In Solidbank Corporation v. Court of Appeals, the Supreme Court addressed the computation of monetary awards for an illegally dismissed employee, focusing on the inclusion of allowances and benefits in the gross monthly pay used to calculate separation pay and backwages. The Court clarified that while illegally dismissed employees are entitled to these benefits, the specific amounts must be proven with sufficient evidence. This ruling reinforces the principle that employers must adhere to due process in termination and fairly compensate employees for illegal dismissal, while also requiring employees to substantiate claims for additional benefits.

From Loan Anomalies to Dismissal: Calculating Fair Compensation for Wrongful Termination

The case originated from the aftermath of loan irregularities at the Imus branch of Solidbank Corporation. Danilo H. Lazaro, then Vice President and Head of the Branch Banking Group, Region 6, tendered his resignation out of delicadeza following an audit that revealed significant loan releases without proper documentation. However, the bank’s president persuaded him to stay, assigning him to a special project focused on resolving the Imus branch loans. Despite these efforts, Lazaro was verbally dismissed months later, retroactive to a date before he was even informed of the dismissal. The stated reason was that his continued presence “might be used as a basis to accuse the bank of abetting a senior officer who has been implicated by a ‘customer’ in a case of public inquiry.”

This dismissal led Lazaro to file a complaint for illegal dismissal, seeking reinstatement, backwages, and damages. The Labor Arbiter (LA) initially dismissed the illegal dismissal claim but awarded separation pay, compensatory benefits, and damages for the arbitrary reversal of his Christmas bonus. Both parties appealed to the National Labor Relations Commission (NLRC), which affirmed the LA’s decision with a modification, deleting the award of moral and exemplary damages. Dissatisfied, Lazaro appealed to the Court of Appeals (CA), which ruled in his favor, finding him illegally dismissed and awarding separation pay, backwages, and other amounts. Solidbank and Lazaro then filed their respective petitions for review, leading to the Supreme Court’s intervention to resolve the issues surrounding the computation of monetary awards.

At the heart of the legal dispute was whether the CA erred in its computation of Lazaro’s gross monthly pay and the subsequent awards. Solidbank contested the CA’s decision, arguing that Lazaro’s second Motion for Reconsideration/Clarification was filed improperly and that the awards lacked legal basis. On the other hand, Lazaro argued that his gross monthly pay should include all allowances and benefits consistently given to him, amounting to P75,912.00 instead of the P53,962.64 used by the CA. The Court thus had to determine the proper basis for calculating separation pay and backwages, considering the circumstances of Lazaro’s dismissal and the subsequent closure of Solidbank’s operations.

The Supreme Court first addressed the procedural issue of Lazaro’s second motion for reconsideration. The Court stated,

“[t]here is also no merit to the respondents’ argument that Planters Bank’s motion for reconsideration is disallowed under Section 2, Rule 52 of the Rules of Court, x x x [T]here is a difference between an amended judgment and a supplemental judgment. In an amended judgment, the lower court makes a thorough study of the original judgment and renders the amended and clarified judgment only after considering all the factual and legal issues. The amended and clarified decision is an entirely new decision which supersedes or takes the place of the original decision.”

Based on this, the Court disagreed with the bank, clarifying that because the CA’s Amended Decision was “an entirely new decision,” a new motion for reconsideration was permissible. This procedural clarification set the stage for the Court to delve into the substantive issues of the case.

Turning to the computation of monetary awards, the Court reiterated the principle that separation pay and backwages for illegally dismissed employees should be computed using the gross monthly pay, including allowances and other benefits. However, the Court emphasized that such amounts must be “duly proved” with sufficient evidence. Despite Lazaro’s claim that his gross monthly salary should include additional allowances and benefits, the Court found the records lacking in evidence to support these claims. Therefore, the Court maintained the amount of P53,962.64 as Lazaro’s gross monthly pay, as it was uncontested by both parties.

Regarding the separation pay, the Court acknowledged that reinstatement was no longer feasible due to the cessation of Solidbank’s operations. The court cited Industrial Timber Corporation Stanply Operations v. NLRC, 323 Phil. 753 (1996). This led the Court to consider the Solidbank-Metrobank Merger-Integration Agreement, which provided separation pay to Solidbank employees not absorbed by Metrobank, with the gross monthly pay increased by 150%. The Court disagreed with the CA’s view that Lazaro was not covered by this agreement, reasoning that his illegal dismissal prevented him from being offered a position with Metrobank. Thus, the Court computed Lazaro’s separation pay from his employment date until the cessation of Solidbank’s business, with the 150% increase applied.

In computing backwages, the Court noted that they are generally calculated from the time of dismissal until the finality of the decision ordering separation pay. However, the court cited Retuya v. Dumarpa, G.R. No. 148848, 5 August 2003, stating that because Solidbank ceased operations in 2000, backwages should only be computed up to that point. Awarding backwages beyond the cessation of business would be “unjust” and “confiscatory.” Therefore, the Court calculated Lazaro’s backwages from the date of his illegal dismissal until the cessation of Solidbank’s operations, using his established gross monthly pay.

Finally, the Court addressed the award of damages and attorney’s fees. The Court stated,

“[a]ttorney’s fees may be awarded only when the employee is illegally dismissed in bad faith and is compelled to litigate or incur expenses to protect his rights by reason of the unjustified acts of his employer.”

However, the Court found no evidence that Lazaro’s dismissal was tainted with bad faith, nor any basis for awarding attorney’s fees. Thus, the Court deleted the award of damages and attorney’s fees. The Court clarified that while the dismissal may have been illegal, it did not automatically establish bad faith.

FAQs

What was the key issue in this case?	The key issue was the proper computation of separation pay and backwages for an illegally dismissed employee, specifically regarding the inclusion of allowances and benefits in the gross monthly pay. The court also addressed the propriety of awarding moral and exemplary damages and attorney’s fees.
How did the Court define gross monthly pay in this context?	The Court defined gross monthly pay as including all allowances and benefits or their monetary equivalent, in addition to the basic salary. However, it emphasized that these additional amounts must be duly proven with sufficient evidence.
When are damages and attorney’s fees awarded in illegal dismissal cases?	Damages and attorney’s fees are awarded only when the employee is illegally dismissed in bad faith and is compelled to litigate to protect his rights due to the employer’s unjustified actions. The dismissal alone does not automatically warrant these awards.
How is separation pay calculated when a company ceases operations?	Separation pay is calculated up to the time the employer ceased operations, not beyond. In cases of mergers, employees not absorbed by the new entity are entitled to separation pay as per the merger agreement.
How are backwages computed in cases of illegal dismissal?	Backwages are generally computed from the time of illegal dismissal until the finality of the decision ordering separation pay. However, if the employer ceases operations before the finality of the decision, backwages are computed only up to the date of cessation.
What was the significance of the Solidbank-Metrobank Merger-Integration Agreement?	The agreement dictated that separation pay would be given to Solidbank employees not absorbed by Metrobank, with the gross monthly pay increased by 150%. The Court ruled that Lazaro was covered by this agreement despite his earlier illegal dismissal.
What evidence is required to prove additional allowances and benefits?	To include additional allowances and benefits in the computation of gross monthly pay, the employee must provide sufficient evidence to substantiate the claims. The absence of such evidence will result in the computation being based on the uncontested basic salary and cost of living allowance.
What was the final ruling of the Supreme Court in this case?	The Supreme Court modified the CA’s decision, awarding Lazaro separation pay and backwages computed based on his gross monthly pay of P53,962.64, with adjustments for the Solidbank-Metrobank Merger and the cessation of Solidbank’s operations. The awards for moral and exemplary damages and attorney’s fees were deleted.

The Supreme Court’s decision in Solidbank Corporation v. Court of Appeals offers a clear framework for calculating monetary awards in illegal dismissal cases, particularly when a company ceases operations. The ruling balances the rights of employees to fair compensation with the need for evidentiary support for claims and the limitations imposed by business closures. This case underscores the importance of proper documentation and adherence to due process in employment termination.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Solidbank Corporation v. Court of Appeals, G.R. No. 166581, December 7, 2015