Wenphil Corporation vs. Abing

An employer's obligation to pay reinstatement wages to an illegally dismissed employee under Article 223 of the Labor Code continues during the entire period of appeal until a higher court reverses the finding of illegal dismissal, and this statutory right cannot be truncated by a compromise agreement that treats the NLRC's substitution of separation pay for reinstatement as a "modification" extinguishing backwages, since separation pay is a substitute only for reinstatement, not for backwages, and the two reliefs serve distinct purposes.

Wenphil Corporation employed respondents Almer R. Abing and Anabelle M. Tuazon, who were dismissed for alleged serious misconduct. The dispute traversed multiple tiers of the labor justice system over more than a decade, generating two separate rounds of litigation: the first concerning whether the dismissal was illegal, and the second concerning the computation of backwages following the final resolution of the first. The case implicates Article 223 of the Labor Code, which renders a Labor Arbiter's order of reinstatement immediately executory even pending appeal, and the interplay between that statutory policy and a private compromise agreement the parties executed during the pendency of Wenphil's appeal before the NLRC.

Wenphil Corporation employed Almer R. Abing and Anabelle M. Tuazon, who were dismissed from their positions on the ground of alleged serious misconduct. The respondents filed a complaint for illegal dismissal, docketed as NLRC NCR Case No. 30-03-00993-00. On December 8, 2000, Labor Arbiter Geobel A. Bartolabac ruled that the respondents had been illegally dismissed, finding no factual and legal basis for the allegation of serious misconduct. LA Bartolabac ordered Wenphil to immediately reinstate the respondents to their respective positions or equivalent ones, whether actually or in the payroll, and to pay backwages from February 3, 2000 until the date of actual reinstatement.

Wenphil appealed the LA's decision to the NLRC on April 16, 2001. While the appeal was pending, the respondents moved for immediate execution of the LA's decision. On October 29, 2001, the parties entered into a compromise agreement before LA Bartolabac, under which Wenphil agreed to the respondents' payroll reinstatement during the pendency of the NLRC appeal. Wenphil committed to pay the accumulated salaries for the payroll period from April 5, 2001 to October 15, 2001, and to credit the respondents' salaries to their ATM payroll accounts every 10th and 25th of the succeeding months "until such time that the questioned decision of the Honorable Labor Arbiter Geobel Bartolabac is modified, amended or reversed by the Honorable National Labor Relations Commission."

On January 30, 2002, the NLRC issued a resolution affirming LA Bartolabac's finding of illegal dismissal but with modifications. Instead of ordering reinstatement, the NLRC directed Wenphil to pay separation pay at the rate of one month salary for every year of service. The NLRC also excluded the period of preventive suspension (February 3 to February 28, 2000) from the computation of backwages. Wenphil's motion for reconsideration was denied on September 24, 2002. Wenphil then elevated the matter to the CA via a petition for certiorari. On August 27, 2003, the CA reversed the NLRC's finding of illegal dismissal, ruling that there was sufficient evidence of serious misconduct and that the dismissal was for a valid cause. The CA denied the respondents' motion for reconsideration on February 23, 2004. The respondents then appealed to the Supreme Court via Rule 45 (docketed as G.R. No. 162447), but on December 27, 2006, the SC denied the petition and affirmed the CA's decision, which became final and executory on February 15, 2007.

After the SC's decision in G.R. No. 162447 became final, the respondents filed a motion for computation and issuance of writ of execution with LA Bartolabac on August 16, 2007, asserting that despite the final ruling that they had not been illegally dismissed, they were still entitled to backwages from the time of dismissal until the NLRC's decision finding them illegally dismissed was reversed with finality. LA Bartolabac granted the motion on November 16, 2007, directing Wenphil to pay each respondent their salaries covering the period from February 15, 2002 (the date Wenphil last paid) to November 8, 2002 (when the NLRC's decision affirming illegal dismissal became final). Both parties appealed to the NLRC: Wenphil argued that the compromise agreement extinguished its obligation upon the NLRC's modification, while the respondents contended the period should extend to February 14, 2007. The NLRC affirmed the LA's order in toto on March 26, 2010, and denied reconsideration on September 15, 2010. The CA, on August 31, 2012, reversed the NLRC and prescribed a computation period ending August 27, 2003—the date the CA first reversed the NLRC's illegal dismissal finding—relying on the rule that backwages accrue until reversal by a higher court. Wenphil's motion for reconsideration was denied on June 20, 2013, prompting the present petition.

• Compromise Agreement as Binding Law: Petitioner maintained that the respondents were no longer entitled to backwages in view of the October 29, 2001 compromise agreement, whose terms clearly provided that Wenphil's obligation to pay salaries would cease once the LA's decision was "modified, amended or reversed" by the NLRC. Petitioner argued that the NLRC's substitution of separation pay for reinstatement constituted a "modification" within the meaning of the agreement, thus extinguishing the wage obligation.
• Inapplicability of Pfizer vs. Velasco: Petitioner contended that the CA's cited case of Pfizer vs. Velasco could not apply because there was no compromise agreement in Pfizer where the dismissed employee waived her entitlement to backwages, unlike in the present case where the parties had expressly agreed to the cessation condition.
• Backwages Available Only to Illegally Dismissed Employees: Petitioner claimed that the reliefs of reinstatement and backwages are available only to illegally dismissed employees, and that awarding reinstatement pay notwithstanding the validity of the dismissal would amount to the court's tolerance of an unjust and inequitable situation.

• Extended Computation Period: Respondents argued that the period for payment of their backwages should end not on November 8, 2002, but on February 14, 2007, since the SC decision which affirmed the CA's ruling that they had not been illegally dismissed became final and executory on February 15, 2007.
• Continuing Entitlement Despite Reversal: Respondents asserted that although the CA's ruling on the absence of illegal dismissal (as affirmed by the SC) was adverse to them, under the law and settled jurisprudence they were still entitled to backwages from the time of their dismissal until the NLRC's decision finding them illegally dismissed was reversed with finality.

• Effect of Compromise Agreement on Backwages: Whether the parties' October 29, 2001 compromise agreement terminated Wenphil's obligation to pay backwages when the NLRC modified the LA's decision by substituting separation pay for reinstatement, given the stipulation that the obligation would cease upon "modification, amendment or reversal" by the NLRC.
• Period for Computation of Backwages: Whether the period for computing the respondents' backwages should end on November 8, 2002 (when the NLRC decision became final), August 27, 2003 (when the CA first reversed the NLRC's finding of illegal dismissal), or February 15, 2007 (when the SC decision affirming the CA became final and executory).

• Effect of Compromise Agreement on Backwages: No. The NLRC's substitution of separation pay for reinstatement did not constitute the "modification" contemplated in the compromise agreement, because separation pay is a substitute only for reinstatement and not for backwages, and the employer's statutory obligation to pay wages during the appeal period persists until a higher court reverses the finding of illegal dismissal.
• Period for Computation of Backwages: The period should run from February 16, 2002 to August 27, 2003. Under the rule in Pfizer vs. Velasco, Roquero vs. Philippine Airlines, and Garcia vs. Philippine Airlines, backwages accrue during the period of appeal until reversal by a higher court; the CA was the higher court that first reversed the NLRC's finding of illegal dismissal, and the date of reversal—not the date of ultimate finality—controls.

• Effect of Compromise Agreement on Backwages: Article 223 of the Labor Code renders a Labor Arbiter's order of reinstatement immediately executory even pending appeal, imposing on the employer the duty to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by a higher court. This policy, rooted in the constitutional mandate to protect labor, cannot be watered down by a lesser agreement. The compromise agreement's stipulation that Wenphil's wage obligation would cease upon "modification, amendment or reversal" of the LA's decision by the NLRC was valid on its face, but the NLRC did not decree a reversal of the finding of illegal dismissal—it affirmed that finding and merely modified the remedy from reinstatement to separation pay. Separation pay and backwages are distinct reliefs serving different purposes: separation pay is a substitute for reinstatement when reinstatement is no longer feasible due to strained relations, while backwages compensate for earnings lost due to unlawful dismissal. The NLRC's modification of the remedy did not extinguish the respondents' right to backwages, because the finding of illegal dismissal remained undisturbed. Wenphil's reading of the compromise agreement erroneously treated separation pay and backwages as interchangeable. Moreover, had Wenphil truly intended to stop the running of backwages, it should have immediately paid the separation pay ordered by the NLRC, which would have severed the employer-employee relationship. The records show Wenphil never paid the separation pay, so the employment status remained pending and uncertain until the CA rendered its decision reversing the finding of illegal dismissal.

• Period for Computation of Backwages: The controlling rule, as articulated in Pfizer vs. Velasco, Roquero vs. Philippine Airlines, and Garcia vs. Philippine Airlines, is that backwages of a dismissed employee should be granted during the period of appeal until reversal by a higher court. The "higher court" that first reversed the NLRC's ruling of illegal dismissal was the CA, not the SC. The CA promulgated its decision on August 27, 2003, and that date marks the end of the computation period. The respondents' argument that the period should extend to February 14, 2007 (when the SC decision became final) was rejected because the rule refers to the date of reversal, not the date of ultimate finality of such reversal. The LA's starting date of February 15, 2002 was also corrected: since the respondents admitted they were last paid on February 15, 2002, starting the computation on the same date would duplicate wages for that day. The correct starting date is February 16, 2002.

• Immediately Executory Nature of Reinstatement Orders — Under Article 223 of the Labor Code, a Labor Arbiter's decision reinstating a dismissed employee is immediately executory even pending appeal. The employer must either admit the employee back 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. The posting of a bond does not stay execution for reinstatement. In this case, the Court applied this doctrine to hold that Wenphil's obligation to pay wages persisted throughout the appeal period until the CA reversed the finding of illegal dismissal.

• No-Refund Doctrine for Payroll Reinstatement — Even if the employer's appeal ultimately succeeds, the reinstated employee has no duty to return or reimburse the salary received during the period when the lower court or tribunal's decision favored the employee. Requiring a refund would undermine the immediately executory nature of reinstatement orders and would harm the employee who, to make ends meet, would have already spent the salaries received. The Court invoked this doctrine from Garcia vs. Philippine Airlines to reinforce the policy that reinstatement wages cannot be recovered once paid.

• Distinction Between Separation Pay and Backwages — Separation pay is granted where reinstatement is no longer advisable due to strained relations; it is oriented toward the immediate future and the transitional period before the employee finds replacement work. Backwages represent compensation that should have been earned but was not collected because of unjust dismissal; they restore the income lost by reason of unlawful dismissal. Separation pay is a substitute only for reinstatement, not for backwages, and the two reliefs are not interchangeable. An illegally dismissed employee is entitled to either reinstatement (if viable) or separation pay (if reinstatement is no longer viable), plus backwages in either instance. The Court applied this distinction to reject Wenphil's argument that the NLRC's award of separation pay extinguished its backwages obligation.

• Validity of Compromise Agreements — A compromise agreement is binding between the parties and becomes the law between them, but to be valid it must not be contrary to law, morals, good customs, and public policy. In this case, the compromise agreement's cessation clause was valid on its face, but the Court construed the term "modification" narrowly: only a reversal of the finding of illegal dismissal—not a mere change in the remedy awarded—could trigger the cessation of the wage obligation, consistent with the Labor Code's policy protecting the right to backwages during the appeal period.

• "The Court reaffirms the prevailing principle that even 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." — This passage, quoted from Garcia vs. Philippine Airlines, articulates the controlling doctrine on the immediately executory nature of reinstatement orders and the employer's continuing wage obligation during the appeal period, forming the ratio decidendi of the case.

• "This ruling embodies a principle and policy of the law that cannot be watered down by any lesser agreement except perhaps when backwages are already earned entitlements that the employee chooses to surrender for a valuable consideration (and even then, the consideration must at least be equitable)." — This passage establishes the supremacy of the statutory policy on reinstatement wages over private agreements, defining the outer limits within which compromise agreements may modify the statutory right to backwages.

• "The grant of separation pay was a proper substitute only for reinstatement; it could not be an adequate substitute both for reinstatement and for backwages." — Quoted from Santos vs. NLRC, this passage defines the canonical distinction between separation pay and backwages, a distinction central to the Court's rejection of Wenphil's interpretation of the compromise agreement.

• "In this case, the higher court which first reversed the NLRC's ruling was not the SC but rather the CA. In this light, the CA was correct when it found that the period of computation should end on August 27, 2003. The date when the SC's decision became final and executory need not matter as the rule in Roquero, Garcia and Pfizer merely referred to the date of reversal, not the date of the ultimate finality of such reversal." — This passage resolves the issue of the correct endpoint for backwages computation, clarifying that the date of reversal by a higher court—not the date of finality of that reversal—controls.

• Aris vs. NLRC, G.R. No. 90501, August 5, 1991, 200 SCRA 246 — Cited for the policy rationale behind the immediately executory nature of reinstatement orders, rooted in the constitutional provisions on labor and the workingman.
• Garcia vs. Philippine Airlines, G.R. No. 164856, January 20, 2009, 576 SCRA 479 — Cited as controlling authority for the principles that (a) the employer must reinstate and pay wages during the appeal period until reversal by a higher court, and (b) the no-refund doctrine bars recovery of reinstatement salaries even if the employer ultimately prevails on appeal.
• Pfizer vs. Velasco, G.R. No. 177467, March 9, 2011, 645 SCRA 135 — Cited by the CA and affirmed by the Court as the governing rule that backwages accrue during the period of appeal until reversal by a higher court; distinguished by Wenphil on the ground that no compromise agreement existed in Pfizer, but the Court rejected this distinction.
• Santos vs. NLRC, G.R. No. 76721, September 21, 1987, 154 SCRA 171 — Cited for the canonical distinction between separation pay and backwages: separation pay is a substitute only for reinstatement, not for backwages, and the two reliefs serve different purposes.
• Roquero vs. Philippine Airlines, G.R. No. 152329, 449 Phil. 437 (2003) — Cited alongside Pfizer and Garcia for the rule that the period for computing backwages ends on the date a higher court reverses the labor arbitration ruling of illegal dismissal.
• Macasero vs. Southern Industrial Gases Philippines, 597 Phil. 494 (2009) — Cited for the proposition that an illegally dismissed employee is entitled to either reinstatement or separation pay, plus backwages in either instance.
• Golden Ace Builders vs. Talde, G.R. No. 187200, May 5, 2010, 620 SCRA 288 — Cited for the distinction in the bases for computing separation pay (length of past service) and backwages (actual period when the employee was unlawfully prevented from working).
• Ago vs. Court of Appeals, 116 Phil. 841 (1962) — Cited for the rule that a compromise agreement is binding between the parties and becomes the law between them.
• Magbanua vs. Uy, 497 Phil. 518 (2005) — Cited for the rule that a compromise agreement must not be contrary to law, morals, good customs, and public policy to be valid.

• Article 223, 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 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. The Court applied this provision to hold that Wenphil's obligation to pay wages persisted during the appeal period until the CA reversed the finding of illegal dismissal, and that this statutory policy cannot be overridden by the parties' compromise agreement.

Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Portugal Perez, and Estela M. Perlas-Bernabe concurred in the decision. No separate concurring opinions were written.