ANTONIO M. SERRANO, G.R. No.

167614
Petitioner,
Present:

PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
- versus - CORONA,
CARPIO MORALES,
TINGA,
CHICO-NAZARIO,
VELASCO, Jr.,
NACHURA,
LEONARDO-DE CASTRO,
BRION, and
GALLANT MARITIME SERVICES, PERALTA, JJ.
INC. and MARLOW NAVIGATION
CO., INC., Promulgated:
Respondents. March 24, 2009
x----------------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

For decades, the toil of solitary migrants has helped lift entire
families and communities out of poverty. Their earnings have built
houses, provided health care, equipped schools and planted the seeds of
businesses. They have woven together the world by transmitting ideas
and knowledge from country to country. They have provided the
dynamic human link between cultures, societies and economies. Yet,
only recently have we begun to understand not only how much

1
 international migration impacts development, but how smart public
policies can magnify this effect.

United Nations Secretary-General Ban Ki-Moon

Global Forum on Migration and
Development
Brussels, July 10, 2007[1]

For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the
5 paragraph of Section 10, Republic Act (R.A.) No. 8042,[2] to wit:
th

Sec. 10. Money Claims. - x x x In case of termination of overseas

employment without just, valid or authorized cause as defined by law or
contract, the workers shall be entitled to the full reimbursement of his
placement fee with interest of twelve percent (12%) per annum, plus his
salaries for the unexpired portion of his employment contract or for
three (3) months for every year of the unexpired term, whichever is
less.

x x x x (Emphasis and underscoring supplied)

does not magnify the contributions of overseas Filipino workers (OFWs) to national
development, but exacerbates the hardships borne by them by unduly limiting their
entitlement in case of illegal dismissal to their lump-sum salary either for the
unexpired portion of their employment contract or for three months for every year
of the unexpired term, whichever is less (subject clause). Petitioner claims that the
last clause violates the OFWs' constitutional rights in that it impairs the terms of
their contract, deprives them of equal protection and denies them due process.

By way of Petition for Review under Rule 45 of the Rules of Court,

petitioner assails the December 8, 2004 Decision[3] and April 1, 2005
Resolution[4] of the Court of Appeals (CA), which applied the subject clause,
entreating this Court to declare the subject clause unconstitutional.
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:

2
 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[5]

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.[6]

Respondents did not deliver on their promise to make petitioner Chief

Officer.[7] Hence, petitioner refused to stay on as Second Officer and was repatriated
to the Philippines on May 26, 1998.[8]

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[9] against

respondents for constructive dismissal and for payment of his money claims in the
total amount of US$26,442.73, broken down as follows:

May 27/31, 1998 (5 days) incl. Leave pay US$ 413.90

June 01/30, 1998 2,590.00
July 01/31, 1998 2,590.00
August 01/31, 1998 2,590.00
Sept. 01/30, 1998 2,590.00
Oct. 01/31, 1998 2,590.00
Nov. 01/30, 1998 2,590.00
Dec. 01/31, 1998 2,590.00
Jan. 01/31, 1999 2,590.00
Feb. 01/28, 1999 2,590.00
Mar. 1/19, 1999 (19 days) incl. leave pay 1,640.00
--------------------------------------------------------------------------------

25,382.23
Amount adjusted to chief mate's salary
(March 19/31, 1998 to April 1/30, 1998) + 1,060.50[10]
----------------------------------------------------------------------------------------------

3
 TOTAL CLAIM US$ 26,442.73[11]

as well as moral and exemplary damages and attorney's fees.

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

WHEREFORE, premises considered, 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 the complainant [petitioner], jointly and
severally, in Philippine Currency, based on the rate of exchange
prevailing at the time of payment, the amount of EIGHT THOUSAND
SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00),
representing the complainants salary for three (3) months of the
unexpired portion of the aforesaid contract of employment.

The respondents are likewise ordered to pay the complainant [petitioner],

jointly and severally, in Philippine Currency, based on the rate of
exchange prevailing at the time of payment, the amount of FORTY
FIVE U.S. DOLLARS (US$ 45.00),[12] representing the complainants
claim for a salary differential. In addition, the respondents are hereby
ordered to pay the complainant, jointly and severally, in Philippine
Currency, at the exchange rate prevailing at the time of payment, the
complainants (petitioner's) claim for attorneys fees equivalent to ten
percent (10%) of the total amount awarded to the aforesaid employee
under this Decision.

The claims of the complainant for moral and exemplary damages are
hereby DISMISSED for lack of merit.

All other claims are hereby DISMISSED.

SO ORDERED.[13] (Emphasis supplied)

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 +

4
US$700.00/month, fixed overtime pay, + US$490.00/month, vacation leave pay =
US$2,590.00/compensation per month.[14]

Respondents appealed[15] to the National Labor Relations Commission

(NLRC) to question the finding of the LA that petitioner was illegally dismissed.

Petitioner also appealed[16] to the NLRC on the sole issue that the LA erred in
not applying the ruling of the Court in Triple Integrated Services, Inc. v. National
Labor Relations Commission[17] that in case of illegal dismissal, OFWs are entitled
to their salaries for the unexpired portion of their contracts.[18]

In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to
wit:

WHEREFORE, the Decision dated 15 July 1999 is MODIFIED.

Respondents are hereby ordered to pay complainant, jointly and
severally, in Philippine currency, at the prevailing rate of exchange at the
time of payment the following:

1. Three (3) months salary

$1,400 x 3 US$4,200.00
2. Salary differential 45.00
US$4,245.00
3. 10% Attorneys fees 424.50
TOTAL US$4,669.50

The other findings are affirmed.

SO ORDERED.[19]

The NLRC 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.[20]

Petitioner filed a Motion for Partial Reconsideration, but this time he

questioned the constitutionality of the subject clause.[21] The NLRC denied the
motion.[22]

5
 Petitioner filed a Petition for Certiorari[23] with the CA, reiterating the
constitutional challenge against the subject clause.[24] After initially dismissing the
petition on a technicality, the CA eventually gave due course to it, as directed by this
Court in its Resolution dated August 7, 2003 which granted the petition
for certiorari, docketed as G.R. No. 151833, filed by petitioner.

In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on

the reduction of the applicable salary rate; however, the CA skirted the
constitutional issue raised by petitioner.[25]

His Motion for Reconsideration[26] having been denied by the

CA,[27] petitioner brings his cause to this Court on the following grounds:

I
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

II
In the alternative that the Court of Appeals and the Labor
Tribunals were merely applying their interpretation of Section 10 of
Republic Act No. 8042, it is submitted that the Court of Appeals gravely
erred in law when it failed to discharge its judicial duty to decide
questions of substance not theretofore determined by the Honorable
Supreme Court, particularly, the constitutional issues raised by the
petitioner on the constitutionality of said law, which unreasonably,
unfairly and arbitrarily limits payment of the award for back wages of
overseas workers to three (3) months.

III
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 petitioners award the overtime pay and vacation pay
provided in his contract since under the contract they form part of his
salary.[28]

6
 On February 26, 2008, petitioner wrote the Court to withdraw his petition as
he is already old and sickly, and he intends to make use of the monetary award for
his medical treatment and medication.[29] Required to comment, counsel for
petitioner filed a motion, urging the court to allow partial execution of the
undisputed monetary award and, at the same time, praying that the constitutional
question be resolved.[30]

Considering that the parties have filed their respective memoranda, the Court
now takes up the full merit of the petition mindful of the extreme importance of the
constitutional question raised therein.

On the first and second issues

The unanimous finding of the LA, NLRC and CA that the dismissal of
petitioner was illegal is not disputed. Likewise not disputed is the salary differential
of US$45.00 awarded to petitioner in all three fora. What remains disputed is only
the computation of the lump-sum salary to be awarded to petitioner by reason of his
illegal dismissal.
Applying the subject clause, the NLRC and the CA computed the lump-sum
salary of petitioner at the monthly rate of US$1,400.00 covering the period of three
months out of the unexpired portion of nine months and 23 days of his employment
contract or a total of US$4,200.00.

Impugning the constitutionality of the subject clause, petitioner contends that,

in addition to the US$4,200.00 awarded by the NLRC and the CA, he is entitled to
US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for the
entire nine months and 23 days left of his employment contract, computed at the
monthly rate of US$2,590.00.[31]
The Arguments of Petitioner

Petitioner contends that the subject clause is unconstitutional because it

unduly impairs the freedom of OFWs to negotiate for and stipulate in their overseas
employment contracts a determinate employment period and a fixed salary
package.[32] It also impinges on the equal protection clause, for it treats OFWs
differently from local Filipino workers (local workers) by putting a cap on the
amount of lump-sum salary to which OFWs are entitled in case of illegal

7
dismissal, while setting no limit to the same monetary award for local workers when
their dismissal is declared illegal; that the disparate treatment is not reasonable as
there is no substantial distinction between the two groups;[33] and that it defeats
Section 18,[34] Article II of the Constitution which guarantees the protection of the
rights and welfare of all Filipino workers, whether deployed locally or overseas.[35]

Moreover, petitioner argues that the decisions of the CA and the labor
tribunals are not in line with existing jurisprudence on the issue of money claims of
illegally dismissed OFWs. Though there are conflicting rulings on this, petitioner
urges the Court to sort them out for the guidance of affected OFWs.[36]
Petitioner further underscores that the insertion of the subject clause into
R.A. No. 8042 serves no other purpose but to benefit local placement agencies. He
marks the statement made by the Solicitor General in his Memorandum, viz.:

Often, placement agencies, their liability being solidary, shoulder

the payment of money claims in the event that jurisdiction over the
foreign employer is not acquired by the court or if the foreign employer
reneges on its obligation. Hence, placement agencies that are in good
faith and which fulfill their obligations are unnecessarily penalized for
the acts of the foreign employer. To protect them and to promote their
continued helpful contribution in deploying Filipino migrant workers,
liability for money claims was reduced under Section 10 of R.A. No.
8042. [37] (Emphasis supplied)

Petitioner argues that in mitigating the solidary liability of placement

agencies, the subject clause sacrifices the well-being of OFWs. Not only that, the
provision makes foreign employers better off than local employers because in cases
involving the illegal dismissal of employees, foreign employers are liable for
salaries covering a maximum of only three months of the unexpired employment
contract while local employers are liable for the full lump-sum salaries of their
employees. As petitioner puts it:

In terms of practical application, the local employers are not

limited to the amount of backwages they have to give their employees
they have illegally dismissed, following well-entrenched and
unequivocal jurisprudence on the matter. On the other hand, foreign
employers will only be limited to giving the illegally dismissed migrant
workers the maximum of three (3) months unpaid salaries

8
 notwithstanding the unexpired term of the contract that can be more than
three (3) months.[38]

Lastly, petitioner claims that the subject clause violates the due process
clause, for it deprives him of the salaries and other emoluments he is entitled to
under his fixed-period employment contract.[39]

The Arguments of Respondents

In their Comment and Memorandum, respondents contend that the

constitutional issue should not be entertained, for this was belatedly interposed by
petitioner in his appeal before the CA, and not at the earliest opportunity, which was
when he filed an appeal before the NLRC.[40]

The Arguments of the Solicitor General

The Solicitor General (OSG)[41] points out that as R.A. No. 8042 took effect
on July 15, 1995, its provisions could not have impaired petitioner's 1998
employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract,
the provisions thereof are deemed part of the minimum terms of petitioner's
employment, especially on the matter of money claims, as this was not stipulated
upon by the parties.[42]

Moreover, the OSG emphasizes that OFWs and local workers differ in terms
of the nature of their employment, such that their rights to monetary benefits must
necessarily be treated differently. The OSG enumerates the essential elements that
distinguish OFWs from local workers: first, while local workers perform their
jobs within Philippine territory, OFWs perform their jobs for foreign employers,
over whom it is difficult for our courts to acquire jurisdiction, or against whom it is
almost impossible to enforce judgment; and second, as held in Coyoca v. National
Labor Relations Commission[43] and Millares v. National Labor Relations
Commission,[44] OFWs are contractual employees who can never acquire regular
employment status, unlike local workers who are or can become regular
employees. Hence, the OSG posits that there are rights and privileges exclusive to
local workers, but not available to OFWs; that these peculiarities make for a
reasonable and valid basis for the differentiated treatment under the subject clause of

9
the money claims of OFWs who are illegally dismissed. Thus, the provision does
not violate the equal protection clause nor Section 18, Article II of the
Constitution.[45]

Lastly, the OSG defends the rationale behind the subject clause as a police
power measure adopted to mitigate the solidary liability of placement agencies for
this redounds to the benefit of the migrant workers whose welfare the government
seeks to promote. The survival of legitimate placement agencies helps [assure] the
government that migrant workers are properly deployed and are employed under
decent and humane conditions.[46]
The Court's Ruling

The Court sustains petitioner on the first and second issues.

When the Court is called upon to exercise its power of judicial review
of the acts of its co-equals, such as the Congress, it does so only when these
conditions obtain: (1) that there is an actual case or controversy involving a conflict
of rights susceptible of judicial determination;[47] (2) that the constitutional question
is raised by a proper party[48] and at the earliest opportunity;[49] and (3) that the
constitutional question is the very lis mota of the case,[50] otherwise the Court will
dismiss the case or decide the same on some other ground.[51]

Without a doubt, there exists in this case an actual controversy directly

involving petitioner who is personally aggrieved that the labor tribunals and the CA
computed his monetary award based on the salary period of three months only as
provided under the subject clause.

The constitutional challenge is also timely. It should be borne in mind that

the requirement that a constitutional issue be raised at the earliest opportunity entails
the interposition of the issue in the pleadings before a competent court, such that, if
the issue is not raised in the pleadings before that competent court, it cannot be
considered at the trial and, if not considered in the trial, it cannot be considered on
appeal.[52] Records disclose that the issue on the constitutionality of the subject
clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion
for Partial Reconsideration with said labor tribunal,[53] and reiterated in his Petition
for Certiorari before the CA.[54] Nonetheless, the issue is deemed seasonably raised

10
because it is not the NLRC but the CA which has the competence to resolve the
constitutional issue. The NLRC is a labor tribunal that merely performs a quasi-
judicial function its function in the present case is limited to determining questions
of fact to which the legislative policy of R.A. No. 8042 is to be applied and to
resolving such questions in accordance with the standards laid down by the law
itself;[55] thus, its foremost function is to administer and enforce R.A. No. 8042, and
not to inquire into the validity of its provisions. The CA, on the other hand, is vested
with the power of judicial review or the power to declare unconstitutional a law or a
provision thereof, such as the subject clause.[56] Petitioner's interposition of the
constitutional issue before the CA was undoubtedly seasonable. The CA was
therefore remiss in failing to take up the issue in its decision.
The third condition that the constitutional issue be critical to the resolution of
the case likewise obtains because the monetary claim of petitioner to his lump-sum
salary for the entire unexpired portion of his 12-month employment contract, and
not just for a period of three months, strikes at the very core of the subject clause.

Thus, the stage is all set for the determination of the constitutionality of the
subject clause.

Does the subject clause violate Section 10,

Article III of the Constitution on non-impairment
of contracts?

The answer is in the negative.

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[57] 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,[58] and cannot affect acts or contracts already

11
perfected;[59] however, as to laws already in existence, their provisions are read into
contracts and deemed a part thereof.[60] 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.[61] 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.[62]

Does the subject clause violate Section 1,

Article III of the Constitution, and Section 18,
Article II and Section 3, Article XIII on labor
as a protected sector?

The answer is in the affirmative.

Section 1, Article III of the Constitution guarantees:

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.

12
 Section 18,[63] Article II and Section 3,[64] 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.

13