G.R. No. L-74531 June 28, 1988
PIZZA INN/CONSOLIDATED FOODS CORPORATION, petitioner, vs. NLRC, NLRC SHERIFF and FELICIDAD FONTANILLA, respondents.

FACTS

Private respondent Felicidad Fontanilla was employed by petitioner Pizza Inn on a probationary basis. She resigned before the end of her probation but filed a complaint for illegal dismissal, claiming she was forced to resign. The Labor Arbiter ruled in her favor, ordering her reinstatement with full backwages. This decision was affirmed by the NLRC and subsequently attained finality after the Supreme Court dismissed the petitioner’s earlier certiorari petition (G.R. No. 67619) for lack of merit. Execution proceedings followed, and Fontanilla received P29,001.00 covering backwages from April 1982 to September 1984. The petitioner, however, sought to stop further accrual of backwages, alleging that the specific outlet where Fontanilla worked had closed in January 1984 due to poor sales, and that its other outlets had subsequently ceased operations.
The core dispute arose from the continuing computation of backwages beyond the alleged closure date. The NLRC denied the petitioner’s appeal from the Labor Arbiter’s order enforcing the writ of execution. The petitioner then elevated the case to the Supreme Court, arguing that reinstatement had become a legal impossibility due to the closure and that backwages should not extend beyond January 1984. It also contended that the ex-parte computation of backwages by the NLRC’s Socio-Economic Analyst was a denial of due process.

ISSUE

May an employer be compelled to reinstate an employee and pay backwages indefinitely after the closure of the business establishment where the employee was assigned?

RULING

No. The Supreme Court set aside the NLRC’s order and remanded the case. The legal logic proceeds from the finality of the reinstatement order, which is no longer disputable. However, the Court recognized that reinstatement presupposes the existence of a substantially equivalent position. Since the specific Pizza Inn outlet had genuinely ceased operations, reinstatement to that particular unit became a legal impossibility. An employer has the right to close its business due to serious losses, provided it is done in good faith. In such instances, the remedy of reinstatement is extinguished.
Consequently, the accrual of backwages is not limitless. Backwages, as a substitute for reinstatement, should be computed only up to the date of the bona fide closure of the establishment, which in this case was alleged to be January 31, 1984. Computing backwages beyond this point, especially after the business had dissolved, would be unjust, confiscatory, and impose an impossible financial burden. Furthermore, the Court found a denial of due process in the ex-parte computation of the backwages by the NLRC analyst without affording the petitioner an opportunity to be heard on the matter. The case was thus remanded to the NLRC for a proper determination of the exact backwages due, limited to the period up to the date of closure.