Sanchez vs. Harry Lyons Construction, Inc.

An advance waiver by an employee of the one-month notice (mesada) benefit granted under Article 302 of the Code of Commerce is void as contrary to public policy, and both monthly- and daily-paid commercial employees whose contracts fix no special term are entitled to that benefit, the manner of wage computation being irrelevant to the existence or duration of the employment relationship.

The plaintiffs were workers employed by two corporate entities — Material Distributors, Inc. and Harry Lyons Construction, Inc. — in commercial capacities as warehousemen, carpenter-foreman, and guards. Their employment contracts contained an express waiver of the benefit of Article 302 of the Code of Commerce, which requires one month's advance notice before cancellation of a mercantile contract of service in which no special time is fixed. The constitutional backdrop invoked by the Court includes Article II, Section 5 (social justice) and Article XIV, Section 6 (protection to labor) of the Philippine Constitution, which the Court held must inform the application of the Code of Commerce provision.

The plaintiffs — Daniel Sanchez, Enrique Ramirez, Juan Ramirez, Mariano Javier, Venancio Diaz, Esteban Bautista, Faustino Aquillo, Godofredo Diamante, Marcial Lazaro, Ambrosio de la Cruz, and Marcelino Maceda — were employed by two corporate defendants: Material Distributors, Inc. and Harry Lyons Construction, Inc. Enrique Ramirez and Juan Ramirez were hired by Material Distributors, Inc. as warehousemen, with Enrique Ramirez's salary later reduced from ₱450 to ₱360 per month and Juan Ramirez receiving ₱250 per month. Daniel Sanchez was employed by Harry Lyons Construction, Inc. on January 1, 1947 as a carpenter-foreman at ₱250 per month, while the remaining seven employees were hired by the same corporation on the same date as guards at ₱5 per day.

Each employee signed a contract of employment containing an acceptance clause in which the employee agreed that the employment could be terminated at any time without previous notice, that salary and wages would be computed and paid only up to the date of such termination, and expressly waived the benefit of Article 302 of the Code of Commerce and of any other law, ruling, or custom that might require notice of discharge or payment of salary or wages after the date of termination. The contracts of the daily-paid guards described their employment as "temporary," with compensation stated at ₱5 a day.

On December 31, 1947, the defendants dismissed all the plaintiffs without giving one month's previous notice. Each plaintiff thereafter demanded payment of one month's salary from the defendants, and the defendants refused to pay. The plaintiffs then filed a complaint in the Municipal Court of Manila on March 9, 1948, for the sum of ₱2,210 plus interest, claimed as one month's advance pay. The parties submitted a stipulation of facts on April 28, 1948, upon which both the Municipal Court and, on appeal, the Court of First Instance of Manila rendered judgment for the plaintiffs. The defendants appealed to the Supreme Court on a pure question of law.

• Applicability of Article 302 to Daily-Paid Employees: Appellants alleged that the use of the word "temporary" in the contracts of service of some of the plaintiffs showed that their employment was for a term — "temporary, on a day to day basis" — and therefore fell outside the coverage of Article 302 of the Code of Commerce, which applies only when no special time is fixed in the contract.
• Validity of the Waiver: Appellants maintained that the employees had expressly and voluntarily waived the benefit of Article 302 in their contracts of employment, and that such waiver was legal and binding.

• Coverage of Article 302: Whether both monthly-paid and daily-paid commercial employees are entitled to the benefit granted in Article 302 of the Code of Commerce.
• Validity of Advance Waiver: Whether the employees' advance waiver of the benefits under Article 302 of the Code of Commerce was legal and valid.

• Coverage of Article 302: Yes. Both monthly- and daily-paid commercial employees fall within the purview of Article 302, provided no special time is fixed in the contract of service and the employee is a commercial employee. The manner of computing wages — whether daily, weekly, or monthly — does not determine or represent a special period of employment.
• Validity of Advance Waiver: No. A waiver made in advance by the employee of the mesada benefit under Article 302 is void as contrary to public policy, the employee's consent being vitiated by the economic compulsion of urgent need.

• Coverage of Article 302: Article 302 of the Code of Commerce provides that where no special time is fixed in a mercantile contract of service, either party may cancel the contract upon giving one month's advance notice (mesada). Two conditions must concur: (1) no special time is fixed in the contract of service, and (2) the employee is a commercial employee. The plaintiffs were commercial employees of the appellant corporations, rendering service as warehousemen, carpenter-foreman, and guards. The contracts of employment fixed no special term; the stated computation or manner of payment — whether monthly or daily — does not represent or determine a special time of employment. A commercial employee may be employed for one year and yet receive salary on a daily, weekly, or monthly basis. The word "temporary" as used in the guards' contracts ("You are hereby employed as temporary guard with a compensation at the rate of ₱5 a day") does not mean a special time fixed in the contract within the meaning of Article 302; the daily basis is for computation of pay, not the period of employment. Accordingly, the plaintiffs come within the purview of Article 302.

• Validity of Advance Waiver: Even assuming the mesada serves a bilateral benefit for both employer and employee, an advance waiver by the employee is contrary to public policy. The constitutional mandate — Article II, Section 5 (promotion of social justice) and Article XIV, Section 6 (protection to labor) — requires that Article 302 be applied in consonance with those provisions. In employment bargaining, the employer stands on higher footing than the employee: there is greater supply than demand for labor, and the need for employment arises from vital, even desperate, necessity. The law must protect labor at least to the extent of raising it to equal footing in bargaining relations with capital and shielding it from abuses born of the necessity for survival. It is safe to presume that an employee who waives in advance any benefit granted by law does so not in his interest or through generosity, but under the forceful intimidation of urgent need, and therefore could not have acted freely and voluntarily. The waiver is thus void.

• Advance Waiver of Statutory Labor Benefits is Void — A waiver made in advance by an employee of benefits granted by labor law is void as contrary to public policy, because the employee's consent is vitiated by economic necessity. The employer's superior bargaining position — arising from the oversupply of labor and the employee's desperate need for employment — means that any such waiver is presumed to have been made under compulsion of urgent need rather than freely and voluntarily. The Court applied this doctrine to invalidate the employees' express waiver of the mesada under Article 302 of the Code of Commerce in their contracts of employment.
• Manner of Wage Computation Does Not Determine Term of Employment — Whether an employee is paid on a daily, weekly, or monthly basis is merely a method of computing wages and does not represent or determine a special period of employment within the meaning of Article 302 of the Code of Commerce. A commercial employee may be employed for a fixed term and still receive wages on any basis. The Court applied this principle to hold that the daily-paid guards were entitled to the mesada, the word "temporary" in their contracts referring only to the nature of the position, not to a fixed term.

• "It is safe to presume therefore, that an employee or laborer who waives in advance any benefit granted him by law does so, certainly not in his interest or through generosity but under the forceful intimidation of urgent need, and hence, he could not have so acted freely and voluntarily." — This passage articulates the ratio decidendi for voiding advance waivers of statutory labor benefits, grounding the invalidation in the economic inequality between capital and labor.

• "The stated computation or manner of payment, whether monthly or daily, does not represent nor determine a special time of employment. Thus, a commercial employee may be employed for one year and yet receive his salary on the daily or weekly or monthly or other basis." — This defines the principle that the frequency or method of wage payment is distinct from the duration of the employment contract, a distinction critical to determining coverage of Article 302.

• "Article 302 of the Code of Commerce must be applied in consonance with these provisions of our constitution." — This establishes the interpretive principle that labor statutes must be read in light of the constitutional mandates on social justice and protection to labor.

• Unspecified prior jurisprudence (cited in footnote) — The decision references "settled jurisprudence" for the proposition that in a mercantile contract of service where no special time is fixed, either party may cancel upon giving one-month notice, and that an employee discharged without cause and without notice is entitled to indemnity equivalent to one month's salary. The specific cases are not named in the body of the decision.

• Article 302, Code of Commerce — Provides that in mercantile contracts of service where no special time is fixed, either party may cancel the contract upon giving one month's advance notice (mesada), and that factors or shop clerks shall be entitled to salary for that month. The Court applied this provision to all commercial employees — not just factors or shop clerks — whose contracts fixed no special term, holding them entitled to one month's salary as indemnity when dismissed without notice.
• Article II, Section 5, Philippine Constitution — States that the promotion of social justice to insure the well-being and economic security of all the people should be the concern of the State. The Court invoked this provision to justify invalidating the advance waiver as contrary to public policy.
• Article XIV, Section 6, Philippine Constitution — Provides that the State shall afford protection to labor, especially to working women and minors, and shall regulate the relations between labor and capital. The Court relied on this provision to support the principle that labor laws must be interpreted to protect the employee's weaker bargaining position.

Ozaeta, Paras, Feria, Pablo, Tuason, Bengzon, and Reyes, JJ., concurred.