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NLRC (1996)
Padilla, J.
Private respondent moves to reconsider the earlier decision of the Supreme Court
First Division on grounds that (a) petitioners are not entitled to recover backwages
because they were not actually dismissed but their probationary employment was not
converted to permanent employment; and (b) assuming that petitioners are entitled to
backwages, computation thereof should not start from cessation of work up to actual
reinstatement, and that salary earned elsewhere (during the period of illegal
dismissal) should be deducted from the award of such backwages.

ISSUE: How should backwages be computed?


The prevailing rule is that backwages to be awarded to an illegally dismissed

employee, should not be diminished or reduced by the earnings derived by
him elsewhere during the period of his illegal dismissal. The underlying
reason of 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 his backwages have to be paid by the employer as part of the
price or penalty he has to pay for illegally dismissing his employee.
Under Art. 279, as amended, the provision handling 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.
Therefore, petitioners are entitled on their full backwages, inclusive of
allowances and other benefits or their monetary equivalent, from the time
their actual compensation was withheld on them up to the time of their actual


Pre-Labor Code
o Under RA 875, the CIR was given wide discretion to determine the
amount of backwages. Thus, in the exercise of its jurisdiction, the
CIR increased or diminished the award of backpay, depending on
several circumstances, among them, the good faith of the
employer, the employee's employment in other establishments
during, the period of illegal dismissal, or the probability that the
employee could have realized net earnings from outside
employment if he had exercised due diligence to search for outside
employment. In labor cases decided during the effectivity of R.A.
No. 875, the Supreme Court acknowledged and upheld the CIR's
authority to deduct any amount from the employee's backwages,
including the discretion to reduce such award of backwages
whatever earnings were obtained by the employee elsewhere
during the period of his illegal dismissal (Itogon-Suyoc ruling).
o Then came the Mercury Drug ruling, where the Court ruled that a
fixed amount of backwages without further qualifications should be

awarded to an illegally dismissed employee, for the purposes of

o A permutation of the aforementioned rule, the 3-year rule
formulated by Teehankee was adopted, where backwages are
always computed for the fixed period of 3 years.
Post-Labor Code
o Art. 279 provided that an unjustly dismissed employee shall be
entitled to his back wages computed from the time his
compensation was withheld from him up to the time of his
o Despite the express provision that it should be computed from the
time compensation was withheld up to reinstatement, the Mercury
Drug rule with the 3-year constant was still applied.
o On March 1989, Republic Act No. 6715 took effect, amending the
Art. 279 of the LC. This added other benefits to the computation of
backwages, which should also be computed from the time
compensation was withheld up to reinstatement.
o In 1993, the Court in the Pines City Educational Center went back
to the pre-Mercury Drug rule, where the total amount derived from
employment elsewhere by the employee from the date of dismissal
up to the date of reinstatement, if any, should be deducted
therefrom. The rationale in allowing the deduction was to prevent
unjust enrichment by the employee at the expense of the employer.
o In the present case, the Court overrules the Pines City case, and
adopts as a general rule that employees are entitled to full
backwages from the time it was withheld up to the time of
reinstatement, without any deductions or limitatations as to


Davide, Jr., J
Private respondent was a casual employee of the petitioner assigned to its B-Meg
warehouse in San Miguel, Bulacan. On 21 June 1974, he figured in an accident and
was initially confined at the Figueroa Emergency Hospital in Gapan, Nueva Ecija. The
next day, he was transferred to the Makati Medical Center. Upon his discharge from
the hospital on 16 August 1974, he was found by his attending physician to be fit for
work and was given clearance to resume work the next day, 17 August 1974. Private
respondent was on sick leave for a total of fifty six (56) days.
Upon his discharge from the hospital on 16 August 1974, private respondent was
fetched by his immediate supervisor Severino Azcarraga to be brought to work that
same day. However, they were unable to reach San Miguel, Bulacan, as the roads
were rendered impassable by typhoon "Norming"; they only got as far as San
Ildefonso, Bulacan. To prevent his being declared absent without leave, private
respondent, with the assistance of his supervisor, filed an application for vacation
leave for eleven (11) days with pay from 17 August 1974 to 27 August 1974. Since

the application was not filed six (6) days prior to its effectivity, as required by
petitioner's rules and regulations, the application was disapproved.
On 28 August 1974, private respondent reported for work, and was paid the amount
of P3.20 as his salary for the day. He was informed that the nurse who prepared his
certificate of leave authority, Miss Josie Desiderio, committed an error when she
provided therein that as of 17 August 1974, he was still under treatment. This error
was corrected to indicate his fitness to return to work on said date, 17 August 1974.
Also, on 28 August 1974, private respondent filed for an additional fifteen (15) day
vacation leave without pay from 29 August 1974 to 12 September 1974, to enable
him to attend to the immediate repair of his house which was destroyed by the
typhoon. This application was likewise disapproved for having violated the six (6) day
requirement for the filing of leaves; hence, the absences of private respondent were
charged to his sick leave benefits.
On 1 September 1974, before the lapse of private respondent's vacation leave,
petitioner "compulsorily retired" the former for alleged exhaustion of sick leave
benefits based on the company's Health, Welfare and Retirement Plan.
Private respondent instituted a complaint for illegal dismissal a year later. LA and
NLRC ruled in favor of private respondent.
ISSUES: (1) Whether the compulsory dismissal was valid; (2) Whether or not
acceptance of retirement benefits estopped employee from claiming reinstatement.
(1) NO. Under company rules, there are 2 requisites before an employee may
be compulsory retired through Health, Welfare and Retirement Plan: a) he
has exhausted all the sick leave with pay benefits to which he is entitled; and
b) is certified by the company physician to be incapable of discharging his
regular assigned duties without impairing his own health or endangering that
of his fellow workers. The 2nd requisite was not meant, as the company failed
to prove that Javate was unfit.
(2) NO. First of all, Javate vehemently denies that he has received any benefits,
and the filing of the complaint strengthens such denials. In any case, the
Court has ruled in De Leon vs. NLRC that receipt of separation pay does not
estop the employee from questioning the legality of the dismissal.
Employees who received their separation pay are not barred from contesting
the legality of their dismissal. The acceptance of those benefits would not
amount to estoppels.