Posted: May 1, 2015 in case digests, labor relations
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2006 October 12

By:  Zendy Garcia-Budhi

Facts:   Innodata Philippines, Inc., is engaged in the encoding/data conversion business. It employs encoders, indexers, formatters, programmers, quality/quantity staff, and others, to maintain its business and do the job orders of its clients.

Estrella G. Natividad and Jocelyn L. Quejada were employed as formatters by Innodata Philippines, Inc. They [worked] from March 4, 1997, until their separation on March 3, 1998. They believed that their job was necessary and desirable to the usual business of the company which is data processing/conversion and that their employment is regular pursuant to Article 280 of the Labor Code,they filed a complaint for illegal dismissal and for damages as well as for attorney’s fees against Innodata Phils., Incorporated.

Innodata contended that their employment contracts expired, having a fixed period of one (1) year. Since the period expired, their employment was likewise terminated applying the ruling in the Brent School case.

Labor Arbiter Donato G. Quinto rendered a judgment in favor of complainants holding complainants Estella G. Natividad and Jocelyn Quejada to have been illegally dismissed by Innodata Philippines Incorporated and Innodata Processing Corporation and ordering reinstatement to their former position without loss of seniority rights, or to a substantially equivalent position, and to pay them jointly and severally, backwages computed from the time they were illegally dismissed on March 3, 1998 up to the date of this decision in the amount of P112,535.28 EACH, or in the total amount of P225,070.56 for the two of them; and further ordered to pay them attorney’s fees in the amount equivalent to 10% of their respective awards.

Innodata appealed to NLRC which reversed and set aside the Labor Arbiter’s decision declaring that the contract was for a fixed term and therefore, the dismissal at the end of their one year term agreed upon was valid. An MR was filed but was denied.

The CA ruled that respondents were regular employees in accordance with Section 280 of the Labor Code. It said that the fixed-term contract prepared by petitioner was a crude attempt to circumvent respondents’ right to security of tenure.

The disputed contract reads, as follows:


  1. The EMPLOYER hereby employs, engages and hires the EMPLOYEE, and the EMPLOYEE hereby accepts such appointment as FORMATTER effective March 04, 1997 to March 03, 1998, a period of one (1) year.

x x x x x x x x x


7.1 This Contract shall automatically terminate on March 03, 1998 without need of notice or demand.

x x x x x x x x x

7.4 The EMPLOYEE acknowledges that the EMPLOYER entered into this Contract upon his express representation that he/she is qualified and possesses the skills necessary and desirable for the position indicated herein. Thus, the EMPLOYER is hereby granted the right to pre-terminate this Contract within the first three (3) months of its duration upon failure of the EMPLOYEE to meet and pass the qualifications and standards set by the EMPLOYER and made known to the EMPLOYEE prior to execution hereof. Failure of the EMPLOYER to exercise its right hereunder shall be without prejudice to the automatic termination of the EMPLOYEE’s employment upon the expiration of this Contract or cancellation thereof for other causes provided herein and by law.”

The contract provided two periods. Aside from the fixed one-year term set in paragraph 1, paragraph 7.4 provides for a three-month period during which petitioner has the right to pre-terminate the employment for the “failure of the employees to meet and pass the qualifications and standards set by the employer and made known to the employee prior to” their employment. In effect, the paragraph 7.4 is a probationary period.

Innodata claims that it was constrained by the nature of its business to enter into fixed-term employment contracts with employees assigned to job orders. It relies on the availability of job orders or undertakings from its clients. Thus, the continuity of work cannot be ascertained.

Hence, this petition.


ISSUE: whether the alleged fixed-term employment contracts are valid.

HELD:  No, Innodata’s contract of employment failed to comply with the standards set by law and by this Court. “ A contract of employment is impressed with public interest. For this reason, provisions of applicable statutes are deemed written into the contract. Hence, the “parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other.” Moreover, in case of doubt, the terms of a contract should be construed in favor of labor.”

RATIO: The applicable laws are Article 1700 of the Civil Code  which declares:

“Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the common good. Therefore, such contracts are subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours of labor and similar subjects.”

And Section 280 of the Labor Code.

DISPOSITIVE: Petition is DENIED, and the assailed Decision and Resolution are AFFIRMED. Costs against petitioner.



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