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By: Nica Marsha V. Gasapo on October 25, 2018

A worker and an employer enter into an employment contract to realize their respective interests—the worker, to make ends meet; the employer, to earn profits.

An employment contract, however, is a special contract because the State can step in to regulate its terms and conditions.

Article 1700 of the Civil Code of the Philippines provides that labor contracts are impressed with public interest and must yield to the common good.

Accordingly, the State can exercise its most unbridled and pervasive power—police power—to regulate labor contracts in order to maintain an orderly society.

The State’s power to regulate employment contracts was affirmed by the Supreme Court in the recent case entitled The Provincial Bus Operators of the Philippines (PBOAP), et al. v. Department of Labor and Employment (DOLE) and Land Transportation Franchising and Regulatory Board (LTFRB) (G.R. No. 202275).

The Supreme Court upheld the constitutionality of (1) DOLE Department Order (D.O.) No. 118-12, otherwise known as the Rules and Regulations Governing the Employment and Working Conditions of Drivers and Conductors in the Public Utility Bus Transport Industry; (2) the implementing guidelines of D.O. No. 118-12 including the National Wages and Productivity Commission’s Guidelines No. 1, series of 2012; and (3) LTFRB Memorandum Circular (MC) No. 2012-001.

These regulations and guidelines put an end to the long-standing boundary payment scheme (i.e., purely commission-based compensation scheme) for public utility bus (PUB) drivers and conductors.

LTFRB MC No. 2012-001 now requires all PUB operators to secure a Labor Standards Compliance Certificate and provides for part-fixed-part-performance-based compensation system for PUB drivers and conductors.

DOLE D.O. No. 118-12 elaborates on the part-fixed-part-performance-based compensation and computation of the new payment scheme. These rules and policies seek to provide PUB drivers and conductors better economic status and ensure the general welfare of the riding public.

The part-fixed-part-performance-based compensation scheme means that PUB drivers and conductors shall now receive fixed wages and additional performance-based pay. The fixed wage shall be in amount mutually agreed upon by the owner/operator and shall not be lower than the applicable minimum wage in the region. The performance-based component shall be based on the net income of the PUB operator or owner and on employee safety records, such as involvement in road accidents, commission of traffic violations, and observance of elementary courtesies of the road.

PUB drivers and conductors shall also be entitled to other mandatory compensation such as overtime, night shift differential, rest day, and service incentive leave pays.

Among the issues raised by petitioner, PBOAP, is that DOLE D.O. No. 118-12 and LTFRB No. 2012-001 violates the constitutional prohibition against the impairment of contracts.

According to petitioner, the part-fixed-part-performance based wage impairs petitioners’ obligations under their existing collective bargaining agreements where they agreed with their bus drivers and conductors on a commission or boundary basis.

Petitioner also pointed that the issuances violate the terms of the franchise of bus operators because they impose additional requirements even after the franchise has already been issued.

Respondents, DOLE and LTFRB, argued that DOLE D.O. No. 118-12 and LTFRB MC No. 2012-001 establish a wage system where PUB drivers do not have to compete with one another and drive recklessly for additional income.

Respondents raised that the petitioner’s right against impairment of obligations of contract must yield to DOLE D.O. No. 118-12 and LTFRB MC No. 2012-001 because these policies are social legislations in the form of police power measures of the State.

In holding that D.O. No. 118-12 and LTFRB MC No. 2012-001 do not violate the non-impairment clause, the Supreme Court reasoned that not all contracts are protected under the non-impairment clause. Contracts that touch upon public welfare are contingent on the police power of the State and their terms may be altered in whole or in part without contravening the Constitution.

The Supreme Court stated that the relations between capital and labor are not merely contractual and labor contracts are impressed with public interest. The Supreme Court also emphasized that certificates of public convenience granted to bus operators are subject to amendment.

This Supreme Court ruling marks a progressive leap for the labor sector and reinforces the legal protection and benefits to PUB drivers and conductors granted by the State.

By imposing this compensation scheme, the State upholds the Constitutional mandate to protect and provide a decent living wage to labor.

D.O. No. 118-12 and LTFRB MC No. 2012-001 also curb the recklessness and risk-taking behavior of PUB drivers and conductors which promote the general welfare of the public.

PUB operators will now be able to better comply with its legal and moral obligation to provide safe and quality transport services to the public. Indeed, the public deserves nothing less than disciplined and “safety-first” oriented PUB drivers and conductors.

Nica Marsha V. Gasapo is a Junior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is an active member of MTF Counsel’s labor, litigation, corporate and practice. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at or visit MTF Counsel’s website at

From The Manila Times website on October 25, 2018

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