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Separation Pay

CASE No. 80
Millares vs. NLRC
G.R. No. 122827. March 29, 1999

FACTS: Petitioners numbering one hundred sixteen (116) occupied technical,

managerial and even a Vice Presidential positions in the mill site of respondent Paper
Industries Corporation of the Philippines (PICOP) in Bislig, Surigao del Sur, were
retrenched by respondent when it suffered a major financial setback brought about by
the joint impact of restrictive government regulations on logging and the economic
crisis. Accordingly, petitioners were given separation pay. Believing that the allowances
they regularly received on a monthly basis during their employment should have been
included in the computation thereof, they lodged a complaint for separation pay
The Executive Labor-Arbiter concluded that the allowances customarily furnished by
the respondent and regularly received by the petitioner should be included in the latter’s
basic pay and that in the computation of separation pay account should be taken not
just of the basic salary but also of the regular allowances that the employee had been
The NLRC set aside the Labor Arbiter’s decision. It decreed that the allowances did
not form part of the salary base in computing separation pay.

ISSUES: Whether or not the allowances customarily furnished by the employer is

included in the computation of separation pay

Held: No, when an employer customarily furnishes his employee board, lodging or
other facilities, the fair and reasonable value thereof, as determined by the Secretary of
Labor and Employment is included in “wage.” “Customary” as founded on long-
established and constant practice connoting regularity. The receipt of an allowance on
a monthly basis does not ipso facto characterize it as regular and forming part of a
salary because the nature of the grant is a factor worth considering. The subject
allowances were temporarily, not regularly received by petitioners.

In Santos the Court decreed that in the computation of separation pay awarded in
lieu of reinstatement, account must be taken not only of the basic salary but also of
transportation and emergency living allowances. Later, the Court
in Soriano, citing Santos, was general in its holding that the salary base properly used in
computing separation pay where reinstatement was no longer feasible should include
not just the basic salary but also the regular allowances that the employee had been
receiving. Insular merely reiterated the aforementioned rulings. The rationale is not
difficult to discern. It is the obligation of the employer to pay an illegally dismissed
employee the whole amount of his salaries plus all other benefits, bonuses and general
increases to which he would have been normally entitled had he not been dismissed
and had not stopped working. The same holds true in case of retrenched employees.
And thus we applied Insular and Soriano in Planters in the computation of separation
pay of retrenched employees. Songco likewise involved retrenchment and was relied
upon in Planters, Soriano and Santos in the proper amount of separation pay. As culled
from the foregoing jurisprudence, separation pay when awarded to an illegally
dismissed employee in lieu of reinstatement or to a retrenched employee should be
computed based not only on the basic salary but also on the regular allowances that the
employee had been receiving. But in view of the previous discussion that the disputed
allowances were not regularly received by petitioners herein, there was no reason at all
for petitioners to resort to the above cases.
In case of retrenchment to prevent losses, Art. 283 of the the Labor Code imposes on
the employer an obligation to grant to the affected employees separation pay equivalent
to one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher.

Disposition: Wherefore, the petition is DISMISSED. The resolution of public

respondent National Labor Relations Commission dated 7 October 1994 holding that
the Staff /Manager's, transportation and Bislig allowances did not form part of the salary
base used in computing the separation pay of petitioners, as well as its resolution dated
26 September 1995 denying reconsideration, is AFFIRMED.
Anino vs NLRC
G.R. No. 123226. May 21, 1998

FACTS: Complainants are employees of respondent Hinatuan Mining Corporation

(HMC) holding supervisory positions. They formed a supervisors union where
Anino, Navarro, Daug-daug and Filoteo were elected as President, Vice
President, PIO and Director, respectively. The respondent on the other hand,
after having been notified of the legal existence of the union and of the
petitioners’ desire for a collective bargaining completely ignored the union’s
proposal and did not answer. Petitioner files for unfair labor practice.
Thereafter, in the guise of retrenchment dismissed the complainants.

Because of their dismissal, complainants state that they were deprived

among others of their salaries and prayed in their complaint that respondent:
(a) be declared guilty of unfair labor practices; (b) be ordered to reinstate
complainants to their former positions with back wages.

On respondents Motion to Dismiss, it alleged that the retrenchment,

which affected both the rank-and-file as well as the supervisors and
managerial staffs, was implemented with the purpose of streamlining the
organizational structure in order to prevent further loses. It further alleged that
the petitioners admitted the retrenchment and were in fact accepted/received
their respective separation pay equivalent to one month salary for every year
of service and other monetary benefits as evidenced by the waiver and
quitclaim which the complainants allegedly signed.

The Labor Arbiter ruled that the dismissal of the employees was illegal
and orders their reinstatement and granted payment of back wages. However,
the ULP allegation was DISMISSED and the claim for damages DENIED.

The NLRC REVERSED the ruling of the L.A. It reasoned that the
actions of the complainants to challenge their separation after a period of two
months were questionable for the reason that they already have
received/accepted their respective separation pay.

ISSUE: 1. Whether or not the petitioners were validly retrenched.

2. Whether or not the complainants were stopped from claiming illegal dismissal
for the reason of their execution of waiver and quitclaim.
HELD: 1. NO. Petitioners were illegally dismissed.

The Labor Code provides that : “Art. 283. Closure of establishment and
reduction of personnel. -- The employer may also terminate the employment
of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written
notice on the workers and the [Department] of Labor and Employment at least
one (1) month before the intended date thereof. In case of termination due to
the installation of labor saving devices or redundancy, the worker affected
thereby shall be entitled to separation pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of service,
whichever is higher. In case of retrenchment to prevent losses and in cases
of closures or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month pay for every
year of service, whichever is higher. A fraction of at least six (6) months shall
be considered one (1) whole year.”
To justify retrenchment, the following requisites must be complied with: “(a) the
losses expected should be substantial and not merely de minimis in extent; (b) the
substantial losses apprehended must be reasonably imminent; (c) the retrenchment
must be reasonably necessary and likely to effectively prevent the expected losses; and
(d) the alleged losses, if already incurred, and the expected imminent losses sought to
be forestalled must be proved by sufficient and convincing evidence.” [

In termination cases, the burden of proving that the dismissal was for a valid or
authorized cause rests upon the employer. In the case at bar, respondent corporation
did not submit an iota of evidence to show losses in its business operations and the
economic havoc it would sustain imminently. It merely claimed that retrenchment was
undertaken as a measure of self-preservation to prevent losses brought about by the
continuing decline of nickel prices and export volume in the mining industry. Additionally,
it alleged that the reduction of excise taxes on mining from 5% to 1% on a graduated
basis, as provided under Republic Act No. 7729, was a clear recognition by the
government itself of the industry’s worsening economic difficulties.
These bare statements of private respondents miserably fall short of the requirements
to show the validity of a retrenchment.

2. No. The recognized and accepted doctrine is that a dismissed employee who has
accepted separation pay is not necessarily estopped from challenging the validity of his
or her dismissal.

Acceptance of those benefits would not amount to estoppel. The reason is

plain. Employer and employee, obviously, do not stand on the same
footing. The employer drove the employee to the wall. The latter must have
to get hold of money. Because, out of job, he had to face the harsh
necessities of life. He thus found himself in no position to resist money
proffered. His, then, is a case of adherence, not of choice. One thing sure,
however, is that petitioners did not relent their claim. They pressed it. They
are deemed not to have waived any of their rights. Renuntiatio non

DISPOSITION: WHEREFORE, the petition is hereby GRANTED and the challenged

NLRC Decision is SET ASIDE. The Decision of Labor Arbiter is REINSTATED, except
that Respondent Federico B. Ganigan shall not be liable for petitioners’ monetary
claims. In lieu of reinstating petitioners, Respondent Hinatuan Mining Corporation shall
PAY them separation benefits, computed from the time each of the petitioners was
employed until this Decision becomes final and executory.