Computation of Backwages in Labor Case where Reinstatement is not Possible
It is settled that the twin reliefs that should be given to an illegally dismissed employee are full backwages and reinstatement. (Peak Ventures Corp. vs. Heirs of Villareal, 747 Phil. 320-337 (2014) citing St. Luke’s Medical Center, Inc. v. Notario, 648 Phil. 285 (2010).)
Backwages restore the lost income of an employee and is computed from the time compensation was withheld up to actual reinstatement. Anent reinstatement, only when it is not viable is separation pay given.
The computation of backwages depends on the final awards adjudged as a consequence of illegal dismissal. (Angono Medics Hospital, Inc. vs. Agabin)
First, when reinstatement is ordered, the general concept under Article 294 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.
The above computation of backwages, when separation pay is ordered, has been the Supreme Court’s (SC)
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consistent ruling.
In Session Delights Ice Cream and Fast Foods vs. Court of Appeals, the SC 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.
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, according to the SC, 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, back wages 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. (Peak Ventures Corp. vs. Heirs of Villareal, 747 Phil. 320-337 (2014) citing St. Luke’s Medical Center, Inc. v. Notario, 648 Phil. 285 (2010).)
As early as 1996, the SC, in Bustamante, et al. v. NLRC, et al., clarified in no uncertain terms that if reinstatement is no longer possible, backwages should be computed from the time the employee was terminated until the finality of the decision, finding the dismissal unlawful.
Under Art. 294 of the Labor Code, the law intends the award of backwages and similar benefits to accumulate past the date of the Labor Arbiter’s decision until the dismissed employee is actually reinstated. But if reinstatement is no longer possible, backwages shall be computed from the time of illegal dismissal until the date the decision becomes final.
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