Solidum vs. Smart Communications, Inc.

An employee need not refund accrued wages received under a labor arbiter's immediately executory reinstatement order that was later reversed on appeal, where the delay in reinstatement was directly attributable to the employer's unjustified refusal to comply with the order. The Two-Fold Test's concept of "delay" refers exclusively to the employer's unreasonable failure to reinstate the employee before the order is reversed, not to any delay by the employee in seeking computation or payment of accrued wages.

Jose Leni Z. Solidum was an employee of Smart Communications, Inc. In 2005, he filed a Complaint for Illegal Dismissal, Illegal Suspension, Non-payment of Salaries, Damages, and Attorney's Fees against Smart, its President and Chief Executive Officer Napoleon Nazareno, and its former Marketing Head Ricardo Isla, docketed as NLRC Case No. NCR-00-11-09564-05. The dispute centered on whether Solidum was illegally dismissed and, consequently, whether he was entitled to reinstatement and backwages pending Smart's appeal of the labor arbiter's decision in his favor.

In 2005, Jose Leni Z. Solidum filed a Complaint for Illegal Dismissal, Illegal Suspension, Non-payment of Salaries, Damages, and Attorney's Fees against Smart Communications, Inc., its President Napoleon Nazareno, and its former Marketing Head Ricardo Isla. The case was docketed as NLRC Case No. NCR-00-11-09564-05. On July 3, 2006, Labor Arbiter Felipe P. Pati rendered a Decision in favor of Solidum, finding that he was illegally dismissed. The arbiter declared the extended preventive suspension and the dismissal itself illegal, ordered reinstatement (actual or payroll, at the employer's option), and awarded backwages, benefits, bonuses, allowances, damages, and attorney's fees. Smart received the Decision on July 13, 2006.

Aggrieved, Smart appealed to the NLRC. Pending resolution, the arbiter issued a writ of execution for accrued reinstatement wages from July 21, 2006 to October 20, 2006. On July 4, 2007, the NLRC denied Smart's appeal for being filed out of time. Smart filed a Motion for Reconsideration. While that motion was pending, the arbiter issued seven Alias Writs of Execution between August 15, 2007 and January 22, 2009, each ordering collection of accrued reinstatement wages and benefits. Smart did not carry out any of these writs; instead, it filed multiple motions seeking their quashal. On January 26, 2009, the NLRC granted Smart's Motion for Reconsideration, set aside its July 4, 2007 Resolution, gave due course to Smart's appeal, and dismissed Solidum's complaint for lack of merit. Solidum sought reconsideration, while Smart filed an Urgent Motion for a Writ of Preliminary Injunction to prevent reinstatement pending resolution.

Meanwhile, Solidum filed an Ex-parte Motion for Issuance of Alias Writ of Execution before the arbiter for accrued benefits from January 21, 2009 to April 20, 2009. On May 29, 2009, the NLRC denied both Solidum's motion for reconsideration and Smart's injunction motion. This Decision became final and executory on August 10, 2009. On July 29, 2009, the arbiter denied Solidum's Ex-parte Motion, reasoning that the NLRC's reversal of the July 3, 2006 Decision prevented issuance of further writs. Solidum appealed to the NLRC, which on May 31, 2010 partly granted the appeal, reversed the arbiter's order, and remanded for issuance of an alias writ covering July 13, 2006 to May 29, 2009. On July 30, 2010, the NLRC modified the period to July 13, 2006 to August 10, 2009. Smart elevated the matter to the CA via Petition for Certiorari.

The CA, in its January 25, 2011 Decision, granted Smart's petition, nullified the NLRC's rulings for lack of jurisdiction (finding the arbiter's order was interlocutory and unappealable), and reinstated the arbiter's July 29, 2009 Order. In a July 3, 2012 Amended Decision, the CA partly granted Solidum's motion for reconsideration, correcting the date of finality to August 10, 2009, and disallowed refund of PHP 2,881,335.86 received under the Eighth and Ninth Alias Writs (covering January 21, 2009 to July 20, 2009), as those amounts accrued before August 10, 2009. Meanwhile, on June 6, 2011, Solidum filed a Request with the NLRC for computation of salaries and benefits owed from July 13, 2006 to January 26, 2009. The arbiter, in an Order dated April 25, 2012, approved the NLRC-CEU's computation of PHP 15,889,871.04, noting that the additional computations were never included in the initial partial computation dated October 10, 2006 through no fault of Solidum. On May 8, 2012, the 10th Alias Writ was issued for this amount, and the sum was garnished and released to Solidum on June 14, 2012. In its November 23, 2012 Resolution, the CA ordered Solidum to return the PHP 15,889,871.04, finding that Solidum only filed his claim on June 6, 2011 and that no delay was attributable to Smart. Solidum's motion for reconsideration was denied on April 23, 2013, prompting the present petition.

• Employer's Unjustified Refusal: Petitioner argued that the delay in enforcing his reinstatement pending appeal was due to Smart's unjustified act or omission, as Smart never submitted a compliance report for the reinstatement order, indicating its refusal to reinstate him.
• No Delay on His Part: Petitioner maintained that there was no delay on his part, as he filed a Motion for Issuance of Writ of Execution on the reinstatement aspect as early as September 1, 2006, and his June 6, 2011 request for recomputation was a direct result of the NLRC's May 31, 2010 Decision and July 30, 2010 Resolution remanding the case for issuance of a writ of execution.
• NLRC-CEU Omission: Petitioner asserted that the additional unpaid reinstatement wages were never included by the NLRC-CEU in its initial partial computation dated October 10, 2006 through no fault of his own.
• Misapplication of "Delay": Petitioner contended that the "delay" contemplated under jurisprudence cited by the CA pertains to the employer and not the employee, making the CA's "refund doctrine" contrary to law and jurisprudence.

• No Reversible Error: Respondent argued that Solidum failed to show that the assailed rulings were contrary to law and jurisprudence.
• Question of Fact: Respondent maintained that the finding of delay on the part of Solidum in filing for recomputation of accrued wages and benefits is a question of fact outside the Supreme Court's jurisdiction in a Rule 45 petition.
• No Employer Delay: Respondent claimed it did not delay Solidum's reinstatement since as early as November 13, 2006, Solidum was able to claim wages for the period July 21, 2006 to October 20, 2006 by virtue of a writ of execution, and that it took Solidum four years to request recomputation, making the delay attributable solely to him.

• Refund of Accrued Wages: Whether the CA erred in ordering Solidum to return to Smart the amount of PHP 15,889,871.04 he received through the 10th Alias Writ of Execution, covering his accrued wages and benefits for the period from July 13, 2006 to January 26, 2009.

• Refund of Accrued Wages: Yes. The CA erred in ordering the refund, having misapplied the Two-Fold Test by attributing delay to Solidum rather than to Smart, whose unjustified refusal to comply with the immediately executory reinstatement order caused the delay.

• Refund of Accrued Wages: The reinstatement aspect of a labor arbiter's decision is immediately executory even pending appeal, as statutorily mandated by Article 229 of the Labor Code and reinforced by the 2005 and 2011 NLRC Rules of Procedure. This obligates the employer to reinstate the dismissed employee—either actually or on payroll—throughout the appeal process until reversal by a higher tribunal. An employee who receives wages under a payroll reinstatement has no duty to return or reimburse those wages even if the employer's appeal ultimately succeeds, because requiring refund would run counter to the immediately executory nature of the reinstatement order. The 2011 NLRC Rules expressly exclude wages paid during reinstatement pending appeal from the scope of restitution orders following reversal. However, an employee may be barred from collecting accrued wages if the Two-Fold Test is satisfied: (1) actual delay in executing the reinstatement order before its reversal, and (2) the delay must not be due to the employer's unjustified act or omission. In this case, both prongs were satisfied in favor of Solidum. First, there was actual delay: seven alias writs issued between August 15, 2007 and January 22, 2009 were never carried out because Smart filed multiple motions to quash them. Second, the delay was directly attributable to Smart's unjustified refusal to reinstate Solidum. Smart never submitted a report of compliance, as required by the 2005 and 2011 NLRC Rules within 10 calendar days from receipt of the labor arbiter's decision—a failure that, per Bergonio, Jr. vs. South East Asian Airlines, clearly indicates refusal to reinstate. A Certification from the NLRC dated December 20, 2012 confirmed that more than six years after the arbiter's July 3, 2006 Decision, Smart had not submitted any compliance report. The CA misapplied the Two-Fold Test by attributing "delay" to Solidum's alleged tardiness in filing his claim for recomputation on June 6, 2011. The Court clarified that "delay" in the Two-Fold Test context refers to an unjustifiable and unreasonable period between the issuance of the reinstatement order and the employer's actual or payroll reinstatement before reversal—directly attributable to the employer's refusal, excluding delays caused by the employee. The NLRC Rules do not even require the employee to file a motion for execution, as the reinstatement aspect is self-executory and the labor arbiter may issue the writ motu proprio. Solidum's June 6, 2011 filing was a direct result of the NLRC's May 31, 2010 Decision and July 30, 2010 Resolution, which remanded the case for issuance of a writ of execution. The 10th Alias Writ covered accrued earnings from July 13, 2006 to January 26, 2009, all before the NLRC's reversal became final on August 10, 2009. The arbiter's April 25, 2012 Order approving the computation had attained finality, and Smart initially paid the amount before seeking its return. Accordingly, the PHP 15,889,871.04 rightfully belongs to Solidum.

• Immediately Executory Nature of Reinstatement Orders — A labor arbiter's order of reinstatement is self-executory or immediately executory even pending appeal. The employer is obligated to reinstate the dismissed employee—either actually or on payroll—throughout the appeal process until the order is reversed by a higher tribunal. The posting of a bond by the employer does not stay execution for reinstatement. This principle is statutorily enshrined in Article 229 of the Labor Code and reinforced by the 2005 and 2011 NLRC Rules of Procedure.

• No-Refund Doctrine for Payroll Reinstatement — An employee who receives salaries during reinstatement pending appeal has no duty to return or reimburse the employer even if the decision is ultimately reversed, because requiring refund would undermine the immediately executory nature of the reinstatement order. The 2011 NLRC Rules expressly exclude wages paid during reinstatement pending appeal from restitution orders following reversal. The Court in Garcia vs. Philippine Airlines, Inc. elaborated that the "refund doctrine" would harm dismissed employees who, to make ends meet, would necessarily use up the salaries received during the pendency of the appeal, only to face insolvency if forced to refund.

• Two-Fold Test for Barring Collection of Accrued Wages — An employee may be barred from collecting accrued wages if two tests are satisfied: (1) 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. "Delay" in this context refers to an unjustifiable and unreasonable period between the issuance of the labor arbiter's reinstatement order and the actual or payroll reinstatement by the employer before reversal, directly attributable to the employer's refusal to comply. Any delay on the employee's part in seeking computation or payment is inconsequential due to the self-executory nature of the reinstatement order. The employer, not the employee, bears the burden of compliance; the NLRC Rules require the employer to submit a report of compliance within 10 calendar days from receipt of the labor arbiter's decision, and failure to do so clearly indicates refusal to reinstate.

• "In the case of payroll reinstatement, even if the employer's appeal turns the tide in its favor, the reinstated employee has no duty to return or reimburse the salary he received during the period where the lower court's governing decision was for the employee's illegal dismissal. Otherwise, the situation would run counter to the immediately executory nature of an order of reinstatement." — This passage articulates the no-refund doctrine for wages received during reinstatement pending appeal, anchoring the Court's reasoning on the self-executory character of reinstatement orders.

• "To determine whether an employee is thus barred, two tests must be satisfied: (1) actual delay or the fact 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." — This is the canonical formulation of the Two-Fold Test, derived from Bergonio, Jr. vs. South East Asian Airlines, governing when an employee may be barred from collecting accrued wages following reversal of a reinstatement order.

• "Delay" in the context of the Two-Fold Test, refers to an unjustifiable and unreasonable period of time between the issuance of the labor arbiter's reinstatement order and the actual or payroll reinstatement of the employee by the employer before the order is reversed. This delay must be directly attributable to the employer's refusal to comply with the order, excluding any extenuating circumstances or delays caused by the employee." — This passage clarifies the scope of "delay" under the Two-Fold Test, establishing that it pertains exclusively to the employer's non-compliance, not the employee's diligence in seeking computation.

• "Even outside the theoretical trappings of the discussion and into the mundane realities of human experience, the '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." — Quoted from Garcia vs. Philippine Airlines, Inc., this passage provides the policy rationale against the refund doctrine, grounding it in social justice and the realities faced by dismissed employees.

• Garcia vs. Philippine Airlines, Inc., 596 Phil. 510 (2009) — Cited as controlling authority for the proposition that the refund doctrine is impractical and harmful to dismissed employees, and that employees have no duty to reimburse salaries received during reinstatement pending appeal. The Court adopted its reasoning on the impracticality of compelling refund.

• Bergonio, Jr. vs. South East Asian Airlines, 733 Phil. 347 (2014) — Cited as the source of the Two-Fold Test for determining whether an employee may be barred from collecting accrued wages. The Court relied on this case for the rule that failure to submit a compliance report indicates refusal to reinstate, and for the framework distinguishing employer-caused delay from employee-caused delay.

• Smart Communications, Inc. vs. Solidum, 758 Phil. 211 (2015) — Cited as prior ruling by the Court on the same parties, where it was held that Solidum is entitled to accrued salaries, allowances, benefits, incentives, and bonuses from receipt of the labor arbiter's decision until the NLRC's reversal becomes final and executory. The Court affirmed that Solidum was entitled to PHP 2,881,335.86 under the Eighth and Ninth Alias Writs.

• Wenphil Corporation vs. Abing, 731 Phil. 685 (2014) — Cited for the principle that the employer is obligated to reinstate and compensate the dismissed employee throughout the appeal process until reversal by the higher court, and that the employee has no duty to return wages received during that period.

• Roquero vs. Philippine Airlines, Inc., 449 Phil. 437 (2003) — Cited in support of the no-refund doctrine for payroll reinstatement.

• Article 229, Labor Code (as renumbered in 2015) — 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 even 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 to establish Smart's obligation to reinstate Solidum pending appeal.

• Section 6, Rule XI, 2005 NLRC Rules of Procedure — Specifies that the perfection of an appeal suspends the execution of the labor arbiter's decision, except the reinstatement aspect pending appeal. Also requires employers to submit a report of compliance within 10 calendar days from receipt of the labor arbiter's decision. Applied to show Smart's failure to comply with the reinstatement directive.

• Section 3, Rule XI, 2011 NLRC Rules of Procedure — Mirrors the 2005 NLRC Rules on the immediately executory nature of reinstatement pending appeal.

• Section 14, Rule XI, 2011 NLRC Rules of Procedure — Provides that in cases where a judgment has been executed and is subsequently reversed or annulled, the labor arbiter shall issue orders for restitution, except wages paid during reinstatement pending appeal. Applied to establish the statutory exclusion of reinstatement wages from restitution.

• Section 18, Rule V, 2011 NLRC Rules of Procedure — Requires the employer to submit a report of compliance within 10 calendar days from receipt of the labor arbiter's decision. Applied to demonstrate Smart's refusal to reinstate, as it never submitted such a report.

• Section 1, Rule XI, 2011 NLRC Rules of Procedure — Provides that the labor arbiter may issue a writ of execution motu proprio, without requiring the employee to file a motion. Applied to establish that Solidum was not required to file a motion for execution, making any delay on his part inconsequential.

Gesmundo, C.J. (Chairperson), Zalameda, Rosario, and Marquez, JJ., concurred.