ISLRIZ Trading vs. Capada

Even if the Labor Arbiter's order of reinstatement is reversed on appeal, the employer is obliged to reinstate and pay the wages of the employee during the period of appeal until reversal by a higher court or tribunal, provided there was actual delay in the execution of the reinstatement order pending appeal and the delay was due to the employer's unjustified act or omission. The employer's obligation to pay accrued salaries attaches when it fails to exercise either option under Article 223 of the Labor Code—actual reinstatement or payroll reinstatement—without justification.

Respondents Efren Capada, Lauro Licup, Norberto Nigos, and Godofredo Magnaye were drivers, while Ronnie Abel, Arnel Siberre, Edmundo Capada, Nomerlito Magnaye, and Alberto Dela Vega were helpers of Islriz Trading, a gravel and sand business owned and operated by petitioner Victor Hugo Lu. The dispute arose from respondents' claim of illegal dismissal and petitioner's counter-charge of abandonment, which produced conflicting rulings from the Labor Arbiter and the NLRC on the question of whether respondents' cessation of work constituted illegal termination, abandonment, or neither. The central legal question concerned the effect of Article 223 of the Labor Code, paragraph 3, which provides that the reinstatement aspect of a Labor Arbiter's decision is immediately executory pending appeal, and whether accrued salaries remain recoverable when the reinstatement order is subsequently reversed.

Respondents Efren Capada, Lauro Licup, Norberto Nigos, and Godofredo Magnaye were drivers, while Ronnie Abel, Arnel Siberre, Edmundo Capada, Nomerlito Magnaye, and Alberto Dela Vega were helpers of Islriz Trading, a gravel and sand business owned and operated by petitioner Victor Hugo Lu. Claiming that they were illegally dismissed, respondents filed a complaint for illegal dismissal and non-payment of overtime pay, holiday pay, rest day pay, allowances, and separation pay on August 9, 2000 before the Labor Arbiter. Petitioner, for his part, imputed abandonment of work against respondents.

On December 21, 2001, Labor Arbiter Waldo Emerson R. Gan rendered a Decision declaring petitioner guilty of illegal dismissal and ordering reinstatement without loss of seniority rights, payment of full backwages computed as of the date of decision, and 10% of the total monetary award as attorney's fees. Aggrieved, petitioner appealed to the NLRC. On September 5, 2002, the NLRC granted the appeal and set aside the Labor Arbiter's Decision, finding that respondents' failure to continue working was neither caused by termination nor abandonment. The NLRC ordered reinstatement without backwages. Respondents' Motion for Reconsideration was denied on November 18, 2002, and the Resolution became final and executory on December 7, 2002.

Meanwhile, on April 22, 2002, while petitioner's appeal was pending, a Writ of Execution had already been issued by Labor Arbiter Gan for the enforcement of the reinstatement aspect of his Decision, which is immediately executory even pending appeal. Despite this writ and the subsequent finality of the NLRC Resolution likewise ordering reinstatement, petitioner refused to reinstate respondents. On December 9, 2003, respondents filed an Ex-Parte Motion to Set Case for Conference, praying for a computation of the award of backwages and an Alias Writ of Execution. Pre-execution conferences were held on January 29, February 24, and March 5, 2004, but the parties failed to agree on the monetary award. Fiscal Examiner Ma. Irene T. Trinchera issued an undated Computation of respondents' accrued salaries from January 1, 2002 to January 30, 2004—totaling 24.97 months—in the aggregate amount of ₱1,110,665.60.

Petitioner questioned the computation, contending that the NLRC had already reversed the Labor Arbiter's Decision and ordered reinstatement without backwages, so no monetary award should exist. Nevertheless, Labor Arbiter Danna M. Castillon issued a Writ of Execution on March 9, 2004 to enforce the monetary award. The Sheriff levied petitioner's personal properties and sold them at auction on March 29, 2004, where respondents were the only bidders, each entering a bid equal to their individual shares. Petitioner filed multiple motions to quash the writ and stop the auction sale, but these were denied. Petitioner also served a letter of protest on the Sheriff, to no avail. Respondents thereafter sought a break-open order, alleging that petitioner had padlocked the premises where the levied properties were situated. On June 3, 2004, Labor Arbiter Castillon denied petitioner's Motion to Quash Writ of Execution and granted the break-open order, citing Article 223 of the Labor Code and Roquero vs. Philippine Airlines, Inc. Petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari, but the CA dismissed the petition on March 18, 2005 and denied reconsideration on June 16, 2005.

• Alteration of NLRC Resolution: Petitioner contended that the CA Decision and Resolution, in upholding the issuance of the Writ of Execution for accrued salaries, effectively altered the NLRC Resolution which decreed only reinstatement without backwages.
• Inapplicability of Article 223: Petitioner argued that Article 223 of the Labor Code applies only when an employee has been illegally dismissed from work, and since the NLRC ruled that respondents' failure to continue working was not occasioned by termination, there was no illegal dismissal to speak of, rendering the provision inapplicable.
• No Legal or Factual Basis for Computation: Petitioner maintained that the computation of respondents' accrued salaries in the total amount of ₱1,110,665.60 had no legal and factual bases because the NLRC Resolution reversing the Labor Arbiter's Decision had already ordered reinstatement without backwages.
• Grave Abuse of Discretion: Petitioner imputed grave abuse of discretion amounting to lack or excess of jurisdiction upon Labor Arbiter Castillon for issuing the Writ of Execution and the Order dated June 3, 2004, contending that the writ should have been confined to the NLRC Resolution.
• Denial of Due Process: Petitioner claimed he was denied due process because he was not given the opportunity to file a motion for reconsideration of the Order denying his Motion to Quash Writ of Execution, considering that a break-open order was also contained in the same Order.

• Correct Application of Article 223: Respondents maintained that the CA did not err in applying Article 223 of the Labor Code to the case, and that the computation of their accrued salaries covering the period from January 1, 2002 to January 30, 2004 should be upheld as it merely applied said provision.
• Conformity with Law and Jurisprudence: Respondents contended that the assailed CA Decision and Resolution were in accord with law and jurisprudence.
• Mootness: Respondents posited that since they had already disposed of petitioner's levied properties, the petition had become moot.

• Applicability of Article 223: Whether the provision of Article 223 of the Labor Code is applicable to this case.
• Correctness of CA Rulings: Whether the Decision dated March 18, 2005 and the Resolution dated June 16, 2005 of the Court of Appeals are contrary to law and jurisprudence.
• Basis for Award of Accrued Salaries: Whether the award of accrued salaries has legal and factual bases.

• Applicability of Article 223: Yes. Article 223 applies because the Labor Arbiter's order of reinstatement was immediately executory pending appeal, and the employer's failure to exercise either option under the provision—actual reinstatement or payroll reinstatement—obligated him to pay accrued salaries during the appeal period.
• Correctness of CA Rulings: Yes. The CA correctly upheld the Labor Arbiter's issuance of the Writ of Execution and the break-open order, the employer's unjustified refusal to reinstate having caused the delay in execution of the reinstatement aspect pending appeal.
• Basis for Award of Accrued Salaries: Yes, in principle, but the computation was incorrect. Respondents are entitled to accrued salaries only from the date petitioner received the Labor Arbiter's Decision up to the date of the NLRC Resolution reversing it; the Fiscal Examiner's computation covering January 1, 2002 to January 30, 2004 was erroneous and the case was remanded for recomputation.

• Applicability of Article 223: Article 223, paragraph 3 of the Labor Code provides that the reinstatement aspect of a Labor Arbiter's decision is immediately executory pending appeal, and the employer must either re-admit the employee to work under the same terms and conditions or, at the employer's option, reinstate the employee in the payroll. The posting of a bond does not stay execution for reinstatement. In this case, the Labor Arbiter's December 21, 2001 Decision ordered reinstatement, and a Writ of Execution was issued on April 22, 2002. Petitioner received the Decision allegedly on February 21, 2002, yet failed to reinstate respondents or effect payroll reinstatement before the NLRC reversed the Labor Arbiter on September 5, 2002. The provision applies because the reinstatement order was in effect during the appeal period, and the employer was required to comply with it regardless of the eventual outcome on appeal.

• Correctness of CA Rulings: The Court applied the two-fold test from Garcia vs. Philippine Airlines, Inc. for determining whether an employee may collect accrued salaries despite reversal of the reinstatement order on appeal: (1) there must be actual delay, meaning the order of reinstatement pending appeal was not executed prior to its reversal; and (2) the delay must not be due to the employer's unjustified act or omission. Here, the first requisite was satisfied because petitioner never reinstated respondents between receipt of the Labor Arbiter's Decision and the NLRC's reversal. The second requisite was likewise met because, unlike in Garcia where the employer's failure was justified by corporate rehabilitation, petitioner here offered no justification beyond stating he would consult counsel—a promise he never fulfilled. The delay was therefore attributable to petitioner's unjustified refusal. The CA correctly upheld the Labor Arbiter's issuances, and the social justice principles of labor law outweigh the civil law doctrine of unjust enrichment, as established when the Court rejected the "refund doctrine" in Genuino vs. National Labor Relations Commission.

• Basis for Award of Accrued Salaries: While respondents are entitled to accrued salaries in principle, the computation by Fiscal Examiner Trinchera was incorrect. Citing Kimberly Clark (Phils.), Inc. vs. Facundo, the Court held that accrued salaries automatically accrue from notice of the Labor Arbiter's order of reinstatement until its ultimate reversal by the NLRC. The computation should cover only from petitioner's date of receipt of the Labor Arbiter's Decision to the date of the NLRC Resolution on September 5, 2002. The Fiscal Examiner's computation covering January 1, 2002 to January 30, 2004 was erroneous both as to the starting date—there being no showing how January 1, 2002 was derived—and as to the end date, since the NLRC had already reversed the Labor Arbiter on September 5, 2002. Beyond that period, the NLRC Resolution declaring no illegal dismissal was already prevailing, and respondents' salaries did not accrue because there was no illegal dismissal and respondents had not rendered services. The case was remanded for correct computation, and respondents were ordered to make restitution for any excess received.

• Reinstatement Pending Appeal Doctrine — The order of reinstatement by the Labor Arbiter is immediately executory pending appeal. The employer must either re-admit the employee to work under the same terms and conditions prevailing prior to dismissal, or at the employer's option, merely reinstate the employee in the payroll. Failing to exercise the options in the alternative, the employer must pay the employee's salaries which automatically accrue from notice of the order of reinstatement until its reversal by a higher tribunal. Even if the order of reinstatement is reversed on appeal, the employer is still obliged to pay the wages of the employee during the period of appeal until reversal, provided the two-fold test is satisfied.

• Two-Fold Test for Recovery of Accrued Salaries After Reversal (Garcia Test) — After the Labor Arbiter's decision is reversed by a higher tribunal, the employee may be barred from collecting accrued wages only if it is shown that the delay in enforcing the reinstatement pending appeal was without fault on the part of the employer. The test has two requisites: (1) there must be actual delay, or that the order of reinstatement pending appeal was not executed prior to its reversal; and (2) the delay must not be due to the employer's unjustified act or omission. If the delay is due to the employer's unjustified refusal, the employer may still be required to pay the salaries notwithstanding the reversal of the Labor Arbiter's Decision.

• Rejection of the Refund Doctrine (Genuino) — The "refund doctrine," which held that an employee on payroll reinstatement whose dismissal was later found valid must refund the salaries received during the appeal period, was rejected as a stray posture. Social justice principles of labor law outweigh the civil law doctrine of unjust enrichment. The refund doctrine would make a favorable Labor Arbiter decision harmful to the employee, create a risk of insolvency, and institute a scheme unduly favorable to management by effectively allowing the employer to use salaries dispensed pendente lite as a bond posted in installment without spending for bond premiums.

• "[E]ven if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court or tribunal." — This is the canonical formulation of the prevailing doctrine on reinstatement pending appeal, realigned by the Court after rejecting the contrary Genuino position.

• "[T]he 'refund doctrine' easily demonstrates how a favorable decision by the Labor Arbiter could harm, more than help, a dismissed employee. The employee, to make both ends meet, would necessarily have to use up the salaries received during the pendency of the appeal, only to end up having to refund the sum in case of a final unfavorable decision. It is mirage of a stop-gap leading the employee to a risky cliff of insolvency." — This passage articulates the Court's rationale for abandoning the refund doctrine, grounding the rejection in social justice principles and the practical realities faced by dismissed employees.

• "[R]espondents are entitled to their accrued salaries only from the time petitioner received a copy of Labor Arbiter Gan's Decision declaring respondents' termination illegal and ordering their reinstatement up to the date of the NLRC Resolution overturning that of the Labor Arbiter." — This defines the precise temporal scope of the accrued salary entitlement, limiting it to the period during which the Labor Arbiter's reinstatement order was in effect.

• Garcia vs. Philippine Airlines, Inc., G.R. No. 164856, January 20, 2009, 576 SCRA 479 — Controlling precedent. Established the two-fold test for determining whether an employee may collect accrued salaries after the Labor Arbiter's reinstatement order is reversed on appeal. The Court applied this test to the present case, finding both requisites satisfied.

• Genuino vs. National Labor Relations Commission, G.R. Nos. 142732-33 & 142753-54, December 4, 2007, 539 SCRA 342 — Distinguished and rejected. Articulated the "refund doctrine" requiring employees to return salaries received during the appeal period if the dismissal was ultimately found valid. The Court declared this a "stray posture" and realigned the prevailing doctrine away from it.

• Roquero vs. Philippine Airlines, Inc., 449 Phil 437 (2003) — Followed. Cited by Labor Arbiter Castillon for the proposition that employees are entitled to accrued salaries even if the order of reinstatement is reversed on appeal.

• Kimberly Clark (Phils.), Inc. vs. Facundo, G.R. No. 144885, July 12, 2006 — Followed. Held that accrued salaries automatically accrue from notice of the Labor Arbiter's order of reinstatement until its ultimate reversal by the NLRC, and that employees are no longer entitled to salaries beyond the date of reversal. Applied to correct the computation period in this case.

• Article 223, Paragraph 3, Labor Code — Provides that the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory pending appeal. The employee shall either be admitted back to work under the same terms and conditions prevailing prior to dismissal, or at the option of the employer, merely reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement. Applied as the statutory basis for respondents' entitlement to accrued salaries during the appeal period, and for the employer's obligation to exercise either option upon receipt of the reinstatement order.

Chief Justice Renato C. Corona (Chairperson), Associate Justice Presbitero J. Velasco, Jr., Associate Justice Teresita J. Leonardo-De Castro, and Associate Justice Jose Portugal Perez concurred.