EQUITABLE BANKING CORPORATION (NOW KNOWN AS EQUITABLE-PCI BANK), PETITIONER, VS. RICARDO SADAC, RESPONDENT.

Equitable Banking Corporation versus Sadac

The Case

This is a labor case about how much money an illegally dismissed employee is entitled to receive. Equitable Banking Corporation, now known as Equitable-PCI Bank, dismissed Ricardo Sadac, its Vice President of the Legal Department and General Counsel. The Supreme Court had already declared that dismissal illegal in an earlier case. What remained was the computation of his backwages. The Bank and Sadac disagreed on whether general salary increases, check-up benefits, clothing allowance, and cash conversion of vacation leave should be included in the backwages. The case matters because it settles the correct base figure for computing full backwages under Article 279 of the Labor Code, as amended by Republic Act Number 6715.

Procedural History

Sadac filed a complaint for illegal dismissal with damages before the Labor Arbiter. The Labor Arbiter dismissed the complaint for lack of merit. On appeal, the National Labor Relations Commission reversed the Labor Arbiter and declared the dismissal illegal, awarding reinstatement, backwages, moral and exemplary damages, and attorney's fees. The Bank elevated the matter to the Supreme Court, which affirmed the finding of illegal dismissal but modified the award. The Supreme Court's decision became final and executory.

Sadac then moved for execution before the Labor Arbiter. The Labor Arbiter adopted Sadac's computation, awarding backwages inclusive of general increases, check-up benefit, clothing allowance, and cash conversion of vacation leave, plus interest and attorney's fees. The Bank appealed to the National Labor Relations Commission, which reversed the Labor Arbiter and adopted the Bank's lower computation. Sadac's motion for reconsideration was denied.

Sadac filed a Petition for Certiorari before the Court of Appeals. The Court of Appeals reversed the National Labor Relations Commission and revived the Labor Arbiter's order, including general increases and other benefits, and imposing twelve percent interest per annum. It denied attorney's fees. Both parties moved for partial reconsideration. The Court of Appeals denied the Bank's motion but granted Sadac's, issuing a Supplemental Decision awarding attorney's fees. The Bank then filed a Petition for Review on Certiorari before the Supreme Court.

Facts

Ricardo Sadac was appointed Vice President of the Legal Department of Equitable Banking Corporation effective 1 August 1981, and later became its General Counsel on 8 December 1981. On 26 June 1989, nine lawyers of the Bank's Legal Department wrote a letter-petition to the Chairman of the Board accusing Sadac of abusive conduct and asking for a change in leadership. Citing lack of confidence, the Bank instructed Sadac to deliver all materials in his custody in cases where he appeared as its counsel. Sadac requested a full hearing and formal investigation, but this was not heeded.

On 9 November 1989, Sadac filed a complaint for illegal dismissal with damages. After learning of the complaint, the Bank terminated his services. On 10 August 1989, Sadac was removed from office and ordered disentitled to any compensation and other benefits.

The Supreme Court, in its earlier decision, declared the dismissal illegal and awarded backwages from termination until Sadac turned sixty years of age in 1995, plus retirement benefits, and an additional amount of 5,000 pesos. Moral and exemplary damages were deleted, and liability was imposed on the Bank alone. This decision became final on 28 July 1997. The dispute then shifted to the computation of the monetary award, with Sadac claiming 6,030,456 pesos and 59 centavos, and the Bank claiming only 2,981,442 pesos and 98 centavos.

Issues

• Whether or not 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.
• Whether or not Sadac is entitled to attorney's fees.
• Whether or not Sadac is entitled to twelve percent per annum as interest on all accounts outstanding until full payment.

Applicable Provisions

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

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 basis for the award of full backwages and defines what must be included in the computation.

Ruling

On the first issue, the Supreme Court ruled that general salary increases should not be included in the computation of full backwages. The Court explained that the definition of full backwages has evolved. In the earlier case of Bustamante, the Court held that full backwages should not be diminished by earnings derived elsewhere during the period of illegal dismissal. The Court quoted:

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.

The Court clarified that the ruling in East Asiatic, which allowed general increases, was based on the old rule that deducted earnings elsewhere. Since that deduction rule was eliminated by Republic Act Number 6715, the rationale for including salary increases no longer exists. The Court also held that the references to salary increases in St. Louis, Sigma Personnel, and Millares were merely obiter dicta. Thus, the Court adopted the rule in Paramount Vinyl, Evangelista, and Espejo that an unqualified award of backwages means the employee is paid at the wage rate at the time of dismissal, without general salary increases.

On the second issue, the Court ruled that Sadac is not entitled to attorney's fees. The Court found that its earlier decision did not award attorney's fees, and there was no basis for granting them.

On the third issue, the Court ruled that the twelve percent interest per annum on the monetary award is proper, to be computed from the finality of the judgment until full payment.

Doctrine

Full backwages under Article 279 of the Labor Code, as amended by Republic Act Number 6715, means the whole amount of salaries or wages the employee would have received had he not been dismissed, without deduction of earnings derived elsewhere during the period of illegal dismissal. However, general salary increases are not included in the computation of backwages. The employee is paid at the wage rate at the time of his dismissal. The ruling in East Asiatic, which allowed general increases, is no longer applicable because it was based on the old rule that deducted earnings elsewhere, a rule already eliminated by Republic Act Number 6715.

Disposition

The Supreme Court granted the petition, reversing the Court of Appeals and reinstating the National Labor Relations Commission's computation of 2,981,442 pesos and 98 centavos, excluding general salary increases and other claimed benefits, and deleting the award of attorney's fees.

Remember This

Full backwages means the wage rate at the time of dismissal, without general salary increases, because the old rule that deducted earnings elsewhere has been eliminated. Examiners like to use this case to test whether a candidate knows the evolution of backwages jurisprudence from Mercury Drug to Bustamante, and the correct base figure for computation.