G.R. No. 112069 ; February 14, 1996
Industrial Timber Corporation Stanply Operations, petitioner, vs. National Labor Relations Commission, Juanito Pabatang, Edgardo Banias and Allan Wacan, respondents.

FACTS

Private respondents were contractual employees of ADD Technical and Labor Services Consultancy, a labor contractor for petitioner. Following a strike settlement on April 26, 1986, a Memorandum of Agreement was executed, providing for the absorption of contractual workers as direct employees of petitioner. Petitioner, however, refused to absorb private respondents, citing their prior execution of quitclaims and their non-inclusion on the priority hiring list. Private respondents filed complaints for illegal dismissal. The Labor Arbiter initially dismissed the cases, but the NLRC reversed this decision and ordered petitioner to absorb them as employees. This NLRC decision was affirmed by the Supreme Court, which dismissed petitioner’s certiorari petitions.
Subsequently, when private respondents moved for execution of the reinstatement order, it was discovered that petitioner had ceased its business operations by August 17, 1990, after its permit was not renewed. The Labor Arbiter then ruled that reinstatement was impossible and, in lieu thereof, ordered petitioner to pay private respondents both back wages for three years and separation pay. The NLRC affirmed this award. Petitioner now assails this decision, arguing that an award of both back wages and separation pay is improper in the absence of a finding of illegal dismissal.

ISSUE

Whether employees are entitled to both back wages and separation pay when reinstatement is rendered impossible due to the employer’s cessation of business, but where there is no finding of illegal dismissal.

RULING

No. The Supreme Court partially granted the petition, deleting the award of back wages but upholding the grant of separation pay. The Court clarified that back wages are a relief granted to an illegally dismissed employee, representing compensation for the period of wrongful separation until actual reinstatement. Since the final and executory decision in this case only ordered the employees’ absorption or reinstatement pursuant to a settlement agreement, and did not contain a finding of illegal dismissal, the legal basis for awarding back wages was absent.
However, the Court sustained the award of separation pay. The impossibility of reinstatement due to the bona fide cessation of the employer’s business operations constituted a supervening event that justified the modification of the execution of the final judgment. When reinstatement is no longer feasible, separation pay is the proper alternative relief. It serves as a financial bridge to assist the employees during their transition. Consequently, the Court ordered petitioner to pay separation pay equivalent to one-half month’s pay for every year of service, or one month’s pay, whichever is higher, computed from the commencement of their employment until the date the company ceased operations.