PINES CITY V NLRC after appropriate proceedings in compliance with due
Separation Pay and Backwages
APRIL 24, 2017 LEAVE A COMMENT
CONSEQUENCES OF TERMINATION
SEPARATION PAY – FOUR CONTEXT
SEPARATION PAY FOR AUTHORIZED CAUSES
UNDER ARTS. 283-284.
Separation Pay. An employee lawfully dismissed for a
just cause is not entitled to any separation pay; while
an employee separated for an authorized cause is
entitled to separation pay in accordance with the
rates prescribed by law. (Chan. The Labor Code of the
Philippines Annotated – Volume II).
Art. 298. [283] Closure of Establishment and
Reduction of Personnel. – The employer may also
terminate the employment of any employee due to
the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or
cessation of operation of the establishment or
undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a
written notice on the workers and the Ministry of
Labor and Employment at least one (1) month before
the intended date thereof. In case of termination due
to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be
entitled to a separation pay equivalent to at least his
one (1) month pay or to at least one (1) month pay
for every year of service, whichever is higher. In case
of retrenchment to prevent losses and in cases of
closures or cessation of operations of establishment
or undertaking not due to serious business losses or
financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one-half
(1/2) month pay for every year of service, whichever
is higher. A fraction of at least six (6) months shall be
considered as one (1) whole year.
In case the CBA or company policy provides for a
higher separation pay, the same must be followed
instead of the one provided in Article 283. (Chan. The
Labor Code of the Philippines Annotated – Volume
II).
Art. 299. [284] Disease as a Ground of Termination
– An employer may terminate the services of an
employee who has been found to be suffering from
any disease and whose continued employment is
prohibited by law or is prejudicial to his health as well
as to the health of his co-employees: Provided, That
he is paid separation pay equivalent to at least one
(1) month salary or to one-half (1/2) month salary for
every year of service, whichever is greater, a fraction
of at least six (6) months being considered as one (1)
whole year.
SEPARATION PAY AS FINANCIAL ASSISTANCE
IN LEGAL DISMISSAL UNDER ART. 282
The basis of the grant of financial assistance is equity.
(Chan. The Labor Code of the Philippines Annotated –
Volume II).
An employee who is dismissed for just cause is
generally not entitled to separation pay. A reading of
Art. 279 in relation to Art. 282 of the Labor Code,
reveals that an employee who is dismissed for cause
process requirements is not entitled to an award of
separation pay. In some cases however, the SC
awarded separation pay to a legally dismissed
employee on the grounds of equity and social justice.
This is not allowed though when the employee has
been dismissed for serious misconduct or some other
causes reflecting on his moral character or personal
integrity. (Etcuban, Jr. v. Sulpicio Lines, Inc. G.R. No.
148410, Jan. 17, 2005, among others).
SEPARATION PAY IN LIEU OF REINSTATEMENT
If reinstatement is no longer possible, the employer
has the alternative of paying the employee his
separation pay in lieu of reinstatement. (Manila Water
Co, Inc. v. Pena, G.R. No. 158255, Jul. 8, 2004).
Reinstatement cannot be awarded when what is
prayed for is separation pay. As pronounced in Dela
Cruz v. NLRC, [G.R. No. 121288, November 20,
1998], the petitioner therein would have been entitled
to reinstatement as a consequence of his illegal
dismissal from employment. However, by expressly
asking for separation pay, he is deemed to have
opted for separation pay in lieu of reinstatement.
In Deguzman v. NLRC, [G.R. No. 167701, Dec. 12,
2007], and in several other earlier cases, where the
employee explicitly prayed for an award of separation
pay in lieu of reinstatement, it was held that by so
praying, he forecloses reinstatement as a relief by
implication. Consequently, he is entitled to separation
pay equivalent to one month pay for every year of
services, computed from the time of his illegal
dismissal up to the finality of the judgement, as an
alternative to reinstatement.
The amount of separation pay that should be paid in
lieu of reinstatement is not provided in the Labor
Code or its implementing rules. Jurisprudence,
however, dictates that the following should be
included in its computation:
1. The amount equivalent to at least one (1)
month salary or to one (1) month salary for every
year of services, whichever is higher, a fraction
of at least six (6) months being considered as
one (1) whole year. (Sec. 4[b], Rule I, Book VI,
Rules to Implement the Labor Code).
2. Allowances that the employee has been
receiving on a regular basis. (Planters Products,
Inc. v. NLRC, G.R. No. 78524, Jan. 20, 1989).
SEPARATION PAY AS AN EMPLOYEE BENEFIT
Employers may lawfully and effectively reduce their
personnel by offering resignation benefits through a
Voluntary Resignation Program where employees are
afforded the right to voluntarily terminate the
employment relationship. If made in good faith, such
as scheme should be considered a valid form of
terminating employment. Consequently, the employer
need not comply with the requirement under Article
283 of the Labor Code that notice be sent to the
Department of Labor and Employment at least a
month prior to the effectivity of the termination of
employment. The reason is that by applying to
voluntarily resign, the employee thereby
acknowledges the existence of a valid cause for
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terminating his employment. (Dole Philippines Inc. v.
NLRC, G.R. No. 120009, Sept. 13, 2001; International
Hardware, Inc. v. NLRC, G.R. No. 80770, Aug. 10,
1989).
BACKWAGES
DISTINGUISH FROM SEPARATION PAY
Separation pay in lieu of reinstatement and
backwages are two different things. Payment of
separation pay is not inconsistent with payment of
backwages. (Cabatulan v. Buat, G.R. No. 147142,
Feb. 14, 2005).
Separation pay is paid when reinstatement is not
possible; while backwages are paid for the
compensation which otherwise the employee should
have earned had he not been illegally dismissed.
(Equitable Banking Corp. v. Sadac, G.R. No. 164772,
June 8, 2006).
Separation pay is computed on the basis of
employee’s length of service; while backwages are
based on the actual period when he was unlawfully
prevented from working. (Lim v. NLRC, G.R. Nos.
79907 and 79975, Mar. 16, 1989).
Separation pay is paid where a wherewithal during
the period that an employee is looking for another
employment; while backwages are paid for the loss of
earnings during the period between illegal dismissal
and reinstatement. (Quebec, Sr. v. NLRC, G.R. No.
123184, Jan. 22, 1999).
Separation pay is oriented towards the immediate
future; while backwages involve the restoration of the
past income lost. (Lopez, Jr. v. NLRC, G.R. No.
109166, Jul. 6, 1995).
Separation pay cannot be paid in lieu of backwages.
(Torillo v. Leogardo, G.R. No. 77205, May 27, 1991).
FULL BACKWAGES
MERCURY DRUG RULE (PRIOR TO R.A. 6715)
MERCURY DRUG VS. CIR 56 SCRA 694
MAKASIAR, J.:p
Procedural History:
Petitioner Mercury Drug Co., Inc. seeked the reversal
of the decision of respondent Court of Industrial
Relations dated January 17, 1964 and its order dated
February 25, 1964 denying petitioners’ motion for
reconsideration of the said decision.
Statement of Facts:
Private respondent Dayao was employed on February
13, 1956 by the petitioners originally as driver, later
assigned as delivery man, then as checker and was
last promoted to the position of assistant chief
checker in the checking department until his
separation on April 10, 1961.
Days before April 10, 1961, Dayao urged petitioners
to pay them overtime pay, criticized their employees’
association for failing to protect the welfare of the
employees by not securing such additional
compensation for overtime, and campaigned among
his co-employees to organize another labor union.
Hearing of Dayao’s union activities, petitioner called
for Dayao on April 10, 1961, told him to resign and
persuaded him to accept the amount of P562.50 as
termination pay and to sign a clearance stating to the
effect that he has no claims whatsoever of any kind
and nature against herein petitioners.
On April 25, 1963, exactly two years and fifteen days
from his separation on April 10, 1961, Dayao filed a
complaint for unfair labor practice against petitioners
for dismissing him because of his having campaigned
among his co-employees to become members of a
new labor union that he was then organizing.
In their answer to the ULP complaint, petitioners
interposed as their only defense that Dayao “was
separated from the service … for cause because of
creating trouble with another employee who was also
dismissed and that even if the said complainant was
separated for cause, he received compensation pay
and hereby relieved respondent from whatever claim
or claims that he had against respondents.” They also
relied on laches, aside from estoppel, to defeat
Dayao’s ULP charge.
SC held that the petitioners were guilty of unfair labor
practices. There was no sufficient basis for
discharging Dayao from employment. Acceptance of
termination pay does not divest a laborer the right to
prosecute his employer for unfair labor practice acts,
much less for signing the clearance paper.
Acceptance of those benefits would not amount to
estoppel. SC stated that there was clear interference
with the union activity and that his dismissal from
employment was discriminatory. And since there was
illegal dismissal, Dayao was entitled to backwages.
Issue:
How much backwages shall be allowed private
respondent Dayao.
Answer:
Dayao should be paid backwages equivalent to one
year, eleven months, and fifteen days without further
disqualifications, which is computed from 4 years
prescriptive period less the period of delay in
instituting the ULP charge (2 years and 15 days).
Reasoning:
While this case was submitted for decision on March
29, 1965, the delay in its resolution is not due to the
parties. However, it should be noted that private
respondent Dayao filed his ULP charge with
reinstatement and back wages about two years and
fifteen days after his separation on April 10, 1961. As
aforestated, the shortest prescriptive period for the
filing of all other actions for which the statute of
limitations does not fix a period, is four years. The
period of delay in instituting this ULP charge with
claim for reinstatement and back wages, although
within the prescriptive period, should be deducted
from the liability of the employer to him for back
wages. In order that the employee however should be
relieved from proving his income during the period he
was out of the service and the employer from
submitting counter-proofs, which may delay the
execution of the decision, the employer in the case at
bar should be directed to pay private respondent
Dayao backwages equivalent to one year, eleven
months, and fifteen days without further
disqualifications.
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Holding:
WHEREFORE, THE PETITION IS HEREBY DISMISSED
AND PETITIONERS ARE HEREBY DIRECTED: (1) TO
PAY PRIVATE RESPONDENT NARDO DAYAO BACK
WAGES EQUIVALENT TO ONE YEAR, ELEVEN
MONTHS, AND FIFTEEN DAYS; (2) TO REINSTATE
HIM AFTER CERTIFICATION OF HIS PHYSICAL
FITNESS BY A GOVERNMENT PHYSICIAN; AND (3)
TO PAY THE COSTS.
Justice Teehankee’s Dissent:
Justice Teehankee dissented from the specific result
in the judgement, awarding respondent backwages
only in an amount equivalent to 1 year, 11 months
and 15 days. Such delay in filing the complaint should
in no manner prejudice the amount of the back wages
award justly due respondent — particularly, when it is
considered that he pursued with vigor his complaint
after its filing on April 25, 1963 and obtained
favorable judgment in the industrial court within a
year as per said court’s decision of January 17, 1964
and its en banc resolution of February 25, 1964
denying petitioner’s motion for reconsideration.
Hence, an award of back wages equivalent to
three years (where the case is not terminated
sooner) should serve as the base figure for
such awards without deduction, subject to
deduction where there are mitigating circumstances in
favor of the employer but subject to increase by way
of exemplary damages where there are aggravating
circumstances (e.g. oppression or dilatory appeals) on
the employer’s part. He submitted that the
minimum award to which respondent is
entitled should be at the very least the
equivalent of the proposed base figure of three
years pay.Employers should be put on notice as a
deterrent that if they pursue manifestly dilatory and
unmeritorious appeals and thus delay satisfaction of
the judgment justly due their employee(s), they run
the risk of exemplary and punitive damages being
assessed against them by way of an increased award
of back wages to the wrongfully discharged
employee(s) commensurate to the delay caused by
the appeal process.
RULE AFTER R.A. 6715 (DATE TO RECKON –
MARCH 21, 1989)
ALEX FERRER VS. NLRC
JULY 5, 1993
MELO, J.:
Procedural History:
The petition for certiorari seeks to annul and set
aside: (a) the decision dated June 20, 1991 of the
Second Division of the National Labor Relations
Commission (NLRC) which affirmed in toto the
decision of April 5, 1990 of Labor Arbiter dismissing
the complaint for illegal dismissal and unfair labor
practice on the ground that both the company and
the union merely complied with the collective
bargaining agreement provision sanctioning the
termination of any employee who fails to retain
membership in good standing with the union; and (b)
the NLRC resolution denying the motion for the
reconsideration of said decision.
Statement of Facts:
Petitioners were regular and permanent employees of
the Occidental Foundry Corporation (OFC) which was
under the management of Hui Kam Chang. As piece
workers, petitioners’ earnings ranged from P110 to
P140 a day. They had been in the employ of OFC for
about ten years at the time of their dismissal in 1989.
On January 5, 1989, the Samahang Manggagawa ng
Occidental Foundry Corporation-FFW (SAMAHAN) and
the OFC entered into a collective bargaining
agreement (CBA) which would be effective for the
three-year period between October 1, 1988 and
September 30, 1991. It included a union security
clause saying that failure to retain membership in
good standing with the UNION shall be ground for the
operation of paragraph 1 hereof and the dismissal by
the company of the aforesaid employee upon written
request by the union.
Several intraunion squabbles took place as to the
election of the officers due to their alleged
inattentiveness to the economic demands of the
members. This prompted the union to send a letter to
Hui Kam Chang, requesting for the dismissal of
several people, including petitioners Ferrer et. al. The
petitioners professed their innocence to the chages
levelled against them by SAMAHAN and FFW, but
received no reply. As such, they filed a complained for
illegal dismissal and unfair labor practice before the
NLRC against Hui Kam Chang, OFC, SAMAHAN, and
FFW.
Labor Arbiter dismissed the complaint, saying that
OFC was merely complying with the mandatory
provisions of the CBA, and that SAMAHAN and FFW
cannot be charged with illegal dismissal as there was
no employer-employee relationship between them
and the petitioners. NLRC affirmed the decision of
Labor Arbiter. Hence the appeal.
SC held that the petitioners were illegally dismissed
because while the CBA’s union security clause was
valid, both parties thereto should see to it that no
right is violated or impaired during its implementation.
There was an absence of notice and hearing when
the petitioners were illegally dismissed. Due process
was inexistent.
Issue:
Whether or not the petitioners, who were illegally
dismissed, were entitled to backwages.
Answer:
Yes. The petitioners can receive their full back wages
computed from the moment their compensation was
withheld after their dismissal in 1989 up to the date
of actual reinstatement.
Reasoning:
With the passage of Republic Act No. 6715 which took
effect on March 21, 1989, Article 279 of the Labor
Code was amended to read as follows:
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
other privileges and to his full backwages, inclusive
of allowances, and to his other benefits or their
monetary equivalent computed from the time his
compensation was withheld from him up to the time
of his actual reinstatement.
3
and as implemented by Section 3, Rule 8 of the 1990
New Rules of Procedure of the National Labor
Relations Commission, it would seem that the
Mercury Drug Rule (Mercury Drug Co., Inc. vs. Court
of Industrial Relations, 56 SCRA 694 [1974]) which
limited the award of back wages of illegally dismissed
workers to three (3) years “without deduction or
qualification” to obviate the need for further
proceedings in the course of execution, is no longer
applicable.
A legally dismissed employee may now be paid his
back wages, allowances, and other benefits for
the entire period he was out of work subject to
the rule enunciated before the Mercury Drug
Rule, which is that the employer may, however,
deduct any amount which the employee may
have earned during the period of his illegal
termination. Computation of full back wages and
presentation of proof as to income earned elsewhere
by the illegally dismissed employee after his
termination and before actual reinstatement should
be ventilated in the execution proceedings before the
Labor Arbiter concordant with Section 3, Rule 8 of the
1990 new Rules of Procedure of the National Labor
Relations Commission.
The petitioners can receive their back wages
computed from the moment their compensation was
withheld after their dismissal in 1989 up to the date
of actual reinstatement. In such a scenario, the award
of back wages can extend beyond the 3-year period
fixed by the Mercury Drug Rule depending, of course,
on when the employer will reinstate the employees.
Holding:
WHEREFORE, the decision appealed from is hereby
SET ASIDE and private respondents are hereby
ordered to reinstate petitioners to their former or
equivalent positions without loss of seniority rights
and with full back wages, inclusive of allowances and
other benefits or their monetary equivalent, pursuant
to Article 279 of the Labor Code, as amended by
Republic Act No. 6715.
PINES CITY VS. NLRC
NOV. 10, 1993
NOCON, J.:
Procedural History:
This a petition for certiorari seeking the reversal of
the resolution of public respondent National Labor
Relations Commission dated November 29, 1990, in
NLRC Case No. 01-04-0056-89, which affirmed in toto
the decision of the Labor Arbiter dated February
28,1990.
Statement of Facts:
Private respondents Bentrez et. al., were all employed
as teachers on probationary basis by petitioner Pines
City Educational Center. All the private respondents,
except Roland Picart and Lucia Chan, signed contracts
of employment with petitioner for a fixed duration. On
March 31, 1989, due to the expiration of private
respondents’ contracts and their poor performance as
teachers, they were notified of petitioners’ decision
not to renew their contracts anymore.
On April 10, 1989, private respondents filed a
complaint for illegal dismissal before the Labor
Arbiter, alleging that their dismissals were without
cause and in violation of due process. Except for
private respondent Leila Dominguez who worked with
petitioners for one semester, all other private
respondents were employed for one to two years.
They were never informed in writing by petitioners
regarding the standards or criteria of evaluation so as
to enable them to meet the requirements for
appointment as regular employees.
For their part, petitioners contended that private
respondents’ separation from employment, apart from
their poor performance, was due to the expiration of
the periods stipulated in their respective contracts. In
the case of private respondent Dangwa Bentrez, the
duration of his employment contract was for one
year, or beginning June, 1988 to March 1989 whereas
in the case of the other private respondents, the
duration of their employment contracts was for one
semester, or beginning November, 1988 to March
1989.
On February 28, 1990, the Labor Arbiter rendered
judgment in favor of private respondents, ordering
their reinstatement and the payment of their full
backwages and other benefits and privileges without
qualification and deduction from the time they were
dismissed up to their actual reinstatement. The
computation of backwages covered only the period
private respondents were terminated up to January
31, 1990 or 10 months and does not include
backwages from January 31, 1990 up to their actual
reinstatement. In support of this decision, the Labor
Arbiter rationalized that the teacher’s contracts were
vague and did not include the specific description of
duties and assignments of private respondents.
NLRC affirmed the decision of Labor Arbiter. Hence,
the appeal.
SC held that insofar as the private respondents who
knowingly and voluntarily agreed upon fixed periods
of employment are concerned, their services were
lawfully terminated by reason of the expiration of the
periods of their respective contracts. With respect to
the remaining private respondents Roland Picart and
Lucia Chan, both of whom did not sign any contract
fixing the periods of their employment nor to have
knowingly and voluntarily agreed upon fixed periods
of employment, petitioners had the burden of proving
that the termination of their services was legal. As
probationary employees, they are likewise protected
by the security of tenure provision of the Constitution.
Consequently, they cannot be removed from their
positions unless for cause.
Issue:
Whether or not private respondents Picart and Chan,
who were illegally dismissed, were entitled to
payment of backwages.
Answer:
Yes. Private respondents Picart and Chan were
entitled to payment of backwages. However, in the
computation of the backwages, the total amount
derived from employment elsewhere by the employee
from the date of dismissal up to the date of
reinstatement, if any, should be deducted therefrom.
Reasoning:
The order for their reinstatement and payment of full
backwages and other benefits and privileges from the
time they were dismissed up to their actual
4
reinstatement was proper, conformably with Article
279 of the Labor Code, as amended by Section 34 of
Republic Act No. 6715, 14 which took effect on March
21, 1989. It should be noted that private respondents
Roland Picart and Lucia Chan were dismissed illegally
on March 31, 1989, or after the effectivity of said
amendatory law.
However, in ascertaining the total amount of
backwages payable to them, SC went back to
the rule prior to the Mercury Drug Rule that the
total amount derived from employment
elsewhere by the employee from the date of
dismissal up to the date of reinstatement, if
any, should be deducted therefrom. SC restated
the underlying reason that employees should not be
permitted to enrich themselves at the expense of
their employer. In addition, the law abhors double
compensation. To this extent, SC’s ruling in Alex
Ferrer, et al., v. NLRC, et al., G.R. No. 100898,
promulgated on July 5, 1993, was hereby modified.
Holding:
WHEREFORE, the resolution of public respondent
National Labor Relations Commission dated November
29, 1990 is hereby MODIFIED. Private respondents
Roland Picart and Lucia Chan are ordered reinstated
without loss of seniority rights and other privileges
and their backwages paid in full inclusive of
allowances, and to their other benefits or their
monetary equivalent pursuant to Article 279 of the
Labor Code, as amended by Section 34 of Republic
Act No. 6715, subject to deduction of income
earned elsewhere during the period of
dismissal, if any, to be computed from the time
they were dismissed up to the time of their
actual reinstatement. The rest of the Labor
Arbiter’s decision dated February 28, 1990, as
affirmed by the NLRC is set aside.
PINES CITY RULING ABANDONED
BUSTAMANTE VS. NLRC
Nov. 28, 1996
PADILLA, J.
Procedural History:
This is a Motion for Reconsideration filed for a
previous decision issued by SC.
Statement of Facts:
On 15 March 1996, SC First Division promulgated a
decision, stating that backwages shall be paid to
petitioners from the time of their illegal dismissal on
25 June 1990 up to the date of their reinstatement. If
reinstatement is no longer feasible, a one-month
salary shall be paid the petitioners as ordered in the
Labor Arbiter’s decision, in addition to the adjudged
backwages.
Private respondent moved to reconsider the decision
on grounds that assuming that petitioners were
entitled to backwages, computation thereof should
not start from cessation of work up to actual
reinstatement, and that salary earned elsewhere
(during the period of illegal dismissal) should be
deducted from the award of such backwages.
From here, SC stated that over the years, it applied
different methods in the computation of backwages:
1. The first labor relations law governing the
award of backwages was Republic Act No. 875,
the Industrial Peace Act, approved on 17 June
1953. Sections 5 and 15 thereof provided that
backpay (the same as backwages) could be
awarded where, in the opinion of the Court of
Industrial Relations (CIR) such was necessary to
effectuate the policies of the Industrial Peace Act.
As the CIR was given wide discretion to grant or
disallow payment of backpay (backwages) to an
employee, it also had the implied power of
mitigating (reducing) the backpay where backpay
was allowed. Thus, in the exercise of its
jurisdiction, the CIR increased or diminished the
award of backpay, depending on several
circumstances, among them, the employee’s
employment in other establishments during the
period of illegal dismissal. The same was
enunciated in the case of Itogon-Suyoc Mines,
Inc. v. Sagilo-Itogon Workers’ Union.
2. SC found occasion in the case of Mercury
Drug Co., Inc., et al. v. CIR, et al. to rule that a
fixed amount of backwages without further
qualifications should be awarded to an illegally
dismissed employee (hereinafter the Mercury
Drug rule). However, Justice Teehankee
dissented from the majority and opined that an
award of back wages equivalent to three years
(where the case is not terminated sooner) should
serve as the base figure for such awards without
deduction, subject to deduction where there are
mitigating circumstances in favor of the employer
but subject to increase by way of exemplary
damages where there are aggravating
circumstances (e.g. oppression or dilatory
appeals) on the employer’s part.”
3. The proposal on the three-year backwages
was subsequently adopted in later cases.
4. Then came Presidential Decree No. 442 (the
Labor Code of the Philippines) which was signed
into law on 1 May 1974 and which took effect on
1 November 1974. The law specifically declared
that the award of backwages was to be
computed from the time compensation was
withheld from the employee up to the time of his
reinstatement. This nothwithstanding, the rule
generally applied by the Court after the
promulgation of the Mercury Drug case, and
during the effectivity of P.D. No. 442 was still the
Mercury Drug rule. A survey of cases from 1974
until 1989, when the amendatory law to P.D. No.
442, namely, R.A. No. 6715 took effect, supports
this conclusion.
5. In the case of New Manila Candy Workers
Union (Naconwa-Paflu) v. CIR (1978), or after
the Labor Code (P.D. No. 442) had taken effect,
the Court still followed the Mercury Drug rule to
avoid the necessity of a hearing on earnings
obtained elsewhere by the employee during the
period of illegal dismissal. In an even later case
(1987) the Court declared that the general
principle is that an employee is entitled to receive
as backwages all the amounts he may have
received from the date of his dismissal up to the
time of his reinstatement. However, in
compliance with the jurisprudential policy of
fixing the amount of backwages to a just and
reasonable level, the award of backwages
equivalent to three (3) years, without
qualification or deduction, was nonetheless
followed.
5
6. In a more direct approach to the rule on the compensation was withheld from them up to the time
award of backwages, this Court declared in the of their actual reinstatement. As to reinstatement of
1990 case of Medado v. Court of Appeals that petitioners, SC has already ruled that since
“any decision or order granting backwages in reinstatement is no longer feasible, because the
excess of three (3) years is null and void as to company would be unjustly prejudiced by the
the excess”. In sum, during the effectivity of P.D. continued employment of petitioners who at present
442, the Court enforced the Mercury Drug rule are overage, a separation pay equal to one-month
and, in effect, qualified the provision under P.D. salary granted to them in the Labor Arbiter’s decision
No. 442 by limiting the award of backwages to was in order and, therefore, affirmed in the Court’s
three (3) years. decision of 15 March 1996. Furthermore, since
7. On 21 march 1989, Republic Act No. 6715 reinstatement in this case is no longer feasible, the
took effect, amending the Labor Code. In here, amount of backwages shall be computed from the
an illegally dismissed employee is entitled to his time of their illegal termination on 25 June 1990 up to
full backwages from the time his compensation the time of finality of this decision.
was withheld from him (which, as a rule, is from
the time of his illegal dismissal) up to the time of Holding:
his actual reinstatement. It was true that SC had ACCORDINGLY, private respondent’s Motion for
ruled in the case of Pines City Educational Center Reconsideration, dated 10 April 1996, is DENIED.
vs. NLRC (G.R. No. 96779, 10 November 1993,
227 SCRA 655) that “in ascertaining the total
amount of backwages payable to them
(employees), SC went back to the rule prior to
the Mercury Drug rule that the total amount
derived from employment elsewhere by the
employee from the date of dismissal up to the
date of reinstatement, if any, should be deducted
therefrom.” The rationale for such ruling was
that, the earning derived elsewhere by the
dismissed employee while litigating the legality of
his dismissal, should be deducted from the full
amount of backwages which the law grants him
upon reinstatement, so as not to unduly or
unjustly enrich the employee at the expense of
the employer.
Issue:
Whether or not the ruling in Pines City v NLRC must
still be observed.

Answer:
No. SC categorically concluded the final computation
of the backwages after reconsidering the ruling
mentioned in Pines City v. NLRC case. Those who
were illegally dismissed are entitled to the payment
of full backwages.
Reasoning:
With the evident legislative intent as expressed in
Rep. Act No. 6715, above-quoted, backwages to be
awarded to an illegally dismissed employee, should
not, as a general rule, be diminished or reduced
by the earnings derived by him elsewhere
during the period of his illegal dismissal. The
underlying reason for this ruling is that the employee,
while litigating the legality (illegality) of his dismissal,
must still earn a living to support himself and family,
while full backwages have to be paid by the employer
as part of the price or penalty he has to pay for
illegally dismissing his employee.
The clear legislative intent of the amendment in Rep.
Act No. 6715 is to give more benefits to workers than
was previously given them under the Mercury Drug
rule or the “deduction of earnings elsewhere” rule.
Thus, a closer adherence to the legislative policy
behind Rep. Act No. 6715 points to “full backwages”
as meaning exactly that, i.e., without deducting from
backwages the earnings derived elsewhere by the
concerned employee during the period of his illegal
dismissal.

Therefore, in accordance with R.A No. 6715,

petitioners were entitled to their full backwages,
inclusive of allowances and other benefits or their
monetary equivalent, from the time their actual
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