Backwages and the Earnings Elsewhere

Backwages and the Earnings Elsewhere

The monetary award known as Backwages is one of the items usually granted to the illegally dismissed employee. It is provided under Article 294 of the Labor, as amended.

This provision of the Labor Code states that 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.

In the years before the Mercury Drug Rule (MDR) was promulgated in 1974 /  or the Deduction of Earnings Elsewhere Rule (DEER), whenever backwages are awarded, the employee’s earning elsewhere during the pendency of his labor case was deducted from the backwages.

For instance, if the BW is P500k and the earnings elsewhere is P200k, the net BW of the dismissed employee is P300k. In 1974, the MDR was established which espoused that backwages should be granted for a period of three years without qualification and without deduction. This meant that the award of backwages was not reduced by earnings actually earned by the dismissed employee during the interim period of the separation.

For instance, if the BW is P500k for 3 years and the duration of dismissal or the pendency of the labor case

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is 5 years, which grants additional BW of P300k for the 2 years of litigation, the BW shall be computed without any qualification for up to 3 years only. If the earnings elsewhere is P400k, the BW to be awarded should be P500k.

Then came the SC decisions in the cases of Ferrer and Pines City wherein the three-year period was deleted, and instead, the dismissed employee was paid backwages for the entire period that he was without work subject to the deductions, as mentioned. For instance, if the BW 3 years is P500k and the BW for 4 more years is P600k, the total BW computation is P1.1M. If the duration of dismissal 7 years and the earnings elsewhere is P400k the BW to be awarded is P700k. These cases removed only the cap of 3 years but still implemented the MDR / DEER.

Then came the Bustamante Ruling which gives life to the amendment of the Labor Code under R.A. 6715. This ruling allowed full recovery of backwages without deduction and without qualification pursuant to the express provisions of Article 294 of the Labor Code, as amended by Rep.  Act No. 6715, i.e., without any deduction of income the employee may have derived from employment elsewhere from the date of his dismissal up to his reinstatement, that is, covering the entirety of the period of the dismissal.

Hence, based on the same illustrative points, if the BW is P1.1M and the earnings elsewhere is P400k, the backwages shall be P1.1M. This is now the current state of this doctrine. This is because Art. 294 of the Labor Code mandates that an employee’s full backwages shall be inclusive of allowances and other benefits or their monetary equivalent.

The rationale of this doctrine is that the employee, while litigating the legality (illegality) of his dismissal, must still earn a living to support himself and family, while full backwages have to be paid by the employer as part of the price or penalty he has to pay for illegally dismissing his employee. The clear legislative intent of the amendment in Rep. Act No. 6715 is to give more benefits to workers than was previously given them under the Mercury Drug rule or the “deduction of earnings elsewhere” rule.

Thus, a closer adherence to the legislative policy behind Rep. Act No. 6715 points to “full backwages” as meaning exactly that, i.e., without deducting from backwages the earnings derived elsewhere by the concerned employee during the period of his illegal dismissal. In other words, the provision calling for “full backwages” to illegally dismissed employees is clear, plain and free from ambiguity and, therefore, must be applied without attempted or strained interpretation.

Index animi sermo est or speech is the index of intention. The words employed by the legislature in a statute correctly express its intent or will and preclude the court from construing it differently.

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