Serrano vs Gallant Maritime

Facts

Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents)
under a Philippine Overseas Employment Administration (POEA)-approved Contract of Employment with
the following terms and conditions:

Duration of contract 12 months

Position Chief Officer

Basic monthly salary US$1,400.00

Hours of work 48.0 hours per week

Overtime US$700.00 per month

Vacation leave with pay 7.00 days per month

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded
employment contract for the position of Second Officer with a monthly salary of US$1,000.00, upon the
assurance and representation of respondents that he would be made Chief Officer by the end of April
1998.

Respondents did not deliver on their promise to make petitioner Chief Officer. Hence, petitioner refused
to stay on as Second Officer and was repatriated to the Philippines on May 26, 1998.

Petitioner’s employment contract was for a period of 12 months or from March 19, 1998 up to March
19, 1999, but at the time of his repatriation on May 26, 1998, he had served only two (2) months and
seven (7) days of his contract, leaving an unexpired portion of nine (9) months and twenty-three (23)
days.

Petitioner filed with the Labor Arbiter (LA) a Complaint against respondents for constructive dismissal
and for payment of his money claims in the total amount of US$26,442.73.

The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding
him monetary benefits, to wit:

LABOR ARBITER DECISION:

“judgment is hereby rendered declaring that the dismissal of the complainant (petitioner) by the
respondents in the above-entitled case was illegal and the respondents are hereby ordered to pay EIGHT
THOUSAND SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainant’s
salary for three (3) months of the unexpired portion of the aforesaid contract of employment.”

The claims of the complainant for moral and exemplary damages are DISMISSED for lack of merit.
In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary
period of three months only — rather than the entire unexpired portion of nine months and 23 days of
petitioner’s employment contract – applying the subject clause. However, the LA applied the salary rate
of US$2,590.00, consisting of petitioner’s “[b]asic salary, US$1,400.00/month + US$700.00/month, fixed
overtime pay, + US$490.00/month, vacation leave pay = US$2,590.00/compensation per month.”

Respondents appealed to the National Labor Relations Commission (NLRC) to question the finding of the
LA that petitioner was illegally dismissed.

NLRC DECISION:

The NLRC modified the LA Decision and corrected the LA’s computation of the lump-sum salary awarded
to petitioner by reducing the applicable salary rate from US$2,590.00 to US$1,400.00 because R.A. No.
8042 “does not provide for the award of overtime pay, which should be proven to have been actually
performed, and for vacation leave pay.

Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of
the subject clause. The NLRC denied the motion.

Petitioner filed a Petition for Certiorari with the CA, reiterating the constitutional challenge against the
subject clause. After initially dismissing the petition on a technicality, the CA eventually gave due course
to it, as directed by this Court in its Resolution which granted the petition for certiorari, filed by
petitioner.

CA DECISION:

The CA affirmed the NLRC ruling on the reduction of the applicable salary rate; however, the CA skirted
the constitutional issue raised by petitioner.

His Motion for Reconsideration having been denied by the CA, petitioner brings his cause to this Court
on the following grounds:

The Court of Appeals and the labor tribunals have decided the case in a way not in accord with
applicable decision of the Supreme Court involving similar issue of granting unto the migrant worker
back wages equal to the unexpired portion of his contract of employment instead of limiting it to three
(3) months.

Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court
of Appeals gravely erred in law in excluding from petitioner’s award the overtime pay and vacation pay
provided in his contract since under the contract they form part of his salary.

The Court now takes up the full merit of the petition mindful of the extreme importance of the
constitutional question raised therein.
Issue:

1. Whether or not the subject clause violates Section 10, Article III of the Constitution on non-
impairment of contracts;

2. Does the subject clause (Sec. 10 of RA 8042 effective july 15 1995) violate Section 1, Article III of the
Constitution, and Section 18, Article II and Section 3, Article XIII on Labor as protected sector?

Ruling:

First issue: Whether or not the subject clause violates Section 10, Article III of the Constitution on non-
impairment of contracts

No.

Petitioner’s claim that the subject clause unduly interferes with the stipulations in his contract on the
term of his employment and the fixed salary package he will receive is not tenable.

Section 10, Article III of the Constitution provides: No law impairing the obligation of contracts shall be
passed.

The prohibition is aligned with the general principle that laws newly enacted have only a prospective
operation, and cannot affect acts or contracts already perfected; however, as to laws already in
existence, their provisions are read into contracts and deemed a part thereof. Thus, the non-impairment
clause under Section 10, Article II is limited in application to laws about to be enacted that would in any
way derogate from existing acts or contracts by enlarging, abridging or in any manner changing the
intention of the parties thereto.

As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the
employment contract between petitioner and respondents in 1998. Hence, it cannot be argued that R.A.
No. 8042, particularly the subject clause, impaired the employment contract of the parties. Rather,
when the parties executed their 1998 employment contract, they were deemed to have incorporated
into it all the provisions of R.A. No. 8042.

But even if the Court were to disregard the timeline, the subject clause may not be declared
unconstitutional on the ground that it impinges on the impairment clause, for the law was enacted in
the exercise of the police power of the State to regulate a business, profession or calling, particularly the
recruitment and deployment of OFWs, with the noble end in view of ensuring respect for the dignity and
well-being of OFWs wherever they may be employed. Police power legislations adopted by the State to
promote the health, morals, peace, education, good order, safety, and general welfare of the people are
generally applicable not only to future contracts but even to those already in existence, for all private
contracts must yield to the superior and legitimate measures taken by the State to promote public
welfare.
Second issue: Does the subject clause (Sec. 10 of RA 8042 effective july 15 1995) violate Section 1,
Article III of the Constitution, and Section 18, Article II and Section 3, Article XIII on Labor as protected
sector?

Yes

Section 1, Article III of the Constitution:

No person shall be deprived of life, liberty, or property without due process of law nor shall any person
be denied the equal protection of the law.

Section 18, Article II and Section 3, Article XIII accord all members of the labor sector, without
distinction as to place of deployment, full protection of their rights and welfare.

To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to
economic security and parity: all monetary benefits should be equally enjoyed by workers of similar
category, while all monetary obligations should be borne by them in equal degree; none should be
denied the protection of the laws which is enjoyed by, or spared the burden imposed on, others in like
circumstances.

Imbued with the same sense of “obligation to afford protection to labor,” the Court in the present case
also employs the standard of strict judicial scrutiny, for it perceives in the subject clause a suspect
classification prejudicial to OFWs.

Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a
closer examination reveals that the subject clause has a discriminatory intent against, and an invidious
impact on OFWs

The subject clause does not state or imply any definitive governmental purpose; and it is for that precise
reason that the clause violates not just petitioner’s right to equal protection, but also her right to
substantive due process under Section 1, Article III of the Constitution.

It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions
thereof, were treated alike in terms of the computation of their monetary benefits in case of illegal
dismissal. Their claims were subjected to a uniform rule of computation: their basic salaries multiplied
by the entire unexpired portion of their employment contracts.

The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of
the money claims of illegally dismissed OFWs based on their employment periods, in the process singling
out one category whose contracts have an unexpired portion of one year or more and subjecting them
to the peculiar disadvantage of having their monetary awards limited to their salaries for 3 months or
for the unexpired portion thereof, whichever is less, but all the while sparing the other category from
such prejudice, simply because the latter’s unexpired contracts fall short of one year.
Prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally dismissed
OFWs was in place. This uniform system was applicable even to local workers with fixed-term
employment.

The subject clause does not state or imply any definitive governmental purpose; and it is for that precise
reason that the clause violates not just petitioner’s right to equal protection, but also her right to
substantive due process under Section 1, Article III of the Constitution.

The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired
period of nine months and 23 days of his employment contract, pursuant to law and jurisprudence prior
to the enactment of R.A. No. 8042.