FIRST DIVISION

[G.R. No. 162839. October 12, 2006.]

INNODATA PHILIPPINES, INC. , petitioner, vs . JOCELYN L. QUEJADA-

LOPEZ and ESTELLA G. NATIVIDAD-PASCUAL , respondents.

DECISION

PANGANIBAN , C.J : p

A contract that misuses a purported xed-term employment to block the

acquisition of tenure by the employees deserves to be struck down for being contrary
to law, morals, good customs, public order and public policy.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking
to reverse the September 18, 2003 Decision 2 of the Court of Appeals (CA) in CA-GR SP
No. 73416, as well as its March 15, 2004 Resolution 3 denying petitioner's Motion for
Reconsideration. The decretal portion of the Decision states:
"WHEREFORE , the challenged decision of November 27, 2001 and
resolution of July 22, 2002 of the National Labor Relations Commission are SET
ASIDE , and the decision of the Labor Arbiter of December 29, 1999 in NLRC NCR
CASE NO. 00-03-02732-98 is REINSTATED and AFFIRMED in all respect." 4

The Facts
The factual antecedents are narrated by the CA as follows:
"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. DaTICc

"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.

"Claiming 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, [respondents] led a
complaint for illegal dismissal and for damages as well as for attorney's fees
against Innodata Phils., Incorporated, Innodata Processing Corporation and Todd
Solomon. [Respondents] further invoke the stare decicis doctrine in the case of
Juanito Villanueva vs. National Labor Relations Commission, et al., G.R. No.
127448 dated September 17, 1998 and the case of Joaquin Servidad vs. National
Labor Relations Commission, et al., G.R. No. 128682 dated March 18, 1999,
arguing that the Highest Court has already ruled with nality that the nature of
employment at [petitioner] corporation is regular and not on a xed term basis, as
the job in the company is necessary and desirable to the usual business of the
corporation.
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 "On the other hand, [petitioner] contends that [respondents'] employment
contracts expired, for [these were] only for a xed period of one (1) year.
[Petitioner] company further invoked the Brent School case by saying that since
the period expired, [respondents'] employment was likewise terminated.

"After examination of the pleadings led, Labor Arbiter Donato G. Quinto

rendered a judgment in favor of complainants, the dispositive portion of which
reads:
'WHEREFORE, foregoing premises considered, judgment is hereby
rendered:

(1) Holding complainants Estella G. Natividad and Jocelyn

Quejada to have been illegally dismissed by [Petitioners]
Innodata Philippines Incorporated and Innodata Processing
Corporation and ordering said [petitioners] to reinstate them
to their former position without los[s] 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; TcHCDI

(2) Further, [petitioners] are ordered to pay, jointly and severally,

[respondents] attorney's fees in the amount equivalent to
10% of their respective awards; and

(3) All other claims are hereby dismissed for lack of merit.

'SO ORDERED.'

"Not satis ed, [petitioner] corporation interposed an appeal in the National

Labor Relations Commission, which reversed and set aside the Labor Arbiter's
decision and dismissed [respondents'] complaint for lack of merit. It declared that
the contract between [respondents] and [petitioner] company was for a xed term
and therefore, the dismissal of [respondents], at the end of their one year term
agreed upon, was valid.

"A motion for reconsideration was led but was denied in an order dated
July 22, 2002." 5

Ruling of the Court of Appeals

The CA ruled that respondents were regular employees in accordance with
Section 280 of the Labor Code. It said that the xed-term contract prepared by
petitioner was a crude attempt to circumvent respondents' right to security of tenure.
Hence, this Petition. 6
Issues
Petitioner raises the followings issues for the Court's consideration:
I

"Whether or not the Court of Appeals committed serious reversible error when it
did not take into consideration that xed-term employment contracts are valid
under the law and prevailing jurisprudence.

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 II

"Whether or not the Court of Appeals committed serious reversible error when it
failed to take into consideration the nature of the business of petitioner vis-à-vis
its resort to fixed-term employment contracts.

III

"Whether or not the Court of Appeals seriously erred when it failed to consider the
fixed-term employment contracts between petitioner and respondents as valid. CDaTAI

IV

"Whether or not the Court of Appeals seriously erred when it held that regularity of
employment is always premised on the fact that it is directly related to the
business of the employer.

"Whether or not the Court of Appeals committed serious reversible error in setting
aside the Decision of the National Labor Relations Commission, dated 27
November 2001 and Resolution of 22 July 2002, respectively[,] and reinstated the
decision of the Labor Arbiter dated 29 December 1999." 7

The foregoing issues may be reduced into one question: whether the alleged
fixed-term employment contracts entered into by petitioner and respondents are valid.
The Court's Ruling
The Petition has no merit.
Sole Issue:
Validity of the Fixed-Term Contract
Petitioner contends that the regularity of the employment of respondents does
not depend on whether their task may be necessary or desirable in the usual business
of the employer. It argues that the use of xed-term employment contracts has long
been recognized by this Court.
Petitioner adds that Villanueva v. NLRC 8 and Servidad v. NLRC 9 do not apply to
the present factual circumstances. These earlier cases struck down the employment
contracts prepared by herein Petitioner Innodata for being "devious, but crude,
attempts to circumvent [the employee's] right to security of tenure . . . ." Petitioner
avers that the present employment contracts it entered into with respondents no
longer contain the so-called "double-bladed" provisions previously found objectionable
by the Court.
Petitioner's contentions have no merit. cCHITA

While this Court has recognized the validity of xed-term employment contracts
in a number of cases, 1 0 it has consistently emphasized that when the circumstances of
a case show that the periods were imposed to block the acquisition of security of
tenure, they should be struck down for being contrary to law, morals, good customs,
public order or public policy. 1 1
In a feeble attempt to conform to the earlier rulings of this Court in Villanueva 1 2
and Servidad, 1 3 petitioner has reworded its present employment contracts. A close
scrutiny of the provisions, however, show that the double-bladed scheme to block the
acquisition of tenurial security still exists.
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 To stress, Servidad struck down the following objectionable contract provisions:
"Section 2. This Contract shall be effective for a period of 1 [year]
commencing on May 10, 1994, until May 10, 1995 unless sooner terminated
pursuant to the provisions hereof.

"From May 10, 1994 to November 10, 1994, or for a period of six (6)
months, the EMPLOYEE shall be contractual during which the EMPLOYER can
terminate the EMPLOYEE'S services by serving written notice to that effect. Such
termination shall be immediate, or at whatever date within the six-month period,
as the EMPLOYER may determine. Should the EMPLOYEE continue his
employment beyond November 10, 1994, he shall become a regular employee
upon demonstration of su cient skill in the terms of his ability to meet the
standards set by the EMPLOYER. If the EMPLOYEE fails to demonstrate the
ability to master his task during the rst six months he can be placed on
probation for another six (6) months after which he will be evaluated for
promotion as a regular employee." 1 4

In comparison, the pertinent portions of the present employment contracts in

dispute read as follows:
"TERM/DURATION
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. ECDaTI

xxx xxx xxx

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

7.4 The EMPLOYEE acknowledges that the EMPLOYER entered into this
Contract upon his express representation that he/she is quali ed and
possesses the skills necessary and desirable for the position indicated
herein. Thus, the EMPLOYER is hereby granted the right to
preterminate this Contract within the rst three (3) months of its
duration upon failure of the EMPLOYEE to meet and pass the
quali cations 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." 1 5 (Emphasis supplied)

Like those in Villanueva and Servidad, the present contracts also provide for two
periods. Aside from the xed 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 quali cations and
standards set by the employer and made known to the employee prior to" their
employment. Thus, although couched in ambiguous language, paragraph 7.4 refers in
reality to a probationary period.
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 Clearly, to avoid regularization, petitioner has again sought to resort alternatively
to probationary employment and employment for a xed term. Noteworthy is the
following pronouncement of this Court in Servidad:
"If the contract was really for a xed term, the [employer] should not have
been given the discretion to dismiss the [employee] during the one year period of
employment for reasons other than the just and authorized causes under the
Labor Code. Settled is the rule that an employer can terminate the services of an
employee only for valid and just causes which must be shown by clear and
convincing evidence. DHSCEc

xxx xxx xxx

"The language of the contract in dispute is truly a double-bladed scheme to
block the acquisition of the employee of tenurial security. Thereunder, [the
employer] has two options. It can terminate the employee by reason of expiration
of contract, or it may use 'failure to meet work standards' as the ground for the
employee's dismissal. In either case, the tenor of the contract jeopardizes the right
of the worker to security of tenure guaranteed by the Constitution." 1 6

In the interpretation of contracts, obscure words and provisions shall not favor
the party that caused the obscurity. 1 7 Consequently, the terms of the present contract
should be construed strictly against petitioner, which prepared it. 1 8
Article 1700 of the Civil Code 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."

Indeed, 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." 1 9
Moreover, in case of doubt, the terms of a contract should be construed in favor of
labor. 2 0
Lastly, petitioner claims that it was constrained by the nature of its business to
enter into xed-term employment contracts with employees assigned to job orders. It
argues that inasmuch as its business is that of a mere service contractor, it relies on
the availability of job orders or undertakings from its clients. Hence, the continuity of
work cannot be ascertained. IDcTEA

Petitioner's contentions deserve little consideration.

By their very nature, businesses exist and thrive depending on the continued
patronage of their clients. Thus, to some degree, they are subject to the whims of
clients who may decide to discontinue patronizing their products or services for a
variety of reasons. Being inherent in any enterprise, this entrepreneurial risk may not be
used as an excuse to circumvent labor laws; otherwise, no worker could ever attain
regular employment status.
Finally, it is worth noting that after its past employment contracts had been
declared void by this Court, petitioner was expected to ensure that the subsequent
contracts would already comply with the standards set by law and by this Court.
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 Regrettably, petitioner failed to do so.
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution
are AFFIRMED. Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Footnotes
1. Rollo, pp. 3-27.
2. Id. at 32-37. Fifth Division. Penned by Justice Eugenio S. Labitoria (Division chair) with
the concurrence of Justices .Mercedes Gozo-Dadole and Rosmari D. Carandang
(members).
3. Id. at 66.
4. Id. at 37.
5. CA Decision, pp. 1-3; rollo, pp. 32-34.
6. The case was deemed submitted for decision on May 10, 2005, upon receipt by this
Court of petitioner's Memorandum signed by Attys. Josabeth V. Alonso and Vladimir F.
del Rosario. Respondents' Memorandum, signed by Atty. Cezar F. Maravilla Jr., was
received by the Court on April 19, 2005.
7. Petitioner's Memorandum, pp. 6-7; rollo, pp. 654-655. (Uppercase in the original)
8. 356 Phil. 638, September 10, 1998.
9. 364 Phil. 518, March 18, 1999.

10. St. Theresa's School of Novaliches Foundation v. NLRC, 351 Phil. 1038, April 15, 1998;
Philippine Village Hotel v. NLRC, 230 SCRA 423, February 28, 1994; Philippine National
Oil Co.-Energy Development Corporation v. NLRC, 220 SCRA 695, March 31, 1993; Brent
School, Inc. v. Zamora, 181 SCRA 702, February 5, 1990.
11. Poseidon Fishing v. NLRC, GR No. 168052, February 20, 2006; Philips Semiconductors,
Inc. v. Fadriquela, 427 SCRA 408, April 14, 2004; Pakistan International Airlines
Corporation v. Ople, 190 SCRA 90, September 28, 1990; Brent School, Inc. v. Zamora,
supra.
12. Supra note 8.
13. Supra note 9.
14. Servidad v. NLRC, supra, pp. 521-522.
15. Rollo, pp. 67-70.
16. Id. at. 524-525, per Purisima, J. (Italics supplied)
17. CIVIL CODE, Art. 1377.

18. Philippine Federation of Credit Cooperatives, Inc. v. NLRC, 360 Phil. 254, 261, December
11, 1998.
19. Pakistan International Airlines Corporation v. Ople, supra, p. 99, per Feliciano, J. See
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 also Magsalin v. National Organization of Working Men, 451 Phil. 254, May 9, 2003;
Bernardo v. NLRC, 369 Phil. 443, July 12, 1999.
20. Philippine Federation of Credit Cooperatives, Inc. v. NLRC, supra.

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