LOPEZ SUGAR CORPORATION, PETITIONER, VS. ROMEO PERRIN, JR., EDUARDO CANDELARIO, LEONITO FRANCO, ROGELIO PABALAN, AND SOCIAL SECURITY SYSTEM, RESPONDENTS.

Lopez Sugar versus Perrin

The Case

This is a petition for review on certiorari brought by Lopez Sugar Corporation against its former employees Romeo Perrin, Junior, Eduardo Candelario, Leonito Franco, and Rogelio Pabalan, together with the Social Security System. The company resists the order of the Social Security Commission, affirmed by the Court of Appeals, directing it to remit the employees' social security contributions for the period October 1995 to November 2005 — the very period during which the employees had been illegally dismissed. The case matters because it settles a question every employer will eventually ask: does the employer's duty to remit social security contributions stop when the worker is unlawfully driven out, or does the illegality of the dismissal keep that duty alive?

Procedural History

The employees were dismissed in September 1995 and filed a complaint for illegal dismissal. The Labor Arbiter dismissed the complaint, but the National Labor Relations Commission reversed and ruled that the employees were illegally dismissed, ordering reinstatement with backwages. The Court of Appeals affirmed, and the Supreme Court eventually affirmed as well. The Labor Arbiter then implemented the award, and the employees were paid backwages and separation pay in lieu of reinstatement.

When the employees demanded that their social security contributions for the backwage period be remitted, the company refused. The Social Security System's branch office in Sagay City sent a billing letter, and when the company questioned it, the matter was referred to the Social Security Commission. The employees filed a petition there, and the System intervened, praying for payment of the contributions plus the three percent monthly penalty. The Commission denied the company's motion to dismiss, and later ruled for the employees, ordering the company to pay the contributions and penalties. The company moved for reconsideration, which was denied.

The company elevated the matter to the Court of Appeals, which denied the petition and affirmed the Commission. Its motion for reconsideration was likewise denied. Hence, the company filed the present petition for review on certiorari before the Supreme Court.

Facts

The four employees worked for Lopez Sugar Corporation until they were dismissed on September 25, 1995. They sued for illegal dismissal. The Labor Arbiter ruled against them, but the National Labor Relations Commission reversed, declaring the dismissal illegal and awarding reinstatement with backwages. That ruling became final after affirmance by the Court of Appeals and the Supreme Court.

In execution, the Labor Arbiter ordered the payment of backwages and separation pay in lieu of reinstatement. The employees received 2,507,798.60 pesos and signed a Satisfaction of Judgment, releasing the company from any and all manner of action arising from their employment. They then demanded that the company remit their social security contributions for the period covered by the backwages, so that their retirement benefits would reflect those years. The company refused.

The Social Security System billed the company, which still refused, and the dispute reached the Social Security Commission. The Commission ordered the company to pay 248,174 pesos in contributions and 1,302,702.75 pesos in penalties as of July 31, 2015, without prejudice to additional penalties, and directed the System to adjust the employees' retirement benefits if warranted. The Court of Appeals affirmed, holding that an illegally dismissed employee is deemed never to have left his office.

Issues

• Whether or not the Social Security Commission has jurisdiction over the employees' claim for remittance of social security contributions, as against the company's claim that the matter involves the computation of backwages, which belongs to the Labor Arbiter.
• Whether or not the employees' claim is barred by res judicata and by the Satisfaction of Judgment they executed.
• Whether or not the company's obligation to remit social security contributions ceased upon the employees' separation from employment.

Applicable Provisions

Section 5, paragraph (a) of the Social Security Act of 1997, as amended, defines the jurisdiction of the Commission:

SECTION 5. Settlement of Disputes. — (a) Any dispute arising under this Act with respect to coverage, benefits, contributions and penalties thereon or any other matter related thereto, shall be cognizable by the Social Security Commission, and any case filed with respect thereto shall be heard by the Social Security Commission, or any of its members, or by hearing officers duly authorized by the Social Security Commission and decided within the mandatory period of 20 days after the submission of the evidence. The filing, determination and settlement of disputes shall be governed by the rules and regulations promulgated by the Social Security Commission.

This provision places the dispute squarely within the Commission's competence, since it concerns contributions and penalties.

Section 11 of the same Act addresses the effect of separation from employment:

SECTION 11. Effect of Separation from Employment. — When an employee under compulsory coverage is separated from employment, his or her employer's contribution on his or her account and his or her obligation to pay contributions arising from that employment shall cease at the end of the month of separation, but said employee shall be credited with all contributions paid on his or her behalf and entitled to benefits according to the provisions of this Act. He or She may, however, continue to pay the total contributions to maintain his right to full benefit.

The company invoked this provision, but the Court read it in light of the illegality of the dismissal.

Article 294 of the Labor Code defines the rights of an illegally dismissed employee:

ARTICLE 294. 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 or her other benefits or their monetary equivalent computed from the time his or her compensation was withheld from him up to the time of his actual reinstatement.

This is the anchor of the ruling: the award of full backwages and other benefits presupposes that the employment relationship continued.

Section 22 of the Social Security Act of 1997 imposes the remittance duty and the penalty:

SECTION 22. Remittance of Contributions. — (a) The contribution imposed in the preceding section shall be remitted to the SSS within the first 10 days of each calendar month following the month for which they are applicable or within such time as the Commission may prescribe. Every employer required to deduct and to remit such contributions shall be liable for their payment and if any contribution is not paid to the SSS as herein prescribed, he or she shall pay besides the contribution a penalty thereon of 3% per month from the date the contribution falls due until paid.

This provision supplies both the duty to remit and the three percent monthly penalty for its breach.

Ruling

On the first issue, the Court held that the Social Security Commission had jurisdiction. The employees' petition did not ask what should be included in their backwages; it asked that the company be compelled to remit their social security contributions. That is a dispute over contributions and penalties, which Section 5, paragraph (a) of the Social Security Act of 1997 commits to the Commission. The Court noted that the System's branch office had first acted on the claim in writing, satisfying the requirement of its rules.

On the second issue, the Court held that neither res judicata nor the Satisfaction of Judgment barred the claim. For bar by prior judgment, there must be identity of parties, subject matter, and causes of action. The illegal dismissal case concerned the dismissal; the Commission case concerned the refusal to remit contributions. The subject matter and causes of action differ. As for the quitclaim, the Court stressed that a waiver must be clear and unequivocal, and that the phrase "any and all manner of action in law or in equity" is a general and standard clause that cannot be read in its strict literal sense. The employees signed the Satisfaction of Judgment upon receiving their backwages, expecting the company to do its duty to remit. They could not have intended to waive that right.

On the third issue, the Court held that the company's duty to remit did not cease. An illegally dismissed employee is deemed never to have left his employment, and is entitled to all rights and privileges accruing from it. Since the dismissal was illegal, the employment relationship continued in contemplation of law throughout the backwage period, and the company remained obligated to remit both shares of the contributions. Having failed to remit, it is liable for the three percent monthly penalty under Section 22.

Doctrine

First, the Social Security Commission has jurisdiction over any dispute arising under the Social Security Act with respect to coverage, benefits, contributions, and penalties, even where the contributions are computed on the basis of backwages awarded by a labor tribunal.

Second, an illegally dismissed employee is deemed never to have left his employment; the employer's obligation to remit social security contributions does not cease under Section 11 of the Social Security Act of 1997, because the separation was unlawful and the employment is deemed continuous.

Third, a quitclaim or waiver, to be valid, must be clear and unequivocal, and general release clauses are strictly scrutinized; a satisfaction of judgment covering backwages does not waive the employee's right to have social security contributions remitted.

Fourth, res judicata requires identity of subject matter and cause of action; a labor case for illegal dismissal and a social security case for remittance of contributions are distinct.

Disposition

The petition was denied, and the Decision and Resolution of the Court of Appeals were affirmed; the company was ordered to pay the contributions and the three percent monthly penalty.

Remember This

Memorize this line: an illegally dismissed employee is deemed never to have left his employment, so the employer's duty to remit social security contributions continues through the backwage period. Examiners use this case to test jurisdiction of the Social Security Commission, the effect of quitclaims, and the reach of the deemed-continuing employment doctrine.