Bani Rural Bank Inc. vs. De Guzman

When separation pay is ordered in lieu of reinstatement after the finality of a prior decision awarding reinstatement, by reason of a supervening event that makes reinstatement no longer possible, backwages are computed from the time of illegal dismissal until the finality of the decision ordering separation pay. The finality of that decision terminates the employment relationship and represents the final settlement of the parties' rights and obligations against each other, so that backwages no longer accumulate beyond that point. Separation pay and reinstatement are exclusive remedies; substituting separation pay for reinstatement necessarily changes the reckoning point for backwages.

Respondents Teresa de Guzman, Edgar C. Tan, and Teresa G. Tan were employees of petitioners Bani Rural Bank, Inc. and ENOC Theatre I and II, owned or managed by Rafael de Guzman. The respondents filed a complaint for illegal dismissal, which was initially dismissed by Labor Arbiter Roque B. de Guzman on March 15, 1994, but reversed on appeal by the NLRC, which found the dismissal illegal and ordered reinstatement with backwages. The dispute subsequently centered not on the illegality of the dismissal — which had become final — but on the proper computation of monetary awards across two successive NLRC decisions, the second of which introduced separation pay in lieu of reinstatement based on supervening strained relations between the parties.

Respondents Teresa de Guzman, Edgar C. Tan, and Teresa G. Tan were employees of petitioners Bani Rural Bank, Inc. and ENOC Theatre I and II, which were owned or managed by Rafael de Guzman. The respondents filed a complaint for illegal dismissal, which Labor Arbiter Roque B. de Guzman dismissed on March 15, 1994. On appeal, the NLRC reversed the Labor Arbiter and found that the respondents had been illegally dismissed. In its resolution dated March 17, 1995, the NLRC ordered the petitioners to reinstate the respondents to their former positions, without loss of seniority rights and other benefits and privileges, with backwages from the time of their constructive dismissal until their actual reinstatement, less earnings elsewhere. Neither party filed a motion for reconsideration or appeal, and the March 17, 1995 resolution became final and executory. The computation of the monetary awards was thereafter remanded to Labor Arbiter Rolando D. Gambito for execution purposes.

In the first computation, Labor Arbiter Gambito deducted the earnings the respondents derived from the petitioners and fixed the backwages period from the respondents' illegal dismissal until August 25, 1995 — the date when the respondents allegedly manifested, through one Samuel de la Cruz, that they no longer wished to be reinstated. The respondents appealed this computation to the NLRC. In its decision dated July 31, 1998, the NLRC modified the March 17, 1995 resolution in two respects: first, it clarified that the phrase "less earnings elsewhere" excluded the respondents' salaries from the Rural Bank of Mangantarem; and second, it awarded separation pay in lieu of reinstatement, equivalent to one month salary for every year of service computed from the start of employment up to the date of finality of the decision. The NLRC justified the award of separation pay on the ground of strained relations between the parties, noting that neither party had taken steps to implement the reinstatement, that the respondents' alleged manifestation through Samuel de la Cruz indicated they were interested only in the monetary award, and that the proceedings had become protracted. The respondents filed a motion for reconsideration questioning whether the award of backwages was still included, but the NLRC dismissed the motion for having been filed out of time. The July 31, 1998 decision became final and executory on January 29, 1999.

The recomputation of the monetary awards was again referred to Labor Arbiter Gambito. The petitioners filed a Motion to Quash Writ of Execution and Suspend Further Execution, reiterating their position that the backwages should be computed only up to August 25, 1995. In an order dated July 12, 2000, Labor Arbiter Gambito again computed the respondents' backwages only up to August 25, 1995. The respondents appealed to the NLRC, which reversed Labor Arbiter Gambito in its decision dated September 28, 2001, ruling that the backwages should be computed until January 29, 1999 — the date when the July 31, 1998 decision attained finality. The NLRC emphasized that the issue relating to the computation of backwages had already been settled in its July 31, 1998 decision. The petitioners' motion for reconsideration was denied on January 23, 2002. The petitioners then filed a petition for certiorari with the Court of Appeals, which dismissed the petition for lack of merit, holding that certiorari was not the proper remedy and that the NLRC committed no grave abuse of discretion. The petitioners elevated the matter to the Supreme Court via a petition for review on certiorari under Rule 45.

• Grave Abuse of Discretion by the NLRC: Petitioners argued that the CA erred in ruling that no grave abuse of discretion was committed by the NLRC when it issued the September 28, 2001 decision, the January 23, 2002 resolution, and the July 31, 1998 decision, which modified the final and executory March 17, 1995 resolution of the NLRC that had computed backwages only until the reinstatement of the respondents.
• Misappreciation of Facts: Petitioners contended that the CA manifestly overlooked or misappreciated relevant facts, specifically that Labor Arbiter Gambito's computation conformed to the NLRC's March 17, 1995 resolution, considering the manifestation of Samuel de la Cruz that the respondents no longer wanted to be reinstated, made in response to the order of execution dated August 25, 1995.
• Error of Judgment, Not Jurisdiction: Petitioners asserted that the CA erred in declaring that only errors of judgment, and not errors of jurisdiction, were committed by the NLRC.

• Consistency with NLRC Decisions: Respondents contended that the computation of backwages until January 29, 1999 was consistent with the tenor of the NLRC's July 31, 1998 decision and the modified March 17, 1995 resolution.

• Computation of Backwages: Whether the respondents' backwages were correctly computed under the NLRC's September 28, 2001 decision, as affirmed by the CA, in light of the existence of two final NLRC decisions affecting the computation of backwages — the March 17, 1995 resolution ordering reinstatement and the July 31, 1998 decision modifying it to award separation pay in lieu of reinstatement.
• Grave Abuse of Discretion: Whether the CA correctly determined that the NLRC committed no grave abuse of discretion in ordering the computation of backwages until January 29, 1999.

• Computation of Backwages: Yes. Backwages must be computed from the time of illegal dismissal until the finality of the decision ordering separation pay in lieu of reinstatement — in this case, January 29, 1999 — because the finality of that decision terminates the employment relationship and cuts off the employee's right to further compensation.
• Grave Abuse of Discretion: No. The CA correctly determined that the NLRC committed no grave abuse of discretion, as the NLRC's modification of its final March 17, 1995 resolution was justified by the supervening event of strained relations between the parties, a recognized exception to the rule on immutability of judgments.

• Computation of Backwages: The Court applied the principle that the computation of backwages depends on the final awards adjudged as a consequence of illegal dismissal. Three scenarios were distinguished: first, when reinstatement is ordered, backwages are computed from dismissal until actual reinstatement; second, when separation pay is ordered in lieu of reinstatement or reinstatement is waived, backwages are computed from dismissal until the finality of the decision ordering separation pay; and third, when separation pay is ordered after the finality of a decision ordering reinstatement by reason of a supervening event making reinstatement no longer possible, backwages are likewise computed from dismissal until the finality of the decision ordering separation pay. In this case, the March 17, 1995 NLRC resolution originally ordered reinstatement with backwages computed until actual reinstatement. However, the July 31, 1998 NLRC decision — which became final on January 29, 1999 — substituted the reinstatement award with separation pay due to the supervening event of strained relations. Because reinstatement and separation pay are exclusive remedies, the substitution necessarily changed the reckoning point for backwages. The finality of the July 31, 1998 decision terminated the employment relationship, representing the final settlement of the parties' rights and obligations. Backwages therefore no longer accumulated beyond January 29, 1999. The alleged manifestation by the respondents through Samuel de la Cruz that they were interested only in the monetary award could not serve as the cut-off date, because the NLRC disregarded that manifestation in its July 31, 1998 decision and instead based the award of separation pay on the supervening event of strained relations, not on a waiver of reinstatement by the respondents.

• Grave Abuse of Discretion: The Court reviewed the CA's decision under the standard laid down in Montoya vs. Transmed Manila Corporation: in a Rule 45 review of a CA ruling in a labor case, the question is whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC's decision, not whether the NLRC's decision on the merits was strictly correct. Grave abuse of discretion is defined as the capricious and whimsical exercise of judgment amounting to or equivalent to lack of jurisdiction. The NLRC's modification of its final March 17, 1995 resolution was justified by the doctrine on supervening events, an exception to the rule on immutability of judgments. The strained relations between the parties — manifested during the execution phase through the delay in reinstatement, the conflicting claims on whether the respondents wanted to be reinstated, and the inaction of both parties in implementing the reinstatement decree — constituted a supervening event that arose after the March 17, 1995 resolution had become final. The NLRC permissibly relied on these circumstances to conclude that reinstatement was no longer viable and to award separation pay instead. The CA correctly found no grave abuse of discretion in the NLRC's ruling, and the computation of backwages and separation pay in the September 28, 2001 NLRC decision was consistent with law and jurisprudence.

• Immutability of Judgment and Supervening Events — A final judgment may no longer be altered, amended, or modified, even if the modification is meant to correct an erroneous conclusion of fact or law. An exception exists where supervening events transpire after judgment has become final and executory — new circumstances that developed after the judgment acquired finality, including matters the parties were not aware of prior to or during trial because they were not yet in existence. In this case, the strained relations between the parties that became manifest during the execution phase of the March 17, 1995 NLRC resolution constituted a supervening event justifying the NLRC's modification of its final resolution to substitute separation pay for reinstatement.

• Two Components of a Decision in Illegal Dismissal Cases — A decision in an illegal dismissal case consists of two components: first, the part that has become final and cannot be disputed — the finding of illegality of dismissal and the awards of separation pay and backwages; and second, the computation of the awards. The first component, once final, can no longer be disturbed; the second component is subject to execution and recomputation in accordance with the terms of the final decision.

• Computation of Backwages Depending on the Final Award — Three rules govern: (1) when reinstatement is ordered, backwages are computed from dismissal until actual reinstatement; (2) when separation pay is ordered in lieu of reinstatement or reinstatement is waived, backwages are computed from dismissal until the finality of the decision ordering separation pay; and (3) when separation pay is ordered after the finality of a decision ordering reinstatement by reason of a supervening event, backwages are computed from dismissal until the finality of the decision ordering separation pay. The finality of the decision ordering separation pay terminates the employment relationship and serves as the cut-off because the employee is no longer entitled to compensation from the employer after severance.

• Exclusivity of Reinstatement and Separation Pay — Reinstatement and separation pay are exclusive remedies. The payment of separation pay replaces the legal consequences of reinstatement. Substituting separation pay for reinstatement not only modifies the award but also changes the manner in which backwages are computed, since the basis for the cut-off date shifts from actual reinstatement to the finality of the decision ordering separation pay.

• Legal Interest on Final Monetary Awards in Labor Cases — A final decision in a labor case ordering the payment of monetary awards constitutes a judgment for money, and the payment of legal interest follows as a consequence of delay. Six percent (6%) per annum legal interest is proper from the date of finality of the decision until full satisfaction. This interest is compensatory in nature and is not barred by the principle of immutability of judgment, as it arises from the final judgment itself.

• "When separation pay is ordered after the finality of the decision ordering the reinstatement by reason of a supervening event that makes the award of reinstatement no longer possible (as in the case), backwages is computed from the time of dismissal until the finality of the decision ordering separation pay." — This passage articulates the controlling rule for the third scenario of backwages computation, directly resolving the central issue of the case and establishing the reckoning point when a supervening event justifies substituting separation pay for reinstatement after a prior final judgment.

• "The finality of the decision cuts-off the employment relationship and represents the final settlement of the rights and obligations of the parties against each other. Hence, backwages no longer accumulate upon the finality of the decision ordering the payment of separation pay since the employee is no longer entitled to any compensation from the employer by reason of the severance of his employment." — This passage explains the rationale for using the finality of the separation pay decision as the cut-off date for backwages, grounding the rule in the severance of the employment relationship and the cessation of the employer's obligation to compensate.

• "An exception to this rule is the existence of supervening events which refer to facts transpiring after judgment has become final and executory or to new circumstances that developed after the judgment acquired finality, including matters that the parties were not aware of prior to or during the trial as they were not yet in existence at that time." — This passage defines the supervening events exception to the immutability of judgments doctrine, which the Court applied to uphold the NLRC's modification of its final March 17, 1995 resolution.

• Session Delights Ice Cream and Fast Foods vs. Court of Appeals (Sixth Division), G.R. No. 172149, February 8, 2010, 612 SCRA 10 — Controlling precedent for the two-component framework of illegal dismissal decisions (the merits and the computation) and for the rule that the finality of a decision ordering separation pay becomes the reckoning point for backwages computation because the final decision effectively declares the employment relationship ended. Followed and applied throughout the decision.

• Montoya vs. Transmed Manila Corporation, G.R. No. 183329, August 27, 2009, 597 SCRA 334 — Controlling precedent for the standard of review in a Rule 45 petition from a CA ruling in a labor case: the question is whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC's decision, not whether the NLRC's decision on the merits was strictly correct. Followed.

• Macasero vs. Southern Industrial Gases Philippines, G.R. No. 178524, January 30, 2009, 577 SCRA 500 — Cited for the rule that backwages and reinstatement (or separation pay in lieu thereof) are separate and distinct reliefs, and that separation pay is granted when reinstatement is no longer feasible due to strained relations. Followed.

• Natalia Realty, Inc. vs. Court of Appeals, 440 Phil. 1 (2002) — Cited for the definition of supervening events as an exception to the immutability of judgments. Followed.

• Chronicle Securities Corp. vs. NLRC, 486 Phil. 560 (2004) — Cited by the CA for the rule that backwages are computed from the time of illegal termination up to the finality of the decision when reinstatement is no longer possible. Followed by the CA and affirmed by the Supreme Court.

• Holy Child Catholic School vs. Hon. Patricia Sta. Tomas, etc., et al., G.R. No. 179146, July 23, 2013 — Cited as reiterating the Montoya standard of review in Rule 45 labor cases. Followed.

• Article 279, Labor Code (as amended by Republic Act No. 6715) — Provides that an employee unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges, and to full backwages inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement. The Court applied this provision as the statutory basis for backwages and reinstatement as the basic awards and consequences of illegal dismissal, and as the source of the rule that separation pay may also be awarded in lieu of reinstatement.

• Section 4(b), Rule I, Rules Implementing Book VI of the Labor Code — Enumerates the instances when separation pay in lieu of reinstatement is proper: (a) when reinstatement is no longer possible because the position is no longer available; (b) when continued employment is no longer viable due to strained relations; and (c) when the dismissed employee opted not to be reinstated or separation pay would serve the best interest of the parties. The Court applied paragraph (b) to sustain the NLRC's award of separation pay on the ground of strained relations.

Carpio, A.T. (Chairperson); Del Castillo, M.C.; Perez, J.P.; Perlas-Bernabe, E.M. — all concurred in the decision.