Case Summary (G.R. No. 111651)
Issues presented in the motion for reconsideration
Private respondent principally argued (a) petitioners were not actually dismissed because their probationary status had not ripened into regular employment, and therefore recovery of backwages was improper; and (b) even if backwages were payable, the computation should not run from cessation of work to actual reinstatement and should be reduced by earnings petitioners obtained elsewhere during the period of litigation.
Historical legal framework governing backwages — RA No. 875 and CIR discretion
The Court reviewed the evolution of the law on backwages. Under the Industrial Peace Act (R.A. No. 875, 1953), backpay/backwages could be ordered when necessary to effectuate the Act’s policies, and in many instances the Court of Industrial Relations (CIR) exercised broad discretion to grant, mitigate, or reduce backwages. The CIR’s mitigation considered factors such as employer good faith and earnings the employee obtained from other employment during the dismissal period; longstanding jurisprudence permitted deduction of such outside earnings to avoid double recovery and unjust enrichment.
Mercury Drug rule and the three‑year pragmatic limitation
To expedite relief and avoid dilatory and complex hearings on outside earnings, the Court in Mercury Drug adopted a pragmatic fixed‑award approach, awarding a specified period of backwages (initially limited by practical considerations). Justice Teehankee proposed a three‑year base figure (one year for trial and two years for appellate process), and later decisions commonly applied a three‑year cap on backwages. This rule operated during the early years of P.D. No. 442 (Labor Code) as a jurisprudential qualification of the statutory language.
Labor Code (P.D. No. 442) and the post‑Mercury jurisprudence
Article 279 of P.D. No. 442 mandated reinstatement and backwages for unjustly dismissed regular employees, specifying backwages “computed from the time his compensation was withheld from him up to the time of his reinstatement.” Despite this statutory phrasing, the Court continued applying the Mercury Drug pragmatic approach in many cases to avoid delays attendant to proof of outside earnings.
Effect of R.A. No. 6715 and return to the statute’s plain meaning
R.A. No. 6715 amended Article 279 and used the term “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.” Interpreting the amendatory statute in light of legislative intent, the Court concluded that the amendment was designed to expand worker protection and to require payment of full backwages. Consequently, the Court reconsidered prior lines of cases (e.g., Pines City Educational Center) that had permitted deduction of earnings obtained elsewhere, and held that, as a general rule, backwages under R.A. No. 6715 should not be diminished by earnings the employee may have obtained during the period of illegal dismissal.
Rationale for abandoning the general rule of deducting outside earnings
The Court explained that an employee litigating the legality of a dismissal must still be permitted to work and earn a livelihood; requiring deduction of such earnings from statutory “full backwages” would undercut the clear legislative purpose of R.A. No. 6715 to grant broader protection. The statute’s plain language — “full backwages” inclusive of allowances and benefits up to actual reinstatement — was held to manifest a legislative choice to afford workers greater relief. The Court also observed the practical consideration that litigating and proving earnings derived elsewhere can unduly delay proceedings and complicate enforcement.
Application to the petitioners and computation of backwages in this case
Applying R.A. No. 6715, the Court held that petitioners are entitled to full backwages, inclusive
...continue readingCase Syllabus (G.R. No. 111651)
Procedural Posture and Dispositive Portion of the First Division Decision (15 March 1996)
- The Court (First Division) promulgated a decision on 15 March 1996 whose dispositive portion provided:
- "WHEREFORE, the resolution of the National Labor Relations Commission dated 3 May 1993 is modified in that its deletion of the award for backwages in favor of petitioners, is SET ASIDE."
- The decision of the Labor Arbiter dated 26 April 1991 was AFFIRMED with the modification 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.
- Following that decision, the private respondent moved for reconsideration raising two principal grounds:
- (a) Petitioners are not entitled to recover backwages because they were not actually dismissed but their probationary employment was not converted to permanent employment.
- (b) Assuming petitioners are entitled to backwages, computation should not start from cessation of work up to actual reinstatement, and earnings obtained elsewhere during the period of illegal dismissal should be deducted from the award of such backwages.
Court’s Ruling on Motion for Reconsideration and Purpose of Resolution
- The Court found no compelling reason to reconsider the 15 March 1996 decision but used the motion to clarify the computation of backwages due an employee on account of illegal dismissal.
- The resolution, authored by Justice Padilla, explains and clarifies the applicable legal framework and jurisprudence on computation of backwages.
- The private respondent’s Motion for Reconsideration dated 10 April 1996 was DENIED.
Historical Statutory Framework — Republic Act No. 875 (Industrial Peace Act)
- Republic Act No. 875 (Industrial Peace Act), approved 17 June 1953, provided the first labor-relations statutory framework governing backpay/backwages.
- Section 5 (excerpted) authorized the Court of Industrial Relations to order "reinstatement of employees with or without back-pay and including rights of the employees prior to dismissal including seniority," where the Court found unfair labor practice.
- Section 15 (excerpted) provided that "Any employee whose work has stopped as a consequence of such lockout shall be entitled to back-pay."
- Under R.A. No. 875 the Court of Industrial Relations (CIR) had broad discretion to grant or disallow backpay and the implied power to mitigate (reduce) backpay where allowed.
CIR Discretion and Early Jurisprudence on Deduction and Mitigation
- The CIR exercised discretion to increase or diminish awards of backpay depending on circumstances such as:
- The good faith of the employer.
- Employment obtained by the employee in other establishments during the period of illegal dismissal.
- The probability that the employee could have realized net earnings from outside employment if he had exercised due diligence to seek such employment.
- The Court acknowledged and upheld the CIR’s authority to deduct amounts from an employee’s backwages, including earnings obtained elsewhere during the period of illegal dismissal.
- Itogon-Suyoc Mines, Inc. v. SaAgilo-Itogon Workers’ Union restated guidelines for determination of total backwages, including:
- "First. To be deducted from the backwages accruing to each of the laborers to be reinstated is the total amount of earnings obtained by him from other employment(s) from the date of dismissal to the date of reinstatement. Should the laborer decide that it is preferable not to return to work, the deduction should be made up to the time judgment becomes final. And these, for the reason that employees should not be permitted to enrich themselves at the expense of their employer. Besides, there is the 'law's abhorrence for the double competition'."
- "Second. Likewise, in mitigation of the damages that the dismissed respondents are entitled to, account should be taken of whether in the exercise of due diligence respondents might have obtained income from suitable remunerative employment."
Mercury Drug Rule and the Shift to Fixed Backwages for Expediency
- To avoid undue delay in illegal dismissal cases, the Court in Mercury Drug Co., Inc. v. CIR adopted a rule awarding a fixed amount of backwages without further qualifications (the "Mercury Drug rule").
- The Mercury Drug formula was grounded on considerations of expediency in execution of decisions and to avoid idleness of employees and undue delay by employers in satisfying awards.
- Justice Claudio Teehankee described the fixed-amount approach as "realistic, reasonable and mutually beneficial" but dissented from the majority’s specific determination of a 1 year, 11 months and 15 days award, proposing instead:
- An award of backwages equivalent to three years as the base figure where the case is not terminated sooner, subject to deduction for mitigating circumstances in favor of the employer and subject to increase by exemplary damages for aggravating conduct by the employer.
- Justice Teehankee’s three-year proposal was subsequently adopted in later jurisprudence, leading to a jurisprudential po