The Supreme Court ruled in Mercado v. AMA Computer College-Parañaque City, Inc. that when probationary status overlaps with a fixed-term contract, the provisions on probationary employment under the Labor Code take precedence. This means employers must still comply with requirements for terminating probationary employees, such as proving just cause and providing due process, even if the fixed term has expired. The decision ensures that employers cannot use fixed-term contracts to circumvent the protections afforded to probationary employees under the Labor Code, safeguarding their limited security of tenure.

When a Teacher’s Contract Ends: Probationary Rights vs. Fixed-Term Employment

This case revolves around the employment status of several faculty members at AMA Computer College-Parañaque City, Inc. (AMACC). These teachers were hired under fixed-term contracts, which AMACC chose not to renew, citing their failure to meet the school’s performance standards. The central legal question is whether AMACC could simply not renew the contracts based on their fixed terms, or whether the teachers were entitled to the protections afforded to probationary employees under the Labor Code.

The petitioners, Yolanda M. Mercado, Charito S. De Leon, Diana R. Lachica, Margarito M. Alba, Jr., and Felix A. Tonog, were faculty members at AMACC. They were employed under individual Teacher’s Contracts for each trimester, stipulating that their appointment was non-tenured and for the duration of the term they were given a teaching load. AMACC implemented new faculty screening guidelines for the school year 2000-2001, requiring teachers to meet specific performance standards to be hired or maintained. The petitioners did not receive salary increases because they failed to meet these standards.

Subsequently, the petitioners received notices of non-renewal of their contracts. They then amended their labor arbitration complaint to include a charge of illegal dismissal, arguing that the non-renewal was retaliatory and that AMACC failed to provide adequate notice. AMACC, on the other hand, maintained that the non-renewal was justified because the petitioners failed to meet the performance standards and other requirements for regularization. The Labor Arbiter (LA) ruled in favor of the petitioners, declaring their dismissal illegal and ordering AMACC to reinstate them with backwages. The LA found no evidence of discrimination regarding salary adjustments, which is an exercise of management prerogative.

On appeal, the National Labor Relations Commission (NLRC) affirmed the LA’s ruling. While the NLRC noted that the applicable law was Section 92 of the Manual of Regulations for Private Schools, which mandates a probationary period of nine consecutive trimesters, it agreed that the petitioners were illegally dismissed. The NLRC held that the new screening guidelines could not be imposed on the petitioners since they were not in place when the teachers were first hired. The case then reached the Court of Appeals (CA), which reversed the NLRC’s decision. The CA ruled that the petitioners had not completed three consecutive years of service and were still within their probationary period. It also found reasonable basis for AMACC not to renew their contracts, stating that they failed to satisfy the school’s standards.

The Supreme Court, however, reversed the CA decision, finding the petition meritorious. The Court emphasized that while the CA generally does not assess the sufficiency of evidence in certiorari proceedings, it may examine the factual findings of the NLRC if they are not supported by substantial evidence. The Supreme Court clarified the legal environment surrounding the employment of teachers, particularly concerning probationary status and fixed-period employment. It cited Section 92 of the Manual of Regulations for Private Schools, which stipulates the probationary period for academic personnel.

The Court also acknowledged the validity of fixed-term contracts, referencing the case of Brent School, Inc. v. Zamora. However, the Court distinguished the present case, noting that it involved probationary employment issues, whereas Brent dealt purely with the validity of fixed-term employment under the Labor Code. Furthermore, the Supreme Court recognized the academic freedom of schools to set standards for their faculty members and to determine whether those standards have been met. It cited Section 5(2) Article XIV of the Constitution, which guarantees academic freedom to all institutions of higher learning, as well as AMACC’s management prerogative to regulate all aspects of employment.

The Court then addressed the conflict between probationary status and fixed-term employment. While fixed-term employment refers to the agreed-upon period between the employer and employee, employment on probationary status involves a process of testing and observing the employee’s character and abilities. The Court stated that the probationary period can only last for a specific maximum period and under reasonable, well-laid, and properly communicated standards. Within the probationary period, any employer action based on probationary standards must strictly adhere to the probationary rules.

The Supreme Court noted that AMACC used fixed-term contracts as a convenient arrangement dictated by the trimester system, rather than intending to limit the employment relationship to a fixed term. The Court emphasized that unless this distinction is made, the requirements of Article 281 of the Labor Code on probationary status would be negated. The Court concluded that in a situation where probationary status overlaps with a fixed-term contract, Article 281 should take precedence. The school’s expectation that the employment could lead to permanent status further strengthened this conclusion.

The Court found that AMACC did not provide sufficient evidence to support its claim that the petitioners failed to meet the performance standards. The exact terms of the standards were never introduced as evidence, nor was there evidence showing how the standards were applied to each petitioner. Therefore, the non-renewal of the contracts lacked the required finding of just cause and was deemed illegal. Given the changes that have occurred since the original separation, the Court ordered the payment of separation pay in lieu of reinstatement, in addition to backwages and other awards.

FAQs

What was the key issue in this case?	The central issue was whether an employer could terminate a probationary employee simply by not renewing a fixed-term contract, or whether the protections of probationary employment under the Labor Code still applied. The court ruled that the Labor Code provisions take precedence.
What is the probationary period for teachers in the Philippines?	Under the Manual of Regulations for Private Schools, the probationary period for academic personnel in tertiary education is nine consecutive trimesters if courses are offered on a trimester basis. This period is subject to compliance with Department and school requirements.
What is academic freedom, and how does it relate to this case?	Academic freedom is the right of schools to decide who may teach, who may be taught, how lessons shall be taught, and who may be admitted to study. It allows schools to set high standards for their teachers, but these standards must be reasonable and communicated to the employees.
What is the significance of Article 281 of the Labor Code?	Article 281 governs probationary employment, stating that an employee’s services may be terminated for just cause or failure to qualify as a regular employee based on reasonable standards made known at the time of engagement. It protects probationary employees from arbitrary dismissal.
What did the Court say about fixed-term contracts?	The Court acknowledged the validity of fixed-term contracts but clarified that when they overlap with probationary status, the protections afforded to probationary employees under the Labor Code take precedence. This prevents employers from using fixed-term contracts to circumvent labor laws.
What evidence did AMACC fail to provide in this case?	AMACC failed to provide the exact terms of the performance standards used to evaluate the teachers, as well as evidence showing how those standards were applied to each individual teacher. This lack of evidence undermined their claim of just cause for non-renewal.
What was the remedy granted to the teachers in this case?	Instead of reinstatement, the Court ordered AMACC to pay the teachers separation pay, computed on a trimestral basis, along with backwages and 13th-month pay from the date of illegal dismissal until the finality of the decision.
Can schools change their evaluation standards during a probationary period?	While schools can change evaluation standards, they must communicate any changes to the teachers at the start of the period when the new standards will be applied. This ensures fairness and transparency in the evaluation process.
What is management prerogative?	Management prerogative is the right of an employer to regulate all aspects of employment, including hiring, work assignments, transfers, supervision, and dismissal. However, this right is subject to limitations under the Labor Code and other laws.

This ruling clarifies the interplay between fixed-term contracts and probationary employment in the academic context. It emphasizes that employers must adhere to the requirements of the Labor Code when dealing with probationary employees, even if they are under fixed-term contracts, reinforcing the protection of employees’ rights and ensuring fairness in employment practices.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: YOLANDA M. MERCADO, ET AL. VS. AMA COMPUTER COLLEGE-PARAÑAQUE CITY, INC., G.R. No. 183572, April 13, 2010