PRICE v. INNODATA PHILS.

INC
Chico-Nazario September 30, 2008 GR No. 178505

Doctrine On how to deal with doubts in employment contract interpretation:

Where a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein should
be construed strictly against the party who prepared it.

All doubts, uncertainties, ambiguities and insufficiencies should be resolved in favor of labor. It is a well-
entrenched doctrine that in illegal dismissal cases, the employer has the burden of proof.
Summary Price et al. were hired as formatters by Innodata. Under their employment contract, they were hired only for
a fixed period. After the period ended, and Innodata informed them of their termination, Price et al. filed a
complaint for illegal dismissal, arguing that they were regular employees as their work was necessary and
desirable for the business of Innodata.
SC: the fixed-term contract was invalid. An employee may be considered a regular employee if his work
was necessary and desirable to the usual business of the employer or if s/he already worked for more than
a year. In this case the court found that their job as formatters was necessary for the data encoding
business of Innodata.
The fixed term in Price et als contract was a way for Innodata to deprive them of security of tenure. They
are regular employees, entitled to security of tenure and could not be removed except for just/ authorized
cause. Entitled to backwages, separation pay, (not reinstatement as Innodata ceased operations already).

Facts Innodata, a company that provides data encoding and conversion services, hired Cherry Price,
Stephanie Domingo, and Lolita Arbilera (Price et. Al.) as formatters. The latters contract (Contract for a
Fixed Period) provided that they were hired from Feb 16 1999, to Feb 16, 2000, (also, should Innodata
stop operations before the end of the period, or have no more need for their services due to completion
of project, lack of work, business losses, new production processes and techniques, the contract will
automatically terminate after notice).
On Feb 16, 2000, HR Manager Leo Rabang wrote, informing them of their last day of work. A few weeks
later, Price et al filed a complaint for illegal dismissal and damages against Innodata.
o They should be considered regular employees since their positions as formatters were necessary
and desirable to the usual business of Innodata.
o As Villanueva v. NLRC, and Servidad v. NLRC had ruled that the nature of employment at
Innodata Phils., Inc. is regular, the same ruling should apply to them.
o They could not be considered project employees considering that their employment was not
coterminous with any project or undertaking, the termination of which was predetermined.
Innodata argued that almost half of the employees was engaged in data encoding. Due to the wide
range of services rendered to its clients, it was constrained to hire new employees for a fixed period of
not more than one year (Court then said they began on Sept 1999 and ended on feb 16 2000).
o Price et. al were not illegally dismissed, employment was merely terminated because of expiration
of period.
o Price et al were estopped since they signed knowingly, voluntarily and willfully.
LA: Prices groups jobs were necessary, desirable, and indispensable to the data processing and
encoding business of INNODATA. They were entitled to security of tenure and thus should only be
terminated for just or authorized cause. [pay backwages, attys fees]
NLRC: Reversed. They were fixed-term employees, as stipulated in the fixed-term contracts. Such
contracts become so, not because of the employees work, but by the day certain which the parties
agreed to be the day of the employments termination. Price entered into the contract freely, thus there
was no illegal dismissal. MR denied.
CA sustained NLRC. They were only employed for a year, for a project called Earthweb. Price et. al.
admitted to knowingly entering into fixed-term contracts, and there was no showing that Innodata forced
them into it.
o CA added that in fixed-term contracts, the stipulated period of employment is governing and not the
nature of work. Even if the function is necessary and desirable, the fact that the contract fixed the
day of termination controls.
Ratio/Issues
I. Whether they were hired by INNODATA under valid fixed-term employment contracts. NO
Employment status is defined and prescribed by law, not by what the parties say it should be. A
contract of employment is impressed with public interest such that labor contracts must yield to the
common good. Provisions of applicable statutes are deemed written into the contract, and the
 parties are not at liberty to insulate themselves from these.
Regular employment is defined by Article 2801 of the Labor Code.
In sum, Regular employees are:
o (1) those who are engaged to perform activities which are necessary or desirable in the
usual business or trade of the employer regardless of length of their employment (Price
et al belong to this)
o (2) those who were initially hired as casual employees, but have rendered at least 1 year
service, whether continuous or broken, with respect to the activity in which they are
employed.
The test to determine whether an employment should be considered regular or non-regular is the
reasonable connection between the particular activity performed by the employee in relation to the
usual business or trade of the employer
Price et. al. were hired as formatters. The primary business of Innodata is data encoding.
Formatting of the data entered into the computers is an essential part of the process of data
encoding. They make it easier for clients to understand the data. The work performed by petitioners
was necessary or desirable.
But there are also forms of employment which although necessary and desirable, and exceed one
year, would still not result in regular employment.
o Examples of fixed-term employment contracts: seasonal or for specific projects with
predetermined dates of completion, AND wherein parties by free choice have assigned a
specific date of termination
o The decisive determinant in term employment is the day certain agreed upon by the
parties for the commencement and termination of their employment relationship, day
certain: that which must necessarily come, although it may not be known when (ex.
Seasonal employment and employment for a particular project)
But, fixed-term contracts are an exception rather than the general rule.
o Some examples wherein a fixed-term is essential and natural: overseas employment
contracts; dean, assistant dean, college secretary, principal, and other administrative
offices in educational institutions;
o certain company officials may be elected for what would amount to fixed periods, they may
lose their jobs as president, executive vice-president or vice president, etc. because the
stockholders or the board of directors for one reason or another did not re-elect them
In Brent School v. Zamora: Where, from the circumstances, it is apparent that the period was
imposed to preclude the acquisition of tenurial security, then it should be struck down as being
contrary to law, morals, good customs, public order and public policy
In this case, the term was meant only to circumvent Price et als rights to security of tenure, and is
therefore invalid. The contracts of employment were ambiguous and tampered with [The Court
now focuses on dealing with doubts in contract interpretation].
o The date of their employment was originally Feb 17, 1999 but was crossed out, and
replaced with Sept. 6 1999. Innodata alleged that the original project for which they were
hired in Feb, was completed earlier than expected and that the Sept employment was for a
new project.
o SC: if these were truly fixed term contracts then a change in the term or period would
already constitute a novation of the original contract.
o Innodata wanted to make it appear that petitioners worked for less than a year to preclude
them from gaining regular status. But the SC already ruled that they are regular employees
under the first type of regular employees.
o Even if we assume otherwise, the fact that the contract of employment was ambiguous
it would be construed strictly against the party who prepared it.
Innodata also argued that they are project employees
o Project employees are workers hired (1)for a specific project or undertaking and wherein (2)
the completion or termination of such project has been determined at the time of the
engagement of the employee.

1Art. 280. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement 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 engagement of the employee or where the work or services to be performed is seasonal in nature and 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 a regular employee with respect to the activity in which he is employed and his
employment shall continue while such activity exists
 o SC; Innodata failed to name nor describe the project. Also there was no evidence to prove
that such project has already been completed or terminated to justify dismissal.
o All doubts, uncertainties, ambiguities and insufficiencies should be resolved in favor of
labor. It is a well-entrenched doctrine that in illegal dismissal cases, the employer has the
burden of proof. This burden was not discharged in the present case.
SC also noted the provisions in the contract wherein petitioners have no right at all to expect
security of tenure, even for the supposedly one-year period of employment provided in their
contracts, because they can still be pre-terminated (1) upon the completion of an unspecified
project; or (2) with or without cause, for as long as they are given a three-day notice. Such contract
provisions are repugnant to the basic tenet in labor law that no employee may be terminated except
for just or authorized cause
o This would be against the state policy to assure workers of security of tenure and free them
from the bondage of uncertainty of tenure woven by some employers into their contracts of
employment. This was the purpose of Art. 280 of the Labor Code
Petitioners have security of tenure. Illegally dismissed employees are entitled to reinstatement
without loss of seniority rights and other privileges with full backwages. In this case since Innodata
ceased its operations, separation pay equivalent to 1 month pay for every year of service instead.

Held Judgment of CA reversed and set aside. Innodata must pay

(a) separation pay, in lieu of reinstatement, equivalent to one month pay for every year of service, to be
computed from the commencement of their employment up to the date respondent Innodata
Philippines, Inc./Innodata Corporation ceased operations;
(b) full backwages, computed from the time petitioners compensation was withheld from them up to
the time respondent Innodata Philippines, Inc./Innodata Corporation ceased operations; and
(c) 10% of the total monetary award as attorneys fees.

Prepared by: Elena Escober