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MAY THE AWARD OF FULL BACKWAGES BE SUBJECTED TO DEDUCTIONS UNDER R.A. 6715?

 


MAY THE AWARD OF FULL BACKWAGES BE SUBJECTED TO DEDUCTIONS UNDER R.A. 6715?

By: Dean Antonio H. Abad, Jr.

(Delivered on the occasion of the PAVA (NCR) - sponsored Commemorative Lectures as part of the celebration of the 20th Anniversary of the Labor Code on November 26, 1994 at the U.P. Law Center.)


Sometime ago, when the Institute of Judicial Administration of the UP Law Center invited me to lecture in the PAVA (NCR) - sponsored Commemorative Lectures, I was truly elated to be part of the celebration of the 20th anniversary of the Labor Code.

The invitation sent me stated in part: "The theme of the Commemorative Lectures is the Role of the Supreme Court in the Development of Labor Law.  Thus, each lecture should be a critical analysis of a landmark decision of the Supreme Court (of your choice) and related cases, if any (also of your choice), that illustrates how the Supreme Court has influenced the development of Labor Law through its interpretation of the provisions of the Labor Code."

It is in this light that I decided to focus on the provision of the Labor Code on Termination, more particularly in the matter of backwages.

One of the principal reliefs in illegal termination cases is the award of backwages.  This award of backwages has undergone various interpretations over the years under different statutory provisions.
 

UNDER COMMONWEALTH ACT NO. 103

Under Section 19 of the Commonwealth Act No. 103, enacted on October 29, 1936, the Court of Industrial Relations had the power to order the payment of backwages of reinstated employees.  Thus:

No employer or landlord shall suspend, lay-off, or dismiss any employee, laborer, tenant, or farm-laborer, without just cause, from the time a labor association or organization or group of laborers or tenants or farm-laborers has presented to an employer or landlord a petition or complaint regarding any matter likely to cause a strike or lockout mentioned in this section, and a copy thereof has been forthwith furnished the Department of Labor, or while an industrial or agricultural dispute is pending before the Court.  If it is proved that during the said period an employee or laborer, tenant, or farm-laborer has been suspended or dismissed without just cause, the court may direct his reinstatement and the payment of his salary or wage during the time of the suspension or dismissal, or of any sum which he should have received had he not been suspended or dismissed, without prejudice to any criminal liability of the employer or landlord as prescribed by section twenty four of this Act.

However, under Com. Act No. 103, the award of backwages was not absolute right of the dismissed employee. The CIR had the discretion to decide whether or not to award backwages depending upon the circumstances of each case.  (Dimayuga vs. CIR, 101 Phil. 591, 595.)
 

UNDER REPUBLIC ACT NO. 875

Under Section 5(c) of RA 875 (Industrial Peace Act), the CIR was likewise granted the authority to award backwages.  Thus:

(c)        The testimony taken by the Court or such member of the Court or the Hearing Examiner shall be reduced to writing and filed with the Court. If, after investigation, the Court shall be of the opinion that any person named in the complaint has engaged in or engaging in any unfair labor practice, then the Court shall state its findings of fact and shall issue and cause to be served on such person an order requiring such person to cease and desist from such unfair labor practice and take such affirmative action as will effectuate the policies of this Act, including (but not limited to) reinstatement of employees with or without back-pay and including rights of the employees prior to dismissal including seniority.

In the same manner, the award of backwages was also discretionary upon the CIR which may award full back pay, reduce backpay or deny backpay depending upon the circumstances of each case.  The Supreme Court in the case of United Employees Welfare Association vs. Isaac Peral Bowling Alleys (104 Phil. 640, 642) held that:

The right to backpay is not absolute but subject to the discretion of the Industrial Court.  Being empowered - by section 5(c) of Republic Act 875 - to Order the reinstatement of an employee "with or without backpay", that court must be deemed to have also the lesser power of mitigating the backpay where backpay is allowed.

The only exception to this rule was in cases of unlawful lockout under Section 15 of RA 875 where the employee was entitled to an award of backwages as a matter of right.

One of the perplexing problems in the matter of backwages is the computation of the award.

Before the advent of the Mercury Drug Rule, the illegally dismissed employee was entitled to an award of backwages from the time of his unlawful dismissal up to the time of his reinstatement.  The components constituting the backwages, as held in East-Asiatic Co., Ltd. vs. CIR (40 SCRA 521), were as follows:

"xxx backpay constitutes the whole amount of the salaries or wages an employee would have earned in his employment were if not for his illegal dismissal, plus all other benefits, bonuses and general increases to which the illegally dismissed employee would have been normally entitled."

However, the employer ordered to pay backwages was entitled to deduct the earnings of the dismissed employee from elsewhere during the interregnum.  The reason being that "the employees should not be permitted to enrich themselves at the expense of the employer."  (Northwest Airlines Employees Association vs. Northwest Airlines, Inc., 33 SCRA 143.)  Moreover, the Supreme Court held in Sta. Cecilia Sawmills, Inc. vs. CIR (10 SCRA 433):

A ruling that would permit a dismissed laborer to earn backwages for all time, or for a very long period of time, is not only unjust to the employer but the same would foster indolence on the part of the laborer.  The laborer is not supposed to be relying on a court judgment for his support, but should do everything a reasonable man would do; he should find employment as soon as an employment has been lost, especially when the employment has to depend on a litigation.  He should try to minimize the loss that may be caused  to the employer by looking for other work in which he can be employed.

This rule  on the right of the employer to deduct the earnings of the employee from the award of backwages was altered by the Mercury Drug Rule.

In the case of Mercury Drug Co., Inc., et al. vs. Court of Industrial Relations, et al., G.R. No. L-23357, 56 SCRA 694 (1974), the Supreme Court first found occasion to rule that an employee whose illegal termination had lasted some years was entitled to backwages for a fixed period without further qualifications, i.e., without need of taking into account whatever he might have earned during such period and deducting it from the amount to be recovered, in order to relieve the employee from providing 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 base period of three years was later considered just and reasonable and instituted in the case of Feati University Faculty Club (PAFLU) vs. Feati University, et al., G.R. No. L-31503, 58 SCRA 395 (1974).

The Mercury Drug Rule was promulgated by the Supreme Court on April 30, 1974.  It was by far the most innovative pronouncement made by the Supreme Court concerning a development in labor law affecting backwages in termination cases.  Understandably, the Supreme Court received a number of accusations from certain legal quarters that it was indulging in judicial legislation.

Shortly, thereafter, the Labor Code became effective on November 1, 1974.


UNDER THE LABOR CODE (1974)

Under Art. 280 of the Labor Code (1974), an illegally dismissed employee was entitled to an award of backwages as a matter of right.  Thus:

Art. 280. Security of Tenure. - In cases of regular employment, the employer shall not terminate the services of an employee except for 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 to his backwages computed from the time his compensation was withheld from him up to the time of his reinstatement.

The question that arose was whether or not the Mercury Drug Rule was repealed by these provisions of the Labor Code.  In the case of Lepanto Consolidated Mining Company vs. Olegario (162 SCRA 512) the Supreme Court held that the Mercury Drug Rule still applied.  Thus:

The contention of private respondent that this Court is, in effect, amending Article 280 of the Labor Code is untenable.  Precisely, it is because of the need to apply said provision of the law justly and reasonably and pursuant to the role of this Court of interpreting the law that this long established policy and rule has been made applicable even under the Labor Code to the effect that such backwages shall not exceed three (3) years without any qualification or deduction.

As a matter of fact, the Supreme Court held that the 3-year limitation should be considered as written into the judgment.  (Mariners Polytechnic School vs. Leogardo, 171 SCRA 597; St. Louis College of Tuguegarao vs. NLRC, 177 SCRA 151.)  Even in final decisions awarding backwages in excess of the 3-year ceiling, the Mercury Drug Rule must apply.  Any decision or order granting backwages in excess of three (3) years is null and void as to the excess.  (Mansalay Catholic High School vs. NLRC, 172 SCRA 465; Sealand Service vs. NLRC, 190 SCRA 347.)
 

REPUBLIC ACT 6715

Under Article 279 of the Labor Code as amended by RA 6715 which took effect on March 21, 1989, the dismissed employee is entitled to full backwages as a matter of right.  Thus:

Art. 279.  Security of Tenure. - In cases of regular employment, the regular 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.  (Emphasis added.)

Some noticeable changes were made in the wording of the present backwages provision of the Labor Code as amended by Republic Act No. 6715.  The new provision qualified the term backwages with the word "full".  In addition, the new provision includes the phrases "and other privileges" and "inclusive of allowances, and to his other benefits or their monetary equivalent."  The new provision also qualified the term reinstatement in the penultimate clause with the word "actual".

In the light of these changes, is the Mercury Drug Rule still applicable?

In Maranaw Hotels and Resorts Corp. vs. CA (215 SCRA 501), the Supreme Court held that "where the illegal dismissal transpired before the effectivity of RA 6715, or before 21 March 1989, the award of backwages in favor of the dismissed employee is limited to three (3)years without deduction or qualification."

In the case of Ferrer vs. NLRC, (July 5, 1993), it was held that where the illegal dismissal occurred after the effectivity of RA 6715, i.e., after 21 March 1989, the employee unlawfully dismissed would be entitled to full backwages, allowances and other benefits from the date of his dismissal up to the date of his actual reinstatement minus his earnings during the period of his illegal dismissal.  Said the Supreme Court:

An illegally dismissed employee may now be paid his backwages, allowances, and other benefit 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.

In other words, the Supreme Court has gone backwards and resurrected the cases before the advent of the Mercury Drug Rule and the evils that said rule sought to eradicate.  But the question is - Is the Maranaw and Ferrer rulings of the Supreme Court in accord with the mandate of RA 6715?  Is not the Supreme Court indulging in judicial legislation?

At his juncture, allow me to read in toto the Separate Opinion penned by Justice Padilla in the case of Pines City Educational Center and Eugenio Baltao vs. NLRC, et al., promulgated on November 10, 1993:

I concur in the Court's decision penned by Mr. Justice Nocon except that I cannot see my way clear to allowing deductions from the full backwages prescribed by law, given the language and evident intention of RA 6715.

1.  Art. 279 of the Labor Code as amended by RA 6715 states: "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".  (Underscoring supplied)

The amendment to Art. 279 of the Labor Code introduced by RA 6715 inserted the qualification "full" to the word "backwages".  The intent of the law seems to be clear.  The plain words of the statute provide that an employee who is unjustly dismissed is entitled to FULL backwages from the time of his dismissal to actual reinstatlement.  The law provides no qualification nor does it state that income earned by the employee during the period between his unjust dismissal and reinstatement should be deducted from such backwages.  When the law does not provide, the Court should not improvise.

It is further my view that the principle of unjust enrichment (if no deduction is allowed from backwages) does not apply in this case, for the following reasons:

1.  The applicable provisions of law should be construed in favor of labor.

2.  The Labor Code is a special law which should prevail over the Civil Code provisions on unjust enrichment.

3.  The language employed by the statute and therefore, its intent are clear. Where the unjust dismissal occurs after RA 6715 took effect, backwages must be awarded from the time the employee is unlawfully dismissed until the time he is actually reinstated.  There is no provisions authorizing deduction of any income earned by employee during that period.  The statutory formula was evidently crafted by the legislature not only for convenience and expediency in executing the monetary judgments in favor of the employees but also to prevent the employer from resorting to delaying tactics when the judgment is executed by pleading income earned by the employee before reinstatement as proper deductions from backwages.  it is true that the dismissed employee may also resort to the same delaying tactics but when we consider the by and large inherent inequality of resources between employer and employee, the legislative formula would seem to be equitable.  Beside - and this we cannot over-stress-given the language of the law, the Court appears to have no alternative but to award such full backwages without deduction or qualification.  Any other interpretation opens the Court to the charge of indulging in judicial legislation.

I therefore vote to award private respondents Roland Picard and Lucia Chan full backwages from the time of their unjust dismissal to their actual qualification in accordance with the mandate of law (RA 6715).

I am hopeful that the aforequoted Padilla opinion will one day become the majority ruling of the Supreme Court.

The legislative intent can be gleaned from the explanatory note of Senator Herrera, the principal author of RA 6715:

The rule prescribed under Section 34 of RA 6715 has been adopted because there were cases decided in the past where the reinstated employee's claim for full backwages and other benefits were in effect denied either because the claim was reduced by allowing a deduction or interim earnings or by arbitrarily limiting the claim to a fixed period, usually of three (3) years, without deduction or other qualifications.

Thus, pursuant to the aforesaid Section 34, such ruling will no longer be applicable in cases where an illegally dismissed worker or employee is reinstated in the service.  It has been observed in this regard that such rulings which allowed a reduction of the reinstated employee's claim to full backwages and other monetary benefits are inconsistent with the constitutional mandate on security of tenure and the protection and the promotion of the worker's rights and welfare and should no longer be applied in case of illegal dismissal.

Clearly, the legislative intent does not allow deduction from the full backwages given the illegally dismissed employee under RA 6715.

The award of full backwages without deduction or qualification should not be viewed as unjust to the employer, for after all it was the employer who effected the unlawful dismissal.  The payment of full backwages should be treated as a penalty imposed upon the employer for violating the worker's right to security of tenure.  Instead of directing that the employer may deduct any amount which the employee may have earned during the period of his illegal dismissal, it would be more in consonance with the constitutional mandate of protection to labor to sanction the employer's unlawful act of dismissal.  If the Supreme Court can penalize the employer for failure to observe procedural due process in termination cases under the Wenphil doctrine, I see no reason why the Supreme Court cannot also    penalize the employer for violating the worker's right to security of tenure.  In this case, the penalty by way of a public reparation for such violation should be the payment of full backwages without deduction or qualification.

The Supreme Court ought to rethink its posture in this regard.  To award full backwages to an illegally dismissed employee without any deduction would go a long way towards promoting social justice and affording full protection to labor.
 

- END -
 

(N.B.  I acknowledge the work of my student, Mr. Martin L. Buenaventura, of the Ateneo College of Law whose thesis "Full Backwages:  Should the Mercury Drug Rule be abandoned" made my research a lot easier.)

 

 

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