Golden Ace Builders vs. Talde

An illegally dismissed employee is entitled to both backwages and separation pay where reinstatement is no longer viable due to strained relations between the parties, and separation pay must be computed based on the employee's total length of service up to the date reinstatement is rendered impossible, not merely up to the date of dismissal.

Respondent Jose A. Talde was hired in 1990 as a carpenter by petitioner Golden Ace Builders, a construction company of which co-petitioner Arnold U. Azul is the owner-manager. The dispute arose from respondent's dismissal in February 1999 and the subsequent litigation over the proper monetary awards due him, specifically whether separation pay may be awarded in addition to backwages when the Labor Arbiter's original decision granted only reinstatement and backwages, and whether the computation of both awards may extend beyond the date the employee manifested refusal to be reinstated.

Jose A. Talde was hired in 1990 as a carpenter by Golden Ace Builders, a construction company owned and managed by Arnold U. Azul. In February 1999, Azul, citing the unavailability of construction projects, stopped giving work assignments to Talde, prompting the latter to file a complaint for illegal dismissal.

By Decision of January 10, 2001, the Labor Arbiter ruled in favor of Talde, ordering his immediate reinstatement without loss of seniority rights and other privileges, with payment of full backwages computed at that time at ₱144,382.23, plus ₱3,236.37 representing premium pay for rest days, service incentive leave pay, and 13th month pay. Pending their appeal to the NLRC and in compliance with the Labor Arbiter's decision, petitioners, through counsel, advised Talde to report for work at the construction site within ten days from receipt thereof. Talde submitted, however, on May 16, 2001 a manifestation to the Labor Arbiter that actual animosities existed between him and petitioners and that there had been threats to his life and his family's safety, hence he opted for the payment of separation pay. Petitioners denied the existence of any such animosity.

The NLRC dismissed petitioners' appeal by Resolution of April 22, 2002, holding that Talde was a regular employee and not a project employee, and that there was no valid ground for the termination of his services. Petitioners' motion for reconsideration was denied by Resolution of August 6, 2002. Their appeal to the Court of Appeals was dismissed by Decision of August 12, 2004, which attained finality on September 15, 2004.

As no agreement could be forged by the parties on the satisfaction of the judgment, the matter was referred to the Fiscal Examiner of the NLRC, who recomputed at ₱562,804.69 the amount due Talde. This was approved by the Labor Arbiter by Order of July 5, 2005, and a writ of execution dated July 8, 2005 was issued. Finding the amount exorbitant, petitioners filed a motion for reconsideration with the NLRC, contending that since Talde refused to report back to work, he should be considered to have abandoned his employment, and that the recomputation should not extend beyond May 15, 2001, the date he manifested his refusal to be reinstated.

By Resolution of March 9, 2006, the NLRC granted petitioners' motion and vacated the computation, holding that since Talde did not appeal the Labor Arbiter's decision — which granted reinstatement and backwages, not separation pay in lieu thereof — he could not be afforded affirmative relief beyond what was awarded, and that backwages should be limited to May 20, 2001, the day he was supposed to return to the job site. Talde's motion for reconsideration was denied on June 30, 2006, leading him to file a petition for certiorari with the Court of Appeals.

By Decision of September 10, 2008, the appellate court set aside the NLRC resolutions, holding that Talde was entitled to both backwages and separation pay, the latter in view of the strained relations between the parties. The CA awarded full backwages of ₱562,804.69, separation pay of ₱45,760.00 (computed based on eight years of service), 10% attorney's fees, and 12% legal interest per annum from finality until satisfaction. Petitioners' motion for reconsideration was denied by Resolution of March 12, 2009, prompting the present petition for review on certiorari. The Labor Arbiter had found that actual animosity existed between Azul and Talde as a result of the filing of the illegal dismissal case, a factual finding affirmed by the appellate court.

• Entitlement to Separation Pay: Petitioners assailed the appellate court's award of separation pay, arguing that the Labor Arbiter's original decision — which had become final and executory — granted only reinstatement and backwages, not separation pay, and that the CA's award of separation pay constituted an impermissible modification of a final judgment.
• Computation of Backwages: Petitioners contended that the computation of backwages from the time of dismissal up to actual reinstatement was contrary to prevailing jurisprudence, arguing that since respondent refused to report back to work, he should be considered to have abandoned his employment, and that backwages should not extend beyond May 15, 2001, the date he manifested his refusal to be reinstated.

• Entitlement to Separation Pay: Whether respondent is entitled to separation pay in addition to backwages when the Labor Arbiter's original decision awarded only reinstatement and backwages, and when respondent himself opted for separation pay instead of reinstatement.
• Computation of Backwages: Whether backwages should be computed from the time of dismissal up to actual reinstatement, or only up to the date respondent manifested his refusal to be reinstated.
• Finality of Judgment: Whether the appellate court's award of separation pay constituted an impermissible modification of an already final and executory decision.

• Entitlement to Separation Pay: Yes. An illegally dismissed employee is entitled to both backwages and separation pay where reinstatement is no longer viable due to strained relations, the two reliefs being separate and distinct.
• Computation of Backwages: Yes, backwages must be computed from the time of unjust dismissal until actual reinstatement, or until the date reinstatement is rendered impossible without fault on the employee's part — here, from February 1999 until June 30, 2005.
• Finality of Judgment: No, the award did not constitute an impermissible modification. Separation pay substitutes for reinstatement when the latter is no longer viable; the CA's award was a proper application of the strained relations doctrine rather than a modification of the final judgment.

• Entitlement to Separation Pay: The basis for the payment of backwages is different from that for the award of separation pay. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer, while backwages represent compensation that should have been earned but were not collected because of the unjust dismissal. Citing Macasero vs. Southern Industrial Gases Philippines, the Court reiterated that an illegally dismissed employee is entitled to two separate and distinct reliefs: backwages and reinstatement, or separation pay in lieu of reinstatement when the latter is no longer viable. The doctrine of strained relations applies when the relationship between employer and employee is so strained that reinstatement is no longer desirable or viable. The Labor Arbiter found that actual animosity existed between Azul and Talde as a result of the illegal dismissal case, a finding affirmed by the appellate court and thus binding on the Supreme Court. Because reinstatement was rendered impossible due to strained relations, respondent was properly entitled to separation pay in addition to backwages.

• Computation of Backwages: Backwages must be computed from the time compensation was withheld up to the date of actual reinstatement. Where reinstatement is no longer viable, the endpoint is the date reinstatement was rendered impossible without fault on the employee's part. Here, respondent was unjustly dismissed in February 1999, and his reinstatement was rendered impossible on June 30, 2005 — the date the Fiscal Examiner's recomputation was approved and the writ of execution issued. The NLRC's limitation of backwages to May 20, 2001 was erroneous because respondent's refusal to return was grounded on legitimate safety concerns and strained relations, not abandonment.

• Finality of Judgment: The award of separation pay did not constitute an impermissible modification of the final and executory Labor Arbiter decision. The original decision awarded reinstatement and backwages; when reinstatement subsequently became impossible due to strained relations, separation pay properly substituted for reinstatement as the alternative relief. This was not a modification of the judgment but a proper execution thereof in light of supervening circumstances. The Court, however, found the CA's computation of separation pay erroneous: the CA counted only eight years of service (1990–1999), but respondent must be considered to have remained in service until June 30, 2005 — the date his reinstatement was rendered impossible — for a total of fifteen years. The separation pay was accordingly recomputed at ₱85,800.00.

• Doctrine of Strained Relations — Under this doctrine, separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. The payment liberates the employee from an oppressive work environment and releases the employer from the obligation of maintaining a worker it can no longer trust. Strained relations must be demonstrated as a fact, adequately supported by substantial evidence showing that the relationship between employer and employee is indeed strained as a necessary consequence of the judicial controversy. In this case, the Labor Arbiter's finding of actual animosity between Azul and Talde, affirmed by the CA, satisfied the evidentiary requirement, justifying the award of separation pay in lieu of reinstatement.

• Separate and Distinct Reliefs for Illegal Dismissal — An illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. These reliefs are separate and distinct. Backwages represent compensation that should have been earned but were not collected due to unjust dismissal, computed from the time compensation was withheld up to the date of actual reinstatement, or up to the date reinstatement is rendered impossible. Separation pay, equivalent to one month salary for every year of service, is granted in lieu of reinstatement when the latter is no longer viable. The payment of separation pay is in addition to backwages. The Court applied this doctrine by awarding both backwages (₱562,804.69) and separation pay (₱85,800.00) to respondent, with the separation pay computed based on fifteen years of service — from 1990 until June 30, 2005, when reinstatement was rendered impossible.

• "The basis for the payment of backwages is different from that for the award of separation pay. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Backwages represent compensation that should have been earned but were not collected because of the unjust dismissal." — This passage articulates the fundamental distinction between the two reliefs available to an illegally dismissed employee, establishing the conceptual basis for awarding both simultaneously.

• "Strained relations must be demonstrated as a fact, however, to be adequately supported by evidence — substantial evidence to show that the relationship between the employer and the employee is indeed strained as a necessary consequence of the judicial controversy." — This formulation sets the evidentiary standard for invoking the strained relations doctrine, requiring substantial evidence rather than bare allegations, and is frequently cited in subsequent labor jurisprudence.

• "he must be considered to have been in the service not only until 1999, when he was unjustly dismissed, but until June 30, 2005, the day he is deemed to have been actually separated (his reinstatement having been rendered impossible) from petitioner company or for a total of 15 years." — This passage establishes the rule that for purposes of computing separation pay, the employee's years of service must be counted up to the date reinstatement is rendered impossible, not merely up to the date of dismissal, thereby increasing the monetary award.

• Macasero vs. Southern Industrial Gases Philippines, G.R. No. 178524, Jan. 30, 2009 — Followed as controlling authority. The Court reproduced its formulation that an illegally dismissed employee is entitled to two separate and distinct reliefs — backwages and reinstatement, or separation pay in lieu thereof when reinstatement is no longer viable — and that separation pay is in addition to backwages.

• Velasco vs. National Labor Relations Commission — Followed for the proposition that separation pay may avail in lieu of reinstatement if reinstatement is no longer practical or in the best interest of the parties, or if the employee decides not to be reinstated.

• Coca Cola vs. Daniel, G.R. No. 156893, June 21, 2005, 460 SCRA 494 — Followed for the doctrine that under the strained relations principle, separation pay liberates the employee from an oppressive work environment and releases the employer from maintaining a worker it can no longer trust; also cited for the requirement that strained relations must be supported by substantial evidence.

• Paguio Transport Corporation vs. National Labor Relations Commission, 356 Phil. 158 (1998) — Cited for the proposition that strained relations must be demonstrated as a fact and adequately supported by evidence.

• Equitable vs. Sadac, G.R. No. 164772, June 8, 2006, 490 SCRA 380 — Cited for the distinction between the bases for computing backwages and separation pay.

• Article 279, Labor Code — Cited through Macasero for the rule that an employee dismissed without just cause and without due process is entitled to backwages and reinstatement or payment of separation pay in lieu thereof. The provision was applied to establish respondent's entitlement to both backwages and separation pay as separate and distinct reliefs arising from his illegal dismissal.

Chief Justice Reynato S. Puno (Chairperson), Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr. concurred in the decision.