In Reynaldo Inutan, et al. v. Napar Contracting & Allied Services, et al., the Supreme Court of the Philippines clarified that employees can rescind a compromise agreement if the employer fails to comply with its terms. This means that if an employer does not fulfill their obligations under such an agreement, employees can revert to their original demands, including claims for illegal dismissal, and are not limited to merely enforcing the agreement. The decision underscores the importance of upholding workers’ rights and ensuring that compromise agreements are honored in good faith, providing a crucial legal recourse for employees facing non-compliance.

Broken Promises: Can Workers Reclaim Rights After a Failed Settlement?

The case began with Reynaldo Inutan and other employees of Napar Contracting & Allied Services, who were assigned to work at Jonas International, Inc. After disputes arose regarding wage and benefit discrepancies, the employees filed complaints, which led to a Joint Compromise Agreement. This agreement stipulated that the employees would be considered regular employees of Napar, reassigned within 45 days, and receive P7,000 each as payment for their monetary claims. However, Napar failed to reassign the employees as promised, leading them to file new complaints for illegal dismissal and other monetary claims. The central legal question was whether the employees were bound by the compromise agreement or could rescind it due to the employer’s non-compliance.

Initially, a Labor Arbiter ruled in favor of the employees, finding that Napar’s failure to reinstate them constituted constructive illegal dismissal and justified rescission of the compromise agreement. However, the National Labor Relations Commission (NLRC) reversed this decision, arguing that the approved compromise agreement operated as res judicata, barring the employees from re-filing their complaints. The Court of Appeals (CA) affirmed the NLRC’s decision, considering the approval of the Joint Compromise Agreement as a judgment on the merits. This led the employees to elevate the case to the Supreme Court, questioning whether their complaint was barred by res judicata and whether they had the right to rescind the agreement.

The Supreme Court addressed the issue of whether the petitioners’ complaint was barred by res judicata, a principle that prevents parties from relitigating issues already decided by a competent court. The Court acknowledged that a judicially approved compromise agreement has the effect of res judicata. However, it emphasized that this principle is qualified by Article 2041 of the Civil Code, which states:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand.

Building on this principle, the Court clarified that the employees had the right to choose between enforcing the compromise agreement or rescinding it and pursuing their original claims. In this case, Napar’s failure to reassign and provide work to the employees constituted a breach of the agreement, entitling the employees to rescind it. Furthermore, the Court noted that the NLRC Rules of Procedure allow for the re-filing of cases dismissed without prejudice, providing another basis for the employees’ action. The Court also found that the requirements imposed by Napar for the reassignment of the employees were unreasonable and designed to prevent their reinstatement. It was emphasized that management’s prerogative is not absolute and must be exercised in good faith, with due regard to the rights of labor.

Moreover, the Supreme Court addressed the argument that the employees could not seek rescission because they had already accepted the benefits of the Joint Compromise Agreement, namely the P7,000 payment. The Court rejected this argument, stating that the employees never accepted this amount as full satisfaction of their claims, as they also expected to be reassigned and reinstated. The amount was also deemed meager compared to the total monetary award they were entitled to, rendering the agreement unconscionable. The Joint Compromise Agreement itself stipulated that the amount would be considered in any future litigation, indicating that the parties did not rule out the possibility of future claims.

The Supreme Court also addressed the remedies available to the employees upon rescission of the Joint Compromise Agreement. The Court agreed with the Labor Arbiter’s ruling that the employees were constructively and illegally dismissed by Napar. Being on floating status for more than six months without reassignment, they were considered to have been constructively dismissed, entitling them to separation pay and full backwages. The Court underscored the principle that an employee unjustly dismissed from work is entitled to reinstatement or separation pay, along with full backwages. While the employees had not specifically raised the issue of backwages before the Court of Appeals, the Supreme Court exercised its discretionary authority to consider their entitlement to backwages, as it was necessary for a just decision. Therefore, the Court granted the employees separation pay and full backwages from the date of their last work assignment until the finality of the decision.

The Court held Napar Contracting & Allied Services and Norman Lacsamana jointly and severally liable for the monetary awards. This decision effectively underscores the importance of good faith in labor settlements and ensures employers cannot use compromise agreements as a shield against their obligations to employees. This ruling clarifies and protects the rights of employees, especially in scenarios where employers fail to uphold their commitments under settlement agreements. The ruling serves as a reminder that the principle of res judicata cannot be used to defeat the rights of employees when employers violate the terms of a compromise agreement.

FAQs

What was the key issue in this case?	The key issue was whether employees could rescind a compromise agreement due to the employer’s failure to comply with its terms, allowing them to pursue their original claims for illegal dismissal and other monetary benefits.
What is a compromise agreement in labor law?	A compromise agreement is a contract where parties make reciprocal concessions to avoid or end litigation. In labor law, it’s often used to settle disputes between employers and employees, subject to the approval of labor authorities.
What does Article 2041 of the Civil Code provide?	Article 2041 of the Civil Code states that if one party fails to abide by a compromise, the other party may either enforce the compromise or regard it as rescinded and insist upon their original demand.
What is the meaning of res judicata?	Res judicata is a legal principle that prevents the relitigation of issues already decided by a competent court. However, this principle does not apply if the other party fails to abide by the compromise agreement.
Can an employee rescind a compromise agreement if the employer fails to comply?	Yes, according to the Supreme Court, an employee can rescind a compromise agreement if the employer fails to comply with its terms. The employee may then pursue their original demands.
What remedies are available to an employee if a compromise agreement is rescinded?	If a compromise agreement is rescinded, the employee can pursue their original claims, including claims for illegal dismissal, backwages, separation pay, and other monetary benefits.
What constitutes constructive dismissal in this context?	Constructive dismissal occurs when an employer’s actions render continued employment unreasonable, unlikely, or impossible. In this case, being on floating status and off-detailed for more than six months without reassignment constituted constructive dismissal.
Are employers’ management prerogatives absolute?	No, management prerogatives are not absolute and must be exercised in good faith, with due regard to the rights of labor. They cannot be used as a subterfuge to deprive employees of their rights.
What is the significance of a dismissal being ‘without prejudice’?	A dismissal ‘without prejudice’ means that the case can be re-filed; it does not bar another action involving the same parties, subject matter, and theory, unlike a dismissal ‘with prejudice.’

In conclusion, Inutan v. Napar Contracting reaffirms the judiciary’s commitment to protecting labor rights and ensuring equitable settlements. It serves as a warning to employers that non-compliance with compromise agreements can lead to the rescission of such agreements and the enforcement of original claims, including illegal dismissal. This landmark ruling empowers employees to stand up for their rights and seek redress when settlement terms are not honored.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: REYNALDO INUTAN, ET AL. VS. NAPAR CONTRACTING & ALLIED SERVICES, ET AL., G.R. No. 195654, November 25, 2015