Garcia vs. PAL

Garcia and Dumago vs.
PAL (2009)
FACTS:
 An administrative charge was filed by PAL against its employees, Juanito Garcia
and Alberto Dumago, after they were allegedly caught in the act of sniffing
shabu when a team of company security personnel and law enforcers raided the
PAL Technical Center’s Toolroom Section on July 24, 1995.
 After due notice, PAL dismissed Garcia and Dumago on October 9, 1995 for
transgressing the PAL Code of Discipline, prompting them to file a complaint for
illegal dismissal and damages which was resolved by the Labor Arbiter in their
favor, thus ordering PAL to immediately comply with the reinstatement aspect
of the decision.
 Prior to the promulgation of the Labor Arbiter’s decision, the SEC placed PAL,
which was suffering from severe financial losses, under an Interim
Rehabilitation Receiver, which was subsequently replaced by a Permanent
Rehabilitation Receiver on June 7, 1999.
From the Labor Arbiter’s decision, PAL appealed to the NLRC, which reversed

said decision and dismissed Garcia and
Dumago’s complaint for lack of merit.
On October 5, 2000, the Labor Arbiter issued a Writ of Execution respecting the
reinstatement aspect of his Decision, and on October 25, 2000, he issued a
Notice of Garnishment.
 PAL filed an Urgent Petition for Injunction with the NLRC, which affirmed the
validity of the Writ and the Notice issued by the Labor Arbiter but suspended
and referred the action to the Rehabilitation Receiver for appropriate action.
 PAL elevated the matter to the CA, which nullified the NLRC Resolutions on two
grounds, essentially espousing that: (1) a subsequent finding of a valid
dismissal removes the basis for implementing the reinstatement aspect of a
labor arbiter’s decision (the first ground), and (2) the impossibility to comply
with the reinstatement order due to corporate rehabilitation provides a
reasonable justification for the failure to exercise the options under Article 223
of the Labor Code (the second ground).
 By Manifestation and Compliance, PAL informed the Court that the SEC
granted its request to exit from rehabilitation proceedings.
ISSUE: Whether or not Garcia and Dumago may collect their wages during the period
between the Labor Arbiter’s order of reinstatement pending appeal and the NLRC
decision overturning that of the Labor Arbiter, now that PAL has exited from
rehabilitation proceedings.
RULING: NO (the petition is PARTIALLY DENIED.)
RATIONALE: With regard to the first ground adopted by the CA, the Supreme Court
ruled that in a number of cases, a dismissed employee whose case was favorably
decided by the Labor Arbiter is entitled to receive wages pending appeal upon
reinstatement, which is immediately executory. Unless there is a restraining order, it
is ministerial upon the Labor Arbiter to implement the order of reinstatement and it is
mandatory on the employer to comply therewith.
**The opposite view is articulatedin the case of Genuino vs. NLRC, where it was held
that if the decision of the labor arbiter is later reversed on appeal upon the finding
that the ground for dismissal is valid, then the employer has the right to require
the dismissed employee on payroll reinstatement to refund the salaries s/he
received while the case was pending appeal. However, if the employee was reinstated
to work during the pendency of the appeal, then the employee is entitled to the
compensation received for actual services rendered without need of refund.
**Prior to Genuino, there had been no known similar case containing a dispositive
portion where the employee was required to refund the salaries received on payroll
reinstatement. Therefore, the Genuino ruling not only disregards the social justice
principles behind the rule, but also institutes a scheme unduly favorable to
management.
The Supreme Court

reaffirmed the prevailing principle enunciated in the case of
Panuncillo vs. CAP Philippines, Inc., that even if the order of reinstatement of the Labor
Arbiter is reversed on appeal, it is obligatory on the part of the employer to reinstate
and pay the wages of the dismissed employee during the period of appeal until reversal
by the higher court.
With regard to the second ground adopted by the CA, the Supreme Court sustained
the CA’s finding that the peculiar predicament of a corporate rehabilitation rendered it
impossible for PAL to exercise its option under the circumstances. After the labor
arbiter’s decision is reversed by a higher tribunal, the employee may be barred from
collecting the accrued wages, if it is shown that the delay in enforcing the
reinstatement pending appeal was without fault on the part of the employer.
The test is two-fold: (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 new NLRC Rules of Procedure, which took effect on January 7, 2006, now
require the employer to submit a report of compliance within 10 calendar days from
receipt of the Labor Arbiter’s decision, disobedience to which clearly denotes a refusal
to reinstate. The employee need not file a motion for the issuance of the writ of
execution since the Labor Arbiter shall thereafter motu proprio issue the writ.
In the case at bar, it is apparent that there was inaction on the part of PAL to reinstate
Garcia and Dumago, but whether such omission was justified depends on the onset of
the exigency of corporate rehabilitation.
It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions
for claims before any court, tribunal or board against the corporation shall ipso jure be
suspended. As stated early on, during the pendency of Garcia and Dumago’s
complaint before the Labor Arbiter, the SEC placed PAL under an Interim
Rehabilitation Receiver. After the Labor Arbiter rendered his decision, the SEC
replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation Receiver.
The Supreme Court further ruled that unless there is a restraining order, the
implementation of the order of reinstatement is ministerial and mandatory. This
injunction or suspension of claims by legislative fiat partakes of the nature of a
restraining order that constitutes a legal justification for PAL’s non- compliance with
the reinstatement order. PAL’s failure to exercise the alternative options of actual
reinstatement and payroll reinstatement was thus justified.
There are legal effects arising from a judicial order placing a corporation under
rehabilitation. PAL was, during the period material to the case, effectively deprived of
the alternative choices under Article 223 of the Labor Code, not only by virtue of the
statutory injunction but also in view of the interim relinquishment of management
control to give way to the full exercise of the powers of the rehabilitation receiver. Had
there been no need to rehabilitate, PAL may have opted for actual physical
reinstatement pending appeal to optimize the utilization of resources.
In sum, the obligation to pay the employee’s salaries upon the employer’s failure to
exercise the alternative options under Article 223 of the Labor Code is not a hard and
fast rule, considering the inherent constraints of corporate rehabilitation.

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