Medenilla vs. Philippine Veterans Bank

A fixed-term employment contract is valid where the fixed period was knowingly and voluntarily agreed upon by the parties without force, duress, or improper pressure, or where the employer and employee dealt with each other on more or less equal terms with no moral dominance exercised by the employer; but where an employee under such a contract is dismissed without just cause, the employer bears the burden of proving the valid ground, and the employee is entitled to salaries corresponding to the unexpired portion of the contract.

The petitioners were employees of the Philippine Veterans Bank (PVB), which was placed under liquidation by order of the Monetary Board of the Central Bank embodied in MB Resolution No. 612 dated June 7, 1985. PVB's affairs during liquidation were administered by a Bank Liquidator, through whom the petitioners were subsequently rehired under temporary employment contracts tied to the duration of the liquidation undertaking. The statutory backdrop includes Republic Act No. 7169, "An Act to Rehabilitate Philippine Veterans Bank," which took effect on January 2, 1992 and terminated the period of liquidation by mandating the creation of a new manning force for the rehabilitated bank.

The petitioners were employees of the Philippine Veterans Bank (PVB). On June 15, 1985, their services were terminated as a result of the liquidation of PVB pursuant to the order of the Monetary Board of the Central Bank embodied in MB Resolution No. 612 dated June 7, 1985. On the same day of their termination, the petitioners were rehired through PVB's Bank Liquidator, Antonio T. Castro, Jr., but all of them were required to sign employment contracts which provided that the employment was strictly on a temporary basis and only for the duration of the particular undertaking for which a particular employee was hired; that such temporary employment would not entitle an employee to any benefits except those granted by law; and that the Liquidator reserved the right to terminate the services of the employee at any time during the period of such employment if the employee was found not qualified, competent or efficient in the performance of his job, or had violated any rules and regulations, or under such circumstances and conditions recognized by law. The contract further stipulated that the temporary employment was effective on June 16, 1985 and would entitle the employee to compensation of P3,130.00 per month, payable every 15th and end of the month, and that the employment would not entitle the employee to any benefits apart from what the law required.

On January 18, 1991, the petitioners received a uniform notice of dismissal effective a month from the date of receipt. The notice contained the reasons justifying the termination: (a) to reduce costs and expenses in the liquidation of closed banks in order to protect the interests of the depositors, creditors and stockholders of the Philippine Veterans Bank; and (b) the employment were on strictly temporary basis.

On February 4, 1991, the petitioners instituted a case for illegal dismissal before Labor Arbiter Oswald Lorenzo. The Labor Arbiter found that the termination letters spoke of "finality" by their very wordings, leaving the complainants no alternative but to accept the termination with grief and sacrifice. He further found that the respondent bank failed to dispute the complainants' evidence pertinent to the various unnecessary and highly questionable expenses incurred, rendering the termination process a mere subterfuge, since immediately after the termination from their respective positions the same were given to other employees who appeared not qualified. What respondent's counsel did, the Labor Arbiter observed, was merely to dispute by pleadings the jurisdiction of his office and the claims for damages, which evidentiary matters the respondent was required to prove to sustain the validity of the dismissals. The Labor Arbiter accordingly declared the dismissal illegal, and the NLRC later reversed that finding on the ground that the employment was for a fixed period.

• Grave Abuse of Discretion: Petitioners sought relief under Rule 65 of the Rules of Court to set aside the NLRC Decision dated July 12, 1994 and the Order dated June 21, 1995 in NLRC-NCR-CA No. 002761-92, on the ground of grave abuse of discretion amounting to lack or excess of jurisdiction.
• Reinstatement by Analogy to Banco Filipino: Petitioners prayed for reinstatement, relying on the ruling in the case of the employees of Banco Filipino Savings and Mortgage Bank, which was similarly placed under liquidation and whose separated employees were recalled upon the resumption of banking business.

• Fixed-Term Employment: Respondents contended that the employment of petitioners was really for a fixed period, the contracts having been entered into in connection with the liquidation of the Philippine Veterans Bank under Monetary Board Resolution No. 612 dated June 7, 1985.

• Fixed-Term Employment: Whether the NLRC acted with grave abuse of discretion in ruling that there was a valid fixed-period of employment.
• Illegal Dismissal: Whether the NLRC acted with grave abuse of discretion in reversing the finding of the Labor Arbiter that there was illegal dismissal.

• Fixed-Term Employment: No. The employment of petitioners was for a fixed period, the contract having been knowingly and voluntarily entered into by the parties and the rehiring having been coterminous with the liquidation process, which ended before the enactment of RA 7169.
• Illegal Dismissal: Yes. The NLRC gravely abused its discretion; the employer failed to discharge the burden of proving a valid ground for dismissal, the bare allegation of cost reduction being unsupported by proof and belied by the reassignment of the petitioners' positions to unqualified replacements.

• Fixed-Term Employment: The Court found tenability in the respondents' contention that the employment of petitioners was really for a fixed period. The employment contract expressly confirmed the petitioners' engagement "in connection with the liquidation of the Philippine Veterans Bank under Monetary Board Resolution No. 612 dated June 7, 1985," and provided that the employment was "on a strictly temporary basis and only for the duration of the particular undertaking for which you are hired and only for the particular days during which actual work is available as determined by the Liquidator or his representatives since the work requirements of the liquidation process merely demand intermittent and temporary rendition of services." The Court reiterated the two guidelines drawn from Philippine National Oil Company-Energy Development Corporation vs. NLRC by which fixed contracts of employment may be said not to circumvent security of tenure: (1) the fixed period of employment was knowingly and voluntarily agreed upon by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or (2) it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former on the latter. The contract entered into by the parties appeared to have observed these guidelines. It was likewise evident from the records that the subsequent rehiring of petitioners was to continue during the period of liquidation, and that the process of liquidation ended prior to the enactment of RA 7169 on January 2, 1992. No grave abuse of discretion therefore attended the NLRC's holding on this point.

• Illegal Dismissal: The subject employment contract stipulated that the Liquidator reserved the right to terminate the employee's services at any time during the period of temporary employment if the employee was found not qualified, competent or inefficient in the performance of his job, or if found to have violated any of the rules and regulations, and likewise reserved the right to terminate services at any time under the circumstances and conditions recognized by law. The reason given by the Liquidator for the termination was "in line with the need of the objective of the Supervision and Examination Sector, Department V, Central Bank of the Philippines, to reduce costs and expenses in the liquidation of closed banks in order to protect the interest of the depositors, creditors and stockholders." In cases of illegal dismissal, the burden is on the employer to prove that there was a valid ground for dismissal; a mere allegation of reduction of costs without any proof to substantiate the same cannot be given credence. As the respondents failed to rebut the petitioners' evidence, the irresistible conclusion was that the dismissal was illegal. The Labor Arbiter had aptly rationalized that the failure of the respondent bank to dispute the complainants' evidence pertinent to the various unnecessary and highly questionable expenses incurred rendered the termination process a mere subterfuge, since immediately after the termination from their respective positions the same were given to other employees who appeared not qualified. Because findings by the Labor Arbiter are binding on the Court if supported by substantial evidence, the dismissal was held illegal for want of just cause, one of the facets of a valid dismissal. Such illegal dismissal warranted reinstatement and payment of backwages, but since reinstatement had become impractical because the new Philippine Veterans Bank had been rehabilitated by virtue of RA 7169, the relief was limited to the unpaid wages during the remaining period of the employment contract. As held in Teknika Skills and Trade Services, Inc. vs. NLRC, if the contract is for a fixed term and the employee is dismissed without just cause, he is entitled to the payment of his salaries corresponding to the unexpired portion of the employment contract; the unpaid wages were reckoned from February 18, 1991 to January 1, 1992, the latter date being deemed the expiration of the period of liquidation since January 2, 1992 was the effectivity of RA 7169. Reinstatement could not be granted, and the petitioners' reliance on the Banco Filipino ruling was misplaced, because a careful study of RA 7169 indicated that it mandated the creation of a new manning force for the respondent PVB, with Section 7 directing the Rehabilitation Committee to select and organize an initial manning force headed by a management team, staffed by a trained work force, with preference to veterans and their dependents, other qualifications being equal. In computing the salaries corresponding to the unexpired portion of the contract, the Court looked to the stipulation fixing compensation at P3,130.00 per month. As to attorney's fees, the petitioners were entitled to a reasonable amount pursuant to Article 2208 (par. 7) of the Civil Code; the award by the Labor Arbiter of 10% of the total claims on the basis of Article 111 of the Labor Code could not be upheld and was reduced to P15,000.00 as just and equitable under the attendant circumstances.

• Validity of Fixed-Term Employment — A fixed-term employment contract does not circumvent security of tenure, and is valid, if either of two guidelines is satisfied: (1) the fixed period of employment was knowingly and voluntarily agreed upon by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or (2) it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former on the latter. The Court applied these guidelines to the contracts executed by the petitioners with the Bank Liquidator, which were expressly coterminous with the liquidation undertaking under Monetary Board Resolution No. 612, and sustained the finding that the employment was for a fixed period.
• Burden of Proof in Illegal Dismissal — In cases of illegal dismissal, the burden is on the employer to prove that there was a valid ground for dismissal. A mere allegation of reduction of costs, without any proof to substantiate the same, cannot be given credence. The respondent bank's unsubstantiated invocation of cost reduction, coupled with its failure to rebut the petitioners' evidence that their positions were given to unqualified replacements, established that the dismissal was illegal.
• Relief for Dismissal Without Just Cause Under a Fixed-Term Contract — If the contract is for a fixed term and the employee is dismissed without just cause, he is entitled to the payment of his salaries corresponding to the unexpired portion of the employment contract. The Court limited the relief to the unpaid wages from February 18, 1991 to January 1, 1992, the period of liquidation having expired upon the effectivity of RA 7169 on January 2, 1992.
• Finality of Labor Arbiter's Factual Findings — Findings by the Labor Arbiter are binding on the Court if supported by substantial evidence. This deference underpinned the conclusion that there was illegal dismissal absent just cause.
• Reinstatement Barred by Statutory Reorganization — Where a statute mandates the creation of a new manning force for a rehabilitated bank, reinstatement of previously separated employees cannot be granted. Section 7 of RA 7169, directing the Rehabilitation Committee to select and organize an initial manning force, was held to preclude the petitioners' reinstatement, and the Banco Filipino ruling relied upon by the petitioners was distinguished as inapplicable.
• Attorney's Fees and Moral Damages — A reasonable amount of attorney's fees may be awarded pursuant to Article 2208 (par. 7) of the Civil Code; the 10% award based on Article 111 of the Labor Code may be reduced as attendant circumstances warrant, and P15,000.00 was held sufficient. Moral damages, absent any showing of bad faith on the part of the employer, must be deleted.

• "As can be gleaned from the said case, the two guidelines by which fixed contracts of employment can be said NOT to circumvent security of tenure, are either: 1. The fixed period of employment was knowingly and voluntarily agreed upon by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or: 2. It satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former on the latter." — This is the canonical formulation of the two-part test for the validity of fixed-term employment, drawn from Philippine National Oil Company-Energy Development Corporation vs. NLRC and applied by the Court to uphold the petitioners' temporary contracts.
• "In cases of illegal dismissal, the burden is on the employer to prove that there was a valid ground for dismissal. Mere allegation of reduction of costs without any proof to substantiate the same cannot be given credence by the Court." — This passage states the ratio decidendi on the second issue, explaining why the NLRC gravely abused its discretion in reversing the Labor Arbiter's finding of illegal dismissal.
• "Since findings by the Labor Arbiter are binding on this Court if supported by substantial evidence, the Court rules that there was illegal dismissal absent just cause, which is one of the facets of a dismissal. Such illegal dismissal warrants reinstatement and payment of backwages." — This excerpt articulates the standard of review applied to the Labor Arbiter's factual findings and the general relief that ordinarily follows a finding of illegal dismissal.
• "As held by this Court, if the contract is for a fixed term and the employee is dismissed without just cause, he is entitled to the payment of his salaries corresponding to the unexpired portion of the employment contract." — This is the controlling rule on the measure of relief where reinstatement is no longer practicable, cited from Teknika Skills and Trade Services, Inc. vs. NLRC.

• Philippine National Oil Company-Energy Development Corporation vs. NLRC, G.R. No. 97747, March 31, 1993, 220 SCRA 695, 699 — Controlling precedent supplying the two guidelines for determining whether a fixed-term contract of employment validly circumvents security of tenure; followed and applied to uphold the petitioners' fixed-term contracts.
• Teknika Skills and Trade Services, Inc. vs. NLRC, 212 SCRA 132 — Cited for the rule that an employee under a fixed-term contract who is dismissed without just cause is entitled to the payment of salaries corresponding to the unexpired portion of the employment contract; followed in computing the relief awarded.
• Sebuguero vs. NLRC, 248 SCRA 532 — Cited in connection with the award of attorney's fees, supporting the reduction of the amount granted by the Labor Arbiter.
• Roldan vs. Court of Appeals, 218 SCRA 713 — Cited together with Sebuguero on the matter of attorney's fees.
• Bernardo vs. NLRC, 255 SCRA 108 — Cited as the basis for deleting the award of moral damages absent any showing of bad faith on the part of the employer.
• Banco Filipino Savings and Mortgage Bank (employees of) — Distinguished; the petitioners' reliance on the recall of that bank's separated employees upon resumption of banking business was held misplaced because RA 7169 mandated the creation of a new manning force for the rehabilitated Philippine Veterans Bank.

• Rule 65, Rules of Court — The procedural vehicle for the petition, which sought to set aside the NLRC Decision and Order on the ground of grave abuse of discretion amounting to lack or excess of jurisdiction; the Court found grave abuse of discretion only as to the finding of no illegal dismissal.
• Republic Act No. 7169, Section 7 ("Rehabilitation Committee") — Creating a Rehabilitation Committee mandated to select and organize an initial manning force headed by a management team composed of competent, experienced and professional managers, staffed by a trained work force, with preference to veterans and their dependents, other qualifications being equal. The provision was applied to deny reinstatement and to fix January 1, 1992 as the expiration of the liquidation period, RA 7169 having taken effect on January 2, 1992.
• Article 2208 (par. 7), Civil Code — Basis for the award of a reasonable amount of attorney's fees to the petitioners, the Court fixing the amount at P15,000.00.
• Article 111, Labor Code — Invoked by the Labor Arbiter as the basis for awarding attorney's fees equivalent to 10% of the total claims; the Court held that this award could not be upheld and reduced it.

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.