1. Concept

Reinstatement – refers to the ‘restoration to a state or condition from which one had been removed or separated. The person reinstated assumes the position he had occupied prior to his dismissal.20 Reinstatement presupposes that the previous position from which one had been removed still exists, or that there is an unfilled position which is substantially equivalent or of similar nature as the one previously occupied by the employee.’ (Asian Terminals, Inc. v. Villanueva, G.R. No. 143219, November 28, 2006, Per Carpio, J.)

‘Reinstatement restores the employee who was unjustly dismissed to the position from which he was removed, that is, to his status quo ante dismissal.’ (Rodriguez v. Sintron Systems, Inc., G.R. No. 240254, July 24, 2019, Per Caguioa, J.)

a. Legal basis

Art. 294. [279] Security of Tenure. – … An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges…

(P.D. 442, Labor Code)

b. Immediately executory

When a labor arbiter orders reinstatement in the decision, it is immediately executory notwithstanding and despite any appeal filed by either/both the employer and the employee.

Art. 229. [223] Appeal. – x x x
… the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, even pending appeal. The employee shall either be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement provided herein.

(P.D. 442, Labor Code)

In case the decision of the Labor Arbiter includes an order of reinstatement, it shall likewise contain: (a) a statement that the reinstatement aspect is immediately executory; and (b) a directive for the employer to submit a report of compliance within ten (10) calendar days from receipt of the said decision.

(Rule V, 2019 NLRC Rules of Procedure)

‘In authorizing execution pending appeal of the reinstatement aspect of a decision of the Labor Arbiter reinstating a dismissed or separated employee, the law itself has laid down a compassionate policy which, once more, vivifies and enhances the provisions of the 1987 Constitution on labor and the working-man.’ (Aris [Phil.] Inc. v. NLRC, En Banc, G.R. No. 90501, August 5, 1991, Per Davide, Jr., J.)

‘These provisions are the quintessence of the aspirations of the workingman for recognition of his role in the social and economic life of the nation, for the protection of his rights, and the promotion of his welfare… These duties and responsibilities of the State are imposed not so much to express sympathy for the workingman as to forcefully and meaningfully underscore labor as a primary social and economic force, which the Constitution also expressly affirms with equal intensity. Labor is an indispensable partner for the nation’s progress and stability.’ (Aris [Phil.] Inc. v. NLRC [1991], supra.)

1) Appeal does not affect reinstatement

‘As provided under Article 223 of the Labor Code, this immediately executory nature of an order of reinstatement is not affected by the existence of an ongoing appeal. The employer has the duty to reinstate the employee in the interim period until a reversal is decreed by a higher court or tribunal.’ (Wenphil Corporation v. Abing, G.R. No. 207983, April 7, 2014, Per Brion, J.)

2. Reinstatement pending appeal

Since the decision is immediately executory, it is the duty of the employer to comply with the order of reinstatement, which can be done either actually or through payroll reinstatement. (Wenphil Corporation v. Abing [2014], supra.)

Thus, there are two (2) kinds of reinstatement during the pendency of a case:

1) Actual reinstatement; and

2) Payroll reinstatement.

a. Actual reinstatement

If the employer chooses actual reinstatement, reinstated employees will be resuming with their work prior to their dismissal. They will render work and be paid their regular compensation and benefits.

b. Payroll reinstatement

If the employer chooses payroll reinstatement, reinstated employees will be receiving their regular compensation and benefits even if they are not allowed by the employer to work. Otherwise stated, they will be receiving their pay even if they do not render any work.

1) No refund to employer

In the case of payroll reinstatement, even if the employer’s appeal turns the tide in its favor, the reinstated employee has no duty to return or reimburse the salary he received during the period that the lower court or tribunal’s governing decision was for the employee’s illegal dismissal. (Wenphil Corporation v. Abing [2014], supra.)

Otherwise, the situation would run counter to the immediately executory nature of an order of reinstatement. (Wenphil Corporation v. Abing [2014], supra.)

Garcia v. Philippine Airlines, Inc., En Banc, G.R. No. 164856, January 20, 2009, Per Carpio Morales, J.:

⦁ Even outside the theoretical trappings of the discussion and into the mundane realities of human experience, the “refund doctrine” easily demonstrates how a favorable decision by the Labor Arbiter could harm, more than help, a dismissed employee. The employee, to make both ends meet, would necessarily have to use up the salaries received during the pendency of the appeal, only to end up having to refund the sum in case of a final unfavorable decision. It is mirage of a stop-gap leading the employee to a risky cliff of insolvency.

⦁ Advisably, the sum is better left unspent. It becomes more logical and practical for the employee to refuse payroll reinstatement and simply find work elsewhere in the interim, if any is available. Notably, the option of payroll reinstatement belongs to the employer, even if the employee is able and raring to return to work…

2) Revocation

There is nothing prohibiting the employer from changing its mind about payroll reinstatement.

If complainants-employees were earlier placed on payroll reinstatement, the employer may subsequently revoke it and recall them to render work at the Company’s premises resulting in actual reinstatement.

3. Reinstatement overturned pending appeal

[E]ven if the order of reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court or tribunal. It likewise settled the view that the Labor Arbiter’s order of reinstatement is immediately executory and the employer has to either re-admit them to work under the same terms and conditions prevailing prior to their dismissal, or to reinstate them in the payroll, and that failing to exercise the options in the alternative, employer must pay the employee’s salaries. (Islriz Trading v. Capada, G.R. No. 168501, January 31, 2011, Per Del Castillo, J.)

a. Two-fold test

[A]fter the Labor Arbiter’s decision is reversed by a higher tribunal, the employee may be barred from collecting the accrued wages, if it is shown that the delay in enforcing the reinstatement pending appeal was without fault on the part of the employer. (Islriz Trading v. Capada [2011], supra.)

[Jurisprudence] then provided for the two-fold test in determining whether an employee is barred from recovering his accrued wages, to wit:

1) There must be actual delay or that the order of reinstatement pending appeal was not executed prior to its reversal; and

2) The delay must not be due to the employer’s unjustified act or omission. (Islriz Trading v. Capada [2011], supra.)

If the delay is due to the employer’s unjustified refusal, the employer may still be required to pay the salaries notwithstanding the reversal of the Labor Arbiter’s Decision. (Islriz Trading v. Capada [2011], supra.)

Kimberly Clark (Phils.), Inc. v. Facundo, G.R. No. 144885, 12 July 2006, Per Mercedes Gozo-Dadole, J:

⦁ [T]he Labor Arbiter’s order of reinstatement was immediately executory. After receipt of the Labor Arbiter’s decision ordering [the complainants-employees] reinstatement, [the Company] has to either re-admit them to work under the same terms and conditions prevailing prior to their dismissal, or to reinstate them in the payroll. Failing to exercise the options in the alternative, [the Company] must pay [the complainants-employees’] salaries which automatically accrued from notice of the Labor Arbiter’s order of reinstatement until its ultimate reversal of the NLRC.

⦁ [S]ince [the complainants-employees] reinstatement pending appeal was effective only until its reversal by the NLRC on April 28, 1999, they are no longer entitled to salaries from May 1, 1999 to March 15, 2001, as ordered by the Labor Arbiter.

4. Finality

Reinstatement is the default remedy 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, March 8, 1989, Per Griño-Aquino, J.)

a. Extent of reinstatement

1) 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.

DUP Sound Phils. v. Cam G.R. No. 168317, November 21, 2011, Per Peralta, J.:

⦁ [Here,] it cannot be said that petitioners intended to reinstate [the Complainant] neither to his former position under the same terms and conditions nor to a substantially equivalent position. To begin with, the notice that [the Company] sent to [the Complainant] requiring the latter to report back for work is silent with regard to the position or exact nature they wanted [the Complainant] to assume. Indeed, as it turned out, [the Company] had other plans for [the Complainant]. Thus, [the Complainant’s] assignment to a different job, as well as transfer of work assignment without any justification therefor, cannot be deemed as faithful compliance with the reinstatement order.

Rodriguez v. Sintron Systems, Inc., G.R. No. 24-254, July 24, 2019, Per Caguioa, J.:

⦁ In sum, the Court affirms the factual findings of the lower tribunals that [the Complainant] failed to substantiate her claim that she was dismissed by [THE COMPANY], constructively or otherwise. [THE COMPANY] likewise failed to prove by substantial evidence that [the Complainant] had abandoned her work. Moreover, the doctrine of strained relations does not apply in the present case and may not excuse the parties from resuming their employment relationship or justify the award of separation pay. This being the case, [THE COMPANY] must be ordered to reinstate [the Complainant] to her former position without payment of backwages. If [the Complainant] voluntarily chooses not to return to work, she must then be considered as having resigned from employment.100 This is, however, without prejudice to the parties willingly continuing with their former contract of employment or entering into a new one.

2) 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.

Caparas v. PHILAMLIFE, G.R. No. 82976, July 26, 1991, Per Cruz, J:

⦁ 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.

⦁ [I]n 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.

3) No promotion

Asian Terminals, Inc. v. Villanueva, G.R. No. 143219, November 28, 2006, Per Carpio, J.:

• On the other hand, [the Complainants] maintain that [the Company] did not reinstate them to their former permanent and regular positions. [The Complainants] [A.L.] Lanza, [R.T.] Rodolfo, and [R.P.] Villanueva allege that they should be reinstated to their former position as deliverymen while respondent [B.S.] Poquiz insists on reinstatement to his former position as day worker vessel (DWV).

• [The Complainants] [R.T.] Rodolfo and [R.P.] Villanueva submitted evidence showing their appointment to the position of reserved deliveryman. Even their [the Company] identification cards, which were both validated only for the year 1981, indicated their position as reserved deliveryman. There is no evidence showing that the position of deliveryman is the same as reserved deliveryman. Furthermore, [the Complainants] [A.L.] Lanza, [R.T.] Rodolfo, and [R.P.] Villanueva failed to prove that they were already occupying the position of deliveryman at the time of their dismissal. For his part, [Complainant] [B.S.] Poquiz did not present any evidence showing that his position prior to his dismissal was day worker vessel. [Complainant B.S.] Poquiz’s AWU identification card indicated his position merely as DWV-112, the same position to which he was reinstated.

• In their 4 March 1998 Supplement filed with the NLRC, [the Complainants] allege that [the Company] should reinstate them to positions equivalent to those currently occupied by their co-employees who previously held the same position as [the Complainants] before their dismissal. [the Complainants] submitted evidence showing that [the Company] had already promoted these co-employees to higher positions.

• Reinstatement means restoration to the former position occupied prior to dismissal or to substantially equivalent position. Reinstatement does not mean promotion. Promotion is based primarily on an employee’s performance during a certain period. Just because their contemporaries are already occupying higher positions does not automatically entitle [the Complainants] to similar positions.

4. Separation pay in lieu of reinstatement

Separation pay is warranted when the cause for termination is not attributable to the employee’s fault, such as those in authorized causes, as well as in cases of illegal dismissal where reinstatement is no longer feasible. (Claudia’s Kitchen, Inc. v. Tanguin, G.R. No. 221096, June 28, 2017, Per Menodoza, J.)

The payment of separation pay replaces the legal consequences of reinstatement to an employee who was illegally dismissed. (Claudia’s Kitchen, Inc. v. Tanguin [2017], supra.)

The following are circumstances when reinstatement may not be feasible anymore:

1) Strained relations; or

2) Position is no longer existing or has been abolished.

In such cases, 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. In this situation, the employer will be required to pay separation pay to the complainants-employees as they will be permanently separated from their employment.

a. 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, March 12, 2014, Per Reyes, J.)

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, April 2, 2014, Per Reyes, J.)

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, May 5, 2010, Per Carpio-Morales, J.)

1) When invoked

Strained relationship may be invoked only against employees whose positions demand trust and confidence, or whose differences with their employer are of such nature or degree as to preclude reinstatement. (Dimabayao v. National Labor Relations Commission, G.R. No. 122178, February 25, 1999, Per Bellosillo, J.)

Every labor dispute almost always results in “strained relations,” and the phrase cannot be given an overarching interpretation, otherwise, an unjustly dismissed employee can never be reinstated. (Advan Motor, Inc. v. Veneracion, G.R. No. 190944, December 13, 2017, Per Leonardo-De Castro, J.)

Besides, the doctrine of strained relations cannot be applied indiscriminately since every labor dispute almost invariably results in “strained relations;” otherwise, reinstatement can never be possible simply because some hostility is engendered between the parties as a result of their disagreement. That is human nature. Strained relations must be demonstrated as a fact. The doctrine should not be used recklessly or loosely applied, nor be based on impression alone. (Rodriguez v. Sintron Systems, Inc. [2019], supra.)

b. Position is non-existing or has been abolished

When a position is no longer existing or has been abolished, and there is no substantially equivalent position for which dismissed employees may be reinstated, they may be permanently separated from employment subject to payment of separation pay.

c. 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, February 1, 2012, Per Reyes, J.)

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.

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