Bank of Lubao, Inc. vs. Manabat

An illegally dismissed employee who refuses to report back to work despite an order of reinstatement is entitled to backwages only from the time of illegal dismissal until the date the employer required him to report, not until the finality of the decision, when separation pay is awarded in lieu of reinstatement under the strained relations doctrine.

Rommel J. Manabat was hired sometime in 2001 by Bank of Lubao, Inc., a rural bank, as a Market Collector and was subsequently assigned as an encoder at the bank's Sta. Cruz Extension Office. His primary duty as encoder was to encode clients' deposits on the bank's computer after they were received by teller Susan P. Lingad. The office was manned by Manabat, Lingad, and May O. Manasan. The dispute arose from the bank's discovery of fund misappropriation amounting to approximately ₱3,000,000.00, which it attributed to Manabat and Lingad.

Sometime in 2001, Rommel J. Manabat was hired by Bank of Lubao, Inc., a rural bank, as a Market Collector. He was subsequently assigned as an encoder at the bank's Sta. Cruz Extension Office, which he manned together with teller Susan P. Lingad and May O. Manasan. As an encoder, Manabat's primary duty was to encode clients' deposits on the bank's computer after the same were received by Lingad.

In November 2004, an initial audit of the Sta. Cruz Extension Office conducted by the bank revealed a misappropriation of funds amounting to approximately ₱3,000,000.00. The audit showed that there were transactions entered and posted in the passbooks of clients but not entered in the bank's book of accounts. Further audit disclosed that various deposits were entered in the bank's computer but were subsequently reversed and marked as "error in posting." On November 17, 2004, the bank sent Manabat a memorandum requiring him to explain in writing the discrepancies discovered during the audit. On November 19, 2004, Manabat submitted his letter-explanation asserting that there were times when Lingad used the bank's computer while he was out on errands.

On December 11, 2004, an administrative hearing was conducted by the bank's investigating committee, where Manabat was further made to explain his side. The investigating committee concluded that Manabat conspired with Lingad in making fraudulent entries disguised as error corrections in the bank's computer. On August 9, 2005, the bank filed several criminal complaints for qualified theft against Lingad and Manabat with the Municipal Trial Court of Lubao, Pampanga. Thereafter, citing serious misconduct tantamount to willful breach of trust, the bank terminated Manabat's employment effective September 1, 2005.

On September 26, 2005, Manabat filed a complaint for illegal dismissal with the Regional Arbitration Branch of the NLRC in San Fernando City, Pampanga, averring that the qualified theft charge against him was dismissed for lack of sufficient basis to conclude that he conspired with Lingad. He sought separation pay, full backwages, 13th month pay for 2004, and moral and exemplary damages. The bank, for its part, insisted that the dismissal was justified, citing a February 14, 2006 Audit Report which confirmed Manabat's participation in the alleged misappropriations, and asserting that the dismissal of the qualified theft charge was immaterial to the validity of the dismissal ground.

The Labor Arbiter, the NLRC, and the CA unanimously found that Manabat was illegally dismissed, the bank having failed to adduce substantial evidence of a valid ground for dismissal. The LA disregarded the February 14, 2006 Audit Report because it was unsigned. The NLRC likewise refused to give evidentiary weight to the February 14, 2006 and April 30, 2007 audit reports, noting they were executed after Manabat had already been dismissed. Pending appeal, the bank sent Manabat a letter dated April 30, 2007 requiring him to report for work on May 4, 2007 pursuant to the LA's reinstatement order; the letter was served on May 3, 2007, but Manabat refused to receive it.

• Scope of CA's Ruling: Petitioner argued that the CA erred in awarding separation pay in favor of the respondent in lieu of reinstatement, considering that the appeal before the CA only involved the issue of the legality or illegality of the respondent's dismissal.
• Inconsistency with Prayer: Petitioner asserted that an award of separation pay was not proper because the respondent, in his complaint, merely prayed for reinstatement and not payment of separation pay.
• Good Faith Defense: Petitioner contended that the CA erred in awarding backwages since the bank acted in good faith when it terminated the respondent's employment, claiming it was within its prerogative to dismiss the respondent on the basis of loss of trust and confidence.

• Strained Relationship: Respondent asserted that the CA did not err in ordering the payment of separation pay in his favor in lieu of reinstatement, since there was already a strained relationship between him and the petitioner.
• Impracticability of Reinstatement: Respondent intimated that the petitioner had previously filed various criminal charges against him for qualified theft, thus effectively rendering his reinstatement to his former position in the bank impracticable.

• Separation Pay in Lieu of Reinstatement: Whether the CA erred in ordering the petitioner to pay the respondent separation pay in lieu of reinstatement.
• Entitlement to Backwages: Whether the respondent is entitled to payment of backwages, and if so, up to what period.

• Separation Pay in Lieu of Reinstatement: No. The CA did not err. The doctrine of strained relations applies where the employer filed criminal charges, the employee filed an illegal dismissal complaint, the employee refused readmission, and the employee's position involved trust and confidence.
• Entitlement to Backwages: Yes, but modified. The respondent is entitled to backwages computed only from September 1, 2005 until May 4, 2007, the date the employer required him to report back to work, since he refused reinstatement and CA decisions are not immediately executory.

• Separation Pay in Lieu of Reinstatement: Although the applicability of the strained relations doctrine is essentially a factual question not proper in a Rule 45 petition, the conflicting findings of the NLRC and the CA constrained the Court to pass upon the issue. Under Article 279 of the Labor Code, an illegally dismissed employee is entitled to reinstatement as a matter of right. However, where reinstatement would exacerbate tension, particularly where the employee held a position of trust and confidence, separation pay is an acceptable alternative. Three factors justified the application of the doctrine here: (1) the filing of criminal complaints for qualified theft by the bank and the illegal dismissal complaint by the employee, together with the pendency of the case for more than six years, caused strained relations; (2) the respondent's former position as bank encoder involved handling depositors' accounts, making reinstatement inequitable as it might inspire vindictiveness; and (3) the respondent's refusal to be readmitted was itself indicative of strained relations, consistent with Lagniton, Sr. vs. NLRC, where the Court held that refusal of a dismissed employee to be readmitted is constitutive of strained relations.

• Entitlement to Backwages: The petitioner's argument on backwages essentially attacked the factual findings of the CA, NLRC, and LA — matters not cognizable in a Rule 45 petition. The Court found no reason to disregard the lower tribunals' findings on the propriety of the backwages award. However, the computation was modified. While illegally dismissed employees are entitled to full backwages computed from the time compensation was withheld up to actual reinstatement, where reinstatement is no longer possible, backwages are computed from illegal termination up to the finality of the decision. Here, the LA ordered reinstatement, and the bank sent a letter requiring the respondent to report on May 4, 2007. The respondent opted not to report. Since CA decisions are not immediately executory, it was fair to limit backwages to the period from September 1, 2005 (date of illegal dismissal) until May 4, 2007 (date required to report). The CA's subsequent order of separation pay in lieu of reinstatement did not entitle the respondent to backwages beyond that date.

• Doctrine of Strained Relations — Under this doctrine, payment of separation pay is considered an acceptable alternative to reinstatement when the latter is no longer desirable or viable because the relationship between employer and employee has been unduly strained by irreconcilable differences. The doctrine liberates the employee from an oppressive work environment and releases the employer from the obligation of maintaining a worker it can no longer trust. For the doctrine to apply, it must be proved that (1) the employee occupies a position where he enjoys the trust and confidence of the employer, and (2) it is likely that if reinstated, an atmosphere of antipathy and antagonism may be generated as to adversely affect the efficiency and productivity of the employee concerned. The Court applied the doctrine here because the bank filed criminal charges for qualified theft against the employee, the employee filed an illegal dismissal complaint, the case had been pending for over six years, the employee's position as bank encoder involved handling depositors' accounts, and the employee refused to be readmitted — all indicative of strained relations.

• Computation of Backwages When Reinstatement Is Refused — When an employer, pursuant to a reinstatement order, requires an illegally dismissed employee to report back to work and the employee refuses, backwages are computed only from the time of illegal dismissal until the date the employee was required to report. The fact that a higher tribunal subsequently orders separation pay in lieu of reinstatement does not extend the backwages period, because decisions of the CA are not immediately executory. The Court applied this rule by limiting backwages to the period from September 1, 2005 until May 4, 2007.

• "Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust." — This passage articulates the rationale of the strained relations doctrine, explaining why separation pay substitutes for reinstatement when trust between the parties has broken down.

• "In such cases, it should be proved that the employee concerned occupies a position where he enjoys the trust and confidence of his employer; and that it is likely that if reinstated, an atmosphere of antipathy and antagonism may be generated as to adversely affect the efficiency and productivity of the employee concerned." — This sets out the two requisites for applying the strained relations doctrine, a formulation frequently cited in subsequent labor jurisprudence.

• "Thus, it is but fair that the backwages that should be awarded to the respondent be computed from the time that the respondent was illegally dismissed until the time when he was required to report for work, i.e. from September 1, 2005 until May 4, 2007. It is only during the said period that the respondent is deemed to be entitled to the payment of backwages." — This passage states the ratio decidendi on the backwages issue, establishing the rule that an employee who refuses reinstatement is entitled to backwages only up to the date he was required to report back.

• Lagniton, Sr. vs. National Labor Relations Commission, G.R. No. 86339, February 5, 1993, 218 SCRA 456 — Followed. The Court relied on this case for the proposition that the refusal of a dismissed employee to be readmitted is constitutive of strained relations justifying separation pay in lieu of reinstatement.
• Globe-Mackay Cable and Radio Corporation vs. NLRC, G.R. No. 82511, March 3, 1992, 206 SCRA 701 — Cited for the two requisites of the strained relations doctrine: the employee must occupy a position of trust and confidence, and reinstatement must likely generate an atmosphere of antipathy and antagonism adversely affecting efficiency and productivity.
• Golden Ace Builders vs. Talde, G.R. No. 187200, May 5, 2010, 620 SCRA 283 — Cited for the principle that separation pay under the strained relations doctrine liberates the employee from an oppressive work environment and releases the employer from maintaining a worker it can no longer trust.
• Coca-Cola Bottlers Philippines, Inc. vs. Del Villar, G.R. No. 163091, October 6, 2010, 632 SCRA 293 — Cited for the rule on computation of backwages: full backwages from time compensation was withheld up to actual reinstatement, or if reinstatement is no longer possible, up to the finality of the decision.
• Phil. Charter Insurance Corp. vs. Unknown Owner of the Vessel M/V "National Honor", 501 Phil 498 (2005) — Cited for the exception to the rule that only questions of law may be entertained in a Rule 45 petition, such as when findings of fact are conflicting.

• Article 279, Labor Code of the Philippines — Provides that an employee unjustly dismissed is 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 reinstatement and backwages, while recognizing the strained relations doctrine as an exception to the reinstatement mandate.

Justice Antonio T. Carpio (Chairperson, Second Division), Justice Arturo D. Brion, Justice Jose Portugal Perez, and Justice Maria Lourdes P. A. Sereno concurred. No separate concurring opinions were written.