Servidad vs. NLRC

An employment contract that uses ambiguous stipulations and alternating fixed-term or probationary periods to preclude an employee from acquiring tenurial security is a complete nullity, and an employee engaged in activities necessary or desirable to the employer's business, or allowed to work beyond the probationary period, is deemed a regular employee under the Labor Code.

Petitioner Joaquin T. Servidad was employed by respondent Innodata Philippines, Inc., a company engaged in the data processing and data encoding business. The relationship between the parties was governed by a written employment contract prepared by the employer, the interpretation and validity of which became the central issue due to its implications on the petitioner's security of tenure under the Labor Code and the 1987 Constitution.

Petitioner Joaquin T. Servidad was employed on May 9, 1994 by respondent Innodata as a "Data Control Clerk" under a contract of employment effective for one year, commencing on May 10, 1994 until May 10, 1995. The contract stipulated that for the first six months, until November 10, 1994, the employee would be contractual and terminable at the employer's option. It further provided that should the employee continue beyond November 10, 1994, he would become a regular employee upon demonstration of sufficient skill, but if he failed to demonstrate the ability to master his task, he could be placed on probation for another six months.

After working for six months, petitioner was made to sign a three-month probationary employment, and later, an extended three-month probationary employment good until May 9, 1995. During his tenure, petitioner received highly satisfactory performance ratings, including an overall rating of 100% and 98% in work evaluations conducted by the company on July 7, 1994, and another rating of 98.5%. On May 9, 1995, petitioner was dismissed from the service on the ground of alleged termination of the employment contract.

Petitioner subsequently filed a case for illegal dismissal. The Labor Arbiter ruled in his favor, finding him illegally dismissed and ordering private respondent to pay backwages and to reinstate him. On appeal, the NLRC reversed the Labor Arbiter, declaring that the contract was for a fixed term and that the dismissal at the end of the one-year term was valid. Petitioner then elevated the case to the Supreme Court via a petition for certiorari, faulting the NLRC for grave abuse of discretion in construing the contract as one for a fixed term.

• Grave Abuse of Discretion: Petitioner faulted the NLRC for acting with grave abuse of discretion in adjudging the subject contract of employment to be for a definite or fixed period.

• Probationary Nature of Contract: Private respondent theorized that the one-year period stipulated in the contract was to enable petitioner to acquire the skill necessary for the job, effectively characterizing the one-year term as probationary in nature.
• Failure to Meet Standards: Private respondent averred that petitioner failed to meet the expectations and standards of the company, justifying his dismissal.

• Validity of Employment Contract: Whether the NLRC gravely abused its discretion in adjudging the subject contract of employment to be for a definite or fixed period.
• Moral Damages: Whether the petitioner is entitled to an award of moral damages.

• Validity of Employment Contract: Yes. The NLRC gravely abused its discretion; the contract was a scheme to circumvent the employee's right to security of tenure and is a complete nullity.
• Moral Damages: No. Mere allegations of sleepless nights and embarrassment are insufficient to warrant an award of moral damages without showing that the unlawful act of the employer was the proximate cause.

• Validity of Employment Contract: The contract provided for two periods, neither of which specified the criteria for termination or retention, granting the employer wide leeway to determine tenure, violating the employee's right against unwarranted dismissal. Under Article 1377 of the Civil Code, any obscure stipulation must be interpreted against the party who caused the obscurity. The employer's theory that the one-year term was probationary fails under Article 281 of the Labor Code, as the petitioner was not informed of reasonable standards for regularization at the start of employment. The contract's language allowed the employer to terminate either by expiration of contract or by failure to meet work standards, effectively blocking the acquisition of tenurial security. Because the petitioner's work as a Data Control Clerk was necessary and desirable to Innodata's data processing business, he is deemed a regular employee under Article 280 of the Labor Code. Even assuming probationary employment, he was allowed to work beyond the six-month period, thus becoming a regular employee under Article 281. The agreement was entered into precisely to circumvent security of tenure, making it a complete nullity, as labor contracts are impressed with public interest under Article 1700 of the Civil Code and cannot contract away applicable labor laws.
• Moral Damages: The petitioner predicated his claim for moral damages on mere allegations of sleepless nights, embarrassment, and besmirched reputation, without detailing the cause thereof or establishing that the unlawful act or omission of the private respondent was the proximate cause. Thus, the claim for moral damages was denied.

• Security of Tenure — The Constitution guarantees the right of employees to security of tenure. Schemes which preclude the acquisition of tenurial security are contrary to public policy and must be condemned. Agreements entered into precisely to circumvent security of tenure are complete nullities, as labor contracts are impressed with public interest and cannot override the provisions of the Labor Code.
• Regular vs. Probationary Employment (Articles 280 and 281, Labor Code) — An employment shall be deemed regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, regardless of written or oral agreements to the contrary. Probationary employment shall not exceed six months unless covered by an apprenticeship agreement, and the employee must be informed of reasonable standards for regularization at the time of engagement. An employee allowed to work after a probationary period shall be considered a regular employee.

• "Commodum ex injuria sua nemo habere debet. No one should obtain an advantage from his wrong. Schemes which preclude acquisition of tenurial security should be condemned as contrary to public policy." — This opening statement sets the overarching doctrinal framework of the decision, condemning employer schemes designed to prevent employees from acquiring regular employment status.
• "The language of the contract in dispute is truly a double-bladed scheme to block the acquisition of the employee of tenurial security." — This passage characterizes the employer's use of alternative probationary and fixed-term employment stipulations as a circumvention of the employee's constitutional right to security of tenure.

• Brent School, Inc. vs. Zamora, et al. — Followed. The Court relied on the principle that where circumstances show periods were imposed to preclude the acquisition of tenurial security, they should be disregarded as contrary to public policy.
• Mariwasa Manufacturing, Inc. vs. Leogardo Jr., et al. — Distinguished. The Court found the reliance by NLRC on this case misplaced because, unlike in Mariwasa where employment was expressly agreed upon as probationary, the contract in Servidad did not contain such a specific designation and sought to alternatively use probationary and fixed-term employment.
• Villanueva vs. NLRC, et al. — Applied. The Court noted the case was on all fours with Villanueva, where the same standard form of employment contract prepared by Innodata was struck down as a crude attempt to circumvent the employee's right to security of tenure.

• Article 1377, Civil Code — Provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Applied to construe the ambiguous employment contract in favor of the employee, as the employer prepared it.
• Article 1700, Civil Code — States that the relation between capital and labor is impressed with public interest, and labor contracts must yield to the common good and special laws on labor. Applied to invalidate private agreements that circumvent labor laws and security of tenure.
• Article 280, Labor Code — Defines regular employment as engaging in activities necessary or desirable in the usual business of the employer, notwithstanding agreements to the contrary. Applied to declare petitioner a regular employee because his work as a Data Control Clerk was necessary to Innodata's business.
• Article 281, Labor Code — Governs probationary employment, limiting it to six months unless covered by an apprenticeship agreement, and requiring reasonable standards to be made known to the employee at the time of engagement. Applied to show that even if probationary, petitioner became a regular employee after working beyond six months without being informed of the standards.

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