Palteng vs. United Coconut Planters Bank

An illegally dismissed employee who is not entirely faultless in regard to the offenses imputed against her is entitled to separation pay in lieu of reinstatement but is not entitled to backwages, the latter being denied as a penalty for the misconduct or infraction committed by the employee.

Petitioner Elizabeth D. Palteng served as Senior Assistant Manager/Branch Operations Officer of respondent United Coconut Planters Bank at its Banaue Branch in Quezon City. The bank maintained an Employee Discipline Code governing employee conduct, including policies on bills purchased (BP) accommodations, approving limits for signatories, and coordination requirements with account officers. Palteng's position as a Class C signatory carried an approving limit of ₱5 million. The bank's policies prohibited granting BP against personal checks, allowing only trade checks as eligible for BP accommodation.

Petitioner Elizabeth D. Palteng was the Senior Assistant Manager and Branch Operations Officer of United Coconut Planters Bank at its Banaue Branch in Quezon City. On April 15, 1996, Area Head and Vice-President Eulallo S. Rodriguez reported to the bank's Internal Audit and Credit Review Division that bank client Clariza L. Mercado, operating as The Red Shop, had incurred Past Due Domestic Bills Purchased amounting to ₱34,260,000. A diligence audit followed, and the division reported to the Audit and Examination Committee that Palteng had committed several offenses under the Employee Discipline Code in connection with Mercado's Past Due Domestic BP. The division recommended that the matter be referred to the Committee on Employee Discipline for proper disposition.

On August 14, 1996, Palteng was required to explain why no disciplinary action should be taken against her. The charges included gross negligence and dereliction of duties for granting BP against personal checks — strictly prohibited under bank policy, which allowed only trade checks as eligible for BP accommodation — and for granting accommodations based on the client's statement that a loan would be released without confirming with Account Officer Pearl Urbano. She was also charged with abuse of discretion for granting BP accommodations to the client in excess of the ₱5 million sublimit under the client's Omnibus Line, despite lacking the approving authority, and for approving manager's checks issued to the client beyond her ₱5 million approving limit as a Class C signatory.

In response, Palteng explained that at the time the BP accommodation was extended, Mercado had, as far as she knew, an Omnibus Line of ₱100 million secured by a pledge on jewelries. She was unaware that the Omnibus Line had been reduced to ₱50 million and that it contained a ₱5 million sublimit on BP. Nevertheless, she accepted full responsibility for granting the BP accommodation against Mercado's personal checks beyond and outside her authority. While she admitted committing a major offense that could cause her dismissal, she claimed it was an honest mistake. After hearing and investigation, the committee recommended Palteng's dismissal, and on October 25, 1996, she was dismissed with forfeiture of all benefits.

Palteng filed a complaint for illegal dismissal seeking reinstatement without loss of seniority rights with full backwages, or in the alternative, separation pay with full backwages, and recovery of monetary claims with damages. The Labor Arbiter declared her dismissal illegal and awarded separation pay in lieu of reinstatement, full backwages from dismissal until finality of judgment, moral and exemplary damages, and attorney's fees. The NLRC affirmed but deleted the moral and exemplary damages. The Court of Appeals further modified by limiting backwages to the period from October 25, 1996 to December 6, 1999, noting Palteng's admission that she had committed a major offense. All three tribunals characterized Palteng's conduct as an "error of judgment" or "honest mistake" vis-à-vis a "major offense."

• Entitlement to Full Backwages: Petitioner contended that the Labor Arbiter, the NLRC, and the Court of Appeals unanimously found her dismissal illegal, and she was therefore entitled to the twin reliefs of reinstatement (or separation pay if reinstatement is no longer possible) and payment of backwages.
• Period of Backwages Computation: Petitioner argued that backwages should be computed from the time she was illegally dismissed on October 25, 1996, until the finality of the decision, not merely until the promulgation of the Labor Arbiter's decision.

• No Entitlement to Backwages: Respondent countered that petitioner was not entitled to the payment of backwages since she was not entirely faultless or fully innocent of the offenses imputed against her.

• Award of Backwages: Whether the award of backwages should be counted from the time petitioner was illegally dismissed until the promulgation of the Labor Arbiter's decision, or until the finality of the decision, or whether backwages should be awarded at all.

• Award of Backwages: No. The award of backwages was deleted entirely. Because petitioner was not entirely faultless in regard to the offenses imputed against her, the proper relief was separation pay only, without backwages, the latter being denied as a penalty for her admitted infraction.

• Award of Backwages: The settled rule is that an illegally dismissed employee is entitled to reinstatement without loss of seniority rights and to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. Where reinstatement is no longer possible, separation pay may be awarded instead. Reinstatement and backwages are distinct and separate reliefs; the award of one does not bar the other. However, the Court has held in a number of cases that despite ordering reinstatement or separation pay, backwages may be denied as a penalty for the misconduct or infraction committed by the employee. In this case, petitioner admitted granting BP accommodation against Mercado's personal checks beyond and outside her authority. The Labor Arbiter, the NLRC, and the Court of Appeals all found her to have committed an "error of judgment," an "honest mistake," vis-à-vis a "major offense." Since petitioner was not faultless in regard to the offenses imputed against her, the Court held that the award of separation pay only, without backwages, was proper.

• Twin Reliefs of Reinstatement and Backwages — An employee who is illegally dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges, as well as 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. Where reinstatement is no longer possible, separation pay may be awarded in lieu thereof. Reinstatement and backwages are distinct and separate reliefs; the award of one does not bar the other. Backwages may be awarded without reinstatement, and reinstatement may be ordered without awarding backwages.
• Denial of Backwages as Penalty for Employee Misconduct — Despite ordering reinstatement or payment of separation pay in lieu of reinstatement, the Court may decline to award backwages as a penalty for the misconduct or infraction committed by the employee. Where the employee is not entirely faultless in regard to the offenses imputed against her, the proper relief is separation pay only, without backwages.

• "Notably, reinstatement and payment of backwages are distinct and separate reliefs given to alleviate the economic setback brought about by the employee's dismissal. The award of one does not bar the other. Backwages may be awarded without reinstatement, and reinstatement may be ordered without awarding backwages." — This passage articulates the doctrinal separation between the two reliefs available to illegally dismissed employees, establishing that neither is an automatic consequence of the other.
• "Since petitioner was not faultless in regard to the offenses imputed against her, we hold that the award of separation pay only, without backwages, is proper." — This is the ratio decidendi of the case: an employee's lack of complete innocence warrants denial of backwages even when the dismissal is declared illegal.

• Dusit Hotel Nikko vs. Gatbonton, G.R. No. 161654, May 5, 2006 — Cited for the settled rule that an illegally dismissed employee is entitled to reinstatement and full backwages.
• Samarca vs. Arc-Men Industries, Inc., G.R. No. 146118, October 8, 2003 — Cited in support of the rule on reinstatement and backwages for illegally dismissed employees.
• Condo Suite Club Travel, Inc. vs. NLRC, G.R. No. 125671, January 28, 2000 — Cited in support of the rule on reinstatement and backwages.
• Bunagan vs. Sentinel Watchman & Protective Agency, Inc., G.R. No. 144376, September 13, 2006 — Cited for the proposition that separation pay may be awarded in lieu of reinstatement when reinstatement is no longer possible.
• Urbanes, Jr. vs. Court of Appeals, G.R. No. 138379, November 25, 2004 — Cited for the rule on separation pay in lieu of reinstatement.
• De Guzman vs. National Labor Relations Commission, 371 Phil. 192 (1999) — Cited for the principle that reinstatement and backwages are distinct and separate reliefs, and that the award of one does not bar the other.
• Pepsi Cola vs. National Labor Relations Commission, G.R. No. 100686, August 15, 1995 — Cited as authority for the proposition that the Court has, in a number of cases, declined to award backwages as penalty for employee misconduct despite ordering reinstatement or separation pay.
• Itogon-Suyoc Mines, Inc. vs. NLRC, No. L-54280, September 30, 1982 — Cited alongside Pepsi Cola and Yupangco Cotton Mills as precedent for denying backwages as penalty for employee infraction.

• Article 279, Labor Code (as amended) — While not expressly cited by name in the decision, the settled rule on reinstatement and full backwages for illegally dismissed employees is rooted in this provision, which the Court applied in determining the reliefs available to petitioner.
• Employee Discipline Code of United Coconut Planters Bank — The bank's internal code governing employee conduct, under which Palteng was charged with gross negligence, dereliction of duties, and abuse of discretion for granting BP accommodations against personal checks and beyond her approving authority.

Conchita Carpio Morales, Antonio Eduardo B. Nachura, Arturo D. Brion, and Diosdado M. Peralta concurred in the decision. No separate concurring opinions were noted.