Philippine Airlines, Inc. vs. NLRC

The clause "pending final resolution of the case by arbitration" in a labor dispute settlement agreement refers only to compulsory arbitration proceedings before the Labor Arbiter, not to the entire adjudicatory process including appeal, such that the Labor Arbiter's decision terminates the arbitration phase, and an employer cannot be ordered to continue paying salaries to an employee whose dismissal has been upheld as valid.

Philippine Airlines, Inc. (PAL) operated an Aviation School that trained pilots under agreements binding PAL to provide regular and permanent employment upon completion of the training course. Armando Dolina was admitted to the PAL Aviation School on 16 January 1973 under such an arrangement. The dispute arose within the framework of the then-prevailing labor arbitration system under the Labor Code (Presidential Decree No. 442), under which termination disputes were subject to compulsory arbitration before Labor Arbiters, with appeal to the National Labor Relations Commission (NLRC).

Dolina was admitted to the PAL Aviation School for pilot training beginning 16 January 1973, under a training agreement that bound PAL to provide regular and permanent employment upon completion of the course. He completed the training on 25 January 1974 and undertook an equipment qualification course through 4 October 1974. On 9 October 1974, the Civil Aeronautics Administration issued him a Commercial Pilot license, and PAL extended him a temporary six-month appointment as Limited First Officer.

When his appointment was due to expire on 30 April 1975, Dolina had logged only 84 hours and 55 minutes of flying time, short of the 500 flying hours required for regularization as First Officer. His employment was extended for another six months, described as "permanent," but by 31 October 1975 he was still short of the minimum. A third extension followed up to 30 April 1976, during which Dolina completed the 500-hour requirement and applied for regularization as First Officer on 31 March 1976. Pending physical examination by the Chief Flight Surgeon, his appointment was further extended to 31 October 1976.

On 17 August 1976, Dolina took a psychological examination in which his "Adaptability Rating" was found "unacceptable." On 23 September 1976, the Pilot Acceptance Qualifications Board examined and interviewed him as part of the regularization process and found him not qualified for regular employment, recommending his termination. Pursuant to this recommendation, PAL filed a clearance application for Dolina's termination. Dolina was placed under preventive suspension effective 1 October 1976, and on 6 October 1976 he filed a complaint for illegal dismissal.

On 26 January 1977, the Officer-in-Charge of the Department of Labor Regional Office No. IV lifted the preventive suspension and ordered PAL to reinstate Dolina with full backwages from 1 October 1976 up to actual reinstatement, referring the issue of termination and damages to the Executive Labor Arbiter for compulsory arbitration. PAL appealed this order to the Secretary of Labor, but pending resolution, the parties signed an agreement on 2 March 1977 before the Undersecretary of Labor. Under this agreement, Dolina was to be carried on PAL's payroll effective 1 October 1976 while the complaint was pending final resolution, the Regional Director's reinstatement order was rendered moot and academic, and the arrangement would subsist pending final resolution of the case by arbitration.

On 30 May 1977, the Acting Secretary of Labor found the suspension issue moot and referred the case to the Executive Labor Arbiter. On 23 March 1979, the Labor Arbiter granted PAL's clearance application and upheld Dolina's termination, denying the claim for moral damages for lack of jurisdiction under P.D. No. 1367. PAL removed Dolina from its payroll effective 1 April 1979. Dolina appealed to the NLRC on 29 April 1979, seeking reinstatement to the payroll on the ground that the Labor Arbiter's decision was not yet final because of his timely appeal. On 8 February 1980, the NLRC affirmed the Labor Arbiter's decision in toto but ordered PAL to restore Dolina to its payroll and pay his salaries from 1 April 1979 "until this case is finally resolved." PAL then filed the present petition for certiorari, and the Court issued a temporary restraining order on 10 October 1980.

• Scope of Arbitration Clause: Petitioner contended that the stipulation "pending final resolution of the case by arbitration" referred only to the proceedings before the Labor Arbiter, and that arbitration of the case was terminated when the Labor Arbiter rendered his decision on 23 March 1979.
• Grave Abuse of Discretion: Petitioner argued that since the NLRC affirmed in toto the Labor Arbiter's decision granting clearance for Dolina's dismissal, it was an act of grave abuse of discretion amounting to lack of jurisdiction for the NLRC to order continued payment of salaries from 1 April 1979 until final termination of the case.
• Definition of Arbitration: Petitioner maintained that arbitration was limited to and comprised merely the proceedings before the Labor Arbiter, such that when the latter rendered a decision, arbitration of the dispute was terminated.

• Continuing Arbitration Process: Public respondent NLRC contended that arbitration was a continuing process from the time the case was referred by the Secretary of Labor to the Arbitration Branch until final judgment was had on appeal.
• Entitlement to Payroll Restoration: The NLRC argued that since the Labor Arbiter's decision in favor of PAL did not finally resolve the case in view of Dolina's timely appeal, the case was not yet finally terminated by arbitration and Dolina was entitled to be placed on PAL's payroll until the complaint was finally resolved, pursuant to the parties' agreement.

• Scope of Arbitration Clause: Whether the clause "pending final resolution of the case by arbitration" in the parties' 2 March 1977 agreement refers only to proceedings before the Labor Arbiter or encompasses the entire adjudicatory process including appeal.
• Validity of NLRC Order: Whether the NLRC committed grave abuse of discretion in ordering PAL to continue paying Dolina's salaries from 1 April 1979 "until this case is finally resolved" despite affirming the validity of his dismissal.

• Scope of Arbitration Clause: The clause is limited to proceedings before the Labor Arbiter. Compulsory arbitration is deemed terminated when the Labor Arbiter renders a decision; proceedings on appeal before the NLRC en banc are beyond the scope of arbitration, involving only review for errors of fact or law.
• Validity of NLRC Order: Yes, grave abuse of discretion was committed. The NLRC's order for continued salary payment was inconsistent with its affirmance of valid dismissal, contrary to the "fair day's wage for fair day's labor" principle, and constituted excess of jurisdiction.

• Scope of Arbitration Clause: The Court applied Article 1371 of the Civil Code and Section 11, Rule 130 of the Rules of Court, which allow consideration of the circumstances under which an instrument was made to determine the parties' intention. The stipulation was intended to supersede the Regional Director's reinstatement order; in lieu of reinstatement and backwages, Dolina was carried on the payroll without rendering service. The parties could not have intended "final resolution of the case by arbitration" to encompass the entire adjudicatory process including certiorari before the Supreme Court, as that would mean Dolina would continue receiving salary regardless of the outcome before the Labor Arbiter, for as long as appeals were pending—an absurdity the parties could not have contemplated. Arbitration, in its broad sense, is the reference of a dispute to an impartial third person chosen by the parties or appointed by statutory authority. In labor cases, compulsory arbitration is the process of settlement by a government agency with authority to investigate and make a binding award. Under Article 217 of the Labor Code, the Labor Arbiter conducts compulsory arbitration on termination disputes. When the Labor Arbiter renders a decision, compulsory arbitration is deemed terminated because the hearing and determination of the controversy has ended. Appeals to the NLRC en banc involve review for errors of fact or law, not a duplication of arbitration proceedings. Thus, the clause "pending final resolution of the case by arbitration" is limited to the proceedings before the Labor Arbiter, and when the latter rendered his decision on 23 March 1979, the case was finally resolved by arbitration.
• Validity of NLRC Order: The NLRC's order was inconsistent with its own affirmance of the Labor Arbiter's decision upholding the validity of Dolina's dismissal. The NLRC itself held that PAL's application for clearance to dismiss had "sufficiently surmounted the test of validity" and commended PAL for exercising extraordinary diligence in selecting its pilots. Having found the dismissal valid, the NLRC had no authority to order continued salary payments, which would compensate Dolina for services not rendered when he was no longer in PAL's employ. This violated the principle of "a fair day's wage for a fair day's labor"—if no work is performed, there can be no wage unless the employee was able, willing, and ready to work but was prevented by management or illegally dismissed. Where dismissal is for just cause, it is neither fair nor just to allow recovery of unearned wages. Moreover, the order effectively granted backwages despite a finding of valid dismissal; backwages are granted on equity grounds for earnings lost due to illegal dismissal, and where dismissal is for just cause, there is no factual or legal basis for backwages. The order would also unjustly enrich Dolina at PAL's expense and place him in a better position than workers found to have been illegally dismissed, whose backwages are limited to three years, while Dolina could recover approximately ten years of salary. The law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer. The NLRC's order was thus contrary to law and established jurisprudence and was issued in excess of jurisdiction.

• Fair Day's Wage for Fair Day's Labor — The principle that no wages are due where no work is performed, unless the employee was able, willing, and ready to work but was prevented by management or was illegally locked out, suspended, or dismissed. Where the employee's dismissal was for a just cause, it would neither be fair nor just to allow the employee to recover something he has not earned and could not have earned. Applied to invalidate the NLRC's order continuing salary payments to Dolina, whose dismissal was upheld as valid.
• Backwages as Equitable Relief for Illegal Dismissal — Backwages are granted on grounds of equity for earnings which a worker has lost due to his illegal dismissal. Where the dismissal was for a just cause, there is no factual or legal basis for ordering the payment of backwages. Applied to show that the NLRC's order effectively granted backwages despite finding valid dismissal.
• Three-Year Limitation on Backwages — In cases of illegal dismissal, the backwages that can be recovered by the worker are limited to three years. The Court noted that the NLRC's order would give Dolina, whose dismissal was valid, approximately ten years of salary—more favorable treatment than illegally dismissed workers receive.
• Labor Protection Does Not Authorize Oppression of Employer — The law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer. Applied to invalidate the NLRC's order as failing to adhere to this doctrine.
• Scope of Compulsory Arbitration in Labor Cases — Compulsory arbitration is the process of settlement of labor disputes by a government agency which has the authority to investigate and make an award which is binding on all the parties. Under the Labor Code, it is the Labor Arbiter who is clothed with the authority to conduct compulsory arbitration on cases involving termination disputes. When the Labor Arbiter renders his decision, compulsory arbitration is deemed terminated because the hearing and determination of the controversy has ended. Proceedings on appeal before the NLRC en banc merely review the Labor Arbiter's decision for errors of fact or law and do not duplicate the arbitration proceedings.

• "Where the employee's dismissal was for a just cause, it would neither be fair nor just to allow the employee to recover something he has not earned and could not have earned" — This passage articulates the ratio decidendi for invalidating the NLRC's continued salary order, grounding the ruling in the principle that valid dismissal precludes wage recovery.
• "the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer" — A frequently cited formulation of the balance between labor protection and employer rights, invoked here to strike down the NLRC's order.
• "When the Labor Arbiter renders his decision, compulsory arbitration is deemed terminated because by then the hearing and determination of the controversy has ended." — This defines the scope of compulsory arbitration in labor disputes and limits the parties' payroll agreement to the Labor Arbiter phase only.

• Lim vs. Court of Appeals, G.R. No. L-40258, September 11, 1980 — Cited for the rule on interpretation of contracts, holding that the circumstances under which an instrument was made may be considered to judge the intention of the contracting parties.
• Chan Linte vs. Law Union and Rock, Ins. Co., 42 Phil. 548 (1921) — Cited for the definition of arbitration as the reference of a dispute to an impartial third person chosen by the parties or appointed by statutory authority to hear and decide the case in controversy.
• Durabilt Recapping Plant & Co. vs. National Labor Relations Commission, G.R. No. 76746, July 27, 1987 — Followed for the "fair day's wage for fair day's labor" principle and the rule that backwages are granted on grounds of equity for earnings lost due to illegal dismissal.
• Santos vs. National Labor Relations Commission, G.R. No. 76721, September 21, 1987 — Followed for the rule that where dismissal is for just cause, the employee cannot recover something he has not earned and could not have earned.
• Colgate Palmolive Philippines, Inc. vs. Ople, G.R. No. 73681, June 30, 1988 — Followed for the doctrine that the law, in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the employer.
• Mercury Drug Co., Inc. vs. Court of Industrial Relations, G.R. No. L-23357, April 30, 1974 — Followed for the rule limiting backwages in illegal dismissal cases to three years.
• Llora Motors, Inc. vs. Drilon, G.R. No. 82895, November 7, 1989 — Cited as analogous authority where an award without basis in law or contract was held to be an act without or in excess of jurisdiction.
• New Manila Candy Workers Union (NACONWA-PAFLU) vs. Court of Industrial Relations, G.R. No. L-29728, October 30, 1978 — Cited for the principle that backwages are granted on grounds of equity for earnings lost due to illegal dismissal.

• Article 1371, Civil Code of the Philippines — Provides that the circumstances under which an instrument was made, including the situation of the subject thereof and the parties to it, may be considered so that the intention of the contracting parties may be judged correctly. Applied to interpret the parties' 2 March 1977 agreement.
• Section 11, Rule 130, Rules of Court — Corresponding rule on interpretation of instruments based on surrounding circumstances. Applied alongside Article 1371 of the Civil Code.
• Article 217, Presidential Decree No. 442 (Labor Code), as amended — Vests Labor Arbiters with authority to conduct compulsory arbitration on cases involving termination disputes. Applied to define the scope of compulsory arbitration and to confine it to the Labor Arbiter phase, excluding appellate proceedings before the NLRC.
• P.D. No. 1367, dated May 1, 1978 — Referenced in the Labor Arbiter's decision as divesting the office of jurisdiction to entertain claims for moral damages. Noted in the Labor Arbiter's disposition denying Dolina's claim for moral damages.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.