Title
Equitable Banking Corp. vs Sadac
Case
G.R. No. 164772
Decision Date
Jun 8, 2006
A bank executive dismissed in 1989 contested illegal termination; Supreme Court ruled backwages exclude salary increases, affirmed attorney’s fees, and imposed 12% interest.
illegal dismissal
backwages
interest
A

Case Summary (G.R. No. 164772)

Factual Background

Respondent Sadac served as Vice President and General Counsel of petitioner Bank from 1981 until his removal in 1989 following internal complaints by nine lawyers in the Legal Department who alleged abusive conduct and sought a change in leadership. Petitioner instructed respondent to deliver materials in his custody, respondent requested a formal hearing which was not afforded, and he filed a complaint for illegal dismissal. The records reflect that petitioner terminated respondent’s services and at some point ordered his removal from office and disentitlement to compensation.

Procedural History Prior to the Present Petition

Respondent Sadac filed a complaint for illegal dismissal. The Labor Arbiter dismissed the complaint on 2 October 1990. The NLRC reversed on 24 September 1991, declaring the dismissal illegal and awarding reinstatement or separation pay, backwages, moral and exemplary damages, and attorney’s fees equivalent to ten percent of the monetary award. Petitioner sought relief in this Court via a special civil action in G.R. No. 102467. On 13 June 1997 the Court affirmed the NLRC resolution with modifications: reinstatement or backwages until age sixty and retirement benefits thereafter, deletion of moral and exemplary damages, addition of P5,000, and absolution of the other respondents from solidary liability. That decision became final and executory on 28 July 1997.

Post-Judgment Execution and Dispute Over Computation

Pursuant to finality of this Court’s 1997 decision, respondent filed a motion for execution and submitted a computation of monetary award in the aggregate of P6,030,456.59 for backwages inclusive of prospective general increases, allowances, and claimed benefits. Petitioner Bank filed its own computation asserting a monetary award of P2,981,442.98 and contending that general salary increases and certain allowances and benefits were not properly included. The central dispute became the proper basis for computing “full backwages,” specifically whether periodic general salary increases and certain claimed benefits form part of the base.

Labor Arbiter’s Ruling on Computation

On 2 August 1999 the Labor Arbiter adopted respondent’s computation, relying on authority that allowed inclusion of general increases as a component of backwages. The Labor Arbiter awarded respondent P6,030,456.59 plus interest and, after accounting for earlier partial satisfaction under a writ of execution, directed payment of P6,342,307.00. The Labor Arbiter also awarded attorney’s fees equivalent to ten percent of the monetary award and imposed twelve percent interest per annum from finality until satisfaction.

NLRC Review and Reversal

The NLRC reversed the Labor Arbiter in its 28 March 2001 resolution. The NLRC held that the line of cases allowing inclusion of general salary increases were not controlling and that some of the cited authorities were mere obiter dicta; it disallowed certain claimed benefits for lack of proof and struck attorney’s fees. The NLRC ordered computation in accordance with petitioner’s figures, aggregating P2,981,442.98. Reconsideration was denied on 24 September 2002.

Proceedings in the Court of Appeals

Respondent filed a petition for certiorari in the Court of Appeals challenging the NLRC resolutions and seeking revival of the Labor Arbiter’s 2 August 1999 Order. The Court of Appeals on 6 April 2004 reversed the NLRC and revived the Labor Arbiter’s award, including general salary increases, check-up benefit, clothing allowance, cash conversion of vacation leaves, and twelve percent interest from 28 July 1997. The Court of Appeals declined to grant attorney’s fees on the ground that this Court’s 13 June 1997 decision did not expressly award them. After motions for partial reconsideration, the Court of Appeals issued a supplemental decision on 26 October 2004 adding attorney’s fees equal to ten percent of all the monetary award.

Assignments of Error in the Present Petition

Petitioner Bank assigned errors asserting that the Court of Appeals erred in: (a) including general salary increases in backwages; (b) applying several cases as controlling over Article 279 and other precedents that, petitioner argued, exclude salary increases; (c) awarding claimed benefits for which respondent offered inadequate proof; and (d) awarding legal interest prior to ascertainment of the correct principal amount. Petitioner also moved to refer the petition to the Court en banc.

Issues Presented to the Supreme Court

The Court framed the principal issues as: whether periodic general increases in basic salary and certain claimed benefits are included in computation of full backwages under Article 279; whether respondent was entitled to attorney’s fees; whether twelve percent interest per annum should be imposed from the date of finality of this Court’s 1997 decision; and whether the petition warranted en banc consideration.

Legal Framework and the Meaning of “Full Backwages”

The Court revisited the evolution of the doctrine on backwages, noting the legislative amendment embodied in Rep. Act No. 6715 which amended Article 279 to entitle an unjustly dismissed employee to “his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent.” The Court traced the jurisprudential development from the pre-Mercury Drug rule, through Mercury Drug Co., Inc. and subsequent modification in Ferrer and Pines City, to the Court’s ruling in Bustamante v. NLRC which held that “full backwages” should not be diminished by earnings derived elsewhere during the period of dismissal and thus that the amendment gave workers broader protection.

Ruling on Inclusion of General Salary Increases

The Court held that salary increases are not encompassed by the statutory phrase “inclusive of allowances, and to his other benefits.” It explained that allowances and benefits are distinct adjuncts to salary granted separately from the wage, while salary increases are increments that become part of the salary itself and are not separate grants. The Court found that if the legislature intended salary increases to be included in the computation of backwages it would have so stated. The Court rejected reliance on East Asiatic Company, Ltd. v. Court of Industrial Relations and related cases because those precedents arose under a different statutory regime and their emphasis related to deductions for earnings derived elsewhere, a concern largely obviated by the amendment effected by Rep. Act No. 6715. The Court further found that other authorities cited by the Court of Appeals—St. Louis, Sigma Personnel, and Millares—did not present binding support for including general salary increases in the computation of backwages and that references to East Asiatic in those decisions were, in material respects, obiter dicta.

Application of Precedent Favoring Petitioner on Base Wage

The Court reaffirmed the line of cases represented by Paramount Vinyl Products Corp. v. NLRC, Evangelista v. NLRC, and Espejo v. NLRC which hold that an unqualified award of backwages means payment at the wage rate at the time of dismissal and that salary differentials and later general increases are not included. The Court invoked the clarifying statement in General Baptist Bible College v. NLRC that backwages are to be fixed as of the time of dismissal “without qualification” and without awarding salary differentials received by other employees subsequently. Applying these authorities, the Court concluded that respondent Sadac’s claim for prospective salary increases could not be allowed as part of his backwages.

Ruling on Check-up Benefit, Clothing Allowance, and Cash Conversion of Vacation Leaves

On the claimed check-up benefit, clothing allowance, and cash conversion of vacation leaves the Court treated entitlement as a question of fact. Because the Labor Arbiter and the Court of Appeals found these benefits due while the NLRC did not, the Supreme Court examined the record and the parties’ computations. The Court observed that petitioner’s computation acknowledged certain benefits for respondent but did not acknowledge the specific benefits claimed. The Court applied the rule that the party alleging a right must prove it, and held that respondent failed to adduce sufficient proof that these specific benefits were granted and enjoyed by him or similarly situated employees. Accordingly, the Court excluded the claimed check-up benefit, clothing allowance, and cash conversion of vacation leaves from the computation of backwages.

Ruling on Attorney’s Fees

The Court resolved whether attorney’s fees equal to ten percent of the monetary award had been finally awarded by its 13 June 1997 decision in G.R. No. 102467. The Court reiterated the settled rule that when a final judgment becomes executory i

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