No Deduction for Interim Earnings: Philippine Supreme Court Affirms Full Backwages in Illegal Dismissal Cases

TLDR: This landmark Supreme Court case clarifies that illegally dismissed employees in the Philippines are generally entitled to full backwages without deduction for earnings they may have received from other employment during the period of their illegal dismissal. This ruling reinforces employee rights and underscores the penalty employers face for unlawful terminations.

[ G.R. No. 117105, March 02, 1999 ] TIMES TRANSIT CREDIT COOP. INC., PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND MARGARITA CARIÑO, RESPONDENTS.

INTRODUCTION

Imagine losing your job unfairly and then, despite winning your case for illegal dismissal, being told your back pay will be reduced because you found another job to survive. This scenario highlights a crucial aspect of Philippine labor law: the computation of backwages for illegally dismissed employees. The Supreme Court case of Times Transit Credit Coop. Inc. vs. National Labor Relations Commission addresses this very issue, firmly establishing that, as a general rule, employees unjustly terminated are entitled to full backwages, undiminished by earnings from subsequent employment. This case serves as a vital precedent, safeguarding the financial stability of employees during periods of wrongful dismissal and reinforcing the employer’s responsibility to adhere to just and lawful termination procedures. Margarita Cariño, a clerk dismissed for alleged misconduct, found herself at the heart of this legal battle, seeking justice and rightfully due compensation for her unlawful termination. Her case journeyed through labor arbitration and the National Labor Relations Commission (NLRC) before reaching the Supreme Court, ultimately solidifying the principle of undiminished backwages.

LEGAL CONTEXT: BACKWAGES AND ILLEGAL DISMISSAL IN THE PHILIPPINES

In the Philippines, the Labor Code provides significant protection to employees against unjust dismissal. Article 294 (formerly Article 279) of the Labor Code, as amended by Republic Act No. 6715, is the cornerstone of these protections, stipulating the remedies available to employees in cases of illegal dismissal. This article mandates reinstatement without loss of seniority rights and privileges, and the payment of full backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the time compensation was withheld from the date of actual reinstatement.

Prior to amendments introduced by Republic Act No. 6715, jurisprudence allowed for the deduction of interim earnings from backwages. However, with the passage of R.A. No. 6715, a significant shift occurred. The landmark case of Bustamante vs. NLRC (265 SCRA 61 [1996]) definitively interpreted the legislative intent behind the amended Labor Code. The Supreme Court in Bustamante explicitly stated that “backwages to be awarded to an illegally dismissed employee, should not, as a general rule, be diminished or reduced by the earnings derived by him elsewhere during the period of his illegal dismissal.” The rationale is clear: an employee forced into illegal dismissal must find means to survive, and their efforts to mitigate damages should not lessen the employer’s liability for the illegal act of dismissal. The Court emphasized that full backwages serve as a form of penalty against the employer for wrongful termination and compensation for the employee’s lost income due to the employer’s illegal action. This legal principle, firmly established in Bustamante, became the guiding light for subsequent cases, including Times Transit Credit Coop. Inc. vs. NLRC.

CASE BREAKDOWN: TIMES TRANSIT CREDIT COOP. INC. VS. NLRC

Margarita Cariño was employed as a clerk at Times Transit Credit Cooperative, Inc. from July 1985 until her dismissal on June 16, 1990. Her termination stemmed from an incident where she, without explicit authority, received labor inspection reports and registration papers intended for the cooperative and delivered them late to the governing board. Times Transit deemed this “serious misconduct” and promptly dismissed her.

Feeling unjustly treated, Cariño filed a complaint for illegal dismissal, alongside claims for underpayment of wages and other benefits. While awaiting the resolution of her case, Cariño secured employment at another cooperative, the University of Northern Philippines Multi-Purpose Cooperative, Inc. (UNP Cooperative), starting January 1, 1991.

The Labor Arbiter ruled in Cariño’s favor on September 30, 1992, declaring her dismissal illegal and ordering Times Transit to pay backwages (P53,900.00), separation pay (P13,720.00), and 13th-month pay differential (P4,325.81). The NLRC affirmed this decision on June 9, 1993.

Times Transit then attempted to reduce their financial liability. They filed motions for reconsideration and clarification, arguing that Cariño’s earnings from UNP Cooperative during the pendency of her illegal dismissal case should be deducted from her backwages. They even pursued this issue during pre-execution proceedings, seeking to compel Cariño to disclose her earnings from UNP Cooperative to facilitate a deduction.

However, both the NLRC and the Labor Arbiter consistently rejected Times Transit’s attempts to modify the award. The NLRC emphasized the finality of the judgment and invoked the established rule of computing backwages without deduction for interim earnings, citing the Bustamante precedent.

Unrelenting, Times Transit elevated the matter to the Supreme Court via a special civil action for certiorari. The core issue before the Supreme Court was whether the NLRC committed grave abuse of discretion in refusing to deduct Cariño’s earnings from UNP Cooperative from her backwages award, arguing that the judgment had become final and executory.

The Supreme Court sided with Cariño and the NLRC, denying Times Transit’s petition. Justice Quisumbing, writing for the Second Division, underscored the finality of the Labor Arbiter’s decision, which had become executory after Times Transit’s motions for reconsideration and clarification were denied. The Court reiterated the principle established in Bustamante vs. NLRC, stating: