Consequences of Illegal Dismissal

Consequences of illegal dismissal

1. Concept

The following are the possible consequences for illegal dismissal:

1) Full Backwages

2) Reinstatement (or separation pay in lieu of reinstatement)

3) Moral Damages

4) Exemplary Damages

5) Nominal Damages

6) 10% Attorney’s Fees

7) Solidary Liability for Corporate Officers

Of all the possible labor complaints, illegal dismissal carries the heaviest penalty and the most potential for liability as shown above. Many companies have ended up paying huge amounts to settle a monetary award for illegal dismissal. Some end up closing their businesses when their assets are insufficient to settle the judgment.

2. Full backwages

An illegally dismissed employee is entitled to full backwages to recover lost income.

The Labor Code provides:

Art. 294. [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 [Title I: Termination of Employment]. 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.” (Emphasis supplied.)

As may be observed, full backwages run like a taxi meter until the finality of the decision. For illustration, an employee who earns Php10,000.00 could recover full backwages amounting to Php630,000.00 should the case last for 63 months until finality of decision with the Supreme Court.

Table 1. Sample Computation for Full Backwages

StagesTimeline*Full Backwages
Dismissed form EmploymentDay 1Php20,000.00
Single Entry Approach3 monthsPhp60,000.00
Office of the Labor Arbitrator9 monthsPhp180,000.00
National Labor Relations Commission15 monthsPhp300,000.00
Court of Appeals39 monthsPhp780,000.00
Supreme Court63 monthsPhp1,260,000.00

*The periods are counted from Day 1 or date of dismissal. These are estimates and averages for a labor case.

The above amounts do not include yet attorney’s fees, as well as costs of litigation, such as for filing fees, printing, photocopying, and other miscellaneous expenses.

Illegal dismissal is thus not to be taken lightly.

a. Backwages v. Separation pay in lieu of reinstatement

The legal basis for backwages and separation pay in lieu of reinstatement (as will be discussed hereunder) are different.

The aim of backwages is for the restoration of lost income, while separation pay is to provide for the employee during the transition when he/she is seeking gainful employment elsewhere.



Bani Rural Bank Inc. v. De Guzman

G.R. No. 170904, 13 November 2013

For clarity, the bases for computing separation pay and backwages are different. Our ruling in Macasero v. Southern Industrial Gases Philippines provides us with the manner these awards should be computed:

[U]nder Article 279 of the Labor Code and as held in a catena of cases, an employee who is dismissed without just cause and without due process is entitled to backwages and reinstatement or payment of separation pay in lieu thereof:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and reinstatement. The two reliefs provided are separate and distinct. In instances where reinstatement is no longer feasible because of strained relations between the employee and the employer, separation pay is granted. In effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or separation pay if reinstatement is no longer viable, and backwages.

The normal consequences of [the employee’s] illegal dismissal, then, are reinstatement without loss of seniority rights, and payment of backwages computed from the time compensation was withheld up to the date of actual reinstatement. Where reinstatement is no longer viable as an option, separation pay equivalent to one (1) month salary for every year of service should be awarded as an alternative. The payment of separation pay is in addition to payment of backwages.

The computation of separation pay is based on the length of the employee s service; and the computation of backwages is based on the actual period when the employee was unlawfully prevented from working.

The basis of computation of backwages

The computation of backwages depends on the final awards adjudged as a consequence of illegal dismissal, in that:

First, when reinstatement is ordered, the general concept under Article 279 of the Labor Code, as amended, computes the backwages from the time of dismissal until the employee’s reinstatement. The computation of backwages (and similar benefits considered part of the backwages) can even continue beyond the decision of the labor arbiter or NLRC and ends only when the employee is actually reinstated.

Second, when separation pay is ordered in lieu of reinstatement (in the event that this aspect of the case is disputed) or reinstatement is waived by the employee (in the event that the payment of separation pay, in lieu, is not disputed), backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

Third, when separation pay is ordered after the finality of the decision ordering the reinstatement by reason of a supervening event that makes the award of reinstatement no longer possible (as in the case), backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

… In Session Delights Ice Cream and Fast Foods v. Court Appeals Sixth Division, we explained that the finality of the decision becomes the reckoning point because in allowing separation pay, the final decision effectively declares that the employment relationship ended so that separation pay and backwages are to be computed up to that point.

We [the Supreme Court] may also view the proper computation of backwages (whether based on reinstatement or an order of separation pay) in terms of the life of the employment relationship itself.

When reinstatement is ordered, the employment relationship continues. Once the illegally dismissed employee is reinstated, any compensation and benefits thereafter received stem from the employee’s continued employment. In this instance, backwages are computed only up until the reinstatement of the employee since after the reinstatement, the employee begins to receive compensation from his resumed employment.

When there is an order of separation pay (in lieu of reinstatement or when the reinstatement aspect is waived or subsequently ordered in light of a supervening event making the award of reinstatement no longer possible), the employment relationship is terminated only upon the finality of the decision ordering the separation pay. The finality of the decision cuts-off the employment relationship and represents the final settlement of the rights and obligations of the parties against each other. Hence, backwages no longer accumulate upon the finality of the decision ordering the payment of separation pay since the employee is no longer entitled to any compensation from the employer by reason of the severance of his employment. (Emphasis supplied.)


Considering that they have different legal basis, separation pay cannot and should not be used as a substitute for backwages. Thus:



Wenphil Corporation v. Abing

G.R. No. 207983, 07 April 2014

the relief of separation pay may be granted in lieu of reinstatement but it cannot be a substitute for the payment of backwages. In instances where reinstatement is no longer feasible because of strained relations between the employee and the employer, separation pay should be granted. In effect, an illegally dismissed employee should be entitled to either reinstatement – if viable, or separation pay if reinstatement is no longer be viable, plus backwages in either instance. The rationale for such policy of distinction was vividly explained in Santos v. NLRC under these terms:

Though the grant of reinstatement commonly carries with it an award of backwages, the inappropriateness or non-availability of one does not carry with it the inappropriateness or non-availability of the other. Separation pay was awarded in favor of petitioner Lydia Santos because the NLRC found that her reinstatement was no longer feasible or appropriate. As the term suggests, separation pay is the amount that an employee receives at the time of his severance from the service and, as correctly noted by the Solicitor General in his Comment, is designed to provide the employee with “the wherewithal during the period that he is looking for another employment.” … Put a little differently, payment of backwages is a form of relief that restores the income that was lost by reason of unlawful dismissal; separation pay, in contrast, is oriented towards the immediate future, the transitional period the dismissed employee must undergo before locating a replacement job…

x x x

We [the Supreme Court] emphasize that the basis for the payment of backwages is different from that of the award of separation pay. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Backwages represent compensation that should have been earned but were not collected because of the unjust dismissal. The basis for computing separation pay is usually the length of the employee’s past service, while that for backwages is the actual period when the employee was unlawfully prevented from working. (Emphasis supplied.)


Whereas separation pay was only paid to employee separated through authorized causes as provided in the Labor Code, the above jurisprudence provided for additional circumstances: in lieu of reinstatement and as an act of social justice.

3. Reinstatement

Reinstatement is the default result of an illegal dismissal case.

To be clear, when an illegally dismissed employee wins, the employer is required to return him/her to work. This is the general rule.

By way of exception, even if the employee loses an illegal dismissal case which was filed in good faith, her reinstatement may still be ordered. Thus, when an employee refused to be re-assigned to a different position thinking it was a demotion, she was ordered reinstated despite having lost her illegal dismissal case. “While she was guilty of insubordination for having refused to move out of her position as Executive Secretary to the Executive Vice-President and General Manager of the company, dismissal from the service would be a draconian punishment for it, as her complaint for illegal dismissal was filed in good faith.” (Philippine Japan Active Carbon Corporation v. Quiñanola, G.R. No. 83239, 08 March 1989)

a. Former position, rank, and status

As provided in Article 294, the Labor Code requires reinstatement of an illegally dismissed employee. The reinstatement employee should be returned to his former position without any loss of seniority rights and other privileges.

b. Substantially equivalent position, rank, and status

The Labor Code requires that the illegally dismissed employee be restored to his/her former position. However, if the position is no longer available such as when it has been abolished, then the next best alternative is to restore the employee to a substantially equivalent position.




G.R. No. 82976, 26 July 1991

The [employers] argue that Caparas’s reinstatement is no longer possible because his former position has been abolished and there is no comparable position to which he can now be appointed. Curiously, Philamlife submitted its certification to this effect only on March 3, 1986, after the issuance of the questioned resolution of February 8, 1988, where the same pronouncement was made. The certification is not convincing, in any case, being at best self-serving and at worst an evasive inaccuracy.

It is not lost on the Court that Caparas was occupying an ordinary clerical position, not a top executive post for which an equivalent office may indeed be difficult to find. Considering the size of Philamlife, it is not believable that not a single position similar to Caparas’s abolished position was available, let alone the fact that he was the President of the EMAPALICO [Employees Association of the Philippine American Life Insurance Company] and as such perhaps deserved a little extra accommodation. The Court cannot help wondering if it was precisely because of his status as union head that he was denied such accommodation.

We [the Supreme Court] have held in earlier cases as follows:

As pointed out by the Office of the Solicitor General, assuming that [the employee’s] position was abolished, she can be reinstated to a substantially equivalent position without loss of seniority rights, but herein [employer] insists that there exists no substantially equivalent position for [the employee]. The assertion is unmeritorious considering that [the employer] is one of the country’s top corporations.

If the [the employee] had been a laborer, clerk, or other rank and file employee, there would be no problem in ordering her reinstatement with facility. But she was Vice President for Marketing of Asiaworld. An officer in such a key position can work effectively only if she enjoys the full trust and confidence of top management.

… In the case at bar, we find that the evidence of record does not support the conclusion of the NLRC that the relations of the employee and management have been so seriously strained as to prevent the former’s reinstatement. We also reject the plea that there is absolutely no other position in the whole organization of Philamlife to which Caparas can be appointed to restore to him his original compensation and seniority.


Where there is no substantially equivalent position, then separation pay in lieu of reinstatement is the last option. It is only after exhausting all other similar positions when this is considered. The primary reason being is that looking gainful employment is not an easy matter.

Hence, jurisprudence ensures that all available and similar positions first be considered prior to permanently severing the employment of an illegally dismissed employee who will be left with no other option but to receive the separation pay.



Asia World Publishing House, Inc. v. Joaquin

G.R. No. L-56398, 23 July 1987

However, as regards the order of reinstatement, we have to take into account that antagonism between the [employer] and the [employee] has been brought about by the filing of this case plus the fact that a new employee had been hired to take over the place of the respondent. There is no showing that an equivalent position is available to Ms. Joaquin. All of these militate against the propriety of reinstating the respondent. As we have ruled in Divine Word High School vs. National Labor Relations Commission…:

“Nonetheless We hesitate ordering the reinstatement of private respondent Luz Ballano Catenza as a high school teacher in the petitioner high school, which is a Catholic institution, serving the educational and moral needs of its Catholic studentry. While herself innocent, the continued presence of Mrs. Catenza as a teacher in the school may well be met with antipathy and antagonism by some sectors in the school community.”

If the [employee] had been a laborer, clerk, or other rank and file employee, there would be no problem in ordering her reinstatement with facility. But she was Vice President for Marketing of Asiaworld. An officer in such a key position can work effectively only if she enjoys the full trust and confidence of top management.


When there is no substantially equivalent position, the employee is thus separated from employment with the corresponding payment of separation pay.

c. Separation pay in lieu of reinstatement

Separation pay in lieu of reinstatement is the alternative solution when it is no longer practicable or feasible to return the employee to his/her former position.

1) Strained relations

In an illegal dismissal case, it tends to create distrust, resentment, and animosity.  Reinstating the employee is thus not practicable when the employer and employee have strained relations already. By way of jurisprudence, when there is already strained relations, the Supreme Court has thus allowed the separation from employment of an illegally dismissed employee so long as the employer pays for the separation pay. This is the doctrine of strained relations.


Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust.(Dreamland Hotel Resort v. Johnson, G.R. No. 191455, 12 March 2014)

The doctrine of strained relations work for both the employer and the employee. Accordingly, it can be invoked by either one of them.

The fact of strained relations should be proven – and not merely claimed. Otherwise, reinstatement being the general rule (and strained relations as an exception), the illegally dismissed employee will be restored to his previous position if strained relations is not established. 



Leopard Security and Investigation Agency v. Quitoy

G.R. No. 186344, 20 February 2013

As a relief granted in lieu of reinstatement, however, it consequently goes without saying that an award of separation pay is inconsistent with a finding that there was no illegal dismissal. Standing alone, the doctrine of strained relations will not justify an award of separation pay, a relief granted in instances where the common denominator is the fact that the employee was dismissed by the employer. Even in cases of illegal dismissal, the doctrine of strained relations is not applied indiscriminately as to bar reinstatement, especially when the employee has not indicated an aversion to returning to work or does not occupy a position of trust and confidence in or has no say in the operation of the employer’s business. Although litigation may also engender a certain degree of hostility, it has likewise been ruled that the understandable strain in the parties’ relations would not necessarily rule out reinstatement which would, otherwise, become the rule rather than the exception in illegal dismissal cases.

Our perusal of the position paper they filed a quo shows that, despite erroneously believing themselves to have been illegally dismissed, [the employees] had alleged no circumstance indicating the strained relations between them and LSIA and had even alternatively prayed for reinstatement alongside the payment of separation pay. Since application of the doctrine of strained relations presupposes a question of fact which must be demonstrated and adequately supported by evidence, the CA clearly erred in ruling that the parties’ relations had already soured and that an award of separation pay in favor of [the employees] is proper

Absent illegal dismissal on the part of LSIA and abandonment of employment on the part of [the employees], we find that the latter’s reinstatement without backwages is, instead, in order. In addition to [the employees’] alternative prayer therefor in their position paper, reinstatement is justified by LSIA’s directive for them to report for work at its Mandaluyong City office as early of 10 May 2005… (Emphasis supplied.)


Thus, the doctrine of strained relations “should not be used recklessly or applied loosely nor be based on impression alone.” (Tenazas v. R. Villegas Taxi Transport, G.R. No. 192998, 02 April 2014)

There must be proof of this situation following the substantial evidence rule in labor law.

As a question of fact, strained relations has to be “adequately supported by evidence—substantial evidence to show that the relationship between the employer and the employee is indeed strained as a necessary consequence of the judicial controversy.” (Golden Ace Builders v. Talde, G.R. No. 187200, 05 May 2010)

2) As a matter of social justice

In Labor Cases, separation pay may also be required from the employer to be paid to the employees – by way of exception. The following case provides for an explanation:



TMPCWA v. Toyota Motor Philippines Corporation

G.R. Nos. 158798-99, 19 October 2007

The general rule is that when just causes for terminating the services of an employee under Art. [297] of the Labor Code exist, the employee is not entitled to separation pay. The apparent reason behind the forfeiture of the right to termination pay is that lawbreakers should not benefit from their illegal acts. The dismissed employee, however, is entitled to whatever rights, benefits and privileges [s/he] may have under the applicable individual or collective bargaining agreement with the employer or voluntary employer policy or practice or under the Labor Code and other existing laws. This means that the employee, despite the dismissal for a valid cause, retains the right to receive from the employer benefits provided by law, like accrued service incentive leaves. With respect to benefits granted by the CBA provisions and voluntary management policy or practice, the entitlement of the dismissed employees to the benefits depends on the stipulations of the CBA or the company rules and policies.

As in any rule, there are exceptions. One exception where separation pay is given even though an employee is validly dismissed is when the court finds justification in applying the principle of social justice well entrenched in the 1987 Constitution. In Phil. Long Distance Telephone Co. (PLDT) v. NLRC, the Court elucidated why social justice can validate the grant of separation pay, thus:

The reason is that our Constitution is replete with positive commands for the promotion of social justice, and particularly the protection of the rights of the workers. The enhancement of their welfare is one of the primary concerns of the present charter. In fact, instead of confining itself to the general commitment to the cause of labor in Article II on the Declaration of Principles of State Policies, the new Constitution contains a separate article devoted to the promotion of social justice and human rights with a separate sub-topic for labor. Article XIII expressly recognizes the vital role of labor, hand in hand with management, in the advancement of the national economy and the welfare of the people in general. The categorical mandates in the Constitution for the improvement of the lot of the workers are more than sufficient basis to justify the award of separation pay in proper cases even if the dismissal be for cause.

In the same case, the Court laid down the rule that severance compensation shall be allowed only when the cause of the dismissal is other than serious misconduct or that which reflects adversely on the employee’s moral character. The Court succinctly discussed the propriety of the grant of separation pay in this wise:

We [the Supreme Court] hold that henceforth separation pay shall be allowed as a measure of social justice only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a fellow worker, the employer may not be required to give the dismissed employee separation pay, or financial assistance, or whatever other name it is called, on the ground of social justice.

 A contrary rule would, as [the employer] correctly argues, have the effect, of rewarding rather than punishing the erring employee for his offense. And we do not agree that the punishment is his dismissal only and that the separation pay has nothing to do with the wrong he has committed. Of course it has. Indeed, if the employee who steals from the company is granted separation pay even as he is validly dismissed, it is not unlikely that he will commit a similar offense in his next employment because he thinks he can expect a like leniency if he is again found out. This kind of misplaced compassion is not going to do labor in general any good as it will encourage the infiltration of its ranks by those who do not deserve the protection and concern of the Constitution.

The policy of social justice is not intended to countenance wrongdoing simply because it is committed by the underprivileged. At best it may mitigate the penalty but it certainly will not condone the offense. Compassion for the poor is an imperative of every humane society but only when the recipient is not a rascal claiming an undeserved privilege. Social justice cannot be permitted to be refuge of scoundrels any more than can equity be an impediment to the punishment of the guilty. Those who invoke social justice may do so only if their hands are clean and their motives blameless and not simply because they happen to be poor. This great policy of our Constitution is not meant for the protection of those who have proved they are not worthy of it, like the workers who have tainted the cause of labor with the blemishes of their own character.

Explicit in PLDT are two exceptions when the NLRC or the courts should not grant separation pay based on social justices erious misconduct (which is the first ground for dismissal under Art. [297]) or acts that reflect on the moral character of the employee. What is unclear is whether the ruling likewise precludes the grant of separation pay when the employee is validly terminated from work on grounds laid down in Art. [297] of the Labor Code other than serious misconduct.

A recall of recent cases decided bearing on the issue reveals that when the termination is legally justified on any of the grounds under Art. [297], separation pay was not allowed. In Ha Yuan Restaurant v. NLRC, we deleted the award of separation pay to an employee who, while unprovoked, hit her co-workers face, causing injuries, which then resulted in a series of fights and scuffles between them. We viewed her act as serious misconduct which did not warrant the award of separation pay. In House of Sara Lee v. Rey, this Court deleted the award of separation pay to a branch supervisor who regularly, without authorization, extended the payment deadlines of the company’s sales agents. Since the cause for the supervisor’s dismissal involved her integrity (which can be considered as breach of trust), she was not worthy of compassion as to deserve separation pay based on her length of service. In Gustilo v. Wyeth Phils., Inc., this Court found no exceptional circumstance to warrant the grant of financial assistance to an employee who repeatedly violated the company’s disciplinary rules and regulations and whose employment was thus terminated for gross and habitual neglect of his duties. In the doctrinal case of San Miguel v. Lao, this Court reversed and set aside the ruling of the CA granting retirement benefits or separation pay to an employee who was dismissed for willful breach of trust and confidence by causing the delivery of raw materials, which are needed for its glass production plant, to its competitor. While a review of the case reports does not reveal a case involving a termination by reason of the commission of a crime against the employer or his/her family which dealt with the issue of separation pay, it would be adding insult to injury if the employer would still be compelled to shell out money to the offender after the harm done.

In all of the foregoing situations, the Court declined to grant termination pay because the causes for dismissal recognized under Art. [297] of the Labor Code were serious or grave in nature and attended by willful or wrongful intent or they reflected adversely on the moral character of the employees. We therefore find that in addition to serious misconduct, in dismissals based on other grounds under Art. [297] like willful disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, and commission of a crime against the employer or his family, separation pay should not be conceded to the dismissed employee.

In analogous causes for termination like inefficiency, drug use, and others, the NLRC or the courts may opt to grant separation pay anchored on social justice in consideration of the length of service of the employee, the amount involved, whether the act is the first offense, the performance of the employee and the like, using the guideposts enunciated in PLDT on the propriety of the award of separation pay.

The above rule carved out an exception to the general rule that there is no separation pay due to employees dismissed for just causes.

3) Computation of separation pay

The separation pay is computed at 1 month pay or ½ month pay per year of service, whichever is higher. A fraction of 6 months shall be considered as 1 year of service for purposes of computing separation pay. (Bank of Lubao, Inc. v. Manabat, G.R. No. 188722, 01 February 2012)

Thus, if an employee’s year of service is 3 years and 7 months, the computation shall be for 4 years (with 7 months considered as 1 year).

Do note that this requirement of separation pay arose from jurisprudence – and not from the Labor Code. This is often the source of confusion. Under the Labor Code, the purpose of separation pay is to provide for financial means to the employee who had to be let go due to an authorized cause. The employee did not commit a wrongdoing or company violation. Accordingly, the employer is required to shell out separation pay to financially help the affected employee while looking for the next employment.

In separation pay in lieu of reinstatement, the root cause for being separated from employment is due to strained relations. It is not an authorized cause in the Labor Code. Rather, it properly falls under other causes similarly to being dismissed due to a CBA provision. However, there is similarity on the aspect that the termination of employment is not attributable to the employee (who won the illegal dismissal case). Hence, separation pay is due.

4. Moral damages

Moral damages are crudely based on wounded feelings.

As strange as it may sound, moral damages is anchored on the hurt caused to the employee as a result of being illegally dismissed.

For a more precise definition, the Civil Code provides:

Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant’s wrongful act for omission.” (Emphasis supplied.)

Moral damages have no fixed formula or computation. Instead, the complainant may ask for what he/she may deem proper to compensate him/her for the moral damages (yes, he/she may ask for the sky). Then, it will be the courts to decide what the reasonable amount would be to grant. To point out the obvious, moral damages will vary on a case-to-case basis depending on many factors, such as status or position of the employee, how the dismissal was carried out in bad faith, the corresponding effect on the complainant, and several other relevant considerations.

While the Labor Code requires reinstatement for an illegally dismissed employee, there are instances when it is no longer practicable or feasible to return the employee to his former position, such as when there is already strained relations with the employer or the position had already been abolished. In such similar situations, the solution is separation pay as discussed in the next section.

a. Bad faith – required

While it is easy to claim for moral damages, they are not that easy to be awarded.

Moral damages require that bad faith is established. A complainant cannot simply say that he/she was dismissed and it was attended with bad faith. That will not work. Labor law specifically requires that the bad faith aspect must be proven. After all, the law in general presumes good faith in the conduct of human relations.

“Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud… It must be reiterated that bad faith should be established by clear and convincing evidence. Furthermore, the settled rule is that the law always presumes good faith such that any person who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill motive.”(Ford Philippines, Inc. v. Oboza, G.R. No. 99039, 03 February 1997.)

In addition to bad faith, the following grounds may also support the award of moral damages:

The Supreme Court stated that it is “worth reiterating is [their] consistent pronouncement on the matter of awarding damages in illegal dismissal cases that moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. In the case of Primero v. IAC, we held further that an award of moral damages in the illegal dismissal of an employee is not based on the Labor Code but is grounded on the Civil Code. Such an award cannot be justified solely upon the premise that the employer fired his employee without just cause or due process. Additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil Code, these being, to repeat, that the act of dismissal was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy; and, of course, that social humiliation, wounded feelings, grave anxiety, and similar injury resulted therefrom. (Ibid.)

Without any of these grounds being clearly established, there is no basis for moral damages to be awarded to the employee.



Ford Philippines, Inc. v. Oboza
G.R. No. 99039, 03 February 1997

[The employee – a General Sales Manager – filed a complaint for illegal dismissal challenging his being separated via redundancy and claiming that such was done in bad faith.]

… we [the Supreme Court] find that there was no “dishonest purpose,” or “some moral obliquity,” or “conscious doing of wrong,” or “breach of a known duty,” or “some motive or interest or ill will” that “partakes the nature of fraud” that can be attributed to [the employers]… In the case at bench, we find the evidence presented by [the employee] insufficient to overcome the presumption of good faith. On the contrary, a careful scrutiny of the evidence leads us to take the opposite view. We are convinced that the [the employers] had in fact acted in accord with the norms of good faith.

As admitted by [the employee], he was not immediately terminated from the employ of Ford Philippines, but was given the prerogative of choosing between availing of the benefits under redundancy or continuing his employment as Vehicle Sales Manager. This was in recognition of [the employee’s] long years of service to Ford Philippines and is indicative of [the employers’] good will. Moreover, at the time that [the employee] was dismissed from employment, Ford Philippines was losing heavily and had resorted to massive layoffs of employees from both the rank and file and managerial levels. That Ford Philippines was in dire financial straits could not have been unknown to the [the employee] who was then its General Sales Manager. As a matter of fact, Ford Philippines closed down barely a year after the institution of the case before the trial court and even before the latter could render a decision therein. Ford Philippines could have retrenched [the employee] as it had the right to do so because of severe financial reverses. Despite this, [the employee] was not retrenched but was dismissed on the ground of redundancy, thus, entitling him to a larger amount of separation pay equivalent one (1) month salary for every year of service.


How is bad faith established? It can be done via the surrounding circumstances and available documentation. For example, various previous altercations between a superior and subordinate resulted in the complainant being harassed or discriminated until he/she was summarily dismissed without due process. If this case is supported with documentation such as affidavits by co-employees, then this could result in the award of moral damages.

The primary defense of the Management is to ensure that due process is observed – and the necessary documentation are generated and kept safe.

5. Exemplary damages

Exemplary damages are a tap on the wrist.

The aim of exemplary damages is corrective. When the employer commits an unlawful or illegal act, exemplary damages penalizes such conduct so as not to be repeated. The law thus sets an example for the public good.

The Civil Code defines exemplary damages as follows:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

In the context of an illegal dismissal case, the behavior sought to be penalized is the lack of due process. The law rectifies it by imposing a penalty on the employer by way of exemplary damages.

As stated in Article 2229 of the Civil Code, exemplary damages is awarded in addition to moral damages. Whereas moral damages aim to compensate the employee for the wounded feelings, exemplary damages seek to correct the unlawful behavior of the employer.



Montinola v. Philippine Airlines
G.R. No. 198656, 08 September 2014

[The employee – a Flight Attendant – was illegally suspended following a customs search in Honolulu, Hawaii, USA regarding alleged pilferage of items. After the investigation, she was metered with the penalty of 1 year suspension without pay.]

Illegally suspended employees, similar to illegally dismissed employees, are entitled to moral damages when their suspension was attended by bad faith or fraud, oppressive to labor, or done in a manner contrary to morals, good customs, or public policy.

x x x

The employer has the burden of proof in showing that disciplinary action was made for lawful cause.The employer must consider and show facts adequate to support the conclusion that an employee deserves to be disciplined for his or her acts or omissions.

[The employer], however, merely relied on these pieces of information in finding administrative liability against [the employee]:

1) a list of offenses found in [the employer’s] Code of Discipline that [the employee] allegedly violated;

2) a list of flight crew members that were checked at the Honolulu airport; and

3) a list of all items confiscated from all these flight crew members.

The lists are not sufficient to show the participation of any of the flight crew members, least of all [the employee]. None of the evidence presented show that the customs officials confiscated any of these items from her. Thus, the evidence by themselves do not show that [the employee] pilfered airline items.

Together with the manner in which the investigation proceeded, i.e., that [the employee] was prevented from asking for clarification of the charges against her, the absence of substantial evidence is so apparent that disciplining an employee only on these bases constitutes bad faith…

x x x

[The employee] is… entitled to exemplary damages.

… As this court has stated in the past: “Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its consequence by creating negative incentives or deterrents against such behaviour.”

If the case involves a contract, Article 2332 of the Civil Code provides that “the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless,oppressive or malevolent manner.”

It is socially deleterious for [the employer] to suspend Montinola without just cause in the manner suffered by her. Hence, exemplary damages are necessary to deter future employers from committing the same acts.


It should be noted that the award of exemplary damages is a ground for recovery of attorney’s fees under Article 2208 (1) of the Civil Code as discussed below.

6. Nominal damages

Nominal damages are for the specific non-compliance with procedural due process.

By way of review, due process is divided into two parts: substantive and procedural. If substantive due process was observed (e.g. the employee was dismissed for fraud after tampering with his/her daily time record) but no procedural due process was made (e.g. dismissal did not observe the two notices and opportunity to be heard), the employee is considered to have been validly dismissed. However, since his/her right to procedural due process was violated, this will be vindicated by requiring the employer to pay for nominal damages.

The Civil Code defines exemplary damages as follows:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

Historically, and for avoidance of doubt, the employer would be liable for illegal dismissal if the procedure for due process was not observed. However, it was only recently when the Supreme Court held that non-observance of procedural due process would still result in a valid dismissal following the case of Agabon v. Riviera Home Improvements, Inc. (G.R.  No. 158693). Thus, it became the Agabon doctrine. 



Bughaw v. Treasure Island Corporation

G.R. No. 173151, 28 March 2008

The charge of drug abuse inside the company’s premises and during working hours against [the employee] constitutes serious misconduct, which is one of the just causes for termination. Misconduct is improper or wrong conduct. It is the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, willful in character, and implies wrongful intent and not merely an error in judgment. The misconduct to be serious within the meaning of the Act must be of such a grave and aggravated character and not merely trivial or unimportant. Such misconduct, however serious, must nevertheless, in connection with the work of the employee, constitute just cause for his separation. This Court took judicial notice of scientific findings that drug abuse can damage the mental faculties of the user. It is beyond question therefore that any employee under the influence of drugs cannot possibly continue doing his duties without posing a serious threat to the lives and property of his co-workers and even his employer.

x x x

While there is no dispute that [the employer] fully complied with the first-notice requirement apprising [the employee] of the cause of his impending termination and giving him the opportunity to explain his side, we find that it failed to satisfy the need for a second notice informing [the employee] that he was being dismissed from employment.

[The Supreme Court] cannot give credence to [the employer’s] allegation that the [the employee] refused to receive the third letter dated 21 August 2001 which served as the notice of termination. There is nothing on record that would indicate that [the employer] even attempted to serve or tender the notice of termination to [the employee]. No affidavit of service was appended to the said notice attesting to the reason for failure of service upon its intended recipient. Neither was there any note to that effect by the server written on the notice itself.

The law mandates that it is incumbent upon the employer to prove the validity of the termination of employment. Failure to discharge this evidentiary burden would necessarily mean that the dismissal was not justified and, therefore, illegal. Unsubstantiated claims as to alleged compliance with the mandatory provisions of law cannot be favored by this Court. In case of doubt, such cases should be resolved in favor of labor, pursuant to the social justice policy of our labor laws and Constitution.

The burden therefore is on [the employer] to present clear and unmistakable proof that [the employee] was duly served a copy of the notice of termination but he refused receipt. Bare and vague allegations as to the manner of service and the circumstances surrounding the same would not suffice. A mere copy of the notice of termination allegedly sent by [the employer] to [the employee], without proof of receipt, or in the very least, actual service thereof upon [the employee], does not constitute substantial evidence. It was unilaterally prepared by the [the employer] and, thus, evidently self-serving and insufficient to convince even an unreasonable mind.

[The Supreme Court] cannot overemphasize the importance of the requirement on the notice of termination, for we have ruled in a number of cases that non-compliance therewith is tantamount to deprivation of the employee’s right to due process.

This is not the first time that the Court affirmed that there was just cause for dismissal, but held the employer liable for non-compliance with the procedural due process. In Agabon v. National Labor Relations Commission, we found that the dismissal of the employees therein was for valid and just cause because their abandonment of their work was firmly established. Nonetheless, the employer therein was held liable because it was proven that it did not comply with the twin procedural requirements of notice and hearing for a legal dismissal. However, in lieu of payment of backwages, we ordered the employer to pay indemnity to the dismissed employees in the form of nominal damages…

x x x

The Agabon doctrine enunciates the rule that if the dismissal was for just cause but procedural due process was not observed, the dismissal should be upheld [meaning; valid]. Where the dismissal is for just cause, as in the instant case, the lack of statutory due process should not nullify the dismissal or render it illegal or ineffectual. However, the employer should indemnify the employee for the violation of his right to procedural due process. The indemnity to be imposed should be stiffer to discourage the abhorrent practice of “dismiss now, pay later,” which we sought to deter in the Serrano ruling. In Agabon42 the nominal damages awarded was P30,000.00. (Emphasis supplied.)


At this point, it should be emphasized that this is by no means a license for the employer to disregard the procedure for due process. While non-observance of procedural due process would still result in a valid dismissal, it is still highly recommended that the two notices and opportunity to be heard be observed. This is for documentation purposes – in case a labor case arises out of a dismissal.

Practice shows that many labor arbitrators place value and premium for observance of both substantive and procedural due process. On the other hand, some complainants would spin the table against the employer with fabrications on how they were dismissed (e.g. a few would falsely claim that they summarily dismissed even if they were innocent of any charges). Accordingly, it is wise and prudent to comply still with the procedure for due process.

7. Attorney’s fees

There are two legal bases for attorney’s fees: Labor Code, Civil Code.

In the Labor Code, 10% attorney’s fees are awarded when there is an unlawful withholding of wages. This is so provided in Article 111, to wit:

Article 111. Attorney’s fees.

In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.

It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered.

On the other hand, the Civil Code allows for the recovery of attorney’s fees in various situations involving employment. The primary grounds used are Nos. 1 and 2 under Article 2208, viz:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

x x x

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

x x x

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

x x x

In all cases, the attorney’s fees and expense of litigation must be reasonable.

Considering that the Labor Code came after the Civil Code, the limitation for the recovery of attorneys’ fees is pegged at 10% as stated in the second paragraph of Article 111 of the Labor Code.

The granting of attorney’s fees can also be considered as an act of social justice. When employees are illegally dismissed, they tend to have no financial means to engage a good and competent lawyer who can successfully prosecute their case. This is particularly true when it comes to employees who have been unceremoniously dismissed and were left surprised why they were terminated. Accordingly, labor law allows employees to recover attorney’s which tends to be the amount paid to the legal counsel as compensation.

8. Solidary liability with responsible corporate officers

Corporate directors and officers may be held personally liable for a judgment award via solidary liability.



Polymer Rubber Corporation v. Salamuding

G.R. No. 185160, 24 July 2013

A corporation, as a juridical entity, may act only through its directors, officers and employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their personal liability but the direct responsibility of the corporation they represent. As a rule, they are only solidarily liable with the corporation for the illegal termination of services of employees if they acted with malice or bad faith.”

To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must be proof that the officer acted in bad faith.


In labor cases, corporate directors and officers may be held “solidarily liable with the corporation for the termination of employment of employees done with malice or in bad faith.” (MAM Realty Development Corporation v. Balbastro, G.R. No. 114787, 02 June 1995)

Corporate directors or officers cannot be held solidarily liable for plain mistake in dismissing an employee. In Aliling v. Feliciano, it was held that the corporate officers cannot be held jointly and solidarily liable even if assuming that the actions of the employers were “ill-conceived and erroneous.” (Aliling v. Wide Wide World Express Corporation, G.R. No. 185829, 25 April 2012)

In Polymer Rubber Corporation v. Salamuding, it was held that a corporate director cannot be held liable where the judgment in the labor case had already been final and executory without him being originally adjudged solidarily liable.



Polymer Rubber Corporation v. Salamuding

G.R. No. 185160, 24 July 2013

In the instant case, the CA imputed bad faith on the part of [the employers] when [the Company] ceased its operations the day after the promulgation of the SC resolution in 1993 which was allegedly meant to evade liability. The CA found it necessary to pierce the corporate fiction and pointed at Ang as the responsible person to pay for Salamuding’s money claims. Except for this assertion, there is nothing in the records that show that Ang was responsible for the acts complained of.  At any rate, we find that it will require a great stretch of imagination to conclude that a corporation would cease its operations if only to evade the payment of the adjudged monetary awards in favor of three (3) of its employees.

x x x

To hold Ang personally liable at this stage is quite unfair. The judgment of the LA, as affirmed by the NLRC and later by the SC had already long become final and executory. It has been held that a final and executory judgment can no longer be altered. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land. “Since the alias writ of execution did not conform, is different from and thus went beyond or varied the tenor of the judgment which gave it life, it is a nullity. To maintain otherwise would be to ignore the constitutional provision against depriving a person of his property without due process of law.


There is a clear definition when it comes to who are corporate directors or officers. Thus, human resource managers or officers are generally not personally liable since they are not corporate directors or officers as defined by law.

a. Corporate directors

Corporate directors are those who make up the board of directors of a company. As such, they are stockholders who have at least one share of stocks and have been elected as a director. To be liable, they should have participated in the act of illegal dismissal.

It should be emphasized that being called a “director” in a company does not necessarily mean that one is a corporate director. For instance, Human Resource Directors are not necessarily corporate directors as they are not shareholders and members of the board of directors. While they may not be corporate directors, they might be corporate officers and thus may be held solidarily liable with the company.

b. Corporate officers

On the other hand, corporate officers are those whose positions are reflected in the Corporate By-Laws. By default, and as required by law, there are three corporate positions: president, treasurer, and secretary. Meanwhile, the Corporation Code allows companies to add more positions for corporate officers – e.g. vice-president, compliance officer, etc.

If Human Resource Directors are corporate officer positions in the company’s By-Laws, then they are corporate officers. Accordingly, they may be held liable for an illegal dismissal case which they might have participation.

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