Osmalik S. Bustamante, Paulino A. Bantayan, Fernando L. Bustamante, Mario D. Sumonod, and Sabu J.Lamaran
National Labor Relations Commission, Fifth Division and Evergreen Farms, Inc.
Docket Number and Date of Decision
G.R. No. 111651, November 28, 1996
Significance of the Case
In this landmark case, the Supreme Court (SC) ruled that backwages due an employee on account of his illegal
dismissal should not be diminished or reduced by the earnings derived by him elsewhere during the period of his illegal dismissal.
This case finally abandoned the “Mercury Drug” rule and “deduction of earnings elsewhere” rule then
prevailing at that time.
Prior to the present case, SC had applied different methods in the computation of backwages.Backwages under RA 875. Under RA 875, the Court of Industrial Relations (CIR) was given wide discretion togrant or disallow payment of backpay (backwages) to an employee, it also had the implied power of reducingthe backpay where backpay was allowed. In the exercise of its jurisdiction, the CIR can increase or diminish theaward of backpay, depending on several circumstances, among them, the good faith of the employer ,the
employee’s employment in other establishments during the period of illegal dismissal, or the probability that the
employee could have realized net earnings from outside employment if he had exercised due diligence to searchfor outside employment.This method caused undue delay in the disposition of illegal dismissal cases. Cases are usually held up in thedetermination of whether or not the computation of the award of backwages is correct.
Rule . In order prevent undue delay in the disposition of illegal dismissal cases, the SC foundoccasion in the case of Mercury Drug Co vs. CIR, 1974,to rule that a fixed amount of backwages without
further qualifications should be awarded to an illegally dismissed employee.In subsequent cases (adopting the proposal of Justice Teehankee), backwages equivalent to three years (unlessthe case is not terminated sooner) was made the base figure for such awards without deduction, subject todeduction 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
On 1 November 1974, the Labor Code of the Philippines took effect. Article 279 of the said code provides:
“[...] An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and to his back wages computed from the time his compensation was was withheld from him up
to the time of his reinstatement.”
The above provision 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
rule. In effect, thisqualified the provision under P.D. No. 442 by limiting the award of backwages to 3 years.
“Deduction of Earnings Elsewhere” Rule
. When RA 6715 took effect on 21 March 1989, the pertinent portionof Article 279 of the Labor Code was amended to read as follows:
“[...] An employee who 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