SC rejects REFUND doctrine (if payroll reinstatement)
In Garcia, petitioners therein were dismissed by Philippine Airlines Inc. (PAL) after they were allegedly caught in the act of sniffing shabu during a raid at the PAL Technical Center’s Toolroom Section. They thus filed a complaint for illegal dismissal. In the meantime, PAL was placed under an interim rehabilitation receivership because it was then suffering from severe financial losses. Thereafter, the Labor Arbiter ruled in petitioners’ favor and ordered PAL to immediately comply with the reinstatement aspect of the decision. PAL appealed to the NLRC. The NLRC reversed the Labor Arbiter’s Decision and dismissed petitioners’ complaint for lack of merit. As petitioners’ Motion for Reconsideration thereto was likewise denied, the NLRC issued an Entry of Judgment. Notably, PAL’s Interim Rehabilitation Receiver was replaced by a Permanent Rehabilitation Receiver during the pendency of its appeal with the NLRC. A writ of execution with respect to the reinstatement aspect of the Labor Arbiter’s Decision was then issued and pursuant thereto, a Notice of Garnishment was likewise issued. To stop this, PAL filed an Urgent Petition for Injunction with the NLRC. While the NLRC suspended and referred the action to the rehabilitation receiver, it however, likewise affirmed the validity of the writ so that PAL appealed to the CA. Fortunately for PAL, the CA nullified the assailed NLRC Resolutions on the grounds that (1) a subsequent finding of a valid dismissal removes the basis for the reinstatement aspect of a labor arbiter’s decision and, (2) the impossibility to comply with the reinstatement order due to corporate rehabilitation justifies PAL’s failure to exercise the options under Article 223 of the Labor Code. When the case reached [the Supreme Court], [it] partially granted the petition in a Decision dated August 29, 2007 and effectively reinstated the NLRC Resolutions insofar as it suspended the proceedings. But as PAL later manifested that the rehabilitation proceedings have already been terminated, the court proceeded to determine the remaining issue, which is, as earlier stated, whether petitioners therein may collect their wages during the period between the Labor Arbiter’s order of reinstatement pending appeal and the NLRC Resolution overturning that of the Labor Arbiter.In resolving the case, [the Supreme Court] examined its conflicting rulings with respect to the application of paragraph 3 of Article 223 of the Labor Code, viz:
At the core of the seeming divergence is the application of paragraph 3 of Article 223 of the Labor Code which reads:
‘In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, pending appeal. The employee shall either be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement provided herein.’
The view as maintained in a number of cases is that:
‘x x x [E]ven if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court. On the other hand, if the employee has been reinstated during the appeal period and such reinstatement order is reversed with finality, the employee is not required to reimburse whatever salary he received for he is entitled to such, more so if he actually rendered services during the period.
In other words, a dismissed employee whose case was favorably decided by the Labor Arbiter is entitled to receive wages pending appeal upon reinstatement, which is immediately executory. Unless there is a restraining order, it is ministerial upon the Labor Arbiter to implement the order of reinstatement and it is mandatory on the employer to comply therewith.
The opposite view is articulated in Genuino which states:
‘If the decision of the labor arbiter is later reversed on appeal upon the finding that the ground for dismissal is valid, then the employer has the right to require the dismissed employee on payroll reinstatement to refund the salaries s/he received while the case was pending appeal, or it can be deducted from the accrued benefits that the dismissed employee was entitled to receive from his/her employer under existing laws, collective bargaining agreement provisions, and company practices. However, if the employee was reinstated to work during the pendency of the appeal, then the employee is entitled to the compensation received for actual services rendered without need of refund.
It has thus been advanced that there is no point in releasing the wages to petitioners since their dismissal was found to be valid, and to do so would constitute unjust enrichment." (Emphasis, italics and underscoring in the original; citations omitted.)
[The Supreme Court] then stressed that as opposed to the abovementioned Genuino v. National Labor Relations Commission, the social justice principles of labor law outweigh or render inapplicable the civil law doctrine of unjust enrichment. It then went on to examine the precarious implication of the "refund doctrine" as enunciated in Genuino, thus:
[T]he "refund doctrine" easily demonstrates how a favorable decision by the Labor Arbiter could harm, more than help, a dismissed employee. The employee, to make both ends meet, would necessarily have to use up the salaries received during the pendency of the appeal, only to end up having to refund the sum in case of a final unfavorable decision. It is mirage of a stop-gap leading the employee to a risky cliff of insolvency.
Advisably, the sum is better left unspent. It becomes more logical and practical for the employee to refuse payroll reinstament and simply find work elsewhere in the interim, if any is available. Notably, the option of payroll reinstatement belongs to the employer, even if the employee is able and raring to return to work. Prior to Genuino, it is unthinkable for one to refuse payroll reinstatement. In the face of the grim possibilities, the rise of concerned employees declining payroll reinstatement is on the horizon.
Further, the Genuino ruling not only disregards the social justice principles behind the rule, but also institutes a scheme unduly favorable to management. Under such scheme, the salaries dispensed pendente lite merely serve as a bond posted in installment by the employer. For in the event of a reversal of the Labor Arbiter’s decision ordering reinstatement, the employer gets back the same amount without having to spend ordinarily for bond premiums. This circumvents, if not directly contradicts, the proscription that the "posting of a bond [even a cash bond] by the employer shall not stay the execution for reinstatement. [Underscoring in the original]
In view of this, [the Supreme Court] held this stance in Genuino as a stray posture and realigned the proper course of the prevailing doctrine on reinstatement pending appeal vis-à-vis the effect of a reversal on appeal, that is, even if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court or tribunal. It likewise settled the view that the Labor Arbiter’s order of reinstatement is immediately executory and the employer has to either re-admit them to work under the same terms and conditions prevailing prior to their dismissal, or to reinstate them in the payroll, and that failing to exercise the options in the alternative, employer must pay the employee’s salaries.
The discussion, however, did not stop there. [the Supreme Court] went on to declare that after the Labor Arbiter’s decision is reversed by a higher tribunal, the employee may be barred from collecting the accrued wages, if it is shown that the delay in enforcing the reinstatement pending appeal was without fault on the part of the employer. It then provided for the two-fold test in determining whether an employee is barred from recovering his accrued wages, to wit: (1) there must be actual delay or that the order of reinstatement pending appeal was not executed prior to its reversal; and (2) the delay must not be due to the employer’s unjustified act or omission. If the delay is due to the employer’s unjustified refusal, the employer may still be required to pay the salaries notwithstanding the reversal of the Labor Arbiter’s Decision. In Garcia, after it had been established that there was clearly a delay in the execution of the reinstatement order, [the Supreme Court] proceeded to ascertain whether same was due to PAL’s unjustified act or omission. In so doing, it upheld the CA’s finding that the peculiar predicament of a corporate rehabilitation rendered it impossible for PAL, under the circumstances, to exercise its option under Article 223 of the Labor Code. The suspension of claims dictated by rehabilitation procedure therefore constitutes a justification for PAL’s failure to exercise the alternative options of actual reinstatement or payroll reinstatement. Because of this, [the Supreme Court] held that PAL’s obligation to pay the salaries pending appeal, as the normal effect of the non-exercise of the options, did not attach. Simply put, petitioners cannot anymore collect their accrued salaries during the period between the Labor Arbiter’s order of reinstatement pending appeal and the NLRC Resolution overturning that of the Labor Arbiter because PAL’s failure to actually reinstate them or effect payroll reinstatement was justified by the latter’s situation of being under corporate rehabilitation. (G.R. No. 168501; January 31, 2011)
[The Supreme Court] then stressed that as opposed to the abovementioned Genuino v. National Labor Relations Commission, the social justice principles of labor law outweigh or render inapplicable the civil law doctrine of unjust enrichment. It then went on to examine the precarious implication of the "refund doctrine" as enunciated in Genuino, thus:
[T]he "refund doctrine" easily demonstrates how a favorable decision by the Labor Arbiter could harm, more than help, a dismissed employee. The employee, to make both ends meet, would necessarily have to use up the salaries received during the pendency of the appeal, only to end up having to refund the sum in case of a final unfavorable decision. It is mirage of a stop-gap leading the employee to a risky cliff of insolvency.
Advisably, the sum is better left unspent. It becomes more logical and practical for the employee to refuse payroll reinstament and simply find work elsewhere in the interim, if any is available. Notably, the option of payroll reinstatement belongs to the employer, even if the employee is able and raring to return to work. Prior to Genuino, it is unthinkable for one to refuse payroll reinstatement. In the face of the grim possibilities, the rise of concerned employees declining payroll reinstatement is on the horizon.
Further, the Genuino ruling not only disregards the social justice principles behind the rule, but also institutes a scheme unduly favorable to management. Under such scheme, the salaries dispensed pendente lite merely serve as a bond posted in installment by the employer. For in the event of a reversal of the Labor Arbiter’s decision ordering reinstatement, the employer gets back the same amount without having to spend ordinarily for bond premiums. This circumvents, if not directly contradicts, the proscription that the "posting of a bond [even a cash bond] by the employer shall not stay the execution for reinstatement. [Underscoring in the original]
In view of this, [the Supreme Court] held this stance in Genuino as a stray posture and realigned the proper course of the prevailing doctrine on reinstatement pending appeal vis-à-vis the effect of a reversal on appeal, that is, even if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court or tribunal. It likewise settled the view that the Labor Arbiter’s order of reinstatement is immediately executory and the employer has to either re-admit them to work under the same terms and conditions prevailing prior to their dismissal, or to reinstate them in the payroll, and that failing to exercise the options in the alternative, employer must pay the employee’s salaries.
The discussion, however, did not stop there. [the Supreme Court] went on to declare that after the Labor Arbiter’s decision is reversed by a higher tribunal, the employee may be barred from collecting the accrued wages, if it is shown that the delay in enforcing the reinstatement pending appeal was without fault on the part of the employer. It then provided for the two-fold test in determining whether an employee is barred from recovering his accrued wages, to wit: (1) there must be actual delay or that the order of reinstatement pending appeal was not executed prior to its reversal; and (2) the delay must not be due to the employer’s unjustified act or omission. If the delay is due to the employer’s unjustified refusal, the employer may still be required to pay the salaries notwithstanding the reversal of the Labor Arbiter’s Decision. In Garcia, after it had been established that there was clearly a delay in the execution of the reinstatement order, [the Supreme Court] proceeded to ascertain whether same was due to PAL’s unjustified act or omission. In so doing, it upheld the CA’s finding that the peculiar predicament of a corporate rehabilitation rendered it impossible for PAL, under the circumstances, to exercise its option under Article 223 of the Labor Code. The suspension of claims dictated by rehabilitation procedure therefore constitutes a justification for PAL’s failure to exercise the alternative options of actual reinstatement or payroll reinstatement. Because of this, [the Supreme Court] held that PAL’s obligation to pay the salaries pending appeal, as the normal effect of the non-exercise of the options, did not attach. Simply put, petitioners cannot anymore collect their accrued salaries during the period between the Labor Arbiter’s order of reinstatement pending appeal and the NLRC Resolution overturning that of the Labor Arbiter because PAL’s failure to actually reinstate them or effect payroll reinstatement was justified by the latter’s situation of being under corporate rehabilitation. (G.R. No. 168501; January 31, 2011)