Zarate vs. Olegario

A final and executory judgment ordering reinstatement may be modified to grant separation pay in lieu thereof when subsequent supervening events, not attributable to the employer's fault and occurring before the finality of the judgment, render the position's abolition and reinstatement impossible; furthermore, decisions of labor arbiters must first be appealed to the NLRC under Article 223 of the Labor Code before certiorari to the Supreme Court under Rule 65 will lie.

The case involves an accountant employed by an electric cooperative who was dismissed during his probationary period, subsequently declared illegally dismissed by the Labor Arbiter, and ordered reinstated. While the employer's appeal was pending, the National Electrification Authority (NEA) mandated a plantilla revision to achieve cost savings, resulting in the abolition of the accountant position before the Supreme Court finally dismissed the employer's appeal and affirmed the reinstatement order.

• Petitioner Daniel V. Zarate, Jr. was hired by Benguet Electric Cooperative, Inc. (BENECO) as an accountant under a probationary appointment effective July 1, 1983 until December 31, 1983, with a salary grade corresponding to that of a Department Head.
• Under BENECO's Policy No. 3-13, probationary appointments were not to be extended to Department Heads; however, the General Manager designated petitioner to the position vacated by the Manager of the Finance and Administration Department.
• On November 28, 1983, the General Manager notified petitioner of the termination of his services effective December 31, 1983 without stating any ground, prompting petitioner to file a case for illegal dismissal.
• While the case was pending, BENECO's Board of Directors issued Resolution No. 61-85 on April 13, 1985, recalling petitioner to work under a temporary appointment as Internal Auditor, without prejudice to the outcome of the case.
• On September 19, 1986, BENECO's new Board of Directors issued Resolution No. 159-86 terminating petitioner's temporary appointment allegedly due to defiance of rules and arrogant attitude.
• On November 20, 1985, the Labor Arbiter rendered a decision finding that petitioner had passed the probationary standards and became a regular employee as accountant (but not as department head), and ordered his reinstatement with backwages.
• Prior to the finality of the judgment, specifically on July 14, 1987, BENECO revised its plantilla in compliance with National Electrification Authority (NEA) guidelines for cost savings, abolishing the position of accountant and failing to create an equivalent position.
• BENECO satisfied the monetary claims but filed a motion to pay separation pay in lieu of reinstatement, alleging that the position no longer existed and that petitioner was unqualified for available positions such as Chief of the Accounting Division or Manager of the Finance Department.

• The Executive Labor Arbiter committed grave abuse of discretion in failing to consider Resolution No. 61-85, which demonstrated that BENECO had recalled petitioner to work and recognized his employment status.
• The assailed orders violated the final and executory judgment of reinstatement by substituting separation pay, and it was the ministerial duty of the Executive Labor Arbiter to implement the decision without modification.
• The abolition of the position was not genuine; petitioner alleged that equivalent or substantially similar positions existed in the new plantilla to which he could be reinstated.
• Denying reinstatement would violate petitioner's constitutional right to security of tenure.

• Reinstatement had become impossible due to a supervening event—the abolition of the position of accountant pursuant to the NEA-mandated plantilla revision implemented on July 14, 1987, which occurred before the judgment became final on June 15, 1988.
• No equivalent position existed in the revised plantilla, and petitioner admittedly lacked the necessary qualifications and experience for the available positions of Chief, Accounting Division and Manager, Finance Department.
• Separation pay was the appropriate remedy under Section 4(b), Rule I, Book Six of the Omnibus Rules Implementing the Labor Code, which allows such award when the position no longer exists for reasons not attributable to the employer's fault.
• The adoption of the new plantilla was done in good faith and in compliance with government directives, not to defeat the judgment.

• Procedural Issues:
  • Whether certiorari under Rule 65 lies directly from an order of the Executive Labor Arbiter to the Supreme Court without first appealing to the NLRC under Article 223 of the Labor Code.
• Substantive Issues:
  • Whether the Executive Labor Arbiter committed grave abuse of discretion in denying reinstatement and awarding separation pay despite a final and executory judgment ordering reinstatement.
  • Whether separation pay may be granted in lieu of reinstatement when the position has been abolished due to a supervening event occurring prior to the finality of judgment.

• Procedural: The Court held that the petition was dismissible for being procedurally improper, as petitioner ought to have appealed the Executive Labor Arbiter's orders to the NLRC within ten days under Article 223 of the Labor Code, rather than filing a petition for certiorari directly with the Supreme Court. Certiorari under Rule 65 is limited to correcting errors of jurisdiction or grave abuse of discretion, not errors of judgment. However, in the interest of justice and because the petition raised substantial issues, the Court resolved the case on the merits.
• Substantive: The Court held that the Executive Labor Arbiter did not commit grave abuse of discretion. The abolition of the position on July 14, 1987 occurred prior to the finality of the judgment on June 15, 1988, and was effected in compliance with NEA guidelines without any showing of bad faith. Furthermore, petitioner lacked the qualifications for the available positions. The Court affirmed the award of separation pay under Section 4(b) of the Omnibus Rules Implementing the Labor Code, which permits such remedy when the position no longer exists at the time of reinstatement for reasons not attributable to the employer's fault. The Court reiterated that while final judgments are generally immutable, exceptions exist where supervening events render execution impossible or unjust.

• Finality of Judgments and the Supervening Event Exception — While courts have a ministerial duty to execute final and executory judgments, this principle admits of exceptions where subsequent facts and circumstances transpire which render such execution unjust or impossible in view of a supervening cause, necessitating modification to harmonize the disposition with prevailing circumstances.
• Separation Pay as Alternative to Reinstatement — Under Section 4(b), Rule I, Book Six of the Omnibus Rules Implementing the Labor Code, when an employee's position no longer exists at the time of reinstatement for reasons not attributable to the fault of the employer, the employee is entitled to separation pay equivalent to at least one month salary or to one month salary for every year of service, whichever is higher, in lieu of reinstatement.
• Grave Abuse of Discretion — Defined as a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction; it must be shown that the discretion was exercised arbitrarily or despotically, and not merely that the court committed errors of judgment.
• Respect for Factual Findings of Labor Tribunals — Findings of fact made by labor tribunals within their specialized jurisdiction, when supported by substantial evidence on record, are generally entitled to great respect and finality and are binding upon the Supreme Court unless the evidence was arbitrarily disregarded or misapprehended.

• "The rule has always been that where the judgment or order has become executory, a tribunal cannot refuse to issue a writ of execution. But where subsequent facts and circumstances transpire which render such execution unjust or impossible in view of a supervening cause, an official can stop its issuance."
• "By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was exercised arbitrarily or despotically."
• "In general, the remedy for illegal dismissal is the reinstatement of the employee to his former position without loss of seniority rights and the payment to him of backwages. But there may be instances where reinstatement is not a viable remedy as where in the meantime the business of the employer has closed or where the relations between the employer and employee have been so severely strained that it is not advisable to order reinstatement, or where the employee decides not to be reinstated."

• Butuan City vs. Ortiz — Cited for the principle that execution of final judgments may be stopped where subsequent facts and circumstances render such execution unjust or impossible due to a supervening cause.
• Industrial Timber Corp. vs. NLRC — Cited for the exception to the rule on finality of judgments when facts and circumstances transpire which render execution impossible or unjust, allowing modification in the interest of justice.
• Kingsize Manufacturing Corporation vs. NLRC — Cited for the validity of separation pay as an alternative remedy when reinstatement is not viable due to closure of business or strained relations.
• Sta. Fe Construction Co. vs. NLRC — Cited regarding the limited scope of certiorari to errors of jurisdiction or grave abuse of discretion, and the respect accorded to factual findings of labor tribunals supported by substantial evidence.

• Article 223 of the Labor Code — Governs the appeal of decisions, awards, or orders of the Labor Arbiter to the NLRC within ten calendar days from receipt thereof.
• Section 4(b), Rule I, Book Six of the Omnibus Rules Implementing the Labor Code — Provides that when the position no longer exists at the time of reinstatement for reasons not attributable to the fault of the employer, the employee shall be entitled to separation pay equivalent to at least one month salary or to one month salary for every year of service, whichever is higher, with a fraction of at least six months considered as one whole year.