Republic of the Philippines Supreme Court Manila EN BANC ANTONIO M. SERRANO, G.R. No. 167614 GALLANT MARITIME SERVICES, PERALTA, JJ. INC. and MARLOW NAVIGATION CO., INC., Promulgated: Respondents. March 24, 2009 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x D E C I S I O N AUSTRIA-MARTINEZ, J.:

For decades, the toil of solitary migrants has helped lift entire families and communities out of poverty. Their earnings have built houses, provided health care, equipped schools and planted the seeds of businesses. They have woven together the world by transmitting ideas and knowledge from country to country. They have provided the dynamic human link between cultures, societies and economies. Yet, only recently have we begun to understand not only how much international migration impacts development, but how smart public policies can magnify this effect.

United Nations Secretary-General Ban Ki-Moon Global Forum on Migration and Development Brussels, July 10, 2007[1]

For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of Section 10, Republic Act (R.A.) No. 8042,

[2] to wit:

Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just, valid or authorized cause as defined by law or

contract, the workers shall be entitled to the full reimbursement of his placement fee with interest of twelve percent (12%) per annum, plus his salaries for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less. x x x x (Emphasis and underscoring supplied)

does not magnify the contributions of overseas Filipino workers (OFWs) to national development, but exacerbates the hardships borne by them by

unduly limiting their entitlement in case of illegal dismissal to their lump-sum salary either for the unexpired portion of their employment contract or

for three months for every year of the unexpired term, whichever is less (subject clause).Petitioner claims that the last clause violates the OFWs'

constitutional rights in that it impairs the terms of their contract, deprives them of equal protection and denies them due process.

By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the December 8, 2004 Decision[3] and April 1, 2005

Resolution[4] of the Court of Appeals (CA), which applied the subject clause, entreating this Court to declare the subject clause unconstitutional.

Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a Philippine Overseas

Employment Administration (POEA)-approved Contract of Employment with the following terms and conditions: Duration of contract 12 months

Position Chief Officer Basic monthly salary US$1,400.00 Hours of work 48.0 hours per week Overtime US$700.00 per month Vacation leave with pay 7.00 days per month[5]

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment contract for the position of

Second Officer with a monthly salary of US$1,000.00, upon the assurance and representation of respondents that he would be made Chief Officer by

the end of April 1998.[6]

Respondents did not deliver on their promise to make petitioner Chief Officer.[7] Hence, petitioner refused to stay on as Second Officer and

was repatriated to the Philippines on May 26, 1998.[8]

Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to March 19, 1999, but at the time of his

repatriation on May 26, 1998, he had served only two (2) months and seven (7) days of his contract, leaving an unexpired portion of nine (9) months

and twenty-three (23) days.

Petitioner filed with the Labor Arbiter (LA) a Complaint[9] against respondents for constructive dismissal and for payment of his money claims

in the total amount of US$26,442.73, broken down as follows:

May 27/31, 1998 (5 days) incl. Leave pay US$ 413.90 June 01/30, 1998 2,590.00 July 01/31, 1998 2,590.00 August 01/31, 1998 2,590.00 Sept. 01/30, 1998 2,590.00 Oct. 01/31, 1998 2,590.00 Nov. 01/30, 1998 2,590.00 Dec. 01/31, 1998 2,590.00 Jan. 01/31, 1999 2,590.00 Feb. 01/28, 1999 2,590.00 Mar. 1/19, 1999 (19 days) incl. leave pay 1,640.00 -------------------------------------------------------------------------------- 25,382.23 Amount adjusted to chief mate's salary (March 19/31, 1998 to April 1/30, 1998) + 1,060.50[10] ---------------------------------------------------------------------------------------------- TOTAL CLAIM US$ 26,442.73

[11]

as well as moral and exemplary damages and attorney's fees.

The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner illegal and awarding him monetary benefits, to wit: WHEREFORE, premises considered, judgment is hereby rendered declaring that the dismissal of the complainant (petitioner) by the respondents in the above-entitled case was illegal and the respondents are hereby ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of EIGHT THOUSAND SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the complainants salary for three (3) months of the unexpired portion of the aforesaid contract of employment. The respondents are likewise ordered to pay the complainant [petitioner], jointly and severally, in Philippine Currency, based on the rate of exchange prevailing at the time of payment, the amount of FORTY FIVE U.S. DOLLARS (US$ 45.00),

[12] representing the complainants claim for a salary differential.

In addition, the respondents are hereby ordered to pay the complainant, jointly and severally, in Philippine Currency, at the exchange rate prevailing at the time of payment, the complainants (petitioner's) claim for attorneys fees equivalent to ten percent (10%) of the total amount awarded to the aforesaid employee under this Decision. The claims of the complainant for moral and exemplary damages are hereby DISMISSED for lack of merit. All other claims are hereby DISMISSED. SO ORDERED.[13] (Emphasis supplied)

In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his computation on the salary period of three months only -- rather

than the entire unexpired portion of nine months and 23 days of petitioner's employment contract - applying the subject clause. However, the LA

applied the salary rate of US$2,590.00, consisting of petitioner's [b]asic salary, US$1,400.00/month + US$700.00/month, fixed overtime pay, +

US$490.00/month, vacation leave pay = US$2,590.00/compensation per month.[14]

Respondents appealed[15] to the National Labor Relations Commission (NLRC) to question the finding of the LA that petitioner was illegally

dismissed.

Petitioner also appealed[16] to the NLRC on the sole issue that the LA erred in not applying the ruling of the Court in Triple Integrated Services,

Inc. v. National Labor Relations Commission[17] that in case of illegal dismissal, OFWs are entitled to their salaries for the unexpired portion of their

contracts.[18]

In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit:

WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are hereby ordered to pay complainant, jointly and severally, in Philippine currency, at the prevailing rate of exchange at the time of payment the following:

1. Three (3) months salary $1,400 x 3 US$4,200.00 2. Salary differential 45.00 US$4,245.00 3. 10% Attorneys fees 424.50 TOTAL US$4,669.50

The other findings are affirmed. SO ORDERED.[19]

The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by reducing the applicable salary rate from

US$2,590.00 to US$1,400.00 because R.A. No. 8042 does not provide for the award of overtime pay, which should be proven to have been actually

performed, and for vacation leave pay.[20]

Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the constitutionality of the subject clause.

[21] The NLRC

denied the motion.[22]

Petitioner filed a Petition for Certiorari[23]

with the CA, reiterating the constitutional challenge against the subject clause.[24]

After initially

dismissing the petition on a technicality, the CA eventually gave due course to it, as directed by this Court in its Resolution dated August 7, 2003 which

granted the petition for certiorari, docketed as G.R. No. 151833, filed by petitioner.

In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of the applicable salary rate; however, the CA

skirted the constitutional issue raised by petitioner.[25]

His Motion for Reconsideration[26] having been denied by the CA,[27] petitioner brings his cause to this Court on the following grounds: I

The Court of Appeals and the labor tribunals have decided the case in a way not in accord with applicable decision of the Supreme Court involving similar issue of granting unto the migrant worker back wages equal to the unexpired portion of his contract of employment instead of limiting it to three (3) months

II

In the alternative that the Court of Appeals and the Labor Tribunals were merely applying their interpretation of Section 10 of Republic Act No. 8042, it is submitted that the Court of Appeals gravely erred in law when it failed to discharge its judicial duty to decide questions of substance not theretofore determined by the Honorable Supreme Court, particularly, the constitutional issues raised by the petitioner on the constitutionality of said law, which unreasonably, unfairly and arbitrarily limits payment of the award for back wages of overseas workers to three (3) months.

III

Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042, the Court of Appeals gravely erred in law in excluding from petitioners award the overtime pay and vacation pay provided in his contract since under the contract they form part of his salary.

[28]

On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old and sickly, and he intends to make use of the

monetary award for his medical treatment and medication.[29] Required to comment, counsel for petitioner filed a motion, urging the court to allow

partial execution of the undisputed monetary award and, at the same time, praying that the constitutional question be resolved.[30]

Considering that the parties have filed their respective memoranda, the Court now takes up the full merit of the petition mindful of the

extreme importance of the constitutional question raised therein.

On the first and second issues

The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is not disputed. Likewise not disputed is the salary

differential of US$45.00 awarded to petitioner in all three fora. What remains disputed is only the computation of the lump-sum salary to be awarded

to petitioner by reason of his illegal dismissal.

Applying the subject clause, the NLRC and the CA computed the lump-sum salary of petitioner at the monthly rate of US$1,400.00 covering

the period of three months out of the unexpired portion of nine months and 23 days of his employment contract or a total of US$4,200.00.

Impugning the constitutionality of the subject clause, petitioner contends that, in addition to the US$4,200.00 awarded by the NLRC and the

CA, he is entitled to US$21,182.23 more or a total of US$25,382.23, equivalent to his salaries for the entire nine months and 23 days left of his

employment contract, computed at the monthly rate of US$2,590.00.[31]

The Arguments of Petitioner

Petitioner contends that the subject clause is unconstitutional because it unduly impairs the freedom of OFWs to negotiate for and stipulate

in their overseas employment contracts a determinate employment period and a fixed salary package.[32] It also impinges on the equal protection

clause, for it treats OFWs differently from local Filipino workers (local workers) by putting a cap on the amount of lump-sum salary to which OFWs are

entitled in case of illegal dismissal, while setting no limit to the same monetary award for local workers when their dismissal is declared illegal; that the

disparate treatment is not reasonable as there is no substantial distinction between the two groups;[33]

and that it defeats Section 18,[34]

Article II of the

Constitution which guarantees the protection of the rights and welfare of all Filipino workers, whether deployed locally or overseas.[35]

Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line with existing jurisprudence on the issue of

money claims of illegally dismissed OFWs.Though there are conflicting rulings on this, petitioner urges the Court to sort them out for the guidance of

affected OFWs.[36]

Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042 serves no other purpose but to benefit local

placement agencies. He marks the statement made by the Solicitor General in his Memorandum, viz.:

Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money claims was reduced under Section 10 of R.A. No. 8042. [37] (Emphasis supplied)

Petitioner argues that in mitigating the solidary liability of placement agencies, the subject clause sacrifices the well-being of OFWs. Not only

that, the provision makes foreign employers better off than local employers because in cases involving the illegal dismissal of employees, foreign

employers are liable for salaries covering a maximum of only three months of the unexpired employment contract while local employers are liable for

the full lump-sum salaries of their employees. As petitioner puts it: In terms of practical application, the local employers are not limited to the amount of backwages they have to give their employees they

have illegally dismissed, following well-entrenched and unequivocal jurisprudence on the matter. On the other hand, foreign employers will only be limited to giving the illegally dismissed migrant workers the maximum of three (3) months unpaid salaries notwithstanding the unexpired term of the contract that can be more than three (3) months.

[38]

Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives him of the salaries and other emoluments he is

entitled to under his fixed-period employment contract.[39]

The Arguments of Respondents

In their Comment and Memorandum, respondents contend that the constitutional issue should not be entertained, for this was belatedly

interposed by petitioner in his appeal before the CA, and not at the earliest opportunity, which was when he filed an appeal before the NLRC.[40]

The Arguments of the Solicitor General

The Solicitor General (OSG)[41] points out that as R.A. No. 8042 took effect on July 15, 1995, its provisions could not have impaired petitioner's

1998 employment contract. Rather, R.A. No. 8042 having preceded petitioner's contract, the provisions thereof are deemed part of the minimum

terms of petitioner's employment, especially on the matter of money claims, as this was not stipulated upon by the parties.[42]

Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of their employment, such that their rights to

monetary benefits must necessarily be treated differently. The OSG enumerates the essential elements that distinguish OFWs from local workers: first,

while local workers perform their jobs within Philippine territory, OFWs perform their jobs for foreign employers, over whom it is difficult for our courts

to acquire jurisdiction, or against whom it is almost impossible to enforce judgment; and second, as held in Coyoca v. National Labor Relations

Commission[43] and Millares v. National Labor Relations Commission,[44] OFWs are contractual employees who can never acquire regular employment

status, unlike local workers who are or can become regular employees. Hence, the OSG posits that there are rights and privileges exclusive to local

workers, but not available to OFWs; that these peculiarities make for a reasonable and valid basis for the differentiated treatment under the subject

clause of the money claims of OFWs who are illegally dismissed. Thus, the provision does not violate the equal protection clause nor Section 18, Article

II of the Constitution.[45]

Lastly, the OSG defends the rationale behind the subject clause as a police power measure adopted to mitigate the solidary liability of

placement agencies for this redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of

legitimate placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and

humane conditions.[46]

The Court's Ruling

The Court sustains petitioner on the first and second issues.

When the Court is called upon to exercise its power of judicial review of the acts of its co-equals, such as the Congress, it does so only when

these conditions obtain: (1) that there is an actual case or controversy involving a conflict of rights susceptible of judicial determination;[47]

(2) that the

constitutional question is raised by a proper party[48] and at the earliest opportunity;[49] and (3) that the constitutional question is the very lis mota of the

case,[50] otherwise the Court will dismiss the case or decide the same on some other ground.[51]

Without a doubt, there exists in this case an actual controversy directly involving petitioner who is personally aggrieved that the labor

tribunals and the CA computed his monetary award based on the salary period of three months only as provided under the subject clause.

The constitutional challenge is also timely. It should be borne in mind that the requirement that a constitutional issue be raised at the earliest

opportunity entails the interposition of the issue in the pleadings before a competent court, such that, if the issue is not raised in the pleadings before

that competent court, it cannot be considered at the trial and, if not considered in the trial, it cannot be considered on appeal.[52]

Records disclose that

the issue on the constitutionality of the subject clause was first raised, not in petitioner's appeal with the NLRC, but in his Motion for Partial

Reconsideration with said labor tribunal,[53]

and reiterated in his Petition for Certiorari before the CA.[54]

Nonetheless, the issue is deemed seasonably

raised because it is not the NLRC but the CA which has the competence to resolve the constitutional issue. The NLRC is a labor tribunal that merely

performs a quasi-judicial function its function in the present case is limited to determining questions of fact to which the legislative policy of R.A. No.

8042 is to be applied and to resolving such questions in accordance with the standards laid down by the law itself;[55]thus, its foremost function is to

administer and enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The CA, on the other hand, is vested with the power of

judicial review or the power to declare unconstitutional a law or a provision thereof, such as the subject clause.[56] Petitioner's interposition of the

constitutional issue before the CA was undoubtedly seasonable.The CA was therefore remiss in failing to take up the issue in its decision.

The third condition that the constitutional issue be critical to the resolution of the case likewise obtains because the monetary claim of

petitioner to his lump-sum salary for the entire unexpired portion of his 12-month employment contract, and not just for a period of three months,

strikes at the very core of the subject clause.

Thus, the stage is all set for the determination of the constitutionality of the subject clause.

Does the subject clause violate Section 10, Article III of the Constitution on non-impairment of contracts?

The answer is in the negative.

Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract on the term of his employment and the fixed

salary package he will receive[57] is not tenable.

Section 10, Article III of the Constitution provides: No law impairing the obligation of contracts shall be passed.

The prohibition is aligned with the general principle that laws newly enacted have only a prospective operation,[58] and cannot affect acts or

contracts already perfected;[59] however, as to laws already in existence, their provisions are read into contracts and deemed a part thereof.[60] Thus,

the non-impairment clause under Section 10, Article II is limited in application to laws about to be enacted that would in any way derogate from

existing acts or contracts by enlarging, abridging or in any manner changing the intention of the parties thereto.

As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the execution of the employment contract between

petitioner and respondents in 1998. Hence, it cannot be argued that R.A. No. 8042, particularly the subject clause, impaired the employment contract

of the parties. Rather, when the parties executed their 1998 employment contract, they were deemed to have incorporated into it all the provisions of

R.A. No. 8042.

But even if the Court were to disregard the timeline, the subject clause may not be declared unconstitutional on the ground that it impinges

on the impairment clause, for the law was enacted in the exercise of the police power of the State to regulate a business, profession or calling,

particularly the recruitment and deployment of OFWs, with the noble end in view of ensuring respect for the dignity and well-being of OFWs wherever

they may be employed.[61] Police power legislations adopted by the State to promote the health, morals, peace, education, good order, safety, and

general welfare of the people are generally applicable not only to future contracts but even to those already in existence, for all private contracts must

yield to the superior and legitimate measures taken by the State to promote public welfare.[62]

Does the subject clause violate Section 1, Article III of the Constitution, and Section 18, Article II and Section 3, Article XIII on labor as a protected sector?

The answer is in the affirmative.

Section 1, Article III of the Constitution guarantees:

No person shall be deprived of life, liberty, or property without due process of law nor shall any person be denied the equal protection of the law.

Section 18,[63]

Article II and Section 3,[64]

Article XIII accord all members of the labor sector, without distinction as to place of deployment, full

protection of their rights and welfare.

To Filipino workers, the rights guaranteed under the foregoing constitutional provisions translate to economic security and parity: all

monetary benefits should be equally enjoyed by workers of similar category, while all monetary obligations should be borne by them in equal degree;

none should be denied the protection of the laws which is enjoyed by, or spared the burden imposed on, others in like circumstances.[65]

Such rights are not absolute but subject to the inherent power of Congress to incorporate, when it sees fit, a system of classification into its

legislation; however, to be valid, the classification must comply with these requirements: 1) it is based on substantial distinctions; 2) it is germane to the

purposes of the law; 3) it is not limited to existing conditions only; and 4) it applies equally to all members of the class.[66]

There are three levels of scrutiny at which the Court reviews the constitutionality of a classification embodied in a law: a) the deferential or

rational basis scrutiny in which the challenged classification needs only be shown to be rationally related to serving a legitimate state interest;[67] b)

the middle-tier or intermediate scrutiny in which the government must show that the challenged classification serves an important state interest

and that the classification is at least substantially related to serving that interest;[68] and c) strict judicial scrutiny[69] in whicha legislative

classification which impermissibly interferes with the exercise of a fundamental right[70] or operates to the peculiar disadvantage of a suspect class[71] is

presumed unconstitutional, and the burden is upon the government to prove that the classification is necessary to achieve a compelling state

interest and that it is the least restrictive means to protect such interest.[72]

Under American jurisprudence, strict judicial scrutiny is triggered by suspect classifications[73] based on race[74] or gender[75] but not when the

classification is drawn along income categories.[76]

It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng

Pilipinas,[77] the constitutionality of a provision in the charter of the Bangko Sentral ng Pilipinas (BSP), a government financial institution (GFI), was

challenged for maintaining its rank-and-file employees under the Salary Standardization Law (SSL), even when the rank-and-file employees of other

GFIs had been exempted from the SSL by their respective charters. Finding that the disputed provision contained a suspect classification based on

salary grade, the Court deliberately employed the standard of strict judicial scrutiny in its review of the constitutionality of said provision. More

significantly, it was in this case that the Court revealed the broad outlines of its judicial philosophy, to wit:

Congress retains its wide discretion in providing for a valid classification, and its policies should be accorded recognition and respect by the courts of justice except when they run afoul of the Constitution.The deference stops where the classification violates a fundamental right, or prejudices persons accorded special protection by the Constitution. When these violations arise, this Court must discharge its primary role as the vanguard of constitutional guaranties, and require a stricter and more exacting adherence to constitutional limitations. Rational basis should not suffice.

Admittedly, the view that prejudice to persons accorded special protection by the Constitution requires a stricter judicial scrutiny finds no

support in American or English jurisprudence. Nevertheless, these foreign decisions and authorities are not per se controlling in this jurisdiction. At best, they are persuasive and have been used to support many of our decisions. We should not place undue and fawning reliance upon them and regard them as indispensable mental crutches without which we cannot come to our own decisions through the employment of our own endowments. We live in a different ambience and must decide our own problems in the light of our own interests and needs, and of our qualities and even idiosyncrasies as a people, and always with our own concept of law and justice. Our laws must be construed in accordance with the intention of our own lawmakers and such intent may be deduced from the language of each law and the context of other local legislation related thereto. More importantly, they must be construed to serve our own public interest which is the be-all and the end-all of all our laws. And it need not be stressed that our public interest is distinct and different from others.

x x x x Further, the quest for a better and more equal world calls for the use of equal protection as a tool of effective judicial intervention. Equality is one ideal which cries out for bold attention and action in the Constitution. The Preamble proclaims equality as an ideal precisely in

protest against crushing inequities in Philippine society. The command to promote social justice in Article II, Section 10, in all phases of national development, further explicitated in Article XIII, are clear commands to the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in the Philippine Constitution no lack of doctrinal support for a more vigorous state effort towards achieving a reasonable measure of equality.

Our present Constitution has gone further in guaranteeing vital social and economic rights to marginalized groups of society, including

labor. Under the policy of social justice, the law bends over backward to accommodate the interests of the working class on the humane justification that those with less privilege in life should have more in law. And the obligation to afford protection to labor is incumbent not only on the legislative and executive branches but also on the judiciary to translate this pledge into a living reality. Social justice calls for the humanization of laws and the equalization of social and economic forces by the State so that justice in its rational and objectively secular conception may at least be approximated.

x x x x Under most circumstances, the Court will exercise judicial restraint in deciding questions of constitutionality, recognizing the broad discretion

given to Congress in exercising its legislative power. Judicial scrutiny would be based on the rational basis test, and the legislative discretion would be given deferential treatment.

But if the challenge to the statute is premised on the denial of a fundamental right, or the perpetuation of prejudice against persons favored

by the Constitution with special protection, judicial scrutiny ought to be more strict. A weak and watered down view would call for the abdication of this Courts solemn duty to strike down any law repugnant to the Constitution and the rights it enshrines. This is true whether the actor committing the unconstitutional act is a private person or the government itself or one of its instrumentalities. Oppressive acts will be struck down regardless of the character or nature of the actor.

x x x x In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-employee status. It is akin to a distinction based

on economic class and status, with the higher grades as recipients of a benefit specifically withheld from the lower grades. Officers of the BSP now receive higher compensation packages that are competitive with the industry, while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The implications are quite disturbing: BSP rank-and-file employees are paid the strictly regimented rates of the SSL while employees higher in rank - possessing higher and better education and opportunities for career advancement - are given higher compensation packages to entice them to stay. Considering that majority, if not all, the rank-and-file employees consist of people whose status and rank in life are less and limited, especially in terms of job marketability, it is they - and not the officers - who have the real economic and financial need for the adjustment . This is in accord with the policy of the Constitution "to free the people from poverty, provide adequate social services, extend to them a decent standard of living, and improve the quality of life for all. Any act of Congress that runs counter to this constitutional desideratum deserves strict scrutiny by this Court before it can pass muster. (Emphasis supplied)

Imbued with the same sense of obligation to afford protection to labor, the Court in the present case also employs the standard of strict

judicial scrutiny, for it perceives in the subject clause a suspect classification prejudicial to OFWs.

Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs. However, a closer examination reveals that the

subject clause has a discriminatory intent against, and an invidious impact on, OFWs at two levels:

First, OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts of one year or more; Second, among OFWs with employment contracts of more than one year; and

Third, OFWs vis--vis local workers with fixed-period employment;

OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts of one year or more

As pointed out by petitioner,[78] it was in Marsaman Manning Agency, Inc. v. National Labor Relations Commission[79] (Second Division, 1999)

that the Court laid down the following rules on the application of the periods prescribed under Section 10(5) of R.A. No. 804, to wit:

A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally dismissed overseas contract worker, i.e., whether his salaries for the unexpired portion of his employment contract or three (3) months salary for every year of the unexpired term, whichever is less, comes into play only when the employment contract concerned has a term of at least one (1) year or more. This is evident from the words for every year of the unexpired term which follows the words salaries x x x for three months. To follow petitioners thinking that private respondent is entitled to three (3) months salary only simply because it is the lesser amount is to completely disregard and overlook some words used in the statute while giving effect to some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care should be taken that every part or word thereof be given effect since the law-making body is presumed to know the meaning of the words employed in the statue and to have used them advisedly. Ut res magis valeat quam pereat.[80] (Emphasis supplied)

In Marsaman, the OFW involved was illegally dismissed two months into his 10-month contract, but was awarded his salaries for the remaining 8

months and 6 days of his contract.

Prior to Marsaman, however, there were two cases in which the Court made conflicting rulings on Section 10(5). One was Asian Center for

Career and Employment System and Services v. National Labor Relations Commission (Second Division, October 1998),[81]

which involved an OFW who

was awarded a two-year employment contract, but was dismissed after working for one year and two months. The LA declared his dismissal illegal and

awarded him SR13,600.00 as lump-sum salary covering eight months, the unexpired portion of his contract. On appeal, the Court reduced the award

to SR3,600.00 equivalent to his three months salary, this being the lesser value, to wit:

Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without just, valid or authorized cause is entitled to his salary for the unexpired portion of his employment contract or for three (3) months for every year of the unexpired term, whichever is less.

In the case at bar, the unexpired portion of private respondents employment contract is eight (8) months. Private respondent should

therefore be paid his basic salary corresponding to three (3) months or a total of SR3,600.[82]

Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division, December 1998),[83] which involved

an OFW (therein respondent Erlinda Osdana) who was originally granted a 12-month contract, which was deemed renewed for another 12

months. After serving for one year and seven-and-a-half months, respondent Osdana was illegally dismissed, and the Court awarded her salaries for

the entire unexpired portion of four and one-half months of her contract.

The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:

Case Title

Contract Period

Period of Service

Unexpired Period

Period Applied in the Computation of the Monetary Award

Skippers v. Maguad[84]

6 months 2 months 4 months 4 months

Bahia Shipping v. Reynaldo Chua [85]

9 months 8 months 4 months 4 months

Centennial Transmarine v. dela Cruz l

[86]

9 months 4 months 5 months 5 months

Talidano v. Falcon[87]

12 months 3 months 9 months 3 months

Univan v. CA [88]

12 months 3 months 9 months 3 months

Oriental v. CA [89]

12 months more than 2 months

10 months 3 months

PCL v. NLRC[90] 12 months more than 2 months

more or less 9 months

3 months

Olarte v. Nayona

[91]

12 months 21 days 11 months and 9 days

3 months

JSS v. Ferrer

[92]

12 months 16 days 11 months and 24 days

3 months

Pentagon v. Adelantar

[93]

12 months 9 months and 7 days

2 months and 23 days

2 months and 23 days

Phil. Employ v. Paramio, et al.[94]

12 months 10 months 2 months Unexpired portion

Flourish Maritime v. Almanzor [95]

2 years 26 days 23 months and 4 days

6 months or 3 months for each year of contract

Athenna Manpower v. Villanos

[96]

1 year, 10 months and 28 days

1 month 1 year, 9 months and 28 days

6 months or 3 months for each year of contract

As the foregoing matrix readily shows, the subject clause classifies OFWs into two categories. The first category includes OFWs with fixed-

period employment contracts of less than one year; in case of illegal dismissal, they are entitled to their salaries for the entire unexpired portion of their

contract. The second category consists of OFWs with fixed-period employment contracts of one year or more; in case of illegal dismissal, they are

entitled to monetary award equivalent to only 3 months of the unexpired portion of their contracts.

The disparity in the treatment of these two groups cannot be discounted. In Skippers, the respondent OFW worked for only 2 months out of

his 6-month contract, but was awarded his salaries for the remaining 4 months. In contrast, the respondent OFWs in Oriental and PCL who had also

worked for about 2 months out of their 12-month contracts were awarded their salaries for only 3 months of the unexpired portion of their

contracts. Even the OFWs involved in Talidano and Univan who had worked for a longer period of 3 months out of their 12-month contracts before

being illegally dismissed were awarded their salaries for only 3 months.

To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an employment contract of 10 months at a

monthly salary rate of US$1,000.00 and a hypothetical OFW-B with an employment contract of 15 months with the same monthly salary rate of

US$1,000.00. Both commenced work on the same day and under the same employer, and were illegally dismissed after one month of work. Under

the subject clause, OFW-A will be entitled to US$9,000.00, equivalent to his salaries for the remaining 9 months of his contract, whereas OFW-B will be

entitled to only US$3,000.00, equivalent to his salaries for 3 months of the unexpired portion of his contract, instead of US$14,000.00 for the unexpired

portion of 14 months of his contract, as the US$3,000.00 is the lesser amount.

The disparity becomes more aggravating when the Court takes into account jurisprudence that, prior to the effectivity of R.A. No. 8042 on

July 14, 1995,[97] illegally dismissed OFWs, no matter how long the period of their employment contracts, were entitled to their salaries for the entire

unexpired portions of their contracts. The matrix below speaks for itself:

Case Title Contract Period

Period of Service

Unexpired Period

Period Applied in the Computation of the Monetary Award

ATCI v. CA, et al.[98]

2 years 2 months 22 months 22 months

Phil. Integrated v. NLRC[99]

2 years 7 days 23 months and 23 days

23 months and 23 days

JGB v. NLC[100] 2 years 9 months 15 months 15 months

Agoy v. NLRC[101]

2 years 2 months 22 months 22 months

EDI v. NLRC, et al.[102]

2 years 5 months 19 months 19 months

Barros v. NLRC, et al.[103]

12 months 4 months 8 months 8 months

Philippine Transmarine v. Carilla

[104]

12 months 6 months and 22 days

5 months and 18 days

5 months and 18 days

It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the unexpired portions thereof, were treated alike in terms of

the computation of their monetary benefits in case of illegal dismissal. Their claims were subjected to a uniform rule of computation: their basic salaries

multiplied by the entire unexpired portion of their employment contracts.

The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of computation of the money claims of illegally

dismissed OFWs based on their employment periods, in the process singling out one category whose contracts have an unexpired portion of one year

or more and subjecting them to the peculiar disadvantage of having their monetary awards limited to their salaries for 3 months or for the unexpired

portion thereof, whichever is less, but all the while sparing the other category from such prejudice, simply because the latter's unexpired contractsfall

short of one year.

Among OFWs With Employment Contracts of More Than One Year

Upon closer examination of the terminology employed in the subject clause, the Court now has misgivings on the accuracy of

the Marsaman interpretation.

The Court notes that the subject clause or for three (3) months for every year of the unexpired term, whichever is less contains the qualifying

phrases every year and unexpired term. By its ordinary meaning, the word term means a limited or definite extent of time.[105]

Corollarily, that every

year is but part of an unexpired term is significant in many ways: first, the unexpired term must be at least one year, for if it were any

shorter, there would be no occasion for such unexpired term to be measured by every year; and second, the original term must be more than one year,

for otherwise, whatever would be the unexpired term thereof will not reach even a year. Consequently, the more decisive factor in the determination

of when the subject clause for three (3) months for every year of the unexpired term, whichever is less shall apply is not the length of the original

contract period as held in Marsaman,[106] but the length of the unexpired portion of the contract period -- the subject clause applies in cases when the

unexpired portion of the contract period is at least one year, which arithmetically requires that the original contract period be more than one year.

Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs whose contract periods are for more than one

year: those who are illegally dismissed with less than one year left in their contracts shall be entitled to their salaries for the entire unexpired portion

thereof, while those who are illegally dismissed with one year or more remaining in their contracts shall be covered by the subject clause, and their

monetary benefits limited to their salaries for three months only.

To concretely illustrate the application of the foregoing interpretation of the subject clause, the Court assumes hypothetical OFW-C and

OFW-D, who each have a 24-month contract at a salary rate of US$1,000.00 per month. OFW-C is illegally dismissed on the 12th month, and OFW-D, on

the 13th month. Considering that there is at least 12 months remaining in the contract period of OFW-C, the subject clause applies to the computation

of the latter's monetary benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total salaries for the 12 months unexpired portion

of the contract, but to the lesser amount of US$3,000.00 or the latter's salaries for 3 months out of the 12-month unexpired term of the contract. On

the other hand, OFW-D is spared from the effects of the subject clause, for there are only 11 months left in the latter's contract period. Thus, OFW-D

will be entitled to US$11,000.00, which is equivalent to his/her total salaries for the entire 11-month unexpired portion.

OFWs vis--vis Local Workers With Fixed-Period Employment

As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary awards of illegally dismissed OFWs was in

place. This uniform system was applicable even to local workers with fixed-term employment.[107]

The earliest rule prescribing a uniform system of computation was actually Article 299 of the Code of Commerce (1888),[108] to wit:

Article 299. If the contracts between the merchants and their shop clerks and employees should have been made of a fixed period, none of the contracting parties, without the consent of the other, may withdraw from the fulfillment of said contract until the termination of the period agreed upon.

Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the exception of the provisions contained in the following articles.

In Reyes v. The Compaia Maritima,[109] the Court applied the foregoing provision to determine the liability of a shipping company for the

illegal discharge of its managers prior to the expiration of their fixed-term employment. The Court therein held the shipping company liable for the

salaries of its managers for the remainder of their fixed-term employment.

There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of Commerce which provides:

Article 605. If the contracts of the captain and members of the crew with the agent should be for a definite period or voyage, they cannot be discharged until the fulfillment of their contracts, except for reasons of insubordination in serious matters, robbery, theft, habitual drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or proven negligence.

Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie,[110] in

which the Court held the shipping company liable for the salaries and subsistence allowance of its illegally dismissed employees for

the entire unexpired portion of their employment contracts.

While Article 605 has remained good law up to the present,[111]

Article 299 of the Code of Commerce was replaced by Art. 1586 of the Civil

Code of 1889, to wit: Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and for a certain work cannot leave or be

dismissed without sufficient cause, before the fulfillment of the contract.(Emphasis supplied.)

Citing Manresa, the Court in Lemoine v. Alkan[112] read the disjunctive "or" in Article 1586 as a conjunctive "and" so as to apply the provision to local

workers who are employed for a time certain although for no particular skill. This interpretation of Article 1586 was reiterated in Garcia Palomar v.

Hotel de France Company.[113] And in both Lemoine and Palomar, the Court adopted the general principle that in actions for wrongful discharge

founded on Article 1586, local workers are entitled to recover damages to the extent of the amount stipulated to be paid to them by the terms of their

contract. On the computation of the amount of such damages, the Court in Aldaz v. Gay[114] held: The doctrine is well-established in American jurisprudence, and nothing has been brought to our attention to the contrary under Spanish

jurisprudence, that when an employee is wrongfully discharged it is his duty to seek other employment of the same kind in the same community, for the purpose of reducing the damages resulting from such wrongful discharge. However, while this is the general rule, the burden of showing that he failed to make an effort to secure other employment of a like nature, and that other employment of a like nature was obtainable, is upon the defendant. When an employee is wrongfully discharged under a contract of employment his prima facie damage is the amount which he would be entitled to had he continued in such employment until the termination of the period. (Howard vs. Daly, 61 N. Y., 362; Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich., 43.)[115] (Emphasis supplied)

On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term employment: Section 2 (Obligations with a Period),

Chapter 3, Title I, and Sections 2 (Contract of Labor) and 3 (Contract for a Piece of Work), Chapter 3, Title VIII, Book IV.[116]

Much like Article 1586 of the

Civil Code of 1889, the new provisions of the Civil Code do not expressly provide for the remedies available to a fixed-term worker who is illegally

discharged. However, it is noted that in Mackay Radio & Telegraph Co., Inc. v. Rich,[117]

the Court carried over the principles on the payment of damages

underlying Article 1586 of the Civil Code of 1889 and applied the same to a case involving the illegal discharge of a local worker whose fixed-period

employmentcontract was entered into in 1952, when the new Civil Code was already in effect.[118]

More significantly, the same principles were applied to cases involving overseas Filipino workers whose fixed-term employment contracts

were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v. Ople,

[119] involving seafarers who were illegally discharged. In Teknika

Skills and Trade Services, Inc. v. National Labor Relations Commission,[120]

an OFW who was illegally dismissed prior to the expiration of her fixed-period

employment contract as a baby sitter, was awarded salaries corresponding to the unexpired portion of her contract. The Court arrived at the same

ruling in Anderson v. National Labor Relations Commission,[121] which involved a foreman hired in 1988 in Saudi Arabia for a fixed term of two years, but

who was illegally dismissed after only nine months on the job -- the Court awarded him salaries corresponding to 15 months, the unexpired portion of

his contract. In Asia World Recruitment, Inc. v. National Labor Relations Commission,[122] a Filipino working as a security officer in 1989 in Angola was

awarded his salaries for the remaining period of his 12-month contract after he was wrongfully discharged. Finally, in Vinta Maritime Co., Inc. v.

National Labor Relations Commission,[123] an OFW whose 12-month contract was illegally cut short in the second month was declared entitled to his

salaries for the remaining 10 months of his contract.

In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who were illegally discharged were treated alike in terms

of the computation of their money claims: they were uniformly entitled to their salaries for the entire unexpired portions of their contracts. But with the

enactment of R.A. No. 8042, specifically the adoption of the subject clause, illegally dismissed OFWs with an unexpired portion of one year or more in

their employment contract have since been differently treated in that their money claims are subject to a 3-month cap, whereas no such limitation is

imposed on local workers with fixed-term employment.

The Court concludes that the subject clause contains a suspect classification in that, in the computation of the monetary benefits of fixed-

term employees who are illegally discharged, it imposes a 3-month cap on the claim of OFWs with an unexpired portion of one year or more in their

contracts, but none on the claims of other OFWs or local workers with fixed-term employment. The subject clause singles out one classification of

OFWs and burdens it with a peculiar disadvantage.

There being a suspect classification involving a vulnerable sector protected by the Constitution, the Court now subjects the classification to a

strict judicial scrutiny, and determines whether it serves a compelling state interest through the least restrictive means.

What constitutes compelling state interest is measured by the scale of rights and powers arrayed in the Constitution and calibrated by

history.[124] It is akin to the paramount interest of the state[125] for which some individual liberties must give way, such as the public interest in

safeguarding health or maintaining medical standards,[126] or in maintaining access to information on matters of public concern.[127]

In the present case, the Court dug deep into the records but found no compelling state interest that the subject clause may possibly serve.

The OSG defends the subject clause as a police power measure designed to protect the employment of Filipino seafarers overseas x x x. By

limiting the liability to three months [sic], Filipino seafarers have better chance of getting hired by foreign employers. The limitation also protects the

interest of local placement agencies, which otherwise may be made to shoulder millions of pesos in termination pay.[128]

The OSG explained further: Often, placement agencies, their liability being solidary, shoulder the payment of money claims in the event that jurisdiction over the foreign

employer is not acquired by the court or if the foreign employer reneges on its obligation. Hence, placement agencies that are in good faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign employer. To protect them and to promote their continued helpful contribution in deploying Filipino migrant workers, liability for money are reduced under Section 10 of RA 8042.

This measure redounds to the benefit of the migrant workers whose welfare the government seeks to promote. The survival of legitimate

placement agencies helps [assure] the government that migrant workers are properly deployed and are employed under decent and humane conditions.[129] (Emphasis supplied)

However, nowhere in the Comment or Memorandum does the OSG cite the source of its perception of the state interest sought to be

served by the subject clause.

The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in sponsorship of House Bill No. 14314 (HB 14314),

from which the law originated;[130] but the speech makes no reference to the underlying reason for the adoption of the subject clause. That is only

natural for none of the 29 provisions in HB 14314 resembles the subject clause.

On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to wit:

Sec. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of the complaint, the claim arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas employment including claims for actual, moral, exemplary and other forms of damages.

The liability of the principal and the recruitment/placement agency or any and all claims under this Section shall be joint and several. Any compromise/amicable settlement or voluntary agreement on any money claims exclusive of damages under this Section shall not be

less than fifty percent (50%) of such money claims: Provided, That any installment payments, if applicable, to satisfy any such compromise or voluntary settlement shall not be more than two (2) months. Any compromise/voluntary agreement in violation of this paragraph shall be null and void.

Non-compliance with the mandatory period for resolutions of cases provided under this Section shall subject the responsible officials to any

or all of the following penalties: (1) The salary of any such official who fails to render his decision or resolution within the prescribed period shall be, or caused to be, withheld until the said official complies therewith; (2) Suspension for not more than ninety (90) days; or (3) Dismissal from the service with disqualification to hold any appointive public office for five (5) years.

Provided, however, That the penalties herein provided shall be without prejudice to any liability which any such official may have incurred under other existing laws or rules and regulations as a consequence of violating the provisions of this paragraph.

But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of money claims.

A rule on the computation of money claims containing the subject clause was inserted and eventually adopted as the 5th paragraph of

Section 10 of R.A. No. 8042. The Court examined the rationale of the subject clause in the transcripts of the Bicameral Conference Committee

(Conference Committee) Meetings on the Magna Carta on OCWs (Disagreeing Provisions of Senate Bill No. 2077 and House Bill No. 14314). However,

the Court finds no discernible state interest, let alone a compelling one, that is sought to be protected or advanced by the adoption of the subject

clause.

In fine, the Government has failed to discharge its burden of proving the existence of a compelling state interest that would justify the

perpetuation of the discrimination against OFWs under the subject clause.

Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the employment of OFWs by mitigating the solidary

liability of placement agencies, such callous and cavalier rationale will have to be rejected. There can never be a justification for any form of

government action that alleviates the burden of one sector, but imposes the same burden on another sector, especially when the favored sector is

composed of private businesses such as placement agencies, while the disadvantaged sector is composed of OFWs whose protection no less than the

Constitution commands. The idea that private business interest can be elevated to the level of a compelling state interest is odious.

Moreover, even if the purpose of the subject clause is to lessen the solidary liability of placement agencies vis-a-vis their foreign principals,

there are mechanisms already in place that can be employed to achieve that purpose without infringing on the constitutional rights of OFWs.

The POEA Rules and Regulations Governing the Recruitment and Employment of Land-Based Overseas Workers, dated February 4, 2002,

imposes administrative disciplinary measures on erring foreign employers who default on their contractual obligations to migrant workers and/or their

Philippine agents. These disciplinary measures range from temporary disqualification to preventive suspension. The POEA Rules and Regulations

Governing the Recruitment and Employment of Seafarers, dated May 23, 2003, contains similar administrative disciplinary measures against erring

foreign employers.

Resort to these administrative measures is undoubtedly the less restrictive means of aiding local placement agencies in enforcing the solidary

liability of their foreign principals.

Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of the right of petitioner and other OFWs to equal

protection.

Further, there would be certain misgivings if one is to approach the declaration of the unconstitutionality of the subject clause from the lone

perspective that the clause directly violates state policy on labor under Section 3,[131]

Article XIII of the Constitution.

While all the provisions of the 1987 Constitution are presumed self-executing,,[132]

there are some which this Court has declared not judicially

enforceable, Article XIII being one,[133]

particularly Section 3 thereof, the nature of which, this Court, in Agabon v. National Labor Relations

Commission,[134]

has described to be not self-actuating:

Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as self-executing in the sense that these are automatically acknowledged and observed without need for any enabling legislation. However, to declare that the constitutional provisions are enough to guarantee the full exercise of the rights embodied therein, and the realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal of such view presents the dangerous tendency of being overbroad and exaggerated. The guarantees of "full protection to labor" and "security of tenure", when examined in isolation, are facially unqualified, and the broadest interpretation possible suggests a blanket shield in favor of labor against any form of removal regardless of circumstance. This interpretation implies an unimpeachable right to continued employment-a utopian notion, doubtless-but still hardly within the contemplation of the framers. Subsequent legislation is still needed to define the parameters of these guaranteed rights to ensure the protection and promotion, not only the rights of the labor sector, but of the employers' as well. Without specific and pertinent legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at least the aims of the Constitution.

Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a positive enforceable right to stave off the dismissal of an employee for just cause owing to the failure to serve proper notice or hearing. As manifested by several framers of the 1987 Constitution, the provisions on social justice require legislative enactments for their enforceability.[135] (Emphasis added)

Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable rights, for the violation of which the questioned

clause may be declared unconstitutional. It may unwittingly risk opening the floodgates of litigation to every worker or union over every conceivable

violation of so broad a concept as social justice for labor.

It must be stressed that Section 3, Article XIII does not directly bestow on the working class any actual enforceable right, but merely

clothes it with the status of a sector for whom the Constitution urges protection through executive or legislative action and judicial

recognition. Its utility is best limited to being an impetus not just for the executive and legislative departments, but for the judiciary as well, to

protect the welfare of the working class. And it was in fact consistent with that constitutional agenda that the Court in Central Bank (now

Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng Pilipinas, penned by then Associate Justice now Chief Justice

Reynato S. Puno, formulated the judicial precept that when the challenge to a statute is premised on the perpetuation of prejudice against

persons favored by the Constitution with special protection -- such as the working class or a section thereof -- the Court may recognize the

existence of a suspect classification and subject the same to strict judicial scrutiny.

The view that the concepts of suspect classification and strict judicial scrutiny formulated in Central Bank Employee Association exaggerate

the significance of Section 3, Article XIII is a groundless apprehension. Central Bank applied Article XIII in conjunction with the equal protection

clause. Article XIII, by itself, without the application of the equal protection clause, has no life or force of its own as elucidated in Agabon.

Along the same line of reasoning, the Court further holds that the subject clause violates petitioner's right to substantive due process, for it

deprives him of property, consisting of monetary benefits, without any existing valid governmental purpose.[136]

The argument of the Solicitor General, that the actual purpose of the subject clause of limiting the entitlement of OFWs to their three-month

salary in case of illegal dismissal, is to give them a better chance of getting hired by foreign employers. This is plain speculation. As earlier discussed,

there is nothing in the text of the law or the records of the deliberations leading to its enactment or the pleadings of respondent that would indicate

that there is an existing governmental purpose for the subject clause, or even just a pretext of one.

The subject clause does not state or imply any definitive governmental purpose; and it is for that precise reason that the clause violates not

just petitioner's right to equal protection, but also her right to substantive due process under Section 1,[137] Article III of the Constitution.

The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire unexpired period of nine months and 23 days of

his employment contract, pursuant to law and jurisprudence prior to the enactment of R.A. No. 8042.

On the Third Issue

Petitioner contends that his overtime and leave pay should form part of the salary basis in the computation of his monetary award, because

these are fixed benefits that have been stipulated into his contract.

Petitioner is mistaken.

The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers like petitioner, DOLE Department Order No. 33,

series 1996, provides a Standard Employment Contract of Seafarers, in which salary is understood as the basic wage, exclusive of overtime, leave pay

and other bonuses; whereas overtime pay is compensation for all work performed in excess of the regular eight hours, and holiday pay

is compensation for any work performed on designated rest days and holidays.

By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and holiday pay in the computation of petitioner's

monetary award, unless there is evidence that he performed work during those periods. As the Court held in Centennial Transmarine, Inc. v. Dela

Cruz,[138] However, the payment of overtime pay and leave pay should be disallowed in light of our ruling in Cagampan v. National Labor Relations

Commission, to wit:

The rendition of overtime work and the submission of sufficient proof that said was actually performed are conditions to be satisfied before a seaman could be entitled to overtime pay which should be computed on the basis of 30% of the basic monthly salary. In short, the contract provision guarantees the right to overtime pay but the entitlement to such benefit must first be established.

In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is unwarranted since the same is given during the actual service of the seamen.

WHEREFORE, the Court GRANTS the Petition. The subject clause or for three months for every year of the unexpired term, whichever is

less in the 5th paragraph of Section 10 of Republic Act No. 8042 is DECLARED UNCONSTITUTIONAL; and the December 8, 2004 Decision and April 1,

2005 Resolution of the Court of Appeals are MODIFIED to the effect that petitioner is AWARDED his salaries for the entire unexpired portion of his

employment contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per month.

No costs.

SO ORDERED.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. 120319 October 6, 1995

LUZON DEVELOPMENT BANK, petitioner, vs. ASSOCIATION OF LUZON DEVELOPMENT BANK EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity as VOLUNTARY ARBITRATOR, respondents.

ROMERO, J.:

From a submission agreement of the Luzon Development Bank (LDB) and the Association of Luzon Development Bank Employees (ALDBE) arose an arbitration case to resolve the following issue:

Whether or not the company has violated the Collective Bargaining Agreement provision and the Memorandum of Agreement dated April 1994, on promotion.

At a conference, the parties agreed on the submission of their respective Position Papers on December 1-15, 1994. Atty. Ester S. Garcia, in her capacity as Voluntary Arbitrator, received ALDBE's Position Paper on January 18, 1995. LDB, on the other hand, failed to submit its Position Paper despite a letter from the Voluntary Arbitrator reminding them to do so. As of May 23, 1995 no Position Paper had been filed by LDB.

On May 24, 1995, without LDB's Position Paper, the Voluntary Arbitrator rendered a decision disposing as follows:

WHEREFORE, finding is hereby made that the Bank has not adhered to the Collective Bargaining Agreement provision nor the Memorandum of Agreement on promotion.

Hence, this petition for certiorari and prohibition seeking to set aside the decision of the Voluntary Arbitrator and to prohibit

her from enforcing the same.

In labor law context, arbitration is the reference of a labor dispute to an impartial third person for determination on the basis of evidence and arguments presented by such parties who have bound themselves to accept the decision of the arbitrator as final and binding.

Arbitration may be classified, on the basis of the obligation on which it is based, as either compulsory or voluntary.

Compulsory arbitration is a system whereby the parties to a dispute are compelled by the government to forego their right to strike and are compelled to accept the resolution of their dispute through arbitration by a third party.

1The essence of

arbitration remains since a resolution of a dispute is arrived at by resort to a disinterested third party whose decision is final and binding on the parties, but in compulsory arbitration, such a third party is normally appointed by the government.

Under voluntary arbitration, on the other hand, referral of a dispute by the parties is made, pursuant to a voluntary arbitration clause in their collective agreement, to an impartial third person for a final and binding resolution.

2Ideally,

arbitration awards are supposed to be complied with by both parties without delay, such that once an award has been rendered by an arbitrator, nothing is left to be done by both parties but to comply with the same. After all, they are presumed to have freely chosen arbitration as the mode of settlement for that particular dispute. Pursuant thereto, they have chosen a mutually acceptable arbitrator who shall hear and decide their case. Above all, they have mutually agreed to de bound by said arbitrator's decision.

In the Philippine context, the parties to a Collective Bargaining Agreement (CBA) are required to include therein provisions for a machinery for the resolution of grievances arising from the interpretation or implementation of the CBA or company personnel policies.

3 For this purpose, parties to a CBA shall name and designate therein a voluntary arbitrator or a panel

of arbitrators, or include a procedure for their selection, preferably from those accredited by the National Conciliation and Mediation Board (NCMB). Article 261 of the Labor Code accordingly provides for exclusive original jurisdiction of such voluntary arbitrator or panel of arbitrators over (1) the interpretation or implementation of the CBA and (2) the interpretation or enforcement of company personnel policies. Article 262 authorizes them, but only upon agreement of the parties, to exercise jurisdiction over other labor disputes.

On the other hand, a labor arbiter under Article 217 of the Labor Code has jurisdiction over the following enumerated cases:

. . . (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts;

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

xxx xxx xxx

It will thus be noted that the jurisdiction conferred by law on a voluntary arbitrator or a panel of such arbitrators is quite limited compared to the original jurisdiction of the labor arbiter and the appellate jurisdiction of the National Labor Relations Commission (NLRC) for that matter.

4 The state of our present law relating to voluntary arbitration provides that

"(t)he award or decision of the Voluntary Arbitrator . . . shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties,"

5 while the "(d)ecision, awards, or orders of the Labor Arbiter

are final and executory unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such decisions, awards, or orders."

6 Hence, while there is an express mode of appeal from the decision of a

labor arbiter, Republic Act No. 6715 is silent with respect to an appeal from the decision of a voluntary arbitrator.

Yet, past practice shows that a decision or award of a voluntary arbitrator is, more often than not, elevated to the Supreme Court itself on a petition for certiorari,

7 in effect equating the voluntary arbitrator with the NLRC or the Court of Appeals. In

the view of the Court, this is illogical and imposes an unnecessary burden upon it.

In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled premise that the judgments of courts and awards of quasi-

judicial agencies must become final at some definite time, this Court ruled that the awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the same legal effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al.,

9 this Court ruled that "a voluntary arbitrator by the nature of her functions acts in a

quasi-judicial capacity." Under these rulings, it follows that the voluntary arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasi-judicial agency but independent of, and apart from, the NLRC since his decisions are not appealable to the latter.

10

Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902, provides that the Court of Appeals shall exercise:

xxx xxx xxx

(B) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

xxx xxx xxx

Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a quasi-judicial agency, board or commission, still both he and the panel are comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry Arbitration Commission,

11 that the broader term "instrumentalities" was purposely included in the

above-quoted provision.

An "instrumentality" is anything used as a means or agency. 12

Thus, the terms governmental "agency" or "instrumentality" are synonymous in the sense that either of them is a means by which a government acts, or by which a certain government act or function is performed.

13 The word "instrumentality," with respect to a state, contemplates an authority

to which the state delegates governmental power for the performance of a state function. 14

An individual person, like an administrator or executor, is a judicial instrumentality in the settling of an estate,

15 in the same manner that a sub-agent

appointed by a bankruptcy court is an instrumentality of the court, 16

and a trustee in bankruptcy of a defunct corporation is an instrumentality of the state.

17

The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated to him under the provisions therefor in the Labor Code and he falls, therefore, within the contemplation of the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129. The fact that his functions and powers are provided for in the Labor Code does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality as contemplated therein. It will be

noted that, although the Employees Compensation Commission is also provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised Administrative Circular No. 1-95, laid down the procedure for the appealability of its decisions to the Court of Appeals under the foregoing rationalization, and this was later adopted by Republic Act No. 7902 in amending Sec. 9 of B.P. 129.

A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated therein.

This would be in furtherance of, and consistent with, the original purpose of Circular No. 1-91 to provide a uniform procedure for the appellate review of adjudications of all quasi-judicial entities

18 not expressly excepted from the coverage

of Sec. 9 of B.P. 129 by either the Constitution or another statute. Nor will it run counter to the legislative intendment that decisions of the NLRC be reviewable directly by the Supreme Court since, precisely, the cases within the adjudicative competence of the voluntary arbitrator are excluded from the jurisdiction of the NLRC or the labor arbiter.

In the same vein, it is worth mentioning that under Section 22 of Republic Act No. 876, also known as the Arbitration Law, arbitration is deemed a special proceeding of which the court specified in the contract or submission, or if none be specified, the Regional Trial Court for the province or city in which one of the parties resides or is doing business, or in which the arbitration is held, shall have jurisdiction. A party to the controversy may, at any time within one (1) month after an award is made, apply to the court having jurisdiction for an order confirming the award and the court must grant such order unless the award is vacated, modified or corrected.

19

In effect, this equates the award or decision of the voluntary arbitrator with that of the regional trial court. Consequently, in a petition for certiorari from that award or decision, the Court of Appeals must be deemed to have concurrent jurisdiction with the Supreme Court. As a matter of policy, this Court shall henceforth remand to the Court of Appeals petitions of this nature for proper disposition.

ACCORDINGLY, the Court resolved to REFER this case to the Court of Appeals.

SO ORDERED.

FIRST DIVISION

DANTE D. DE LA CRUZ, G.R. No. 172038

Petitioner,

Present:

PUNO, C.J., Chairperson,

CARPIO,

- v e r s u s - CORONA,

AZCUNA* and

LEONARDO-DE CASTRO, JJ.

MAERSK FILIPINAS CREWING,

INC. and ELITE SHIPPING A.S.,

Respondents. Promulgated:

April 14, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CORONA, J.:

This petition for review on certiorari[1] seeks to set aside the November 26, 2004 decision[2] and March 9, 2006 resolution[3] of the

Court of Appeals (CA) in CA-G.R. SP No. 74097.

Respondent Elite Shipping A.S. hired petitioner Dante D. de la Cruz as third engineer for the vessel M/S Arktis Morning through its

local agency in the Philippines, co-respondent Maersk Filipinas Crewing Inc. The contract of employment was for a period of nine

months, starting April 19, 1999, with a monthly basic salary of US$1,004.00 plus other benefits.

Petitioner was deployed to Jebel Ali, United Arab Emirates and boarded M/S Arktis Morning on May 14, 1999.

In a logbook entry dated June 18, 1999, chief engineer Normann Per Nielsen expressed his dissatisfaction over petitioner's

performance:

3rd Eng. Dante D. de la Cruz has[,] since he signed on[,] not been able to live up to the company's SMS job describtion (sic) for 3rd

Engineer[.] Today he has been informed that if he do[es] not improve his Job/Working performance within [a] short time he will be

signed off according to CBA Article 1 (7).

Said Article 1 (7) of the collective bargaining agreement (CBA) between respondent Elite Shipping A.S. and its employees reads:

(7) The first sixty (60) days of service is to be considered a probationary period which entitles a shipowner or his representative,

i.e.[,] the master of the vessel[,] to terminate the contract by giving fourteen (14) days of written notice.

This entry was followed by another one dated June 26, 1999 which was similar in content.

On June 27, 1999, petitioner was informed of his discharge through a notice captioned Notice according to CBA Article 1 (7), to wit:

To: 3rd engineer Dante D. de la Cruz

Pls. be informed that you will be discharged according to CBA article 1 (7) in first possible port. Reason for the decision is, as you

have been informed by chief engineer Per Nielsen on several occasions, he [does] not find you qualified for the position as 3rd

engineer onboard this vessel. The chief engineer has also made 2 entries in the engine logbook, regarding your insufficient

job/working, which you are well aware of.

Petitioner was then made to disembark at the port of Houston, Texas and was repatriated to Manila on July 17, 1999.

Petitioner thereafter filed a complaint for illegal dismissal with claims for the monetary equivalent of the unexpired portion of his

contract, damages and attorney's fees in the National Labor Relations Commission (NLRC) on September 21, 1999.

The labor arbiter (LA) ruled that petitioner was dismissed without just cause and due process as the logbook entry (which

respondents claimed to be the first notice to petitioner) was vague. It failed to expound on or state the details of petitioner's

shortcomings or infractions. As such, petitioner was deprived of a real or meaningful opportunity to explain his side. Hence, the LA

ruled that petitioner was entitled to a monetary equivalent of salaries for three months, moral and exemplary damages and

attorney's fees.

On appeal, the NLRC upheld the LA's finding of illegal dismissal but deleted the award of moral and exemplary damages.

Respondents moved for reconsideration. It was denied.

Thereafter, respondents filed a petition for certiorari (under Rule 65) with the CA. It granted the petition. It held that, although the

findings of fact of the LA and NLRC were entitled to great respect, this rule was inapplicable because the NLRC committed grave

abuse of discretion in upholding the LAs decision. The findings were not only unsupported by substantial evidence but were also

based solely on the ground that the logbook entries were vague and without concrete standards.

The CA deemed the logbook entries to be sufficient compliance with the first notice requirement of the law. It was a written

appraisal of petitioner's poor job performance coupled with a warning that should he fail to improve his performance, he would be

signed off in accordance with the provisions of the CBA. It reasoned that a probationary employee may be dismissed at anytime

during the probationary period for failure to live up to the expectations of the employer.

Petitioner filed a motion for reconsideration of the CA decision. It was denied. Hence, this petition.

The main issue raised before us is whether or not petitioner was illegally dismissed by respondents.

Before addressing the merits of the controversy, we need to settle two preliminary issues. First, respondents interposed in their

comment that the present petition should be dismissed outright as the motion for extension of time to file this petition for review

was filed late.

In his petition, petitioner indicated that he received a copy of the CA resolution (dated March 9, 2006) denying his motion for

reconsideration on March 24, 2006. He, therefore, had until April 8, 2006 to appeal said resolution to this Court or to file a motion

for extension of time to file the petition. However, as April 8, 2006 fell on a Saturday, petitioner deemed it sufficient compliance to

file his motion for extension on April 10, 2006, in accordance with Section 1, Rule 22 of the Rules of Court:

SECTION 1. How to compute time. - xxx If the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal

holiday in the place where the court sits, the time shall not run until the next working day.

Respondents countered that A.M. No. 00-2-14-SC dated February 29, 2000 (Re: Computation of Time When the Last Day Falls on

Saturday, Sunday or Legal Holiday and a Motion for Extension on Next Working Day is Granted) clarified that the aforementioned

rule is applicable only to the filing of pleadings other than motions for extension of time, such that when a party seeks an extension

to file a desired pleading, the provision no longer applies and the motion should be filed on the due date itself, regardless of the fact

that it falls on a Saturday, Sunday or legal holiday.

Respondents contention is incorrect.

A.M. No. 00-2-14-SC provides:

xxx

Whereas, the aforecited provision [Section 1, Rule 22 of the Rules of Court] applies in the matter of filing of pleadings in courts when

the due date falls on a Saturday, Sunday or legal holiday, in which case, the filing of the said pleading on the next working day is

deemed on time;

Whereas, the question has been raised if the period is extended ipso jure to the next working day immediately following where the

last day of the period is a Saturday, Sunday or legal holiday so that when a motion for extension of time is filed, the period of

extension is to be reckoned from the next working day and not from the original expiration of the period.

NOW THEREFORE, the Court Resolves, for the guidance of the Bench and the Bar, to declare that Section 1, Rule 22 speaks only of

the last day of the period so that when a party seeks an extension and the same is granted, the due date ceases to be the last day

and hence, the provision no longer applies. Any extension of time to file the required pleading should therefore be counted from the

expiration of the period regardless of the fact that said due date is a Saturday, Sunday or legal holiday. (emphasis supplied)

Section 1, Rule 22, as clarified by the circular, is clear. Should a party desire to file any pleading, even a motion for extension of time

to file a pleading, and the last day falls on a Saturday, Sunday or a legal holiday, he may do so on the next working day. This is what

petitioner did in the case at bar.

However, according to the same circular, the petition for review on certiorari was indeed filed out of time. The provision states that

in case a motion for extension is granted, the due date for the extended period shall be counted from the original due date, not from

the next working day on which the motion for extension was filed. In Luz v. National Amnesty Commission,[4] we had occasion to

expound on the matter. In that case, we held that the extension granted by the court should be tacked to the original period and

commences immediately after the expiration of such period.

In the case at bar, although petitioner's filing of the motion for extension was within the period provided by law, the filing of the

petition itself was not on time. Petitioner was granted an additional period of 30 days within which to file the petition. Reckoned

from the original period, he should have filed it on May 8, 2006. Instead, he did so only on May 11, 2006, that is, 3 days late.

Nevertheless, we will gloss over this technicality and resolve the case on its merits in the exercise of this Court's equity jurisdiction as

we have done in a number of cases.[5]

Well settled is the rule that litigations should, as much as possible, be decided on their merits and not on technicalities.[6] In

accordance with this legal precept, this Court has ruled that being a few days late in the filing of the petition for review does not

automatically warrant the dismissal thereof,[7] specially where strong considerations of substantial justice are manifest in the

petition.[8] Such is the case here.

The second preliminary issue we need to address is the matter of this Court's jurisdiction in petitions for review on certiorari under

Rule 45. It should be noted that our jurisdiction in such cases is limited only to questions of law. It does not extend to questions of

fact. This doctrine applies with greater force in labor cases.[9] As such, the findings of fact of the CA are binding and conclusive upon

this Court. However, this rule is not absolute but admits of certain exceptions. Factual findings may be reviewed in a case when the

findings of fact of the LA and the NLRC are in conflict with those of the CA.[10] In this case, the LA and the NLRC held that

respondents did not comply with the notice requirement; the CA found otherwise. Thus, although the instant petition involves a

question of fact, that is, whether or not the notice requirement was met, we can still rule on it.

Now, the merits of the instant controversy.

The CA committed an error in holding that petitioner was not illegally dismissed. The contrary findings and conclusions made by the

LA and the NLRC were supported by jurisprudence and the evidence on record.

An employer has the burden of proving that an employee's dismissal was for a just cause. Failure to show this necessarily means that

the dismissal was unjustified and therefore illegal.[11] Furthermore, not only must the dismissal be for a cause provided by law, it

should also comply with the rudimentary requirements of due process, that is, the opportunity to be heard and to defend

oneself.[12]

These requirements are of equal application to cases of Filipino seamen recruited to work on board foreign vessels. Procedural due

process requires that a seaman must be given a written notice of the charges against him and afforded a formal investigation where

he can defend himself personally or through a representative before he can be dismissed and disembarked from the vessel.[13] The

employer is bound to furnish him two notices: (1) the written charge and (2) the written notice of dismissal (in case that is the

penalty imposed).[14] This is in accordance with the POEA Revised Standard Employment Terms and Conditions Governing the

Employment of Filipino Seafarers on Board Ocean-Going Vessels (POEA Revised Standard Employment Terms and Conditions).

Section 17 of the POEA Revised Standard Employment Terms and Conditions laid down the disciplinary procedures to be taken

against erring seafarers:

Section 17. DISCIPLINARY PROCEDURES

The Master shall comply with the following disciplinary procedures against an erring seafarer:

A. The Master shall furnish the seafarer with a written notice containing the following:

1. Grounds for the charges as listed in Section 31 of this Contract.

2. Date, time and place for a formal investigation of the charges against the seafarer concerned.

B. The Master or his authorized representative shall conduct the investigation or hearing, giving the seafarer the opportunity to

explain or defend himself against the charges. An entry on the investigation shall be entered into the ship's logbook.

C. If, after the investigation or hearing, the Master is convinced that imposition of a penalty is justified, the Master shall issue a

written notice of penalty and the reasons for it to the seafarer, with copies furnished to the Philippine agent.

xxx xxx xxx

Furthermore, the notice must state with particularity the acts or omissions for which his dismissal is being sought.[15]

Contrary to respondents' claim, the logbook entries did not substantially comply with the first notice, or the written notice of

charge(s). It did not state the particular acts or omissions for which petitioner was charged. The statement therein that petitioner

had not been able to live up to the company's SMS job description for 3rd Engineer and that he had been informed that if he [does]

not improve his job/working performance within [a] short time he will have to be signed off according to CBA Article 1 (7) was

couched in terms too general for legal comfort.

The CA held that the logbook entries were sufficient to enable petitioner to explain his side or to contest the negative assessment of

his performance and were clearly intended to inform him to improve the same. We cannot fathom how the CA arrived at such a

conclusion. The entries did not contain any information at all as to why he was even being warned of discharge in the first place.

Even we were left to speculate as to what really transpired, calling for such an extreme course of action from the chief engineer. The

entries raised more questions than answers.

How exactly was he unable to live up to the company's SMS job description of a third engineer? Respondents should have indicated

the grounds for the threatened termination, the specific acts or omissions illustrating the same, along with the date and the

approximate time of their occurrence. For how else could petitioner be expected to meet the charges against him if all he was given

as reason for his discharge was a vague and general accusation such as that handed down by the chief engineer? Even if the chief

engineer verbally informed him of what his specific shortcomings were, as insisted upon by respondents, the POEA Revised Standard

Employment Terms and Conditions and jurisprudence require that the charges be put in writing.

The same thing may be said of the written notice of dismissal. It sorely lacked the necessary details that should accompany it.

Instead of delving into the grounds for petitioner's discharge, it merely echoed the logbook entries by nebulously justifying his

dismissal on the ground that the chief engineer [did] not find [petitioner] qualified for the position as 3rd engineer. Much like the

first notice, it barely made mention of the grounds for his discharge. Again, we were left in the dark as to the nature of the acts or

omissions relied upon as basis for the termination of petitioner's employment.

These ambiguities, attributable solely to respondents, should be resolved against them.

Moreover, we observed that the records were devoid of any proof indicating that petitioner was ever given an opportunity to

present his side. In their comment, respondents in fact admitted not having conducted any formal investigation:

A formal investigation in this case was not necessary because the findings against petitioner were not in the form of infractions that

ought to be investigated. The issue against petitioner was the quality of his work as 3rd Engineer. Having been duly notified of his

shortcomings, it devolved upon the petitioner to improve the quality of his work in order to pass his probationary period and be a

regular employee. But petitioner did not.

They also insisted that as petitioner was served notice of his termination, the same constituted sufficient compliance with the

requirement of notice and due process as the notice gave him an opportunity to defend himself.[16]

Clearly, respondents were unmindful of the requirements explicitly laid down by law and jurisprudence. Anything short of complying

with the same amounts to a dismissal. Thus, no amount of justification from respondents can move us now to declare the dismissal

as being in accordance with the procedural requirements provided for by law. It cannot be overemphasized that sufficient notice

should be given as part of due process because a worker's employment is his property in the constitutional sense.[17]

As to the substantive aspect of the requirement, suffice it to say that respondents dismally failed to prove that petitioner's

termination from employment was for cause. As the logbook entries were too general and vague, we cannot even reach any

conclusion on whether or not respondents had a valid cause to discharge petitioner. Not only was petitioner's dismissal procedurally

flawed, it was also without just cause.

Lastly, petitioner and respondents were at odds over the former's employment status when he was discharged from the vessel. It

was petitioner's position that he was already a regular employee when his services were terminated; respondents, on the other

hand, insisted that he was then still on probationary status. This, according to respondents, entitled them to dismiss him in

accordance with the provisions of Article 1 (7) of the CBA (which allows the master to terminate the contract of one under probation

by merely serving a written notice 14 days prior to the contemplated discharge) and the requirements on the termination of a

probationary employee's employment as laid down in Manila Hotel Corporation v. NLRC.[18]

It is well to remind both parties that, as early as Brent School, Inc. v. Zamora,[19] we already held that seafarers are not covered by

the term regular employment, as defined under Article 280 of the Labor Code. This was reiterated in Coyoca v. National Labor

Relations Commission.[20] Instead, they are considered contractual employees whose rights and obligations are governed primarily

by the POEA Standard Employment Contract for Filipino Seamen (POEA Standard Employment Contract), the Rules and Regulations

Governing Overseas Employment, and, more importantly, by Republic Act No. 8042, otherwise known as The Migrant Workers and

Overseas Filipinos Act of 1995.[21] Even the POEA Standard Employment Contract itself mandates that in no case shall a contract of

employment concerning seamen exceed 12 months.

It is an accepted maritime industry practice that the employment of seafarers is for a fixed period only. The Court acknowledges this

to be for the mutual interest of both the seafarer and the employer. Seafarers cannot stay for a long and indefinite period of time at

sea as limited access to shore activity during their employment has been shown to adversely affect them. Furthermore, the diversity

in nationality, culture and language among the crew necessitates the limitation of the period of employment.[22]

While we recognize that petitioner was a registered member of the Associated Marine Officers and Seamen's Union of the

Philippines which had a CBA with respondent Elite Shipping A.S. providing for a probationary period of employment, the CBA cannot

override the provisions of the POEA Standard Employment Contract. The law is read into, and forms part of, contracts. And

provisions in a contract are valid only if they are not contrary to law, morals, good customs, public order or public policy.[23]

In Millares v. NLRC,[24] this Court had occasion to rule on the use of the terms permanent and probationary masters and employees

vis--vis contracts of enlistment of seafarers. In that case, petitioners made much of the fact that they were continually re-hired for

20 years by private respondent Esso International. By such circumstances, they claimed to have acquired regular status with all the

rights and benefits appurtenant thereto. The Court quoted with favor the NLRC's explanation that the reference to permanent and

probationary masters and employees was a misnomer. It did not change the fact that the contract for employment was for a definite

period of time. In using the terms probationary and permanent vis--vis seafarers, what was really meant was eligible for re-hire.

This is the only logical explanation possible as the parties cannot and should not violate the POEA's directive that a contract of

enlistment must not exceed 12 months.

WHEREFORE, the petition is hereby GRANTED. The November 26, 2004 decision and March 9, 2006 resolution of the Court of

Appeals in CA-G.R. SP No. 74097 are REVERSED and SET ASIDE. The March 22, 2002 resolution of the National Labor Relations

Commission in NLRC NCR CA No. 029139-01 is REINSTATED.

SO ORDERED.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 143304 July 8, 2004

SPECIAL STEEL PRODUCTS, INC., petitioner, vs. LUTGARDO VILLAREAL AND FREDERICK SO, respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

May an employer withhold its employees’ wages and benefits as lien to protect its interest as a surety in the latter’s car loan and for expenses incurred in a training abroad? This is the basic issue for our resolution in the instant case.

At bar is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision

1 dated October 29, 1999 and Resolution

2 dated May 8, 2000 of the Court of Appeals in CA-G.R. SP No. 50957,

entitled "Special Steel Products, Inc. vs. National Labor Relations Commission, Lutgardo Villareal and Frederick So."

The factual antecedents as borne by the records are:

Special Steel Products, Inc., petitioner, is a domestic corporation engaged in the principal business of importation, sale, and marketing of BOHLER steel products. Lutgardo C. Villareal and Frederick G. So, respondents, worked for petitioner as assistant sales manager and salesman, respectively.

Sometime in May 1993, respondent Villareal obtained a car loan from the Bank of Commerce, with petitioner as surety, as shown by a "continuing suretyship agreement" and "promissory note" wherein they jointly and severally agreed to pay the bank P786,611.60 in 72 monthly installments. On January 15, 1997, respondent Villareal resigned and thereafter joined Hi-Grade Industrial and Technical Products, Inc. as executive vice-president.

Sometime in August 1994, petitioner "sponsored" respondent Frederick So to attend a training course in Kapfenberg, Austria conducted by BOHLER, petitioner’s principal company. This training was a reward for respondent So’s outstanding sales performance. When respondent returned nine months thereafter, petitioner directed him to sign a memorandum providing that BOHLER requires trainees from Kapfenberg to continue working with petitioner for a period of three (3) years after the training. Otherwise, each trainee shall refund to BOHLER $6,000.00 (US dollars) by way of set-off or compensation. On January 16, 1997 or 2 years and 4 months after attending the training, respondent resigned from petitioner.

Immediately, petitioner ordered respondents to render an accounting of its various Christmas giveaways3 they received.

These were intended for distribution to petitioner’s customers.

In protest, respondents demanded from petitioner payment of their separation benefits, commissions, vacation and sick leave benefits, and proportionate 13

th month pay. But petitioner refused and instead, withheld their 13

thmonth pay and

other benefits.

On April 16, 1997, respondents filed with the Labor Arbiter a complaint for payment of their monetary benefits against petitioner and its president, Augusto Pardo, docketed as NLRC NCR Case No. 04-02820-97.

In due course, the Labor Arbiter rendered a Decision dated February 18, 1998, the dispositive portion of which reads:

"WHEREFORE, decision is hereby rendered ordering the respondents, Special Steel Products, Inc. and Mr. Augusto Pardo to pay, jointly and severally, complainants Frederick G. So and Lutgardo C. Villareal the amounts of Seventy One Thousand Two Hundred Seventy Nine Pesos and Fifty Eight Centavos (P71,279.58) and One Hundred Sixty Four Thousand Eight Hundred Seventy Three Pesos (P164,873.00), respectively, representing their commissions, retirement benefit (for Villareal), proportionate 13

th month, earned vacation and sick leave

benefits, and attorney’s fees.

x x x

SO ORDERED."

On appeal, the National Labor Relations Commission (NLRC), in a Decision dated June 29, 1998, affirmed with modification the Arbiter’s Decision in the sense that Pardo, petitioner’s president, was exempted from any liability.

On September 11, 1998, petitioner filed a motion for reconsideration but was denied.

Hence, petitioner filed with the Court of Appeals a petition for certiorari.

On October 29, 1999, the Court of Appeals rendered a Decision dismissing the petition and affirming the assailed NLRC Decision, thus:

"At the outset, the Court notes that despite its Seventh Assignment of Error, petitioner does not question the NLRC’s decision affirming the labor arbiter’s award to private respondents of commissions, proportionate 13

th month pay, earned vacation and sick leave benefits and retirement benefit (for Villareal). It merely asserts

that it was withholding private respondents’ claims by reason of their pending obligations.

Petitioner justifies its withholding of Villareal’s monetary benefits as a lien for the protection of its right as surety in the car loan. It asserts that it would release Villareal’s monetary benefits if he would cause its substitution as surety by Hi-Grade. It further asserts that since Villareal’s debt to the Bank is now due and demandable, it may, pursuant to Art. 2071 of the New Civil Code, ‘demand a security that shall protect him from any proceeding by the creditor and from the danger of insolvency of the debtor.’

Petitioner’s posture is not sanctioned by law. It may only protect its right as surety by instituting an ‘action x x x to demand a security’ (Kuenzle and Streiff vs. Tan Sunco, 16 Phil 670). It may not take the law into its own hands. Indeed, it is ‘unlawful for any person, directly or indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent’ (Art. 116, Labor Code).

Moreover, petitioner has made no payment on the car loan. Consequently, Villareal is not indebted to petitioner. On the other hand, petitioner owes Villareal for the decreed monetary benefits. The withholding of Villareal’s monetary benefits had effectively prevented him from settling his arrearages with the Bank.

With regard to So’s money claims. We find no cogent reason to disturb the findings of the NLRC. x x x.

So’s all-expense paid trip to Austria was a bonus for his outstanding sales performance. Before his sojourn to Austria, petitioner issued him a memorandum (or ‘memo’) stating that ‘Bohler is now imposing that trainees coming to Kapfenberg to stay with the local representative for at least three (3) years after training, otherwise, a lump sum compensation of not less than US $6,000.00 will have to be refunded to them by the trainee’. So did not affix his signature on the memo. However, nine (9) months after coming back from his training, he was made to sign the memo. In his letter to Augusto Pardo dated July 18, 1997, So stated that his signature was needed only as a formality and that he was left with no choice but to accommodate Augusto Pardo’s request. The labor arbiter gave credence to such explanation.

Assuming arguendo that the memo is binding on So, his more than two years post-training stay with petitioner is a substantial compliance with the condition. Besides, So tendered his resignation effective February 16, 1997. Instead of asking So to defer his resignation until the expiration of the three-year period, petitioner advanced its effectivity by one month - as of January 16, 1997. This means that petitioner no longer needed So’s services, particularly the skill and expertise acquired by him from the training. More importantly, the party entitled to claim the US $6,000.00 liquidated damages is BOHLER and not petitioner. Consequently, petitioner has no right to insist on payment of the liquidated damages, much less to withhold So’s monetary benefits in order to exact payment thereof.

With regard to the Christmas giveaways. We agree with the findings of the labor arbiter (affirmed by the NLRC) ‘that there is no existing memorandum requiring the accounting of such giveaways and that no actual accounting has ever been required before, as in the case of then Sales Manager Benito Sayo whose resignation took effect on December 31, 1996 but was not required to account for the Christmas giveaways. To make So account now for said items would amount to discrimination.’ In any event, the matter of accounting of the giveaways may be ventilated in the proper forum.

Finally, petitioner may not offset its claims against private respondents’ monetary benefits. With respect to its being the surety of Villareal, two requisites of compensation are lacking, to wit: ‘that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other’ and ‘that (the two debts) be liquidated and demandable’ (Art. 1279 (1) and (4), New Civil Code). And in respect to its claim for liquidated damages against So, there can be no compensation because his ‘creditor’ is not petitioner but BOHLER (Art.

1278, New Civil Code).

Consequently, the NLRC committed no grave abuse of discretion.

WHEREFORE, the petition is DISMISSED while the assailed decision of the NLRC is AFFIRMED.

SO ORDERED."

On December 15, 1999, petitioner filed a motion for reconsideration but was denied by the Appellate Court in a Resolution dated May 8, 2000.

Hence, this petition for review on certiorari. Petitioner contends that as a guarantor, it could legally withhold respondent Villareal’s monetary benefits as a preliminary remedy pursuant to Article 2071 of the Civil Code, as amended.

4 As to

respondent So, petitioner, citing Article 113 of the Labor Code, as amended,5 in relation to Article 1706 of the Civil Code,

as amended,6 maintains that it could withhold his monetary benefits being authorized by the memorandum he signed.

Article 116 of the Labor Code, as amended, provides:

"ART. 116. Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person, directly or indirectly, to withhold any amount from the wages (and benefits) of a worker or induce him to give up any part of his wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s consent."

The above provision is clear and needs no further elucidation. Indeed, petitioner has no legal authority to withhold respondents’ 13

th month pay and other benefits. What an employee has worked for, his employer must pay.

7Thus, an

employer cannot simply refuse to pay the wages or benefits of its employee because he has either defaulted in paying a loan guaranteed by his employer; or violated their memorandum of agreement; or failed to render an accounting of his employer’s property.

8

Nonetheless, petitioner, relying on Article 2071 (earlier cited), contends that the right to demand security and obtain release from the guaranty it executed in favor of respondent Villareal may be exercised even without initiating a separate and distinct action.

There is no guaranty involved herein and, therefore, the provision of Article 2071 does not apply.

A guaranty is distinguished from a surety in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay, while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.

9

Based on the above distinction, it appears that the contract executed by petitioner and respondent Villareal (in favor of the Bank of Commerce) is a contract of surety. In fact, it is denominated as a "continuing suretyship agreement." Hence, petitioner could not just unilaterally withhold respondent’s wages or benefits as a preliminary remedy under Article 2071. It must file an action against respondent Villareal. Thus, the Appellate Court aptly ruled that petitioner "may only protect its right as surety by instituting an ‘action to demand a security’."

As to respondent So, petitioner maintains that there can be a set-off or legal compensation between them. Consequently, it can withhold his 13

th month pay and other benefits.

For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code, quoted below, must be present.

"ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

"ARTICLE 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."

In the present case, set-off or legal compensation cannot take place between petitioner and respondent So because they are not mutually creditor and debtor of each other.

A careful reading of the Memorandum10

dated August 22, 1994 reveals that the "lump sum compensation of not less than US $6,000.00 will have to be refunded" by each trainee to BOHLER, not to petitioner.

In fine, we rule that petitioner has no legal right to withhold respondents’ 13th month pay and other benefits to recompense

for whatever amount it paid as security for respondent Villareal’s car loan; and for the expenses incurred by respondent So in his training abroad.

WHEREFORE, the petition is DENIED. The Decision dated October 29, 1999 and Resolution dated May 8, 2000 of the

Court of Appeals in CA-G.R. SP No. 50957 are hereby AFFIRMED.

SO ORDERED.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 164772 June 8, 2006

EQUITABLE BANKING CORPORATION (now known as EQUITABLE-PCI BANK), petitioner, vs. RICARDO SADAC, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari with Motion to Refer the Petition to the Court En Banc filed by Equitable Banking Corporation (now known as Equitable-PCI Bank), seeking to reverse the Decision

1 and Resolution

2 of the Court

of Appeals, dated 6 April 2004 and 28 July 2004, respectively, as amended by the Supplemental Decision3 dated 26

October 2004 in CA-G.R. SP No. 75013, which reversed and set aside the Resolutions of the National Labor Relations Commission (NLRC), dated 28 March 2001 and 24 September 2002 in NLRC-NCR Case No. 00-11-05252-89.

The Antecedents

As culled from the records, respondent Sadac was appointed Vice President of the Legal Department of petitioner Bank effective 1 August 1981, and subsequently General Counsel thereof on 8 December 1981. On 26 June 1989, nine lawyers of petitioner Bank’s Legal Department, in a letter-petition to the Chairman of the Board of Directors, accused respondent Sadac of abusive conduct, inter alia, and ultimately, petitioned for a change in leadership of the department. On the ground of lack of confidence in respondent Sadac, under the rules of client and lawyer relationship, petitioner Bank instructed respondent Sadac to deliver all materials in his custody in all cases in which the latter was appearing as its counsel of record. In reaction thereto, respondent Sadac requested for a full hearing and formal investigation but the same remained unheeded. On 9 November 1989, respondent Sadac filed a complaint for illegal dismissal with damages against petitioner Bank and individual members of the Board of Directors thereof. After learning of the filing of the complaint, petitioner Bank terminated the services of respondent Sadac. Finally, on 10 August 1989, respondent Sadac was removed from his office and ordered disentitled to any compensation and other benefits.

4

In a Decision5 dated 2 October 1990, Labor Arbiter Jovencio Ll. Mayor, Jr., dismissed the complaint for lack of merit. On

appeal, the NLRC in its Resolution6 of 24 September 1991 reversed the Labor Arbiter and declared respondent Sadac’s

dismissal as illegal. The decretal portion thereof reads, thus:

WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is hereby, SET ASIDE, and a new one ENTERED declaring the dismissal of the complainant as illegal, and consequently ordering the respondents jointly and severally to reinstate him to his former position as bank Vice-President and General Counsel without loss of seniority rights and other privileges, and to pay him full backwages and other benefits from the time his compensation was withheld to his actual reinstatement, as well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney’s fees equivalent to Ten Percent (10%) of the monetary award. Should reinstatement be no longer possible due to strained relations, the respondents are ordered likewise jointly and severally to grant separation pay at one (1) month per year of service in the total sum of P293,650.00 with backwages and other benefits from November 16, 1989 to September 15, 1991 (cut off date, subject to adjustment) computed at P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and attorney’s fees equal to Ten Percent (10%) of all the monetary award, or a grand total of P1,649,329.53.

7

Petitioner Bank came to us for the first time via a Special Civil Action for Certiorari assailing the NLRC Resolution of 24 September 1991 in Equitable Banking Corporation v. National Labor Relations Commission, docketed as G.R. No. 102467.

8

In our Decision9 of 13 June 1997, we held respondent Sadac’s dismissal illegal. We said that the existence of the

employer-employee relationship between petitioner Bank and respondent Sadac had been duly established bringing the case within the coverage of the Labor Code, hence, we did not permit petitioner Bank to rely on Sec. 26, Rule 138

10 of the

Rules of Court, claiming that the association between the parties was one of a client-lawyer relationship, and, thus, it could terminate at any time the services of respondent Sadac. Moreover, we did not find that respondent Sadac’s dismissal was grounded on any of the causes stated in Article 282 of the Labor Code. We similarly found that petitioner Bank disregarded the procedural requirements in terminating respondent Sadac’s employment as so required by Section 2 and Section 5, Rule XIV, Book V of the Implementing Rules of the Labor Code. We decreed:

WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: That private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with law; that private respondent shall be paid an additional amount of P5,000.00; that the award of moral and exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank alone, the other petitioners being absolved from solidary liability. No costs.

11

On 28 July 1997, our Decision in G.R. No. 102467 dated 13 June 1997 became final and executory.12

Pursuant thereto, respondent Sadac filed with the Labor Arbiter a Motion for Execution13

thereof. Likewise, petitioner Bank filed a Manifestation and Motion

14 praying that the award in favor of respondent Sadac be computed and that after

payment is made, petitioner Bank be ordered forever released from liability under said judgment.

Per respondent Sadac’s computation, the total amount of the monetary award is P6,030,456.59, representing his backwages and other benefits, including the general increases which he should have earned during the period of his illegal termination. Respondent Sadac theorized that he started with a monthly compensation of P12,500.00 in August 1981, when he was appointed as Vice President of petitioner Bank’s Legal Department and later as its General Counsel in December 1981. As of November 1989, when he was dismissed illegally, his monthly compensation amounted to P29,365.00 or more than twice his original compensation. The difference, he posited, can be attributed to the annual salary increases which he received equivalent to 15 percent (15%) of his monthly salary.

Respondent Sadac anchored his claim on Article 279 of the Labor Code of the Philippines, and cited as authority the cases of East Asiatic Company, Ltd. v. Court of Industrial Relations,

15 St. Louis College of Tuguegarao v. National Labor

Relations Commission,16

and Sigma Personnel Services v. National Labor Relations Commission.17

According to respondent Sadac, the catena of cases uniformly holds that it is the obligation of the employer to pay an illegally dismissed employee the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases to which he would have been normally entitled had he not been dismissed; and therefore, salary increases should be deemed a component in the computation of backwages. Moreover, respondent Sadac contended that his check-up benefit, clothing allowance, and cash conversion of vacation leaves must be included in the computation of his backwages.

Petitioner Bank disputed respondent Sadac’s computation. Per its computation, the amount of monetary award due respondent Sadac is P2,981,442.98 only, to the exclusion of the latter’s general salary increases and other claimed benefits which, it maintained, were unsubstantiated. The jurisprudential precedent relied upon by petitioner Bank in assailing respondent Sadac’s computation is Evangelista v. National Labor Relations Commission,

18 citing Paramount

Vinyl Products Corp. v. National Labor Relations Commission,19

holding that an unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal. Furthermore, petitioner Bank argued before the Labor Arbiter that the award of salary differentials is not allowed, the established rule being that upon reinstatement, illegally dismissed employees are to be paid their backwages without deduction and qualification as to any wage increases or other benefits that may have been received by their co-workers who were not dismissed or did not go on strike.

On 2 August 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. rendered an Order20

adopting respondent Sadac’s computation. In the main, the Labor Arbiter relying on Millares v. National Labor Relations Commission

21concluded that respondent

Sadac is entitled to the general increases as a component in the computation of his backwages. Accordingly, he awarded respondent Sadac the amount of P6,030,456.59 representing his backwages inclusive of allowances and other claimed benefits, namely check-up benefit, clothing allowance, and cash conversion of vacation leave plus 12 percent (12%) interest per annum equivalent to P1,367,590.89 as of 30 June 1999, or a total of P7,398,047.48. However, considering that respondent Sadac had already received the amount of P1,055,740.48 by virtue of a Writ of Execution

22 earlier issued

on 18 January 1999, the Labor Arbiter directed petitioner Bank to pay respondent Sadac the amount of P6,342,307.00. The Labor Arbiter also granted an award of attorney’s fees equivalent to ten percent (10%) of all monetary awards, and imposed a 12 percent (12%) interest per annum reckoned from the finality of the judgment until the satisfaction thereof.

The Labor Arbiter decreed, thus:

WHEREFORE, in view of al (sic) the foregoing, let an "ALIAS" Writ of Execution be issued commanding the Sheriff, this Branch, to collect from respondent Bank the amount of Ph6,342,307.00 representing the backwages with 12% interest per annum due complainant.

23

Petitioner Bank interposed an appeal with the NLRC, which reversed the Labor Arbiter in a Resolution,24

promulgated on 28 March 2001. It ratiocinated that the doctrine on general increases as component in computing backwages in Sigma Personnel Services and St. Louis was merely obiter dictum. The NLRC found East Asiatic Co., Ltd. inapplicable on the ground that the original circumstances therein are not only peculiar to the said case but also completely strange to the case of respondent Sadac. Further, the NLRC disallowed respondent Sadac’s claim to check-up benefit ratiocinating that there was no clear and substantial proof that the same was being granted and enjoyed by other employees of petitioner Bank. The award of attorney’s fees was similarly deleted.

The dispositive portion of the Resolution states:

WHEREFORE, the instant appeal is considered meritorious and accordingly, the computation prepared by respondent Equitable Banking Corporation on the award of backwages in favor of complainant Ricardo Sadac under the decision promulgated by the Supreme Court on June 13, 1997 in G.R. No. 102476 in the aggregate amount of P2,981,442.98 is hereby ordered.

25

Respondent Sadac’s Motion for Reconsideration thereon was denied by the NLRC in its Resolution,26

promulgated on 24 September 2002.

Aggrieved, respondent Sadac filed before the Court of Appeals a Petition for Certiorari seeking nullification of the twin resolutions of the NLRC, dated 28 March 2001 and 24 September 2002, as well as praying for the reinstatement of the 2 August 1999 Order of the Labor Arbiter.

For the resolution of the Court of Appeals were the following issues, viz.:

(1) Whether periodic general increases in basic salary, check-up benefit, clothing allowance, and cash conversion of vacation leave are included in the computation of full backwages for illegally dismissed employees;

(2) Whether respondent is entitled to attorney’s fees; and

(3) Whether respondent is entitled to twelve percent (12%) per annum as interest on all accounts outstanding until full payment thereof.

Finding for respondent Sadac (therein petitioner), the Court of Appeals rendered a Decision on 6 April 2004, the dispositive portion of which is quoted hereunder:

WHEREFORE, premises considered, the March 28, 2001 and the September 24, 2002 Resolutions of the National Labor Relations Commissions (sic) are REVERSED and SET ASIDE and the August 2, 1999 Order of the Labor Arbiter is REVIVED to the effect that private respondent is DIRECTED TO PAY petitioner the sum of PhP6,342,307.00, representing full back wages (sic) which sum includes annual general increases in basic salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other sundry benefits plus 12% per annum interest on outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.27

The Court of Appeals, citing East Asiatic held that respondent Sadac’s general increases should be added as part of his backwages. According to the appellate court, respondent Sadac’s entitlement to the annual general increases has been duly proven by substantial evidence that the latter, in fact, enjoyed an annual increase of more or less 15 percent (15%). Respondent Sadac’s check-up benefit, clothing allowance, and cash conversion of vacation leave were similarly ordered added in the computation of respondent Sadac’s basic wage.

Anent the matter of attorney’s fees, the Court of Appeals sustained the NLRC. It ruled that our Decision28

of 13 June 1997 did not award attorney’s fees in respondent Sadac’s favor as there was nothing in the aforesaid Decision, either in the dispositive portion or the body thereof that supported the grant of attorney’s fees. Resolving the final issue, the Court of Appeals imposed a 12 percent (12%) interest per annum on the total monetary award to be computed from 28 July 1997 or the date our judgment in G.R. No. 102467 became final and executory until fully paid at which time the quantification of the amount may be deemed to have been reasonably ascertained.

On 7 May 2004, respondent Sadac filed a Partial Motion for Reconsideration29

of the 6 April 2004 Court of Appeals Decision insofar as the appellate court did not award him attorney’s fees. Similarly, petitioner Bank filed a Motion for Partial Reconsideration thereon. Following an exchange of pleadings between the parties, the Court of Appeals rendered a Resolution,

30 dated 28 July 2004, denying petitioner Bank’s Motion for Partial Reconsideration for lack of merit.

Assignment of Errors

Hence, the instant Petition for Review by petitioner Bank on the following assignment of errors, to wit:

(a) The Hon. Court of Appeals erred in ruling that general salary increases should be included in the computation of full backwages.

(b) The Hon. Court of Appeals erred in ruling that the applicable authorities in this case are: (i) East Asiatic, Ltd. v. CIR, 40 SCRA 521 (1971); (ii) St. Louis College of Tuguegarao v. NLRC, 177 SCRA 151 (1989); (iii) Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993); and (iv) Millares v. NLRC, 305 SCRA 500 (1999) and not (i) Art. 279 of the Labor Code; (ii) Paramount Vinyl Corp. v. NLRC, 190 SCRA 525 (1990); (iii) Evangelista v. NLRC, 249 SCRA 194 (1995); and (iv) Espejo v. NLRC, 255 SCRA 430 (1996).

(c) The Hon. Court of Appeals erred in ruling that respondent is entitled to check-up benefit, clothing allowance and cash conversion of vacation leaves notwithstanding that respondent did not present any evidence to prove entitlement to these claims.

(d) The Hon. Court of Appeals erred in ruling that respondent is entitled to be paid legal interest even if the principal amount due him has not yet been correctly and finally determined.

31

Meanwhile, on 26 October 2004, the Court of Appeals rendered a Supplemental Decision granting respondent Sadac’s Partial Motion for Reconsideration and amending the dispositive portion of the 6 April 2004 Decision in this wise, viz.:

WHEREFORE, premises considered, the March 24 (sic), 2001 and the September 24, 2002 Resolutions of the National Labor Relations Commission are hereby REVERSED and SET ASIDE and the August 2, 1999 Order of the Labor Arbiter is hereby REVIVED to the effect that private respondent is hereby DIRECTED TO PAY petitioner the sum of P6,342,307.00, representing full backwages which sum includes annual general increases in basic salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other sundry benefits "and attorney’s fees equal to TEN PERCENT (10%) of all the monetary award" plus 12% per annum interest on all outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.32

On 22 November 2004, petitioner Bank filed a Supplement to Petition for Review33

contending in the main that the Court of Appeals erred in issuing the Supplemental Decision by directing petitioner Bank to pay an additional amount to respondent Sadac representing attorney’s fees equal to ten percent (10%) of all the monetary award.

The Court’s Ruling

I.

We are called to write finis to a controversy that comes to us for the second time. At the core of the instant case are the divergent contentions of the parties on the manner of computation of backwages.

Petitioner Bank asseverates that Article 279 of the Labor Code of the Philippines does not contemplate the inclusion of salary increases in the definition of "full backwages." It controverts the reliance by the appellate court on the cases of (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares. While it is in accord with the pronouncement of the Court of Appeals that Republic Act No. 6715, in amending Article 279, intends to give more benefits to workers, petitioner Bank submits that the Court of Appeals was in error in relying on East Asiatic to support its finding that salary increases should be included in the computation of backwages as nowhere in Article 279, as amended, are salary increases spoken of. The prevailing rule in the milieu of the East Asiatic doctrine was to deduct earnings earned elsewhere from the amount of backwages payable to an illegally dismissed employee.

Petitioner Bank posits that even granting that East Asiatic allowed general salary increases in the computation of backwages, it was because the inclusion was purposely to cushion the blow of the deduction of earnings derived elsewhere; with the amendment of Article 279 and the consequent elimination of the rule on the deduction of earnings derived elsewhere, the rationale for including salary increases in the computation of backwages no longer exists. On the references of salary increases in the aforementioned cases of (i) St. Louis; (ii) Sigma Personnel; and (iii) Millares, petitioner Bank contends that the same were merely obiter dicta. In fine, petitioner Bank anchors its claim on the cases of (i) Paramount Vinyl Products Corp. v. National Labor Relations Commission;

34 (ii) Evangelista v. National Labor Relations

Commission;35

and (iii) Espejo v. National Labor Relations Commission,36

which ruled that an unqualified award of backwages is exclusive of general salary increases and the employee is paid at the wage rate at the time of the dismissal.

For his part, respondent Sadac submits that the Court of Appeals was correct when it ruled that his backwages should include the general increases on the basis of the following cases, to wit: (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares.

Resolving the protracted litigation between the parties necessitates us to revisit our pronouncements on the interpretation of the term backwages. We said that backwages in general are granted on grounds of equity for earnings which a worker or employee has lost due to his illegal dismissal.

37 It is not private compensation or damages but is awarded in

furtherance and effectuation of the public objective of the Labor Code. Nor is it a redress of a private right but rather in the nature of a command to the employer to make public reparation for dismissing an employee either due to the former’s unlawful act or bad faith.

38 The Court, in the landmark case of Bustamante v. National Labor Relations Commission,

39 had

the occasion to explicate on the meaning of full backwages as contemplated by Article 27940

of the Labor Code of the Philippines, as amended by Section 34 of Rep. Act No. 6715. The Court in Bustamante said, thus:

The Court deems it appropriate, however, to reconsider such earlier ruling on the computation of backwages as enunciated in said Pines City Educational Center case, by now holding that conformably with the evident legislative intent as expressed in Rep. Act No. 6715, above-quoted, 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 underlying reason for this ruling is that the 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. 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. In other words, the provision calling for "full backwages" to illegally dismissed employees is clear, plain and free from ambiguity and, therefore, must be applied without attempted or strained interpretation. Index animi sermo est.

41

Verily, jurisprudence has shown that the definition of full backwages has forcefully evolved. In Mercury Drug Co., Inc. v. Court of Industrial Relations,

42 the rule was that backwages were granted for a period of three years without qualification

and without deduction, meaning, the award of backwages was not reduced by earnings actually earned by the dismissed employee during the interim period of the separation. This came to be known as the Mercury Drug rule.

43 Prior to the

Mercury Drug ruling in 1974, the total amount of backwages was reduced by earnings obtained by the employee elsewhere from the time of the dismissal to his reinstatement. The Mercury Drug rule was subsequently modified in Ferrer v. National Labor Relations Commission

44 and Pines City Educational Center v. National Labor Relations

Commission,45

where we allowed the recovery of backwages for the duration of the illegal dismissal minus the total amount of earnings which the employee derived elsewhere from the date of dismissal up to the date of reinstatement, if any. In Ferrer and in Pines, the three-year period was deleted, and instead, the dismissed employee was paid backwages for the entire period that he was without work subject to the deductions, as mentioned. Finally came our ruling in Bustamante which superseded Pines City Educational Center and allowed full recovery of backwages without deduction and without qualification pursuant to the express provisions of Article 279 of the Labor Code, as amended by Rep. Act No. 6715, i.e., without any deduction of income the employee may have derived from employment elsewhere from the date of his dismissal up to his reinstatement, that is, covering the entirety of the period of the dismissal.

The first issue for our resolution involves another aspect in the computation of full backwages, mainly, the basis of the computation thereof. Otherwise stated, whether general salary increases should be included in the base figure to be used in the computation of backwages.

In so concluding that general salary increases should be made a component in the computation of backwages, the Court of Appeals ratiocinated, thus:

The Supreme Court held in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971) that "general increases" should be added as a part of full backwages, to wit:

In other words, the just and equitable rule regarding the point under discussion is this: It is the obligation of the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases, to which he would have been normally entitled had he not been dismissed and had not stopped working, but it is the right, on the other hand of the employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or worker would have earned in his old employment on the corresponding days he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned.

The doctrine in East Asiatic was subsequently reiterated, in the cases of St. Louis College of Tugueg[a]rao v. NLRC, 177 SCRA 151 (1989); Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993) and Millares v. National Labor Relations Commission, 305 SCRA 500 (1999).

Private respondent, in opposing the petitioner’s contention, alleged in his Memorandum that only the wage rate at the time of the employee’s illegal dismissal should be considered – private respondent citing the following decisions of the Supreme Court: Paramount Vinyl Corp. v. NLRC 190 SCRA 525 (1990); Evangelista v. NLRC, 249 SCRA 194 (1995); Espejo v. NLRC, 255 SCRA 430 (1996) which rendered obsolete the ruling in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971).

We are not convinced.

The Supreme Court had consistently held that payment of full backwages is the price or penalty that the employer must pay for having illegally dismissed an employee.

In Ala Mode Garments, Inc. v. NLRC 268 SCRA 497 (1997) and Bustamante v. NLRC and Evergreen Farms, Inc. 265 SCRA 61 (1996) the Supreme Court held that the clear legislative intent in the amendment in Republic Act 6715 was to give more benefits to workers than was previously given them under the Mercury Drug rule or the "deductions of earnings elsewhere" rule.

The Paramount Vinyl, Evangelista, and Espejo cases cited by private respondent are inapplicable to the case at bar. The doctrines therein came about as a result of the old Mercury Drug rule, which was repealed with the passage of Republic Act 6715 into law. It was in Alex Ferrer v. NLRC 255 SCRA 430 (1993) when the Supreme Court returned to the doctrine in East Asiatic, which was soon supplanted by the case of Bustamante v. NLRC and Evergreen Farms, Inc., which held that the backwages to be awarded to an illegally dismissed employee, should not, as a general rule, be diminished or reduced by the earnings derived from him during the period of his illegal dismissal. Furthermore, the Mercury Drug rule was never meant to prejudice the workers, but merely to speed the recovery of their backwages.

Ever since Mercury Drug Co. Inc. v. CIR 56 SCRA 694 (1974), it had been the intent of the Supreme Court to increase the backwages due an illegally dismissed employee. In the Mercury Drug case, full backwages was to be recovered even though a three-year limitation on recovery of full backwages was imposed in the name of equity. Then in Bustamante, full backwages was interpreted to mean absolutely no deductions regardless of the duration of the illegal dismissal. In Bustamante, the Supreme Court no longer regarded equity as a basis when dealing with illegal dismissal cases because it is not equity at play in illegal dismissals but rather, it is employer’s obligation to pay full back wages (sic). It is an obligation of the employer because it is "the price or penalty the employer has to pay for illegally dismissing his employee."

The applicable modern definition of full backwages is now found in Millares v. National Labor Relations Commission 305 SCRA 500 (1999), where although the issue in Millares concerned separation pay – separation pay and backwages both have employee’s wage rate at their foundation.

x x x The rationale is not difficult to discern. It is the obligation of the employer to pay an illegally dismissed employee the whole amount of his salaries plus all other benefits, bonuses and general increases to which he would have been normally entitled had he not been dismissed and had not stopped working. The same holds true in case of retrenched employees. x x x

x x x x

x x x Annual general increases are akin to "allowances" or "other benefits." 46

(Italics ours.)

We do not agree.

Attention must be called to Article 279 of the Labor Code of the Philippines, as amended by Section 34 of Rep. Act No. 6715. The law provides as follows:

ART. 279. Security of Tenure. – In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. 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. (Emphasis supplied.)

Article 279 mandates that an employee’s full backwages shall be inclusive of allowances and other benefits or their monetary equivalent. Contrary to the ruling of the Court of Appeals, we do not see that a salary increase can be interpreted as either an allowance or a benefit. Salary increases are not akin to allowances or benefits, and cannot be

confused with either. The term "allowances" is sometimes used synonymously with "emoluments," as indirect or contingent remuneration, which may or may not be earned, but which is sometimes in the nature of compensation, and sometimes in the nature of reimbursement.

47 Allowances and benefits are granted to the employee apart or separate

from, and in addition to the wage or salary. In contrast, salary increases are amounts which are added to the employee’s salary as an increment thereto for varied reasons deemed appropriate by the employer. Salary increases are not separate grants by themselves but once granted, they are deemed part of the employee’s salary. To extend the coverage of an allowance or a benefit to include salary increases would be to strain both the imagination of the Court and the language of law. As aptly observed by the NLRC, "to otherwise give the meaning other than what the law speaks for by itself, will open the floodgates to various interpretations."

48 Indeed, if the intent were to include salary increases as basis in the

computation of backwages, the same should have been explicitly stated in the same manner that the law used clear and unambiguous terms in expressly providing for the inclusion of allowances and other benefits.

Moreover, we find East Asiatic inapplicable to the case at bar. In East Asiatic, therein petitioner East Asiatic Company, Ltd. was found guilty of unfair labor practices against therein respondent, Soledad A. Dizon, and the Court ordered her reinstatement with back pay. On the question of the amount of backwages, the Court granted the dismissed employee the whole amount of the salaries plus all general increases and bonuses she would have received during the period of her lay-off with the corresponding right of the employer to deduct from the total amounts, all the earnings earned by the employee during her lay-off. The emphasis in East Asiatic is the duty of both the employer and the employee to disclose the material facts and competent evidence within their peculiar knowledge relative to the proper determination of backwages, especially as the earnings derived by the employee elsewhere are deductions to which the employer are entitled. However, East Asiatic does not find relevance in the resolution of the issue before us. First, the material date to consider is 21 March 1989, when the law amending Article 279 of the Labor Code, Rep. Act No. 6715, otherwise known as the Herrera-Veloso Law, took effect. It is obvious that the backdrop of East Asiatic, decided by this Court on 31 August 1971 was prior to the current state of the law on the definition of full backwages. Second, it bears stressing that East Asiatic was decided at a time when even as an illegally dismissed employee is entitled to the whole amount of the salaries or wages, it was the recognized right of the employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or worker would have earned in his old employment on the corresponding days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned.

49 It is for this reason the Court

centered its discussion on the duty of both parties to be candid and open about facts within their knowledge to establish the amount of the deductions, and not leave the burden on the employee alone to establish his claim, as well as on the duty of the court to compel the parties to cooperate in disclosing such material facts. The inapplicability of East Asiatic to respondent Sadac was sufficiently elucidated upon by the NLRC, viz.:

A full discernment of the pertinent portion of the judgment sought to be executed in East Asiatic Co., Ltd. would reveal as follows:

"x x x to reinstate Soledad A. Dizon immediately to her former position with backwages from September 1, 1958 until actually reinstated with all the rights and privileges acquired and due her, including seniority and such other terms and conditions of employment AT THE TIME OF HER LAY-OFF"

The basis on which this doctrine was laid out was summed up by the Supreme Court which ratiocinated in this light. To quote:

"x x x on the other hand, of the employer to deduct from the total of these, the amount equivalent to these salaries or wages the employee or worker would have earned in his old employment on the corresponding days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned x x x" (Ibid, pp. 547-548).

But the Supreme Court, in the instant case, pronounced a clear but different judgment from that of East Asiatic Co. decretal portion, in this wise:

"WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: that private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with law; xxx"

Undisputably (sic), it was decreed in plain and unambiguous language that complainant Sadac "shall be entitled to backwages." No more, no less.

Thus, this decree for Sadac cannot be considered in any way, substantially in essence, with the award of backwages as pronounced for Ms. Dizon in the case of East Asiatic Co. Ltd.

50

In the same vein, we cannot accept the Court of Appeals’ reliance on the doctrine as espoused in Millares. It is evident that Millares concerns itself with the computation of the salary base used in computing the separation pay of petitioners therein. The distinction between backwages and separation pay is elementary. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Backwages represent compensation that should have been earned but were not collected because of the unjust dismissal. The bases for computing the two are different, the first being usually the length of the employee’s service and the second the actual period when he was unlawfully prevented from working.

51

The issue that confronted the Court in Millares was whether petitioners’ housing and transportation allowances therein which they allegedly received on a monthly basis during their employment should have been included in the computation of their separation pay. It is plain to see that the reference to general increases in Millares citing East Asiatic was a mere obiter. The crux in Millares was our pronouncement that the receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering.

Whether salary increases are deemed part of the salary base in the computation of backwages was not the issue in Millares.

Neither can we look at St. Louis of Tuguegarao to resolve the instant controversy. What was mainly contentious therein was the inclusion of fringe benefits in the computation of the award of backwages, in particular additional vacation and sick leaves granted to therein concerned employees, it evidently appearing that the reference to East Asiatic in a footnote was a mere obiter dictum. Salary increases are not akin to fringe benefits

52 and neither is it logical to conceive of both as

belonging to the same taxonomy.

We must also resolve against the applicability of Sigma Personnel Services to the case at bar. The basic issue before the Court therein was whether the employee, Susan Sumatre, a domestic helper in Abu Dhabi, United Arab Emirates, had been illegally dismissed, in light of the contention of Sigma Personnel Services, a duly licensed recruitment agency, that the former was a mere probationary employee who was, on top of this status, mentally unsound.

53 Even a cursory reading

of Sigma Personnel Services citing St. Louis College of Tuguegarao would readily show that inclusion of salary increases in the computation of backwages was not at issue. The same was not on all fours with the instant petition.

What, then, is the basis of computation of backwages? Are annual general increases in basic salary deemed component in the computation of full backwages? The weight of authority leans in petitioner Bank’s favor and against respondent Sadac’s claim for the inclusion of general increases in the computation of his backwages.

We stressed in Paramount that an unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal, thus:

The determination of the salary base for the computation of backwages requires simply an application of judicial precedents defining the term "backwages". Unfortunately, the Labor Arbiter erred in this regard. An unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal [Davao Free Worker Front v. Court of Industrial Relations, G.R. No. L-29356, October 27, 1975, 67 SCRA 418; Capital Garments Corporation v. Ople, G.R. No. 53627, September 30, 1982, 117 SCRA 473; Durabilt Recapping Plant & Company v. NLRC, G.R. No. 76746, July 27, 1987, 152 SCRA 328]. And the Court has declared that the base figure to be used in the computation of backwages due to the employee should include not just the basic salary, but also the regular allowances that he had been receiving, such as the emergency living allowances and the 13th month pay mandated under the law [See Pan-Philippine Life Insurance Corporation v. NLRC, G.R. No. 53721, June 29, 1982, 144 SCRA 866; Santos v. NLRC, G.R. No. 76721, September 21, 1987, 154 SCRA 166; Soriano v. NLRC, G.R. No. 75510, October 27, 1987, 155 SCRA 124; Insular Life Assurance Co., Ltd. v. NLRC, supra.]

54(Emphasis supplied.)

There is no ambivalence in Paramount, that the base figure to be used in the computation of backwages is pegged at the wage rate at the time of the employee’s dismissal, inclusive of regular allowances that the employee had been receiving such as the emergency living allowances and the 13th month pay mandated under the law.

In Evangelista v. National Labor Relations Commission,55

we addressed the sole issue of whether the computation of the award of backwages should be based on current wage level or the wage levels at the time of the dismissal. We resolved that an unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal, thus:

As explicitly declared in Paramount Vinyl Products Corp. vs. NLRC, the determination of the salary base for the computation of backwages requires simply an application of judicial precedents defining the term "backwages." An unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal. Furthermore, the award of salary differentials is not allowed, the established rule being that upon reinstatement, illegally dismissed employees are to be paid their backwages without deduction and qualification as to any wage increases or other benefits that may have been received by their co-workers who were not dismissed or did not go on strike.

56

The case of Paramount was relied upon by the Court in the latter case of Espejo v. National Labor Relations Commission,

57 where we reiterated that the computation of backwages should be based on the basic salary at the time of

the employee’s dismissal plus the regular allowances that he had been receiving. Further, the clarification made by the Court in General Baptist Bible College v. National Labor Relations Commission,

58 settles the issue, thus:

We also want to clarify that when there is an award of backwages this actually refers to backwages without qualifications and deductions. Thus, We held that:

"The term ‘backwages without qualification and deduction’ means that the workers are to be paid their backwages fixed as of the time of the dismissal or strike without deduction for their earnings elsewhere during their layoff and without qualification of their wages as thus fixed; i.e., unqualified by any wage increases or other benefits that may have been received by their co-workers who are not dismissed or did not go on strike. Awards including salary differentials are not allowed. The salary base properly used should, however, include not only the basic salary but also the emergency cost of living allowances and also transportation allowances if the workers are entitled thereto."

59 (Italics supplied.)

Indeed, even a cursory reading of the dispositive portion of the Court’s Decision of 13 June 1997 in G.R. No. 102467, awarding backwages to respondent Sadac, readily shows that the award of backwages therein is unqualified, ergo, without qualification of the wage as thus fixed at the time of the dismissal and without deduction.

A demarcation line between salary increases and backwages was drawn by the Court in Paguio v. Philippine Long Distance Telephone Co., Inc.,

60 where therein petitioner Paguio, on account of his illegal transfer sought backwages,

including an amount equal to 16 percent (16%) of his monthly salary representing his salary increases during the period of his demotion, contending that he had been consistently granted salary increases because of his above average or outstanding performance. We said:

In several cases, the Court had the opportunity to elucidate on the reason for the grant of backwages. Backwages are granted on grounds of equity to workers for earnings lost due to their illegal dismissal from work. They are a reparation for the illegal dismissal of an employee based on earnings which the employee would have obtained, either by virtue of a lawful decree or order, as in the case of a wage increase under a wage order, or by rightful expectation, as in the case of one’s salary or wage. The outstanding feature of backwages is thus the degree of assuredness to an employee that he would have had them as earnings had he not been illegally terminated from his employment.

Petitioner’s claim, however, is based simply on expectancy or his assumption that, because in the past he had been consistently rated for his outstanding performance and his salary correspondingly increased, it is probable that he would similarly have been given high ratings and salary increases but for his transfer to another position in the company.

In contrast to a grant of backwages or an award of lucrum cessans in the civil law, this contention is based merely on speculation. Furthermore, it assumes that in the other position to which he had been transferred petitioner had not been given any performance evaluation. As held by the Court of Appeals, however, the mere fact that petitioner had been previously granted salary increases by reason of his excellent performance does not necessarily guarantee that he would have performed in the same manner and, therefore, qualify for the said increase later. What is more, his claim is tantamount to saying that he had a vested right to remain as Head of the Garnet Exchange and given salary increases simply because he had performed well in such position, and thus he should not be moved to any other position where management would require his services.

61

Applying Paguio to the case at bar, we are not prepared to accept that this degree of assuredness applies to respondent Sadac’s salary increases. There was no lawful decree or order supporting his claim, such that his salary increases can be made a component in the computation of backwages. What is evident is that salary increases are a mere expectancy. They are, by its nature volatile and are dependent on numerous variables, including the company’s fiscal situation and even the employee’s future performance on the job, or the employee’s continued stay in a position subject to management prerogative to transfer him to another position where his services are needed. In short, there is no vested right to salary increases. That respondent Sadac may have received salary increases in the past only proves fact of receipt but does not establish a degree of assuredness that is inherent in backwages. From the foregoing, the plain conclusion is that respondent Sadac’s computation of his full backwages which includes his prospective salary increases cannot be permitted.

Respondent Sadac cannot take exception by arguing that jurisprudence speaks only of wage and not salary, and therefore, the rule is inapplicable to him. It is respondent Sadac’s stance that he was not paid at the wage rate nor was he engaged in some form of manual or physical labor as he was hired as Vice President of petitioner Bank. He cites Gaa v. Court of Appeals

62 where the Court distinguished between wage and salary.

The reliance is misplaced. The distinction between salary and wage in Gaa was for the purpose of Article 1708 of the Civil Code which mandates that, "[t]he laborer’s wage shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and medical attendance." In labor law, however, the distinction appears to be merely semantics. Paramount and Evangelista may have involved wage earners, but the petitioner in Espejo was a General Manager with a monthly salary of P9,000.00 plus privileges. That wage and salary are synonymous has been settled in Songco v. National Labor Relations Commission.

63 We said:

Broadly, the word "salary" means a recompense or consideration made to a person for his pains or industry in another man’s business. Whether it be derived from "salarium," or more fancifully from "sal," the pay of the Roman soldier, it carries with it the fundamental idea of compensation for services rendered. Indeed, there is eminent authority for holding that the words "wages" and "salary" are in essence synonymous (Words and Phrases, Vol. 38 Permanent Edition, p. 44 citing Hopkins vs. Cromwell, 85 N.Y.S.839, 841, 89 App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of which is the Latin word "salarium," is often used interchangeably with "wage", the etymology of which is the Middle English word "wagen". Both words generally refer to one and the same meaning, that is, a reward or recompense for services performed. Likewise, "pay" is the synonym of "wages" and "salary" (Black’s Law Dictionary, 5th Ed). x x x

64 (Italics

supplied.)

II.

Petitioner Bank ascribes as its second assignment of error the Court of Appeals’ ruling that respondent Sadac is entitled to check-up benefit, clothing allowance and cash conversion of vacation leaves notwithstanding that respondent Sadac did not present any evidence to prove entitlement to these claims.

65

The determination of respondent Sadac’s entitlement to check-up benefit, clothing allowance, and cash conversion of vacation leaves involves a question of fact. The well-entrenched rule is that only errors of law not of facts are reviewable by this Court in a petition for review.

66 The jurisdiction of this Court in a petition for review on certiorari under Rule 45 of

the 1997 Rules of Civil Procedure, as amended, is limited to reviewing only errors of law, not of fact, unless the factual findings being assailed are not supported by evidence on record or the impugned judgment is based on a misapprehension of facts.

67 This Court is also not precluded from delving into and resolving issues of facts, particularly if

the findings of the Labor Arbiter are inconsistent with those of the NLRC and the Court of Appeals.68

Such is the case in the instant petition. The Labor Arbiter and the Court of Appeals are in agreement anent the entitlement of respondent Sadac to check-up benefit, clothing allowance, and cash conversion of vacation leaves, but the findings of the NLRC were to the contrary. The Labor Arbiter sustained respondent Sadac’s entitlement to check-up benefit, clothing allowance and cash conversion of vacation leaves. He gave weight to petitioner Bank’s acknowledgment in its computation that respondent Sadac is entitled to certain benefits, namely, rice subsidy, tuition fee allowance, and medicine allowance, thus, there exists no reason to deprive respondent Sadac of his other benefits. The Labor Arbiter also reasoned that the petitioner Bank did not adduce evidence to support its claim that the benefits sought by respondent Sadac are not granted to its employees and officers. Similarly, the Court of Appeals ratiocinated that if ordinary employees are entitled to receive these benefits, so it is with more reason for a Vice President, like herein respondent Sadac to receive the same.

We find in the records that, per petitioner Bank’s computation, the benefits to be received by respondent are monthly rice subsidy, tuition fee allowance per year, and medicine allowance per year.

69 Contained nowhere is an acknowledgment of

herein claimed benefits, namely, check-up benefit, clothing allowance, and cash conversion of vacation leaves. We cannot sustain the rationalization that the acknowledgment by petitioner Bank in its computation of certain benefits granted to respondent Sadac means that the latter is also entitled to the other benefits as claimed by him but not acknowledged by petitioner Bank. The rule is, he who alleges, not he who denies, must prove. Mere allegations by respondent Sadac does not suffice in the absence of proof supporting the same.

III.

We come to the third assignment of error raised by petitioner Bank in its Supplement to Petition for Review, assailing the 26 October 2004 Supplemental Decision of the Court of Appeals which amended the fallo of its 6 April 2004 Decision to include "attorney’s fees equal to TEN PERCENT (10%) of all the monetary award" granted to respondent Sadac. Petitioner Bank posits that neither the dispositive portion of our 13 June 1997 Decision in G.R. No. 102467 nor the body thereof awards attorney’s fees to respondent Sadac. It is postulated that the body of the 13 June 1997 Decision does not contain any findings of facts or conclusions of law relating to attorney’s fees, thus, this Court did not intend to grant to respondent Sadac the same, especially in the light of its finding that the petitioner Bank was not motivated by malice or bad faith and that it did not act in a wanton, oppressive, or malevolent manner in terminating the services of respondent Sadac.

70

We do not agree.

At the outset it must be emphasized that when a final judgment becomes executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the Court rendering it or by the highest Court of the land. The only recognized exceptions are the correction of clerical errors or the making of so-called nunc pro tunc entries which cause no prejudice to any party, and, of course, where the judgment is void.

71 The Court’s 13 June 1997 Decision in G.R. No. 102467 became final and executory on 28

July 1997. This renders moot whatever argument petitioner Bank raised against the grant of attorney’s fees to respondent Sadac. Of even greater import is the settled rule that it is the dispositive part of the judgment that actually settles and declares the rights and obligations of the parties, finally, definitively, and authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend to confuse.

72

Proceeding therefrom, we make a determination of whether the Court in Equitable Banking Corporation v. National Labor Relations Commission,

73 G.R. No. 102467, dated 13 June 1997, awarded attorney’s fees to respondent Sadac. In

recapitulation, the dispositive portion of the aforesaid Decision is hereunder quoted:

WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: That private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with law; that private respondent shall be paid an additional amount of P5,000.00; that the award of moral and exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank alone, the other petitioners being absolved from solidary liability. No costs.

74

The dispositive portion of the 24 September 1991 Decision of the NLRC awards respondent Sadac attorney’s fees equivalent to ten percent (10%) of the monetary award, viz:

WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is hereby, SET ASIDE and a new one ENTERED declaring the dismissal of the complainant as illegal, and consequently ordering the respondents jointly and severally to reinstate him to his former position as bank Vice-President and General Counsel without loss of seniority rights and other privileges, and to pay him full backwages and other benefits from the time his compensation was withheld to his actual reinstatement, as well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney’s fees equivalent to Ten Percent (10%) of the monetary award. Should reinstatement be no longer possible due to strained relations, the respondents are ordered likewise jointly and severally to grant separation pay at one (1) month per year of service in the total sum of P293,650.00 with backwages and other benefits from November 16, 1989 to September 15, 1991 (cut off date, subject to adjustment) computed at P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and attorney’s fees equal to Ten Percent (10%) of all the monetary award, or a grand total of P1,649,329.53.

75 (Italics Ours.)

As can be gleaned from the foregoing, the Court’s Decision of 13 June 1997 AFFIRMED with MODIFICATION the NLRC Decision of 24 September 1991, which modification did not touch upon the award of attorney’s fees as granted, hence, the award stands. Juxtaposing the decretal portions of the NLRC Decision of 24 September 1991 with that of the Court’s Decision of 13 June 1997, we find that what was deleted by the Court was "the award of moral and exemplary damages," but not the award of "attorney’s fees equivalent to Ten Percent (10%) of the monetary award." The issue on the grant of attorney’s fees to respondent Sadac has been adequately and definitively threshed out and settled with finality when petitioner Bank came to us for the first time on a Petition for Certiorari in Equitable Banking Corporation v. National Labor Relations Commission, docketed as G.R. No. 102467. The Court had spoken in its Decision of 13 June 1997 in the said case which attained finality on 28 July 1997. It is now immutable.

IV.

We proceed with the penultimate issue on the entitlement of respondent Sadac to twelve percent (12%) interest per annum on the outstanding balance as of 28 July 1997, the date when our Decision in G.R. No. 102467 became final and executory.

In Eastern Shipping Lines, Inc. v. Court of Appeals,76

the Court, speaking through the Honorable Justice Jose C. Vitug, laid down the following rules of thumb:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual or compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Article 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2 above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

77

It is obvious that the legal interest of twelve percent (12%) per annum shall be imposed from the time judgment becomes final and executory, until full satisfaction thereof. Therefore, petitioner Bank is liable to pay interest from 28 July 1997, the finality of our Decision in G.R. No. 102467.

78 The Court of Appeals was not in error in imposing the same notwithstanding

that the parties were at variance in the computation of respondent Sadac’s backwages. What is significant is that the Decision of 13 June 1997 which awarded backwages to respondent Sadac became final and executory on 28 July 1997.

V.

Finally, petitioner Bank’s Motion to Refer the Petition En Banc must necessarily be denied as established in our foregoing discussion. We are not herein modifying or reversing a doctrine or principle laid down by the Court en banc or in a division. The instant case is not one that should be heard by the Court en banc.

791avvphil.net

Fallo

WHEREFORE, the petition is PARTIALLY GRANTED in the sense that in the computation of the backwages, respondent Sadac’s claimed prospective salary increases, check-up benefit, clothing allowance, and cash conversion of vacation leaves are excluded. The petition is PARTIALLY DENIED insofar as we AFFIRMED the grant of attorney’s fees equal to ten percent (10%) of all the monetary award and the imposition of twelve percent (12%) interest per annum on the outstanding balance as of 28 July 1997. Hence, the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 75013, dated 6 April 2004 and 28 July 2004, respectively, and the Supplemental Decision dated 26 October 2004 are MODIFIED in the following manner, to wit:

Petitioner Bank is DIRECTED TO PAY respondent Sadac the following:

(1) BACKWAGES in accordance with Our Decision dated 13 June 1997 in G.R. No. 102467 with a clarification that the award of backwages EXCLUDES respondent Sadac’s claimed prospective salary increases, check-up benefit, clothing allowance, and cash conversion of vacation leaves;

(2) ATTORNEY’S FEES equal to TEN PERCENT (10%) of the total sum of all monetary award; and

(3) INTEREST of TWELVE PERCENT (12%) per annum is hereby imposed on the total sum of all monetary award from 28 July 1997, the date of finality of Our Decision in G.R. No. 102467 until full payment of the said monetary award.

The Motion to Refer the Petition to the Court En Banc is DENIED.

No costs.

SO ORDERED.