ANTONIO M. SERRANO VS. GALLANT MARITIME SERVICES, INC.

AND MARLOW
NAVIGATION CO., INC.

GR No. 167614 - March 24, 2009

FACTS:

Petitioner Antonio Serrano was hired by respondents Gallant Maritime Services, Inc.
and Marlow Navigation Co., Inc., under a POEA-approved contract of employment for
12 months, as Chief Officer, with the basic monthly salary of US$1,400, plus
$700/month overtime pay, and 7 days paid vacation leave per month.

On March 19, 1998, the date of his departure, Serrano was constrained to accept a
downgraded employment contract for the position of Second Officer with a monthly
salary of US$1,000 upon the assurance and representation of respondents that he
would be Chief Officer by the end of April 1998.

Respondents did not deliver on their promise to make Serrano Chief Officer. Hence,
Serrano refused to stay on as second Officer and was repatriated to the Philippines on
May 26, 1998, serving only two (2) months and seven (7) days of his contract, leaving
an unexpired portion of nine (9) months and twenty-three (23) days.

Serrano filed with the Labor Arbiter (LA) a Complaint against respondents for
constructive dismissal and for payment of his money claims in the total amount of
US$26,442.73 (based on the computation of $2590/month from June 1998 to February
199, $413.90 for March 1998, and $1640 for March 1999) as well as moral and
exemplary damages.

The LA declared the petitioner's dismissal illegal and awarded him US$8,770,
representing his salaray for three (3) months of the unexpired portion of the aforesaid
contract of employment, plus $45 for salary differential and for attorney's fees equivalent
to 10% of the total amount; however, no compensation for damages as prayed was
awarded.

On appeal, the NLRC modified the LA decision and awarded Serrano $4669.50,
representing three (3) months salary at $1400/month, plus 445 salary differential and
10% for attorney's fees. This decision was based on the provision of RA 8042, which
was made into law on July 15, 1995.
Serrano filed a Motion for Partial Reconsideration, but this time he questioned the
constitutionality of the last clause in the 5th paragraph of Section 10 of RA 8042, which
reads:

Sec. 10. Money Claims. - x x x In case of termination of overseas employment without

The NLRC denied the Motion; hence, Serrano filed a Petition for Certiorari with the
Court of Appeals (CA), reiterating the constitutional challenge against the subject
clause. The CA affirmed the NLRC ruling on the reduction of the applicable salary rate,
but skirted the constitutional issue raised by herein petitioner Serrano.

ISSUES:

1. Whether or not the subject clause violates Section 10, Article III of the Constitution on
non-impairment of contracts;

2. Whether or not 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.

HELD:

On the first issue.

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 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, and cannot affect acts or contracts already perfected; however,
as to laws already in existence, their provisions are read into contracts and deemed a
part thereof. 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. 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.

On the second issue.

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.

Section 18, Article II and Section 3, 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.

Such rights are not absolute but subject to the inherent power of Congress to
incorporate, when it sees fit, a system of classification into its legislation; however, to be
valid, the classification must comply with these requirements: 1) it is based on
substantial distinctions; 2) it is germane to the purposes of the law; 3) it is not limited to
existing conditions only; and 4) it applies equally to all members of the class.

There are three levels of scrutiny at which the Court reviews the constitutionality of a
classification embodied in a law: a) the deferential or rational basis scrutiny in which the
challenged classification needs only be shown to be rationally related to serving a
legitimate state interest; b) the middle-tier or intermediate scrutiny in which the
government must show that the challenged classification serves an important state
interest and that the classification is at least substantially related to serving that interest;
and c) strict judicial scrutiny in which a legislative classification which impermissibly
interferes with the exercise of a fundamental right or operates to the peculiar
disadvantage of a suspect class is presumed unconstitutional, and the burden is upon
the government to prove that the classification is necessary to achieve a compelling
state interest and that it is the least restrictive means to protect such interest.
Upon cursory reading, the subject clause appears facially neutral, for it applies to all
OFWs. However, a closer examination reveals that the subject clause has a
discriminatory intent against, and an invidious impact on, OFWs at two levels:

First, OFWs with employment contracts of less than one year vis-à-vis OFWs with
employment contracts of one year or more;

Second, among OFWs with employment contracts of more than one year; and

Third, OFWs vis-à-vis local workers with fixed-period employment;

In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment
who were illegally discharged were treated alike in terms of the computation of their
money claims: they were uniformly entitled to their salaries for the entire unexpired
portions of their contracts. But with the enactment of R.A. No. 8042, specifically the
adoption of the subject clause, illegally dismissed OFWs with an unexpired portion of
one year or more in their employment contract have since been differently treated in
that their money claims are subject to a 3-month cap, whereas no such limitation is
imposed on local workers with fixed-term employment.

The Court concludes that the subject clause contains a suspect classification in
that, in the computation of the monetary benefits of fixed-term employees who
are illegally discharged, it imposes a 3-month cap on the claim of OFWs with an
unexpired portion of one year or more in their contracts, but none on the claims
of other OFWs or local workers with fixed-term employment. The subject clause
singles out one classification of OFWs and burdens it with a peculiar
disadvantage.

There being a suspect classification involving a vulnerable sector protected by the

What constitutes compelling state interest is measured by the scale of rights and
powers arrayed in the Constitution and calibrated by history. It is akin to the paramount
interest of the state for which some individual liberties must give way, such as the public
interest in safeguarding health or maintaining medical standards, or in maintaining
access to information on matters of public concern.

In the present case, the Court dug deep into the records but found no compelling state
interest that the subject clause may possibly serve.

In fine, the Government has failed to discharge its burden of proving the existence of a
compelling state interest that would justify the perpetuation of the discrimination against
OFWs under the subject clause.

Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect
the employment of OFWs by mitigating the solidary liability of placement agencies, such
callous and cavalier rationale will have to be rejected. There can never be a justification
for any form of government action that alleviates the burden of one sector, but imposes
the same burden on another sector, especially when the favored sector is composed of
private businesses such as placement agencies, while the disadvantaged sector is
composed of OFWs whose protection no less than the Constitution commands. The
idea that private business interest can be elevated to the level of a compelling state
interest is odious.

Moreover, even if the purpose of the subject clause is to lessen the solidary liability of
placement agencies vis-a-vis their foreign principals, there are mechanisms already in
place that can be

employed to achieve that purpose without infringing on the constitutional rights of

The POEA Rules and Regulations Governing the Recruitment and Employment of
Land-Based Overseas Workers, dated February 4, 2002, imposes administrative
disciplinary measures on erring foreign employers who default on their contractual
obligations to migrant workers and/or their Philippine agents. These disciplinary
measures range from temporary disqualification to preventive suspension. The POEA
Rules and Regulations Governing the Recruitment and Employment of Seafarers, dated
May 23, 2003, contains similar administrative disciplinary measures against erring
foreign employers.

Resort to these administrative measures is undoubtedly the less restrictive means of

Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative
of the right of petitioner and other OFWs to equal protection.

The subject clause “or for three months for every year of the unexpired term, whichever
is less” in the 5th paragraph of Section 10 of Republic Act No. 8042 is DECLARED
UNCONSTITUTIONAL

Note:

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; (2) that the constitutional question is raised by a proper party and at the
earliest opportunity; and (3) that the constitutional question is the very lis mota of the
case, otherwise the Court will dismiss the case or decide the same on some other
ground.

----

As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the
monetary awards of illegally dismissed OFWs was in place. This uniform system was
applicable even to local workers with fixed-term employment.

Article 605 of the Code of Commerce provides:

Article 605. If the contracts of the captain and members of the crew with the agent
should be for a definite period or voyage, they cannot be discharged until the fulfillment
of their contracts, except for reasons of insubordination in serious matters, robbery,
theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice
or manifest or proven negligence.

Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie, in which the
Court held the shipping company liable for the salaries and subsistence allowance of its
illegally dismissed employees for the entire unexpired portion of their employment
contracts.

While Article 605 has remained good law up to the present, Article 299 of the Code of
Commerce was replaced by Art. 1586 of the Civil Code of 1889, to wit:

Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain
time and for a certain work cannot leave or be dismissed without sufficient cause,
before the fulfillment of the contract.