BANK OF THE PHILIPPINE ISLANDS EMPLOYEES UNION AND ZENAIDA UY, PETITIONERS, VS. BANK OF THE PHILIPPINE ISLANDS, CARLOS FRAGANTE, DELFIN SANTOS, ALBERTO JUGO AND/OR OSCAR CONTRER…

Bank of the Philippine Islands Employees Union versus Bank of the Philippine Islands

The Case

This is a labor case about the consequences of an illegal dismissal. The Bank of the Philippine Islands Employees Union and the dismissed teller Zenaida Uy, on one side, against the Bank of the Philippine Islands and its officers, on the other. The action began as a complaint for illegal transfer and illegal termination before a Voluntary Arbitrator, and it reached the Supreme Court on a petition for review after the Court of Appeals affirmed the finding of illegal dismissal but cut down the relief. The case matters because it fixes two rules every labor lawyer must carry into the examination room: the three-year cap on backwages is dead, and the doctrine of strained relations cannot be used as a convenient excuse to buy out an illegally dismissed employee's right to reinstatement.

Procedural History

Uy filed a complaint for illegal transfer and termination. The Labor Arbiter who first heard the case declared the dismissal illegal and ordered reinstatement with full backwages and attorney's fees. The Bank appealed to the National Labor Relations Commission, which set aside the Labor Arbiter's decision for lack of jurisdiction and ruled that the case belonged to a Voluntary Arbitrator. The case was raffled to Voluntary Arbitrator Entuna, who likewise declared the dismissal illegal and ordered reinstatement with full backwages and attorney's fees. The Bank's motion for reconsideration was denied, so the Bank went up to the Court of Appeals on a petition for review. The Court of Appeals affirmed the finding of illegal dismissal but modified the award, limiting backwages to three years and, finding strained relations, ordering separation pay in lieu of reinstatement. Both sides sought partial reconsideration, which was denied. Both sides then came to the Supreme Court on petitions for review on certiorari. The Bank's own petition was denied for failure to submit the required certification against forum shopping, and judgment was entered against it. Only the Union's and Uy's petition remained, raising two errors: the three-year limitation on backwages, and the finding of strained relations.

Facts

On 26 October 1995, Zenaida Uy, a teller at the Escolta Branch of the Bank of the Philippine Islands, shouted at her Senior Manager, Delfin Santos. She was told to see Carlos Fragante, the area head and Assistant Vice President, to discuss her complaint. That same day, Fragante told her to transfer to the nearby Plaza Cervantes Branch to defuse the tense situation at Escolta. The next day, after receiving Santos's report and the written reports of branch personnel, Fragante ordered the transfer. Uy said she would not transfer and would await the grievance meeting. The Union filed a grievance, and a meeting was set for 30 October 1995.

On 30 October 1995, Fragante directed Uy to explain within twenty-four hours why she should not be disciplined for insubordination. She replied that she could not transfer because there had been no proper turnover of her accountabilities and that she had been barred from the premises. The grievance meeting produced no agreement. On 31 October 1995, Fragante asked her to explain why she should not be disciplined for disrespectful and insulting language toward her superior. In her reply, Uy raised a claim of sexual harassment, quoting remarks she attributed to Santos. On 13 November 1995, Fragante directed her to show cause why she should not be disciplined, including possible termination, for the shouting incident, for insubordination, and for absence without leave. She replied on 20 November 1995. On 24 November 1995, she herself requested transfer to the Taft Avenue Branch to save on gasoline. Meetings between the Union and management, represented by higher officials, produced no agreement. Management then advised Uy and the Union that it had no choice but to terminate her.

By a Notice of Termination dated 8 December 1995, effective 14 December 1995, the Bank dismissed Uy on the grounds of gross disrespect and discourtesy toward an officer, insubordination, and absence without leave. She filed a case for illegal transfer and termination, and the case wound its way through the Labor Arbiter, the National Labor Relations Commission, the Voluntary Arbitrator, and the Court of Appeals, each of the first three declaring the dismissal illegal, until it reached the Supreme Court.

Issues

• Whether or not the Court of Appeals erred in limiting the award of backwages to three years.
• Whether or not the Court of Appeals erred in holding that strained relations existed between the Bank and Uy, and in ordering separation pay in lieu of reinstatement.

Applicable Provisions

Article 279 of the Labor Code, as amended by Section 34 of Republic Act Number 6715, provides:

Article 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.

This provision is the whole battleground of the case: it fixes the measure of backwages as full, from withholding to actual reinstatement, and it makes reinstatement the primary relief, which the Court uses to strike down both the three-year cap and the substitution of separation pay.

Ruling

On the first issue, the Court ruled for the petitioners. The rule limiting an illegally dismissed employee to three years of backwages, known as the Mercury Drug Rule, has long been abandoned. The Court traced the change to Republic Act Number 6715, which amended Article 279 of the Labor Code in 1989. The legislative intent is that backwages should not, as a general rule, be diminished by earnings the employee derived elsewhere during the illegal dismissal, because the employee must still earn a living while litigating, and full backwages are part of the price the employer pays for dismissing him illegally. The Court held that the provision calling for full backwages is clear, plain, and free from ambiguity, and must be applied without attempted or strained interpretation. Since Uy was dismissed in 1995, after the amendment took effect on 21 March 1989, she is entitled to full backwages, inclusive of allowances and other benefits, from the time her compensation was withheld up to her actual reinstatement. The Court of Appeals therefore committed a reversible error in capping the award at three years.

On the second issue, the Court again ruled for the petitioners. The doctrine of strained relations cannot be applied indiscriminately, otherwise reinstatement would never be possible simply because some hostility is invariably engendered by litigation. No strained relations should arise from a valid and legal act of asserting one's right, otherwise an employee who asserts his right could be eased out by merely paying separation pay on the pretext of strained relations. The Court stressed that the doctrine should be strictly applied so as not to deprive an illegally dismissed employee of his right to reinstatement. Here, the controversy was personal to Santos and Fragante; the other officers were impleaded only because of their positions. Almost a decade had passed since the incident; Fragante had long been assigned elsewhere, and the other officers were no longer connected with the Bank. There was thus no more basis for strained relations with the present management, and reinstatement was possible.

Doctrine

First, the three-year cap on backwages under the Mercury Drug Rule has been abandoned. An employee illegally dismissed after 21 March 1989, the effectivity of Republic Act Number 6715, is entitled to full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time compensation was withheld up to actual reinstatement, without deducting earnings derived elsewhere during the illegal dismissal. Second, reinstatement is a matter of right for an illegally dismissed employee. The doctrine of strained relations is an exception that must be strictly applied; it cannot be grounded on the ordinary hostility that every labor dispute produces, nor on the employee's lawful assertion of his rights, and it loses force where the officers involved in the dispute are no longer with the employer.

Disposition

The petition was granted; the Court modified the Court of Appeals decision by directing the Bank to pay Uy backwages from her illegal dismissal until actual reinstatement and to reinstate her to her former position or a substantially equivalent one, without loss of seniority rights and other benefits.

Remember This

Memorize this line: after Republic Act Number 6715, full backwages means full, from withholding to actual reinstatement, and strained relations must be strictly applied so as not to defeat the right to reinstatement. Examiners use this case to test the death of the three-year cap and to catch answers that too readily substitute separation pay for reinstatement.