Dumapis v. Lepanto: The "Uniform Rule" on the Computation of Backwages for Illegally Dismissed Employees

The right to backwages and separation pay arises when an employee is found to have been illegally dismissed. The Labor Code of the Philippines, as amended, provides the statutory basis for these remedies, emphasizing the protection of labor and the resolution of doubts in favor of employees. However, the law itself does not specify the precise inclusions in the computation of backwages, leaving this to judicial interpretation.

The Doctrinal Dispute:
What Should Be Included in Backwages?

The main point of contention has been whether backwages should include not only the basic salary but also salary increases, allowances, and other benefits that would have accrued had the employee not been dismissed. Over the years, the Supreme Court has issued seemingly conflicting rulings on this issue.

The Exclusionary Approach

In some cases, the Court held that only the basic salary and benefits existing at the time of dismissal should be included in the computation of backwages. For instance, in BPI Employees Union - Metro Manila and Zenaida Uy v. Bank of the Philippine Islands, the Court excluded salary increases and benefits granted after the dismissal but before reinstatement:

"The Court ordered the inclusion of salary increases and all other benefits and bonuses given to the employees who were not dismissed and which would have also normally accrued to Sarona had he not been illegally dismissed."

— Dumapis v. Lepanto, citing Sarona v. NLRC, 679 Phil. 394, 422-423 (2012)

This approach was rooted in the principle that backwages are meant to restore the employee to the financial position they would have been in had they not been dismissed, but not to grant them benefits they were not yet entitled to at the time of dismissal.

The Inclusionary Approach

Conversely, other decisions adopted a more liberal stance, including in backwages all salary increases and benefits that would have normally accrued to the employee, provided these were not contingent on performance or other variables. In Sarona v. NLRC, the Court ordered the inclusion of such increases and benefits:

"In computing backwages, salary increases from the time of dismissal until actual reinstatement, and benefits not yet granted at the time of dismissal are excluded."

— Dumapis v. Lepanto, G.R. No. 204060, September 13, 2020, citing BPI Employees Union - Metro Manila and Zenaida Uy v. Bank of the Philippine Islands, 673 Phil. 599 (2011)

This approach was justified by the social justice principle underlying labor law, aiming to fully compensate the employee for the loss suffered due to illegal dismissal.

A Survey of Jurisprudence

The Supreme Court, in Dumapis v. Lepanto, undertook a comprehensive review of its own precedents, highlighting the doctrinal confusion that had persisted for years. The Court cited several key cases:

• BPI Employees Union - Metro Manila and Zenaida Uy v. Bank of the Philippine Islands — Excluded salary increases and benefits granted after dismissal.

• Sarona v. NLRC — Included salary increases and benefits that would have normally accrued.

• Tangga-an v. Philippine Transmarine Carriers Inc., 706 Phil. 339 (2013) — Revived the rule that the award ought to include benefits which, under the employment contract, were guaranteed and not contingent.

• CICM Mission Seminaries, et al. v. Perez and Bani Rural Bank, Inc. v. De Guzman, 803 Phil. 596, 606-607 (2017) — Clarified that the computation of backwages and separation pay should run from the time of illegal dismissal until the finality of the decision ordering payment.

The Court acknowledged that these conflicting rulings had led to inconsistent applications by lower courts and labor tribunals.

Dispute Finally Settled:
The Uniform Rule

In Dumapis v. Lepanto, the Supreme Court decisively settled the issue by laying down a "uniform rule":

"Verily, the Court now ordains the uniform rule that the award of backwages and/or separation pay due to illegally dismissed employees shall include all salary increases and benefits granted under the law and other government issuances, Collective Bargaining Agreements, employment contracts, established company policies and practices, and analogous sources which the employees would have been entitled to had they not been illegally dismissed. On the other hand, salary increases and other benefits which are contingent or dependent on variables such as an employee's merit increase based on performance or longevity or the company's financial status shall not be included in the award."

— Magante v. COA, G.R. No. 253395, February 18, 2025, quoting Dumapis v. Lepanto

This rule harmonizes the previously conflicting doctrines by distinguishing between guaranteed and contingent increases and benefits:

• Included: All salary increases and benefits that are guaranteed by law, CBA, employment contract, company policy, or similar sources.

• Excluded: Increases and benefits that are contingent on performance, company profitability, or other variables.

The Court further clarified that the computation period for backwages and separation pay is from the date of illegal dismissal until the finality of the decision ordering payment, not merely until the date of the NLRC or Labor Arbiter’s decision.

Rationale: Social Justice and Protection of Labor

The Supreme Court’s rationale is rooted in the constitutional mandate to afford full protection to labor and to resolve doubts in favor of employees. The Court emphasized that labor disputes are not merely legal contests but matters of survival for employees and their families:

"At this juncture, the courts, especially the CA, should be reminded to read and apply this Court's labor pronouncements with utmost care and caution, taking to mind that in the very heart of the judicial system, labor cases occupy a special place. More than the State guarantees of protection of labor and security of tenure, labor disputes involve the fundamental survival of the employees and their families, who depend upon the former for all the basic necessities in life."

— Dumapis v. Lepanto

Practical Implications

The uniform rule established in Dumapis v. Lepanto has significant implications for both employers and employees:

• For Employees: The decision ensures that illegally dismissed workers receive full compensation for what they would have earned, including guaranteed increases and benefits, thus upholding the principle of full protection to labor.

• For Employers: The ruling provides clarity and predictability, allowing employers to accurately assess their potential liabilities in illegal dismissal cases.

• For Labor Tribunals: The NLRC and labor arbiters now have a clear standard to follow, reducing the risk of inconsistent or erroneous computations.

Conclusion

Dumapis v. Lepanto is a landmark case that finally resolved the decades-long doctrinal conflict on the computation of backwages for illegally dismissed employees. By establishing a uniform rule that distinguishes between guaranteed and contingent increases and benefits, the Supreme Court has provided much-needed clarity and fairness in the application of labor law. This decision not only upholds the constitutional mandate to protect labor but also ensures the consistent and equitable resolution of labor disputes.

Disclaimer: This article was prepared with the assistance of artificial intelligence and may contain errors. It is intended solely for educational and informational purposes. It does not constitute legal advice, nor does it create an attorney-client relationship. Readers should note that the applicable laws and jurisprudence may vary depending on the specific facts of each case.

For advice regarding your particular circumstances, please consult our qualified legal professionals at Sun Law Office.