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PINES CITY V NLRC after appropriate proceedings in compliance with due

Separation Pay and Backwages process requirements is not entitled to an award of


APRIL 24, 2017 LEAVE A COMMENT separation pay. In some cases however, the SC
awarded separation pay to a legally dismissed
employee on the grounds of equity and social justice.
CONSEQUENCES OF TERMINATION 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.
SEPARATION PAY – FOUR CONTEXT
148410, Jan. 17, 2005, among others).
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 SEPARATION PAY IN LIEU OF REINSTATEMENT
entitled to separation pay in accordance with the If reinstatement is no longer possible, the employer
rates prescribed by law. (Chan. The Labor Code of the has the alternative of paying the employee his
Philippines Annotated – Volume II). separation pay in lieu of reinstatement. (Manila Water
Co, Inc. v. Pena, G.R. No. 158255, Jul. 8, 2004).
Art. 298. [283] Closure of Establishment and
Reduction of Personnel. – The employer may also Reinstatement cannot be awarded when what is
terminate the employment of any employee due to prayed for is separation pay. As pronounced in Dela
the installation of labor-saving devices, redundancy, Cruz v. NLRC, [G.R. No. 121288, November 20,
retrenchment to prevent losses or the closing or 1998], the petitioner therein would have been entitled
cessation of operation of the establishment or to reinstatement as a consequence of his illegal
undertaking unless the closing is for the purpose of dismissal from employment. However, by expressly
circumventing the provisions of this Title, by serving a asking for separation pay, he is deemed to have
written notice on the workers and the Ministry of opted for separation pay in lieu of reinstatement.
Labor and Employment at least one (1) month before
the intended date thereof. In case of termination due In Deguzman v. NLRC, [G.R. No. 167701, Dec. 12,
to the installation of labor-saving devices or 2007], and in several other earlier cases, where the
redundancy, the worker affected thereby shall be employee explicitly prayed for an award of separation
entitled to a separation pay equivalent to at least his pay in lieu of reinstatement, it was held that by so
one (1) month pay or to at least one (1) month pay praying, he forecloses reinstatement as a relief by
for every year of service, whichever is higher. In case implication. Consequently, he is entitled to separation
of retrenchment to prevent losses and in cases of pay equivalent to one month pay for every year of
closures or cessation of operations of establishment services, computed from the time of his illegal
or undertaking not due to serious business losses or dismissal up to the finality of the judgement, as an
financial reverses, the separation pay shall be alternative to reinstatement.
equivalent to one (1) month pay or at least one-half
(1/2) month pay for every year of service, whichever
The amount of separation pay that should be paid in
is higher. A fraction of at least six (6) months shall be
lieu of reinstatement is not provided in the Labor
considered as one (1) whole year.
Code or its implementing rules. Jurisprudence,
In case the CBA or company policy provides for a
however, dictates that the following should be
higher separation pay, the same must be followed
included in its computation:
instead of the one provided in Article 283. (Chan. The
Labor Code of the Philippines Annotated – Volume
II). 1. The amount equivalent to at least one (1)
Art. 299. [284] Disease as a Ground of Termination month salary or to one (1) month salary for every
– An employer may terminate the services of an year of services, whichever is higher, a fraction
employee who has been found to be suffering from of at least six (6) months being considered as
any disease and whose continued employment is one (1) whole year. (Sec. 4[b], Rule I, Book VI,
prohibited by law or is prejudicial to his health as well Rules to Implement the Labor Code).
as to the health of his co-employees: Provided, That 2. Allowances that the employee has been
he is paid separation pay equivalent to at least one receiving on a regular basis. (Planters Products,
(1) month salary or to one-half (1/2) month salary for Inc. v. NLRC, G.R. No. 78524, Jan. 20, 1989).
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 AN EMPLOYEE BENEFIT
Employers may lawfully and effectively reduce their
personnel by offering resignation benefits through a
Voluntary Resignation Program where employees are
SEPARATION PAY AS FINANCIAL ASSISTANCE afforded the right to voluntarily terminate the
IN LEGAL DISMISSAL UNDER ART. 282 employment relationship. If made in good faith, such
The basis of the grant of financial assistance is equity. as scheme should be considered a valid form of
(Chan. The Labor Code of the Philippines Annotated – terminating employment. Consequently, the employer
Volume II). 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
An employee who is dismissed for just cause is
month prior to the effectivity of the termination of
generally not entitled to separation pay. A reading of
employment. The reason is that by applying to
Art. 279 in relation to Art. 282 of the Labor Code,
voluntarily resign, the employee thereby
reveals that an employee who is dismissed for cause
acknowledges the existence of a valid cause for
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terminating his employment. (Dole Philippines Inc. v. Hearing of Dayao’s union activities, petitioner called
NLRC, G.R. No. 120009, Sept. 13, 2001; International for Dayao on April 10, 1961, told him to resign and
Hardware, Inc. v. NLRC, G.R. No. 80770, Aug. 10, persuaded him to accept the amount of P562.50 as
1989). 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.

BACKWAGES On April 25, 1963, exactly two years and fifteen days
DISTINGUISH FROM SEPARATION PAY from his separation on April 10, 1961, Dayao filed a
Separation pay in lieu of reinstatement and complaint for unfair labor practice against petitioners
backwages are two different things. Payment of for dismissing him because of his having campaigned
separation pay is not inconsistent with payment of among his co-employees to become members of a
backwages. (Cabatulan v. Buat, G.R. No. 147142, new labor union that he was then organizing.
Feb. 14, 2005).
In their answer to the ULP complaint, petitioners
Separation pay is paid when reinstatement is not interposed as their only defense that Dayao “was
possible; while backwages are paid for the separated from the service … for cause because of
compensation which otherwise the employee should creating trouble with another employee who was also
have earned had he not been illegally dismissed. dismissed and that even if the said complainant was
(Equitable Banking Corp. v. Sadac, G.R. No. 164772, separated for cause, he received compensation pay
June 8, 2006). and hereby relieved respondent from whatever claim
or claims that he had against respondents.” They also
relied on laches, aside from estoppel, to defeat
Separation pay is computed on the basis of
Dayao’s ULP charge.
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. SC held that the petitioners were guilty of unfair labor
79907 and 79975, Mar. 16, 1989). practices. There was no sufficient basis for
discharging Dayao from employment. Acceptance of
termination pay does not divest a laborer the right to
Separation pay is paid where a wherewithal during
prosecute his employer for unfair labor practice acts,
the period that an employee is looking for another
much less for signing the clearance paper.
employment; while backwages are paid for the loss of
Acceptance of those benefits would not amount to
earnings during the period between illegal dismissal
estoppel. SC stated that there was clear interference
and reinstatement. (Quebec, Sr. v. NLRC, G.R. No.
with the union activity and that his dismissal from
123184, Jan. 22, 1999).
employment was discriminatory. And since there was
illegal dismissal, Dayao was entitled to backwages.
Separation pay is oriented towards the immediate
future; while backwages involve the restoration of the
Issue:
past income lost. (Lopez, Jr. v. NLRC, G.R. No.
How much backwages shall be allowed private
109166, Jul. 6, 1995).
respondent Dayao.
Separation pay cannot be paid in lieu of backwages.
Answer:
(Torillo v. Leogardo, G.R. No. 77205, May 27, 1991).
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
FULL BACKWAGES instituting the ULP charge (2 years and 15 days).
MERCURY DRUG RULE (PRIOR TO R.A. 6715)
MERCURY DRUG VS. CIR 56 SCRA 694 Reasoning:
MAKASIAR, J.:p While this case was submitted for decision on March
Procedural History: 29, 1965, the delay in its resolution is not due to the
Petitioner Mercury Drug Co., Inc. seeked the reversal parties. However, it should be noted that private
of the decision of respondent Court of Industrial respondent Dayao filed his ULP charge with
Relations dated January 17, 1964 and its order dated reinstatement and back wages about two years and
February 25, 1964 denying petitioners’ motion for fifteen days after his separation on April 10, 1961. As
reconsideration of the said decision. aforestated, the shortest prescriptive period for the
filing of all other actions for which the statute of
Statement of Facts: limitations does not fix a period, is four years. The
Private respondent Dayao was employed on February period of delay in instituting this ULP charge with
13, 1956 by the petitioners originally as driver, later claim for reinstatement and back wages, although
assigned as delivery man, then as checker and was within the prescriptive period, should be deducted
last promoted to the position of assistant chief from the liability of the employer to him for back
checker in the checking department until his wages. In order that the employee however should be
separation on April 10, 1961. relieved from proving his income during the period he
was out of the service and the employer from
Days before April 10, 1961, Dayao urged petitioners submitting counter-proofs, which may delay the
to pay them overtime pay, criticized their employees’ execution of the decision, the employer in the case at
association for failing to protect the welfare of the bar should be directed to pay private respondent
employees by not securing such additional Dayao backwages equivalent to one year, eleven
compensation for overtime, and campaigned among months, and fifteen days without further
his co-employees to organize another labor union. disqualifications.
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Holding: under the management of Hui Kam Chang. As piece
WHEREFORE, THE PETITION IS HEREBY DISMISSED workers, petitioners’ earnings ranged from P110 to
AND PETITIONERS ARE HEREBY DIRECTED: (1) TO P140 a day. They had been in the employ of OFC for
PAY PRIVATE RESPONDENT NARDO DAYAO BACK about ten years at the time of their dismissal in 1989.
WAGES EQUIVALENT TO ONE YEAR, ELEVEN
MONTHS, AND FIFTEEN DAYS; (2) TO REINSTATE On January 5, 1989, the Samahang Manggagawa ng
HIM AFTER CERTIFICATION OF HIS PHYSICAL Occidental Foundry Corporation-FFW (SAMAHAN) and
FITNESS BY A GOVERNMENT PHYSICIAN; AND (3) the OFC entered into a collective bargaining
TO PAY THE COSTS. agreement (CBA) which would be effective for the
three-year period between October 1, 1988 and
Justice Teehankee’s Dissent: September 30, 1991. It included a union security
Justice Teehankee dissented from the specific result clause saying that failure to retain membership in
in the judgement, awarding respondent backwages good standing with the UNION shall be ground for the
only in an amount equivalent to 1 year, 11 months operation of paragraph 1 hereof and the dismissal by
and 15 days. Such delay in filing the complaint should the company of the aforesaid employee upon written
in no manner prejudice the amount of the back wages request by the union.
award justly due respondent — particularly, when it is
considered that he pursued with vigor his complaint Several intraunion squabbles took place as to the
after its filing on April 25, 1963 and obtained election of the officers due to their alleged
favorable judgment in the industrial court within a inattentiveness to the economic demands of the
year as per said court’s decision of January 17, 1964 members. This prompted the union to send a letter to
and its en banc resolution of February 25, 1964 Hui Kam Chang, requesting for the dismissal of
denying petitioner’s motion for reconsideration. several people, including petitioners Ferrer et. al. The
petitioners professed their innocence to the chages
Hence, an award of back wages equivalent to levelled against them by SAMAHAN and FFW, but
three years (where the case is not terminated received no reply. As such, they filed a complained for
sooner) should serve as the base figure for illegal dismissal and unfair labor practice before the
such awards without deduction, subject to NLRC against Hui Kam Chang, OFC, SAMAHAN, and
deduction where there are mitigating circumstances in FFW.
favor of the employer but subject to increase by way
of exemplary damages where there are aggravating Labor Arbiter dismissed the complaint, saying that
circumstances (e.g. oppression or dilatory appeals) on OFC was merely complying with the mandatory
the employer’s part. He submitted that the provisions of the CBA, and that SAMAHAN and FFW
minimum award to which respondent is cannot be charged with illegal dismissal as there was
entitled should be at the very least the no employer-employee relationship between them
equivalent of the proposed base figure of three and the petitioners. NLRC affirmed the decision of
years pay.Employers should be put on notice as a Labor Arbiter. Hence the appeal.
deterrent that if they pursue manifestly dilatory and
unmeritorious appeals and thus delay satisfaction of
SC held that the petitioners were illegally dismissed
the judgment justly due their employee(s), they run
because while the CBA’s union security clause was
the risk of exemplary and punitive damages being
valid, both parties thereto should see to it that no
assessed against them by way of an increased award
right is violated or impaired during its implementation.
of back wages to the wrongfully discharged
There was an absence of notice and hearing when
employee(s) commensurate to the delay caused by
the petitioners were illegally dismissed. Due process
the appeal process.
was inexistent.

Issue:
Whether or not the petitioners, who were illegally
RULE AFTER R.A. 6715 (DATE TO RECKON –
dismissed, were entitled to backwages.
MARCH 21, 1989)
ALEX FERRER VS. NLRC
JULY 5, 1993 Answer:
MELO, J.: Yes. The petitioners can receive their full back wages
Procedural History: computed from the moment their compensation was
The petition for certiorari seeks to annul and set withheld after their dismissal in 1989 up to the date
aside: (a) the decision dated June 20, 1991 of the of actual reinstatement.
Second Division of the National Labor Relations Reasoning:
Commission (NLRC) which affirmed in toto the With the passage of Republic Act No. 6715 which took
decision of April 5, 1990 of Labor Arbiter dismissing effect on March 21, 1989, Article 279 of the Labor
the complaint for illegal dismissal and unfair labor Code was amended to read as follows:
practice on the ground that both the company and
the union merely complied with the collective Security of Tenure. — In cases of regular
bargaining agreement provision sanctioning the employment, the employer shall not terminate the
termination of any employee who fails to retain services of an employee except for a just cause or
membership in good standing with the union; and (b) when authorized by this Title. An employee who is
the NLRC resolution denying the motion for the unjustly dismissed from work shall be entitled to
reconsideration of said decision. reinstatement without loss of seniority rights and
other privileges and to his full backwages, inclusive
Statement of Facts: of allowances, and to his other benefits or their
Petitioners were regular and permanent employees of monetary equivalent computed from the time his
the Occidental Foundry Corporation (OFC) which was compensation was withheld from him up to the time
of his actual reinstatement.
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and as implemented by Section 3, Rule 8 of the 1990 private respondent Leila Dominguez who worked with
New Rules of Procedure of the National Labor petitioners for one semester, all other private
Relations Commission, it would seem that the respondents were employed for one to two years.
Mercury Drug Rule (Mercury Drug Co., Inc. vs. Court They were never informed in writing by petitioners
of Industrial Relations, 56 SCRA 694 [1974]) which regarding the standards or criteria of evaluation so as
limited the award of back wages of illegally dismissed to enable them to meet the requirements for
workers to three (3) years “without deduction or appointment as regular employees.
qualification” to obviate the need for further
proceedings in the course of execution, is no longer For their part, petitioners contended that private
applicable. respondents’ separation from employment, apart from
their poor performance, was due to the expiration of
A legally dismissed employee may now be paid his the periods stipulated in their respective contracts. In
back wages, allowances, and other benefits for the case of private respondent Dangwa Bentrez, the
the entire period he was out of work subject to duration of his employment contract was for one
the rule enunciated before the Mercury Drug year, or beginning June, 1988 to March 1989 whereas
Rule, which is that the employer may, however, in the case of the other private respondents, the
deduct any amount which the employee may duration of their employment contracts was for one
have earned during the period of his illegal semester, or beginning November, 1988 to March
termination. Computation of full back wages and 1989.
presentation of proof as to income earned elsewhere
by the illegally dismissed employee after his On February 28, 1990, the Labor Arbiter rendered
termination and before actual reinstatement should judgment in favor of private respondents, ordering
be ventilated in the execution proceedings before the their reinstatement and the payment of their full
Labor Arbiter concordant with Section 3, Rule 8 of the backwages and other benefits and privileges without
1990 new Rules of Procedure of the National Labor qualification and deduction from the time they were
Relations Commission. dismissed up to their actual reinstatement. The
The petitioners can receive their back wages computation of backwages covered only the period
computed from the moment their compensation was private respondents were terminated up to January
withheld after their dismissal in 1989 up to the date 31, 1990 or 10 months and does not include
of actual reinstatement. In such a scenario, the award backwages from January 31, 1990 up to their actual
of back wages can extend beyond the 3-year period reinstatement. In support of this decision, the Labor
fixed by the Mercury Drug Rule depending, of course, Arbiter rationalized that the teacher’s contracts were
on when the employer will reinstate the employees. vague and did not include the specific description of
duties and assignments of private respondents.
Holding:
WHEREFORE, the decision appealed from is hereby NLRC affirmed the decision of Labor Arbiter. Hence,
SET ASIDE and private respondents are hereby the appeal.
ordered to reinstate petitioners to their former or
equivalent positions without loss of seniority rights
SC held that insofar as the private respondents who
and with full back wages, inclusive of allowances and
knowingly and voluntarily agreed upon fixed periods
other benefits or their monetary equivalent, pursuant
of employment are concerned, their services were
to Article 279 of the Labor Code, as amended by
lawfully terminated by reason of the expiration of the
Republic Act No. 6715.
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
PINES CITY VS. NLRC
fixing the periods of their employment nor to have
NOV. 10, 1993
knowingly and voluntarily agreed upon fixed periods
NOCON, J.:
of employment, petitioners had the burden of proving
Procedural History:
that the termination of their services was legal. As
This a petition for certiorari seeking the reversal of
probationary employees, they are likewise protected
the resolution of public respondent National Labor
by the security of tenure provision of the Constitution.
Relations Commission dated November 29, 1990, in
Consequently, they cannot be removed from their
NLRC Case No. 01-04-0056-89, which affirmed in toto
positions unless for cause.
the decision of the Labor Arbiter dated February
28,1990.
Issue:
Whether or not private respondents Picart and Chan,
Statement of Facts:
who were illegally dismissed, were entitled to
Private respondents Bentrez et. al., were all employed
payment of backwages.
as teachers on probationary basis by petitioner Pines
City Educational Center. All the private respondents,
except Roland Picart and Lucia Chan, signed contracts Answer:
of employment with petitioner for a fixed duration. On Yes. Private respondents Picart and Chan were
March 31, 1989, due to the expiration of private entitled to payment of backwages. However, in the
respondents’ contracts and their poor performance as computation of the backwages, the total amount
teachers, they were notified of petitioners’ decision derived from employment elsewhere by the employee
not to renew their contracts anymore. from the date of dismissal up to the date of
reinstatement, if any, should be deducted therefrom.
On April 10, 1989, private respondents filed a
complaint for illegal dismissal before the Labor Reasoning:
Arbiter, alleging that their dismissals were without The order for their reinstatement and payment of full
cause and in violation of due process. Except for backwages and other benefits and privileges from the
time they were dismissed up to their actual
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reinstatement was proper, conformably with Article 1. The first labor relations law governing the
279 of the Labor Code, as amended by Section 34 of award of backwages was Republic Act No. 875,
Republic Act No. 6715, 14 which took effect on March the Industrial Peace Act, approved on 17 June
21, 1989. It should be noted that private respondents 1953. Sections 5 and 15 thereof provided that
Roland Picart and Lucia Chan were dismissed illegally backpay (the same as backwages) could be
on March 31, 1989, or after the effectivity of said awarded where, in the opinion of the Court of
amendatory law. Industrial Relations (CIR) such was necessary to
effectuate the policies of the Industrial Peace Act.
However, in ascertaining the total amount of As the CIR was given wide discretion to grant or
backwages payable to them, SC went back to disallow payment of backpay (backwages) to an
the rule prior to the Mercury Drug Rule that the employee, it also had the implied power of
total amount derived from employment mitigating (reducing) the backpay where backpay
elsewhere by the employee from the date of was allowed. Thus, in the exercise of its
dismissal up to the date of reinstatement, if jurisdiction, the CIR increased or diminished the
any, should be deducted therefrom. SC restated award of backpay, depending on several
the underlying reason that employees should not be circumstances, among them, the employee’s
permitted to enrich themselves at the expense of employment in other establishments during the
their employer. In addition, the law abhors double period of illegal dismissal. The same was
compensation. To this extent, SC’s ruling in Alex enunciated in the case of Itogon-Suyoc Mines,
Ferrer, et al., v. NLRC, et al., G.R. No. 100898, Inc. v. Sagilo-Itogon Workers’ Union.
promulgated on July 5, 1993, was hereby modified. 2. SC found occasion in the case of Mercury
Holding: Drug Co., Inc., et al. v. CIR, et al. to rule that a
WHEREFORE, the resolution of public respondent fixed amount of backwages without further
National Labor Relations Commission dated November qualifications should be awarded to an illegally
29, 1990 is hereby MODIFIED. Private respondents dismissed employee (hereinafter the Mercury
Roland Picart and Lucia Chan are ordered reinstated Drug rule). However, Justice Teehankee
without loss of seniority rights and other privileges dissented from the majority and opined that an
and their backwages paid in full inclusive of award of back wages equivalent to three years
allowances, and to their other benefits or their (where the case is not terminated sooner) should
monetary equivalent pursuant to Article 279 of the serve as the base figure for such awards without
Labor Code, as amended by Section 34 of Republic deduction, subject to deduction where there are
Act No. 6715, subject to deduction of income mitigating circumstances in favor of the employer
earned elsewhere during the period of but subject to increase by way of exemplary
dismissal, if any, to be computed from the time damages where there are aggravating
they were dismissed up to the time of their circumstances (e.g. oppression or dilatory
actual reinstatement. The rest of the Labor appeals) on the employer’s part.”
Arbiter’s decision dated February 28, 1990, as 3. The proposal on the three-year backwages
affirmed by the NLRC is set aside. 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
PINES CITY RULING ABANDONED 1 November 1974. The law specifically declared
BUSTAMANTE VS. NLRC that the award of backwages was to be
Nov. 28, 1996 computed from the time compensation was
PADILLA, J. withheld from the employee up to the time of his
Procedural History: reinstatement. This nothwithstanding, the rule
This is a Motion for Reconsideration filed for a generally applied by the Court after the
previous decision issued by SC. 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
Statement of Facts:
until 1989, when the amendatory law to P.D. No.
On 15 March 1996, SC First Division promulgated a
442, namely, R.A. No. 6715 took effect, supports
decision, stating that backwages shall be paid to
this conclusion.
petitioners from the time of their illegal dismissal on
5. In the case of New Manila Candy Workers
25 June 1990 up to the date of their reinstatement. If
Union (Naconwa-Paflu) v. CIR (1978), or after
reinstatement is no longer feasible, a one-month
the Labor Code (P.D. No. 442) had taken effect,
salary shall be paid the petitioners as ordered in the
the Court still followed the Mercury Drug rule to
Labor Arbiter’s decision, in addition to the adjudged
avoid the necessity of a hearing on earnings
backwages.
obtained elsewhere by the employee during the
period of illegal dismissal. In an even later case
Private respondent moved to reconsider the decision (1987) the Court declared that the general
on grounds that assuming that petitioners were principle is that an employee is entitled to receive
entitled to backwages, computation thereof should as backwages all the amounts he may have
not start from cessation of work up to actual received from the date of his dismissal up to the
reinstatement, and that salary earned elsewhere time of his reinstatement. However, in
(during the period of illegal dismissal) should be compliance with the jurisprudential policy of
deducted from the award of such backwages. fixing the amount of backwages to a just and
reasonable level, the award of backwages
From here, SC stated that over the years, it applied equivalent to three (3) years, without
different methods in the computation of backwages: qualification or deduction, was nonetheless
followed.

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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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