The Supreme Court has ruled that employers are not liable for reinstatement salaries when a valid business closure makes reinstatement impossible, even if an initial labor arbiter’s decision favored the employee. This decision clarifies the extent of an employer’s obligation to pay accrued wages during the period of appeal when the business has ceased operations due to legitimate reasons. The ruling emphasizes that an employer’s inability to comply with a reinstatement order due to a valid closure excuses them from the obligation to pay reinstatement salaries beyond the date of closure, providing a nuanced understanding of Article 223 of the Labor Code.

When Corporate Closure Excuses Reinstatement: Who Bears the Wage Burden?

This case arose from a labor dispute between Samahang Manggagawa sa General Offset Press, Inc. (SMGOPI), representing its members, and General Offset Press, Inc. (GOPI). The initial complaint filed by SMGOPI involved allegations of illegal dismissal, leading to a decision by the Labor Arbiter (LA) in favor of the employees. The LA ordered the reinstatement of 25 employees and awarded moral damages. Pending GOPI’s appeal to the National Labor Relations Commission (NLRC), the LA granted a motion for execution pending appeal, resulting in the garnishment of GOPI’s bank account. However, the NLRC later reversed the LA’s decision, declaring GOPI’s closure valid and the employees’ strike illegal. This reversal led to a legal battle over the garnished amount, with GOPI seeking its return.

The central legal question revolves around whether GOPI should return the garnished amount to the employees despite the NLRC’s reversal of the initial ruling that favored the employees. The resolution of this issue requires an examination of the employer’s obligations under Article 223 of the Labor Code, which mandates the immediate execution of a reinstatement order even pending appeal. However, the validity of GOPI’s closure introduces a critical element, as it raises questions about the feasibility and fairness of enforcing reinstatement when the business no longer exists.

SMGOPI argued that its members were entitled to the garnished amount because GOPI failed to reinstate them following the LA’s initial order. They cited Article 223 (now Article 229) of the Labor Code, emphasizing the immediately executory nature of reinstatement orders:

Art. 223. Appeal. x x x.

In any event, 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.

SMGOPI relied on the precedent set in Islriz Trading v. Capada, arguing that the employees were entitled to their accrued salaries from the time GOPI received the LA decision until the NLRC reversed it. However, the Supreme Court distinguished the current case from Islriz, noting that Islriz Trading did not face circumstances justifying non-reinstatement. A key distinction was the valid closure of GOPI, which presented a legal impossibility to reinstate the employees.

The Supreme Court referenced the case of Garcia v. Philippine Airlines Inc., highlighting that an employee may be barred from collecting accrued wages if the delay in enforcing reinstatement pending appeal was not the employer’s fault. In Garcia, the employer, PAL, was under corporate rehabilitation, which suspended claims against it. The Court applied a two-fold test derived from Garcia:

x x x (1) there must be actual delay or the fact 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. 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.

The Supreme Court found that GOPI’s valid closure satisfied the condition that the delay was not due to the employer’s unjustified act or omission. This ruling is consistent with the principle that an employer should not be penalized for failing to perform an impossible act. The Court emphasized that GOPI ceased operations in March 2002, a fact validated by the NLRC and affirmed by the Court of Appeals and the Supreme Court, with finality reached on March 12, 2010.

The Court also referenced Philippine Airlines Inc. v. Paz, where PAL’s rehabilitation receivership justified the delay in complying with the reinstatement order. The Supreme Court concluded that the valid closure of GOPI made it legally impossible to reinstate the employees, precluding an order for GOPI to pay backwages beyond the closure date. This decision reinforces the importance of considering the practical realities of business operations in labor disputes, especially when a company has legitimately ceased operations.

The practical implications of this decision are significant. It clarifies that while reinstatement orders are generally immediately executory, this rule is not absolute. Valid business closures can excuse employers from the obligation to reinstate employees and pay accrued wages beyond the date of closure. This ruling provides a more balanced approach, recognizing the legitimate business reasons that may prevent an employer from complying with a reinstatement order. It also underscores the importance of determining the validity of a business closure in labor disputes involving reinstatement.

FAQs

What was the key issue in this case?	The key issue was whether a company is liable for reinstatement salaries when it has undergone a valid business closure, making reinstatement impossible, even after an initial labor arbiter’s decision favored the employees.
What is the general rule regarding reinstatement orders?	Generally, under Article 223 of the Labor Code, reinstatement orders by the Labor Arbiter are immediately executory, even pending appeal. This means the employee should either be admitted back to work or reinstated in the payroll.
How does a valid business closure affect the reinstatement order?	A valid business closure, if proven legitimate, can excuse the employer from the obligation to reinstate employees and pay accrued wages beyond the date of closure because it becomes legally impossible to comply with the reinstatement order.
What is the two-fold test used to determine entitlement to accrued wages?	The two-fold test requires: (1) actual delay in executing the reinstatement pending appeal, and (2) the delay must not be due to the employer’s unjustified act or omission. If the delay is justified, the employer is not required to pay salaries.
What was the argument of the employees in this case?	The employees argued that they were entitled to the garnished amount because the company failed to reinstate them as initially ordered by the Labor Arbiter, and they should receive accrued wages for the period they were not reinstated.
What was the company’s defense in this case?	The company argued that it had undergone a valid business closure, making reinstatement impossible. It contended that it should not be liable for reinstatement salaries beyond the date of closure.
How did the Supreme Court rule in this case?	The Supreme Court ruled in favor of the company, stating that the valid business closure excused it from the obligation to pay reinstatement salaries beyond the date of closure. The garnished amount was to be returned to the company.
What is the practical implication of this ruling for employers?	This ruling clarifies that employers are not obligated to pay reinstatement salaries when a valid business closure prevents them from complying with a reinstatement order, providing a more balanced approach to labor disputes.
Is there a situation where the employer will still have to pay?	Yes, if the delay in the reinstatement was 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.

In conclusion, the Supreme Court’s decision underscores the significance of considering the practical realities of business operations in labor disputes. While reinstatement orders are generally immediately executory, valid business closures can excuse employers from the obligation to reinstate employees and pay accrued wages beyond the date of closure. This ruling provides a more balanced approach, recognizing the legitimate business reasons that may prevent an employer from complying with a reinstatement order.

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: SAMAHANG MANGGAGAWA VS GENERAL OFFSET PRESS, G.R. No. 212960, June 08, 2016