Illegally Dismissed Employees Entitled to Full Backwages Without Deduction

G.R. No. 111651, November 28, 1996

Imagine being unjustly fired from your job. Beyond the immediate financial strain, the emotional toll can be immense. What are your rights? How will you support yourself and your family while fighting for justice? The Supreme Court case of Bustamante vs. Evergreen Farms, Inc. provides critical guidance, affirming an illegally dismissed employee’s right to full backwages, without deducting earnings made elsewhere during the period of unemployment. This landmark ruling significantly strengthens the protection afforded to workers in the Philippines, ensuring they are justly compensated for the hardship caused by unlawful termination.

The Legal Framework: Backwages and Employee Rights

The Philippine Labor Code (Presidential Decree No. 442), as amended by Republic Act No. 6715, provides the legal foundation for employee rights, including security of tenure. Article 279 of the Labor Code is particularly relevant, stating that an employee unjustly dismissed is entitled to reinstatement without loss of seniority rights and to “full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.”

Prior to R.A. 6715, the computation of backwages was subject to the “Mercury Drug rule,” which often limited the award to three years’ worth of backwages or allowed deductions for earnings obtained elsewhere during the period of illegal dismissal. The intent of R.A. 6715 was to provide greater protection to employees, ensuring they receive full compensation for the economic hardship caused by wrongful termination.

Article 279 of the Labor Code states:

“An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement.”

For example, if an employee earning PHP 30,000 per month is illegally dismissed, and it takes two years to resolve the case, they would be entitled to PHP 720,000 in backwages (30,000 x 24 months), plus allowances and other benefits.

Bustamante vs. Evergreen Farms: A Case of Illegal Dismissal

The case revolves around Osmalik S. Bustamante, Paulino A. Bantayan, Fernando L. Bustamante, Mario D. Sumonod, and Sabu J. Lamaran, who were employees of Evergreen Farms, Inc. They were terminated from their employment, leading them to file a case for illegal dismissal with the National Labor Relations Commission (NLRC).

Here’s a breakdown of the case’s journey:

• Labor Arbiter’s Decision: The Labor Arbiter initially ruled in favor of the employees, finding that they were illegally dismissed and awarding them backwages and other benefits.
• NLRC’s Resolution: The NLRC modified the Labor Arbiter’s decision by deleting the award for backwages, arguing that the employees were not actually dismissed but merely had their probationary employment not converted to permanent status.
• Supreme Court’s Decision: The Supreme Court reversed the NLRC’s resolution, reinstating the award for backwages. The Court emphasized that the employees were indeed illegally dismissed and were entitled to compensation for the period they were unemployed.

A key point of contention was whether the backwages should be reduced by any earnings the employees may have obtained from other employment during their dismissal. The Supreme Court addressed this directly, stating:

“The clear legislative intent of the amendment in Rep. Act No. 6715 is to give more benefits to workers than was previously given them under the Mercury Drug rule or the ‘deduction of earnings elsewhere’ rule. Thus, a closer adherence to the legislative policy behind Rep. Act No. 6715 points to ‘full backwages’ as meaning exactly that, i.e., without deducting from backwages the earnings derived elsewhere by the concerned employee during the period of his illegal dismissal.”

The Court further elaborated:

“[T]he employee, while litigating the legality (illegality) of his dismissal, must still earn a living to support himself and family, while full backwages have to be paid by the employer as part of the price or penalty he has to pay for illegally dismissing his employee.”

Practical Implications for Employers and Employees

This ruling has significant implications for both employers and employees. Employers must exercise extreme caution when terminating employees, ensuring that there is just cause and that proper procedures are followed. Failure to do so can result in substantial financial penalties, including the payment of full backwages without deduction.

For employees, this case reinforces their right to security of tenure and provides a clear path to compensation if they are unjustly dismissed. It assures them that they can seek other employment to support themselves without fear of reducing their backwages award.

Key Lessons

• Strict Compliance: Employers must strictly adhere to labor laws and due process when terminating employees.
• Full Backwages: Illegally dismissed employees are entitled to full backwages, without any deduction for earnings obtained elsewhere.
• Burden of Proof: The burden of proof lies with the employer to demonstrate just cause for termination.

Imagine a scenario where a company needs to downsize due to economic hardship. If they fail to follow the proper legal procedures for termination, such as providing adequate notice and separation pay, they could face a costly illegal dismissal lawsuit, including the payment of full backwages to affected employees.

Frequently Asked Questions (FAQs)

Q: What constitutes illegal dismissal?

A: Illegal dismissal occurs when an employee is terminated without just cause or without following the proper procedures outlined in the Labor Code.

Q: What are backwages?

A: Backwages are the compensation an employee would have earned from the time of their illegal dismissal until their reinstatement or, if reinstatement is not feasible, until the finality of the court decision.

Q: Does this ruling apply to probationary employees?

A: Yes, probationary employees are also protected from illegal dismissal. While employers have more leeway in terminating probationary employees, they must still comply with due process requirements.

Q: Can an employer deduct SSS, PhilHealth, and Pag-IBIG contributions from backwages?

A: Yes, employers are generally required to deduct these contributions from backwages, as they represent mandatory employee benefits.

Q: What if reinstatement is no longer possible?

A: If reinstatement is not feasible, the employee is typically entitled to separation pay, in addition to backwages.

Q: How long does an employee have to file an illegal dismissal case?

A: An employee generally has three (3) years from the date of dismissal to file a complaint for illegal dismissal.

Q: Are allowances and other benefits included in the computation of backwages?

A: Yes, the law explicitly states that backwages should include allowances and other benefits or their monetary equivalent.

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.