G.R. No. 120677 December 21, 1998
Food Traders House, Inc., petitioner, vs. National Labor Relations Commission and Barbara A. Camacho-Espino, respondents.

FACTS

Petitioner Food Traders House, Inc. illegally dismissed its Marketing Manager, Barbara Camacho-Espino, on January 31, 1992. The Labor Arbiter and the NLRC affirmed the illegality, ordering her reinstatement and payment of full back wages. During execution, petitioner argued reinstatement was infeasible due to Espino’s alleged employment elsewhere, but she was eventually reinstated on July 4, 1994. The Labor Arbiter initially deducted P36,000.00 from her back wages as earnings from other employment during the case’s pendency.
On appeal, the NLRC modified the computation, ordering a deduction of P80,000.00 (the amount Espino admitted earning elsewhere) and also deducting the balance of her personal loan to the company president. However, the NLRC also ruled Espino was entitled to back wages and 13th month pay from her dismissal date until her actual reinstatement on July 4, 1994. Petitioner challenged this award of additional back wages and benefits via a Petition for Certiorari.

ISSUE

The core issues were: (1) whether earnings from elsewhere during the pendency of an illegal dismissal case should be deducted from the award of full back wages; and (2) whether the labor tribunals had jurisdiction over the set-off of Espino’s salary against her personal loan to the company president.

RULING

The Supreme Court modified the NLRC decision. On the first issue, the Court ruled that no deduction should be made. Applying Article 279 of the Labor Code, as amended by R.A. 6715, an illegally dismissed employee is entitled to “full backwages… computed from the time his compensation was withheld from him up to the time of his actual reinstatement.” The Court emphasized the legislative intent to abandon the prior “Mercury Drug rule” allowing deductions. “Full backwages” means exactly that—without deducting interim earnings elsewhere. The employee must live while litigating, and full back wages are the employer’s penalty for the illegal act. Therefore, Espino is entitled to full back wages, inclusive of 13th month pay and other benefits, from January 31, 1992, until her actual reinstatement on July 4, 1994.
On the second issue, the Court nullified the garnishment and set-off. The personal loan was from the president’s personal funds, not arising from the employer-employee relationship. Consequently, this claim fell outside the exclusive original jurisdiction of the Labor Arbiter under Article 217 of the Labor Code. Since the Labor Arbiter had no jurisdiction, the NLRC could not validly affirm the set-off on appeal. The order allowing the deduction was declared a grave abuse of discretion.