Pakistan International Airline vs Ople (1990)

Doctrine: While parties to a contract may establish stipulations, terms and conditions as they may deem convenient,
they may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily
impressed with public interest.

Facts:

1. Pakistan International Airline (PIA) is a foreign corporation licensed to do business in the PH. 2 separate
contracts of employment with Farrales and Mamasig were entered into by PIA in Manila. The contracts
became effective in 1979. The contracts contained provisions—

a. Providing for the term of 3 years extendible upon mutual consent of the parties

b. That PIA reserves the right to terminate the employee either by giving notice 1 month before the
date of termination or one month’s salary

c. “This agreement shall be construed and governed under and by the laws of Pakistan, and
only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter
arising out of or under this agreement.”

2. After their training period, Farrales and Mamasig commenced their services as flight attendants with base
station in Manila.

3. 1 year and 4 months before the lapse of the 3-year period, counsel for the local branch of PIA sent Farrales
and Mamasig notices expressing that their services will be terminated a month thereafter.

4. Farrales and Mamasig filed a joint complaint for illegal termination and non-payment of company benefits
before the then Ministry of Labor and Employment (MOLE)

5. PIA submitted a position paper claiming that Farrales and Mamasig were habitual absentees; that both were
in the habit of bringing in from abroad sizeable quantities of "personal effects"; and that PIA personnel at the
Manila International Airport had been discreetly warned by customs officials to advise private respondents to
discontinue that practice.

6. Regional Director ordered reinstatement and payment of full back wages or in the alternative payment of
their salaries for the remainder of the 3-year period.

a. They have attained status of regular employees

b. The provision stipulating a three-year period of employment is null and void for violating LAbor
Code provisions on regular employment

c. Dismissal without clearance from MOLE entitles employees to reinstatement

7. Deputy Minister affirmed the RD’s order.

8. PIA filed a petition for certiorari before the SC.

a. PIA’s relationship with Farrles and Mamasig was governed by the provisions of its contract rather
than by the general provisions of the Labor Code
Issue/s:

What law governs the relationship of the parties to the contract?

Held/Ratio: PHILIPPINE LAW

1. Art 1306 of the Civil Code provides: The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.

2. The governing principle is that parties may not contract away applicable provisions of law especially
peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor
and employment is clearly such an area and 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. It is thus
necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with
applicable Philippine law and regulations.

3. The employment contracts were inconsistent with Arts. 280-281 of the Labor Code

4. In the case of Brent School vs Zamora, the Court ruled that contracts of employment providing for a fied
period are not necessarily unlawful. The presence or absence of a substantial indication that the period
specified in an employment agreement was designed to circumvent the security of tenure of regular
employees which is provided for in Articles 280 and 281 of the Labor Code is crucial.

5. The provision in the contracts with PIA allowing for termination of services upon notice or payment of one
month’s salary was intended to prevent any security of tenure from accruing in favor of private
respondents even during the limited period of three (3) years, and thus to escape completely the thrust of
Articles 280 and 281 of the Labor Code by rendering their employment at the pleasure of PIA.

6. PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute
arising out of or in connection with the agreement "only [in] courts of Karachi Pakistan".

a. The relationship is much affected with public interest and that the otherwise applicable Philippine
laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to
govern their relationship.

b. A cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive
contacts between Philippine law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other:

i. the contract was not only executed in the Philippines, it was also performed here, at least
partially;

ii. private respondents are Philippine citizens and respondents, while petitioner, although a
foreign corporation, is licensed to do business (and actually doing business) and hence
resident in the Philippines;

iii. private respondents were based in the Philippines in between their assigned flights to the
Middle East and Europe.

All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution
of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement
cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine
law.

c. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of
Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law
of Pakistan are the same as the applicable provisions of Philippine law.

Art. 280. Security of Tenure. — In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause
or when authorized by this Title An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and
to his back wages computed from the time his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements
of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary
or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed
is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided, that, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be considered as regular employee with respect to the activity in which he is
employed and his employment shall continue while such actually exists. (Emphasis supplied)