprudence, no grave abuse of discretion existed.

The Court recognized the need to balance the constitutional protection of labor under Article XIII, Section 3 and the academic freedom of institutions of higher learning under Article XIV, Section 5(2). While institutions of higher learning have the prerogative to set standards for their teachers and determine whether they have been met, they cannot be arbitrary. The probationary period for academic personnel in the tertiary level cannot exceed three years, or six consecutive regular semesters of satisfactory service. The standards for regularization must be made known to probationary faculty members with specificity and measurability at the time of engagement, and the employee must be notified on how the established standards have been applied to disqualify them from becoming a regular employee.

Citing Mercado vs. AMA Computer College-Parañaque City, Inc. at length, the Court explained the difference between probationary status and fixed-term employment. The fixed-term character of employment refers to the period agreed upon between the employer and the employee, while probationary status connotes a process of testing and observing the character or abilities of a person who is new to a role or job. Where the school utilizes fixed-term contracts as a convenient arrangement dictated by its academic calendar and not because the parties really intended to limit the period of their relationship, the fixed-term contract is one "conveniently used by the school to define and regulate its relations with its teachers during their probationary period." In such a situation, Article 281 (now Article 296) of the Labor Code should assume primacy and the fixed-period character of the contract must give way.

Applying this rule, the Court found that petitioner's probationary status overlapped with a fixed-term contract not specifically used for the fixed term offered. She was appointed with probationary status for a fixed-term contract of one semester, then reappointed for another semester under the same terms and conditions. The contracts were adopted for convenience in accordance with respondent's academic calendar. When the second contract expired, petitioner was merely informed that her contract would not be renewed. Respondent may only terminate petitioner's employment for just or authorized causes, or if she failed to qualify as a regular employee per reasonable standards set at the time of her engagement. However, the Court of Appeals failed to point to any just or authorized cause for petitioner's termination, and there was no allegation or proof that the nonrenewal was due to her failure to meet respondent's standards. For merely invoking the expiration of the fixed term, respondent illegally dismissed petitioner.

The Court distinguished Brent School vs. Zamora, noting that while it settled the validity of fixed-term contracts, the rule has been qualified in Mercado since Brent did not involve any issue of probationary employment. The Court also found the reliance on Magis Young Achievers' Learning Center vs. Manalo misplaced, since that case actually ruled that probationary employees enjoy security of tenure during the term of their probationary employment and may only be terminated for cause or for failure to meet reasonable standards set at the time of engagement.

• Probationary Employment Prevails Over Fixed-Term Contract — When a full-time employee's probationary status overlaps with a fixed-term contract not specifically used for the fixed term it offers, the probationary nature of the employment prevails. The employer cannot simply invoke the expiration of the fixed term to terminate the employee. The employment may only be terminated for a just or authorized cause or due to the employee's failure to meet the reasonable standards made known to the employee at the time of the engagement. This rule was established in Mercado vs. AMA Computer College-Parañaque City, Inc. and affirmed in Colegio Del Santisimo Rosario vs. Rojo, Universidad de Sta. Isabel vs. Sambajon, Jr., De La Salle Araneta University, Inc. vs. Magdurulang, and University of St. La Salle vs. Glaraga.

• Fixed-Term Contract Specifically Used for the Fixed Term It Offers — A fixed-term contract is "specifically used for the fixed term it offers" when, for example, a replacement teacher is contracted for a period of one year to temporarily take the place of a permanent teacher on a one-year study leave. In such a case, the expiration of the contracted term leads to no probationary status implications because the employee was never employed on probationary basis; the employment is for a specific purpose with every intent to end the teaching relationship upon expiration of the term.

• Standards for Probationary Employment — The standards imposed on probationary faculty members must be reasonable, well-laid, and properly communicated. The standards for regularization must be made known to the probationary faculty members with some specificity and measurability at the time of engagement. Where no standards are made known to the employee at the time of engagement, the employee shall be deemed a regular employee. The employer must also notify the employee on how the established standards have been applied to disqualify them from becoming a regular employee, as a matter of due process.

• Grave Abuse of Discretion in Labor Cases — Grave abuse of discretion is "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." In labor cases, grave abuse of discretion may be ascribed to the National Labor Relations Commission when its findings and conclusions are not supported by substantial evidence. If the National Labor Relations Commission's ruling has basis in the evidence and the applicable law and jurisprudence, then no grave abuse of discretion exists.

• "When a full-time employee's probationary status overlaps with a fixed-term contract not specifically used for the fixed term it offers—as when the fixed term is merely for a convenient arrangement to coincide with the school's academic year—the probationary nature of the employment prevails. The employer cannot simply invoke the expiration of the fixed term. The employment may only be terminated for a just or authorized cause or due to the employee's failure to meet the reasonable standards made known to the employee at the time of the engagement." — This is the Court's opening statement and the ratio decidendi of the case, articulating the controlling rule for overlapping probationary and fixed-term employment.

• "Under the given facts where the school year is divided into trimesters, the school apparently utilizes its fixed-term contracts as a convenient arrangement dictated by the trimestral system and not because the workplace parties really intended to limit the period of their relationship to any fixed term and to finish this relationship at the end of that term. If we pierce the veil, so to speak, of the parties' so-called fixed-term employment contracts, what undeniably comes out at the core is a fixed-term contract conveniently used by the school to define and regulate its relations with its teachers during their probationary period." — This passage from Mercado, quoted by the Court, explains the distinction between fixed-term contracts used for convenience and those specifically used for the fixed term they offer.

• "In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to the review of questions of law raised against the assailed CA decision. In ruling for legal correctness, we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to it we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion in the NLRC decision before it, not on the basis of whether the NLRC decision on the merits of the case was correct." — This passage from Montoya v. Transmed Manila Corporation, quoted by the Court, defines the parameters for Supreme Court review of labor cases under Rule 45.

• Mercado vs. AMA Computer College-Parañaque City, Inc., 632 Phil. 228 (2010) — Controlling precedent. Established the rule that when probationary status overlaps with a fixed-term contract not specifically used for the fixed term it offers, Article 281 of the Labor Code should assume primacy and the fixed-period character of the contract must give way. The Court applied this case directly to the facts at hand.

• Montoya vs. Transmed Manila Corporation, 613 Phil. 696 (2009) — Followed. Defined the parameters for Supreme Court review of labor cases under Rule 45, requiring examination of whether the Court of Appeals correctly determined the presence or absence of grave abuse of discretion in the National Labor Relations Commission decision.

• Alafriz vs. Nable, 72 Phil. 278 (1941) — Followed. Provided the canonical definition of grave abuse of discretion as capricious and whimsical exercise of judgment equivalent to lack of jurisdiction.

• Quebral vs. Angbus Construction, Inc., 798 Phil. 179 (2016) — Followed. Applied the definition of grave abuse of discretion to labor cases, holding that it may be ascribed to the National Labor Relations Commission when its findings and conclusions are not supported by substantial evidence.

• Brent School vs. Zamora, 260 Phil. 747 (1990) — Distinguished. While it settled the validity of fixed-term contracts, the Court noted that the rule has been qualified in Mercado since Brent did not involve any issue of probationary employment.

• Magis Young Achievers' Learning Center vs. Manalo, 598 Phil. 886 (2009) — Distinguished. The Court found the Labor Arbiter's and Court of Appeals' reliance on this case misplaced, since it actually ruled that probationary employees enjoy security of tenure during the term of their probationary employment and may only be terminated for cause or for failure to meet reasonable standards set at the time of engagement.

• Garcia vs. The Faculty Admission Committee, 160-A Phil. 929 (1975) — Cited for the discussion of academic freedom enjoyed by institutions of higher learning.

• Colegio Del Santisimo Rosario vs. Rojo, 717 Phil. 265 (2013) — Cited as affirming the rule in Mercado.

• Universidad de Sta. Isabel vs. Sambajon, Jr., 731 Phil. 235 (2014) — Cited as affirming the rule in Mercado.

• De La Salle Araneta University, Inc. vs. Magdurulang, 820 Phil. 1133 (2017) — Cited as affirming the rule in Mercado.

• University of St. La Salle vs. Glaraga, G.R. No. 224170, June 10, 2020 — Cited as affirming the rule in Mercado.

• Article 296 (formerly Article 281), Labor Code — The provision on probationary employment, which provides that probationary employment shall not exceed six months unless covered by an apprenticeship agreement, and that the services of an employee engaged on a probationary basis may be terminated for a just cause or when the employee fails to qualify as a regular employee in accordance with reasonable standards made known by the employer at the time of engagement. The Court applied this provision to petitioner's case, holding that respondent could only terminate her employment for just or authorized causes or for failure to qualify as a regular employee per reasonable standards set at the time of engagement.

• Article XIII, Section 3, Constitution — The provision on protection of labor, which guarantees the rights of all workers to security of tenure, humane conditions of work, and a living wage. The Court recognized the need to balance this protection with academic freedom.

• Article XIV, Section 5(2), Constitution — The provision guaranteeing that academic freedom shall be enjoyed in all institutions of higher learning. The Court discussed this concept, noting that institutional academic freedom carries with it the right to select who are worthy to take part in the education of students.

• Sections 92 and 93, 1992 Manual of Regulations for Private Schools — These provisions set the probationary period for academic personnel at not more than three consecutive years of satisfactory service for elementary and secondary levels, six consecutive regular semesters for the tertiary level, and nine consecutive trimesters where collegiate courses are offered on a trimester basis. They also provide that those who have served the probationary period shall be made regular or permanent.

• Book VI, Rule I, Section 6(d), Omnibus Rules Implementing the Labor Code — This provision requires the employer to make known to the employee the standards under which the employee will qualify as a regular employee at the time of engagement, and provides that where no standards are made known, the employee shall be deemed a regular employee.

Lazaro-Javier, M. Lopez, J. Lopez, and Kho, Jr., JJ., concurred in the Decision.