[WITH RESOLUTION OF FEBRUARY 27, 1961]

Abe versus Foster Wheeler Corporation

The Case

This is the case of Abe versus Foster Wheeler Corporation, a labor case that reached the Supreme Court on two appeals. Felix Abe and three hundred ninety-three other workers sued Foster Wheeler Corporation and Caltex Philippines in the Municipal Court of Manila, claiming they had been employed in the Batangas Refinery Construction Project at Danglaya, Bauan, Batangas, on various occasions from 1952 to 1954, and were discharged in 1954 without notice. Each demanded separation pay, the value of sick and vacation leaves, and overtime compensation, with interest. The case matters because it fixes the constitutional ground on which a labor statute may reach contracts already in existence: the police power of the State limits the freedom of contract, and the one-month notice law is a regulatory measure, not a substantive one.

Procedural History

The complaint, twice amended and supplemented, was filed in the Municipal Court of Manila. That court dismissed the complaint as well as the defendants' counterclaim, for failure to prove the allegations. The plaintiffs appealed to the Court of First Instance of Manila, which, in its decision of September 11, 1958, held that the workers' employment was not for a definite period and declared them entitled to separation pay based on their daily salaries, computed at twenty-six working days a month, plus interest from the filing of the complaint, and costs. Twenty plaintiffs were excluded from that judgment because, according to the trial judge, they had already been paid their separation pay. Foster Wheeler Corporation and Caltex Philippines appealed to the Supreme Court, and the twenty excluded plaintiffs also appealed. The Supreme Court rendered its decision on November 29, 1960, and later issued a resolution on February 27, 1961 denying the motions for reconsideration filed in both cases.

Facts

Before August 30, 1950, the workers' right to separation pay, the so-called mesada, was secured by Article 302 of the Code of Commerce. In a decision promulgated on April 20, 1954, the Supreme Court declared that Article 2270 of the new Civil Code had repealed that provision of the Code of Commerce, and that the repeal took place on August 30, 1950, when the new Civil Code went into effect. To fill the void, the legislature enacted Republic Act 1052, approved on June 12, 1954.

The workers here were employed after the repeal of Article 302 and before the effectivity of Republic Act 1052, but they were separated from the service, with a few exceptions, after that Act went into operation. Their uniform contract provided that the refinery construction was a project of temporary duration, that their employment term would also be temporary and dependent upon the needs and requirements, as determined by the company, of the particular phase of the construction work, and that their employment could be terminated at any time without obligation to the company upon payment of wages earned through the date of termination.

As the trial court observed from the stipulation of facts, almost all the employees hired under that uniform contract were employed in 1952 and worked continuously until their dismissal in 1954. The employers contended that applying the new law to contracts entered into when no such right existed would impair the obligation of contracts. The twenty excluded plaintiffs, for their part, lost their appeal because their record on appeal and appeal bond were filed after the reglementary period had lapsed.

Issues

• Whether or not Republic Act 1052 may be applied to employment contracts entered into before its approval without impairing the obligation of contracts.
• Whether or not the workers fall within the coverage of Republic Act 1052 despite the temporary-employment clause in their contract.
• Whether or not the complaint sufficiently alleged the ultimate facts to vest jurisdiction in the Municipal Court and appellate jurisdiction in the Court of First Instance.
• Whether or not the trial court gravely abused its discretion in disapproving the record on appeal and denying the motion for relief of the twenty excluded plaintiffs.

Applicable Provisions

Section 1 of Republic Act 1052 provides:

In cases of employment, without a definite period, in a commercial, industrial or agricultural establishment or enterprise, neither the employer nor the employee shall terminate the employment without serving notice on the other at least one month in advance. The employee, upon whom no such notice was served, shall be entitled to one month's compensation from the date of termination of his employment.

This is the provision whose retroactive application to existing contracts the employers challenged, and which the Court upheld as a valid exercise of the police power.

Section 2 of Republic Act 1052 provides:

Any contract or agreement contrary to the provisions of section one of this Act shall be null and void.

This is the provision that rendered inoperative the temporary-employment clause in the workers' uniform contract.

Article 1700 of the new Civil Code, cited by the Court, provides:

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.

This is the constitutional and statutory premise for holding that freedom of contract is not absolute.

Ruling

On the first issue, the Court ruled that the application of Republic Act 1052 to dismissals effected after June 12, 1954 is with legal sanction. Freedom of contract is not absolute; it is subject to reasonable legislative regulation aimed at the promotion of public health, morals, safety and welfare. The constitutional guaranty of non-impairment of the obligation of contracts is limited by the exercise of the police power of the State. Republic Act 1052 is a regulatory measure, not a substantive law: it prescribes the manner of terminating employment without a definite period by requiring advance notice, and the payment of one month's compensation is more in the nature of a penalty for failure to comply with that regulation.

On the second issue, the Court ruled that the workers fall within the coverage of the law. Although the contract described the employment as temporary, the stipulation of facts showed that almost all were employed in 1952 and worked continuously until 1954, so the work was more or less permanent. The Court held that the temporary-employment clause, while probably proper when the contract was executed, became inoperative upon the enactment of Republic Act 1052. In its resolution denying reconsideration, the Court stressed that under the contract the duration of employment depended on the needs and requirements of the work as determined by the employer, so the worker had no means of knowing when his services would still be considered necessary.

On the third issue, the Court ruled that the complaint, taken with its annex, gave sufficient notice of the cause of action to enable the defendants to plead and prepare for trial. A complaint is sufficient if it contains sufficient notice of the cause of action even though the allegations may be vague or indefinite; the proper recourse is a motion for a bill of particulars, not a motion to dismiss. Having failed to file such a motion, the defendants could not complain of the alleged insufficiency.

On the fourth issue, the Court found no abuse of discretion. The grant or denial of a motion for extension of time is discretionary, and counsel should not have presumed that his motion would be granted but should have inquired, before the original period lapsed, what action the court had taken. Payment of the appeal bond on November 7 was not substantial compliance with the Rules. Nor was there basis for relief: the belated discovery of the opinion of the Secretary of Justice was not the discovery of evidence contemplated by Rule 38, and such an opinion is not binding upon the courts.

Doctrine

First, the constitutional guaranty of non-impairment of the obligation of contracts is limited by the police power of the State, and labor contracts are so impressed with public interest that they must yield to the common good under Article 1700 of the new Civil Code. Second, Republic Act 1052 is a regulatory measure, not a substantive law, so it may be applied to employment contracts entered into before its approval where the dismissal occurred after June 12, 1954. Third, a contract clause making employment temporary and dependent on the employer's determination of its needs does not remove the worker from the coverage of the law; such a clause becomes inoperative upon the enactment of Republic Act 1052. Fourth, a complaint is sufficient if it contains sufficient notice of the cause of action, and the remedy against vagueness is a motion for a bill of particulars.

Disposition

The Supreme Court affirmed the main decision insofar as it relates to the plaintiffs who were dismissed after June 12, 1954, affirmed the orders of November 12 and November 27, 1958, and taxed costs against Foster Wheeler Corporation and Caltex Philippines in the employers' appeal and against Felix Abe and the other appellants in the workers' appeal; the motions for reconsideration were denied.

Remember This

Memorize this line: Republic Act 1052 is a regulatory measure enacted under the police power, so applying it to dismissals after June 12, 1954 does not impair the obligation of contracts. Examiners use this case on the police power limitation on freedom of contract, on the retroactive application of labor statutes, and on the sufficiency of a complaint against a motion to dismiss.