G.R. No.

167217             February 4, 2008

P.I. MANUFACTURING, INCORPORATED, petitioner,

vs. P.I. MANUFACTURING SUPERVISORS AND FOREMAN ASSOCIATION and the NATIONAL LABOR UNION,

The Court has always promoted the policy of encouraging employers to grant wage and allowance increases to their
employees higher than the minimum rates of increases prescribed by statute or administrative regulation. Consistent with
this, the Court also adopts the policy that requires recognition and validation of wage increases given by employers either
unilaterally or as a result of collective bargaining negotiations in an effort to correct wage distortions.1

Before us is a motion for reconsideration of our Resolution dated April 18, 2005 denying the present petition for review on
certiorari for failure of the petitioner to show that a reversible error has been committed by the Court of Appeals in its (a)
Decision dated July 21, 2004 and (b) Resolution dated February 18, 2005.

The facts are:

Petitioner P.I. Manufacturing, Incorporated is a domestic corporation engaged in the manufacture and sale of household
appliances. On the other hand, respondent P.I. Manufacturing Supervisors and Foremen Association (PIMASUFA) is an
organization of petitioner’s supervisors and foremen, joined in this case by its federation, the National Labor Union (NLU).

On December 10, 1987, the President signed into law Republic Act (R.A.) No. 66402 providing, among others, an
increase in the statutory minimum wage and salary rates of employees and workers in the private sector. Section 2
provides:

SEC. 2. The statutory minimum wage rates of workers and employees in the private sector, whether agricultural or non-
agricultural, shall be increased by ten pesos (P10.00) per day, except non-agricultural workers and employees outside
Metro Manila who shall receive an increase of eleven pesos (P11.00) per day: Provided, That those already receiving
above the minimum wage up to one hundred pesos (P100.00) shall receive an increase of ten pesos (P10.00) per day.
Excepted from the provisions of this Act are domestic helpers and persons employed in the personal service of another.

Thereafter, on December 18, 1987, petitioner and respondent PIMASUFA entered into a new Collective Bargaining
Agreement (1987 CBA) whereby the supervisors were granted an increase of P625.00 per month and the foremen,
P475.00 per month. The increases were made retroactive to May 12, 1987, or prior to the passage of R.A. No. 6640, and
every year thereafter until July 26, 1989. The pertinent portions of the 1987 CBA read:

ARTICLE IV

SALARIES AND OVERTIME

Section 1. The COMPANY shall grant to all regular supervisors and foremen within the coverage of the unit represented
by the ASSOCIATION, wage or salary increases in the amount set forth as follows:

A. For FOREMEN

Effective May 12, 1987, an increase of P475,00 per month to all qualified regular foremen who are in the service of the
COMPANY as of said date and who are still in its employ on the signing of this Agreement, subject to the conditions set
forth in sub-paragraph (d) hereunder;

a) Effective July 26, 1988, an increase of P475.00 per month/employee to all covered foremen;

b) Effective July 26, 1989, an increase of P475.00 per month/per employee to all covered foremen;

c) The salary increases from May 12, 1987 to November 30, 1987 shall be excluding and without increment on fringe
benefits and/or premium and shall solely be on basic salary.

B. For SUPERVISORS
a) Effective May 12, 1987, an increase of P625.00 per month/employee to all qualified regular supervisors who are in the
service of the COMPANY as of said date and who are still in its employ on the signing of the Agreement, subject to the
conditions set forth in subparagraph (d) hereunder;

b) Effective July 26, 1988, an increase of P625.00 per month/employee to all covered supervisors;

c) Effective July 26, 1989, an increase of P625.00 per month/employee to all covered supervisors;

d) The salary increase from May 12, 1987 to November 30, 1987 shall be excluding and without increment on fringe
benefits and/or premiums and shall solely be on basic salary.

On January 26, 1989, respondents PIMASUFA and NLU filed a complaint with the Arbitration Branch of the National
Labor Relations Commission (NLRC), docketed as NLRC-NCR Case No. 00-01-00584, charging petitioner with violation
of R.A. No. 6640.3 Respondents attached to their complaint a numerical illustration of wage distortion resulting from the
implementation of R.A. No. 6640.

On March 19, 1990, the Labor Arbiter rendered his Decision in favor of respondents. Petitioner was ordered to give the
members of respondent PIMASUFA wage increases equivalent to 13.5% of their basic pay they were receiving prior to
December 14, 1987. The Labor Arbiter held:

As regards the issue of wage distortion brought about by the implementation of R.A. 6640 – It is correctly pointed out by
the union that employees cannot waive future benefits, much less those mandated by law. That is against public policy as
it would render meaningless the law. Thus, the waiver in the CBA does not bar the union from claiming adjustments in pay
as a result of distortion of wages brought about by the implementation of R.A. 6640.

Just how much are the supervisors and foremen entitled to correct such distortion is now the question. Pursuant to the
said law, those who on December 14, 1987 were receiving less than P100.00 are all entitled to an automatic across- the-
board increase of P10.00 a day. The percentage in increase given those who received benefits under R.A. 6640 should
be the same percentage given to the supervisors and foremen.

The statutory minimum pay then was P54.00 a day. With the addition of P10.00 a day, the said minimum pay raised to
P64.00 a day. The increase of P10.00 a day is P13.5% of the minimum wage prior to December 14, 1987. The same
percentage of the pay of members of petitioner prior to December 14, 1987 should be given them.

Finally, the claim of respondent that the filing of the present case, insofar as the provision of R.A. 6640 is concerned, is
premature does not deserve much consideration considering that as of December 1988, complainant submitted in
grievance the aforementioned issue but the same was not settled.4

On appeal by petitioner, the NLRC, in its Resolution dated January 8, 1991, affirmed the Labor Arbiter’s judgment.

Undaunted, petitioner filed a petition for certiorari with this Court. However, we referred the petition to the Court of
Appeals pursuant to our ruling in St. Martin Funeral Homes v. NLRC.5 It was docketed therein as CA-G.R. SP No. 54379.

On July 21, 2004, the appellate court rendered its Decision affirming the Decision of the NLRC with modification by raising
the 13.5% wage increase to 18.5%. We quote the pertinent portions of the Court of Appeals Decision, thus:

Anent the fourth issue, petitioner asseverates that the wage distortion issue is already barred by Sec. 2 Article IV of the
Contract denominated as "The Company and Supervisors and Foremen Contract" dated December 18, 1987 declaring
that it "absolves, quit claims and releases the COMPANY for any monetary claim they have, if any there might be or there
might have been previous to the signing of this agreement." Petitioner interprets this as absolving it from any wage
distortion brought about by the implementation of the new minimum wage law. Since the contract was signed on
December 17, 1987, or after the effectivity of Republic Act No. 6640, petitioner claims that private respondent is deemed
to have waived any benefit it may have under the new law.

We are not persuaded.

Contrary to petitioner’s stance, the increase resulting from any wage distortion caused by the implementation of Republic
Act 6640 is not waivable. As held in the case of Pure Foods Corporation vs. National Labor Relations Commission, et al.:
"Generally, quitclaims by laborers are frowned upon as contrary to public policy and are held to be ineffective to bar
recovery for the full measure of the worker’s rights. The reason for the rule is that the employer and the employee do not
stand on the same footing."

Moreover, Section 8 of the Rules Implementing RA 6640 states:

No wage increase shall be credited as compliance with the increase prescribed herein unless expressly provided under
valid individual written/collective agreements; and provided further that such wage increase was granted in anticipation of
the legislated wage increase under the act. But such increases shall not include anniversary wage increases provided in
collective bargaining agreements.

Likewise, Article 1419 of the Civil Code mandates that:

When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a
laborer accepts a lower wage, he shall be entitled to recover the deficiency.

Thus, notwithstanding the stipulation provided under Section 2 of the Company and Supervisors and Foremen Contract,
we find the members of private respondent union entitled to the increase of their basic pay due to wage distortion by
reason of the implementation of RA 6640.

On the last issue, the increase of 13.5% in the supervisors and foremen’s basic salary must further be increased to 18.5%
in order to correct the wage distortion brought about by the implementation of RA 6640. It must be recalled that the
statutory minimum pay before RA 6640 was P54.00 a day. The increase of P10.00 a day under RA 6640 on the prior
minimum pay of P54.00 is 18.5% and not 13.5%. Thus, petitioner should be made to pay the amount equivalent to 18.5%
of the basic pay of the members or private respondent union in compliance with the provisions of Section 3 of RA 6640."

Petitioner filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated February 18,
2005.

Hence, the present recourse, petitioner alleging that the Court of Appeals erred:

1) In awarding wage increase to respondent supervisors and foremen to cure an alleged wage distortion that resulted
from the implementation of R.A. No. 6640.

2) In disregarding the wage increases granted under the 1987 CBA correcting whatever wage distortion that may have
been created by R.A. No. 6640.

3) In awarding wage increase equivalent to 18.5% of the basic pay of the members of respondent PIMASUFA in violation
of the clear provision of R.A. No. 6640 excluding from its coverage employees receiving wages higher than P100.00.

4) In increasing the NLRC’s award of wage increase from 13.5% to 18.5%, which increase is very much higher than the
P10.00 daily increase mandated by R.A. No. 6640.

Petitioner contends that the findings of the NLRC and the Court of Appeals as to the existence of a wage distortion are not
supported by evidence; that Section 2 of R.A. No. 6640 does not provide for an increase in the wages of employees
receiving more than P100.00; and that the 1987 CBA has obliterated any possible wage distortion because the increase
granted to the members of respondent PIMASUFA in the amount of P625.00 and P475.00 per month substantially
widened the gap between the foremen and supervisors and as against the rank and file employees.

Respondents PIMASUFA and NLU, despite notice, failed to file their respective comments.

In a Minute Resolution dated April 18, 2005, we denied the petition for petitioner’s failure to show that the Court of
Appeals committed a reversible error.

Hence, this motion for reconsideration.

We grant the motion.

In the ultimate, the issue here is whether the implementation of R.A. No. 6640 resulted in a wage distortion and whether
such distortion was cured or remedied by the 1987 CBA.

R.A. No. 6727, otherwise known as the Wage Rationalization Act, explicitly defines "wage distortion" as:

x x x a situation where an increase in prescribed wage rates results in the elimination or severe contraction of intentional
quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively
obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of
differentiation.

Otherwise stated, wage distortion means the disappearance or virtual disappearance of pay differentials between lower
and higher positions in an enterprise because of compliance with a wage order.6

In this case, the Court of Appeals correctly ruled that a wage distortion occurred due to the implementation of R.A. No.
6640. The numerical illustration submitted by respondents7 shows such distortion, thus:

II WAGE DISTORTION REGARDING RA-6640 (P10.00 per day increase effective December 31, 1987)

Illustration of Wage Distortion and corresponding wage adjustments as provided in RA-6640

Notably, the implementation of R.A. No. 6640 resulted in the increase of P10.00 in the wage rates of Alcantara,
supervisor, and Morales and Salvo, both foremen. They are petitioner’s lowest paid supervisor and foremen. As a
consequence, the increased wage rates of foremen Morales and Salvo exceeded that of supervisor Buencuchillo. Also,
the increased wage rate of supervisor Alcantara exceeded those of supervisors Buencuchillo and Del Prado.
Consequently, the P9.79 gap or difference between the wage rate of supervisor Del Prado and that of supervisor
Alcantara was eliminated. Instead, the latter gained a P.21 lead over Del Prado. Like a domino effect, these gaps or
differences between and among the wage rates of all the above employees have been substantially altered and reduced.
It is therefore undeniable that the increase in the wage rates by virtue of R.A. No. 6640 resulted in wage distortion or the
elimination of the intentional quantitative differences in the wage rates of the above employees.

However, while we find the presence of wage distortions, we are convinced that the same were cured or remedied when
respondent PIMASUFA entered into the 1987 CBA with petitioner after the effectivity of R.A. No. 6640. The 1987 CBA
increased the monthly salaries of the supervisors by P625.00 and the foremen, by P475.00, effective May 12, 1987.
These increases re-established and broadened the gap, not only between the supervisors and the foremen, but also
between them and the rank-and-file employees. Significantly, the 1987 CBA wage increases almost doubled that of the
P10.00 increase under R.A. No. 6640. The P625.00/month means P24.03 increase per day for the supervisors, while the
P475.00/month means P18.26 increase per day for the foremen. These increases were to be observed every year,
starting May 12, 1987 until July 26, 1989. Clearly, the gap between the wage rates of the supervisors and those of the
foremen was inevitably re-established. It continued to broaden through the years.

Interestingly, such gap as re-established by virtue of the CBA is more than a substantial compliance with R.A. No. 6640.
We hold that the Court of Appeals erred in not taking into account the provisions of the CBA viz-a-viz the wage increase
under the said law. In National Federation of Labor v. NLRC,8 we held:

We believe and so hold that the re-establishment of a significant gap or differential between regular employees and
casual employees by operation of the CBA was more than substantial compliance with the requirements of the several
Wage Orders (and of Article 124 of the Labor Code). That this re-establishment of a significant differential was the result
of collective bargaining negotiations, rather than of a special grievance procedure, is not a legal basis for ignoring it. The
NLRC En Banc was in serious error when it disregarded the differential of P3.60 which had been restored by 1 July 1985
upon the ground that such differential "represent[ed] negotiated wage increase[s] which should not be considered covered
and in compliance with the Wage Orders. x x x"

In Capitol Wireless, Inc. v. Bate,9 we also held:

x x x The wage orders did not grant across-the-board increases to all employees in the National Capital Region but limited
such increases only to those already receiving wage rates not more than P125.00 per day under Wage Order Nos. NCR-
01 and NCR-01-A and P142.00 per day under Wage Order No. NCR-02. Since the wage orders specified who among the
employees are entitled to the statutory wage increases, then the increases applied only to those mentioned therein. The
provisions of the CBA should be read in harmony with the wage orders, whose benefits should be given only to those
employees covered thereby.

It has not escaped our attention that requiring petitioner to pay all the members of respondent PIMASUFA a wage
increase of 18.5%, over and above the negotiated wage increases provided under the 1987 CBA, is highly unfair and
oppressive to the former. Obviously, it was not the intention of R.A. No. 6640 to grant an across-the-board increase in pay
to all the employees of petitioner. Section 2 of R.A. No. 6640 mandates only the following increases in the private sector:
(1) P10.00 per day for the employees in the private sector, whether agricultural or non-agricultural, who are receiving the
statutory minimum wage rates; (2) P11.00 per day for non-agricultural workers and employees outside Metro Manila; and
(3) P10.00 per day for those already receiving the minimum wage up to P100.00. To be sure, only those receiving wages
P100.00 and below are entitled to the P10.00 wage increase. The apparent intention of the law is only to upgrade the
salaries or wages of the employees specified therein.10 As the numerical illustration shows, almost all of the members of
respondent PIMASUFA have been receiving wage rates above P100.00 and, therefore, not entitled to the P10.00
increase. Only three (3) of them are receiving wage rates below P100.00, thus, entitled to such increase. Now, to direct
petitioner to grant an across-the-board increase to all of them, regardless of the amount of wages they are already
receiving, would be harsh and unfair to the former. As we ruled in Metropolitan Bank and Trust Company Employees
Union ALU-TUCP v. NLRC:11

x x x To compel employers simply to add on legislative increases in salaries or allowances without regard to what is
already being paid, would be to penalize employers who grant their workers more than the statutory prescribed minimum
rates of increases. Clearly, this would be counter-productive so far as securing the interests of labor is concerned.

Corollarily, the Court of Appeals erred in citing Pure Foods Corporation v. National Labor Relations Commission12 as
basis in disregarding the provisions of the 1987 CBA. The case involves, not wage distortion, but illegal dismissal of
employees from the service. The Release and Quitclaim executed therein by the Pure Food’s employees were intended to
preclude them from questioning the termination of their services, not their entitlement to wage increase on account of a
wage distortion.

At this juncture, it must be stressed that a CBA constitutes the law between the parties when freely and voluntarily entered
into.13 Here, it has not been shown that respondent PIMASUFA was coerced or forced by petitioner to sign the 1987
CBA. All of its thirteen (13) officers signed the CBA with the assistance of respondent NLU. They signed it fully aware of
the passage of R.A. No. 6640. The duty to bargain requires that the parties deal with each other with open and fair minds.
A sincere endeavor to overcome obstacles and difficulties that may arise, so that employer-employee relations may be
stabilized and industrial strife eliminated, must be apparent.14 Respondents cannot invoke the beneficial provisions of the
1987 CBA but disregard the concessions it voluntary extended to petitioner. The goal of collective bargaining is the
making of agreements that will stabilize business conditions and fix fair standards of working conditions. 15 Definitely,
respondents’ posture contravenes this goal.

In fine, it must be emphasized that in the resolution of labor cases, this Court has always been guided by the State policy
enshrined in the Constitution that the rights of workers and the promotion of their welfare shall be protected. However,
consistent with such policy, the Court cannot favor one party, be it labor or management, in arriving at a just solution to a
controversy if the party concerned has no valid support to its claim, like respondents here.

G.R. No. 163419             February 13, 2008

TSPIC CORPORATION, petitioner,

vs.TSPIC EMPLOYEES UNION (FFW), respondents.

The path towards industrial peace is a two-way street. Fundamental fairness and protection to labor should always govern
dealings between labor and management. Seemingly conflicting provisions should be harmonized to arrive at an
interpretation that is within the parameters of the law, compassionate to labor, yet, fair to management.

In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC Corporation (TSPIC) seeks to annul and set aside
the October 22, 2003 Decision5 and April 23, 2004 Resolution6 of the Court of Appeals (CA) in CA-G.R. SP No. 68616,
which affirmed the September 13, 2001 Decision7 of Accredited Voluntary Arbitrator Josephus B. Jimenez in National
Conciliation and Mediation Board Case No. JBJ-AVA-2001-07-57.

TSPIC is engaged in the business of designing, manufacturing, and marketing integrated circuits to serve the
communication, automotive, data processing, and aerospace industries. Respondent TSPIC Employees Union (FFW)
(Union), on the other hand, is the registered bargaining agent of the rank-and-file employees of TSPIC. The respondents,
Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John
Hernandez, Rachel Novillas, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn
Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin,
Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, are all members of the Union.

In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA)8 for the years 2000 to 2004. The
CBA included a provision on yearly salary increases starting January 2000 until January 2002. Section 1, Article X of the
CBA provides, as follows:

Section 1. Salary/ Wage Increases.––Employees covered by this Agreement shall be granted salary/wage increases as
follows:

a) Effective January 1, 2000, all employees on regular status and within the bargaining unit on or before said date shall be
granted a salary increase equivalent to ten percent (10%) of their basic monthly salary as of December 31, 1999.

b) Effective January 1, 2001, all employees on regular status and within the bargaining unit on or before said date shall be
granted a salary increase equivalent to twelve (12%) of their basic monthly salary as of December 31, 2000.

c) Effective January 1, 2002, all employees on regular status and within the bargaining unit on or before said date shall be
granted a salary increase equivalent to eleven percent (11%) of their basic monthly salary as of December 31, 2001.

The wage salary increase of the first year of this Agreement shall be over and above the wage/salary increase, including
the wage distortion adjustment, granted by the COMPANY on November 1, 1999 as per Wage Order No. NCR-07.

The wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the mandated minimum wage
increases under future Wage Orders, that may be issued after Wage Order No. NCR-07, and shall be considered as
correction of any wage distortion that may have been brought about by the said future Wage Orders. Thus the
wage/salary increases in 2001 and 2002 shall be deemed as compliance to future wage orders after Wage Order No.
NCR-07.

Consequently, on January 1, 2000, all the regular rank-and-file employees of TSPIC received a 10% increase in their
salary. Accordingly, the following nine (9) respondents (first group) who were already regular employees received the said
increase in their salary: Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn Velez, Janice Olaguir, Jerico Alipit,
Glen Batula, Ser John Hernandez, and Rachel Novillas.9

The CBA also provided that employees who acquire regular employment status within the year but after the effectivity of a
particular salary increase shall receive a proportionate part of the increase upon attainment of their regular status. Sec. 2
of the CBA provides:

SECTION 2. Regularization Increase.––A covered daily paid employee who acquires regular status within the year
subsequent to the effectivity of a particular salary/wage increase mentioned in Section 1 above shall be granted a
salary/wage increase in proportionate basis as follows:

Regularization Period Equivalent Increase

-       1st Quarter     100%
-       2nd Quarter       75%
-       3rd Quarter       50%
-       4th Quarter       25%
Thus, a daily paid employee who becomes a regular employee covered by this Agreement only on May 1, 2000, i.e.,
during the second quarter and subsequent to the January 1, 2000 wage increase under this Agreement, will be entitled to
a wage increase equivalent to seventy-five percent (75%) of ten percent (10%) of his basic pay. In the same manner, an
employee who acquires regular status on December 1, 2000 will be entitled to a salary increase equivalent to twenty-five
percent (25%) of ten percent (10%) of his last basic pay.

On the other hand, any monthly-paid employee who acquires regular status within the term of the Agreement shall be
granted regularization increase equivalent to 10% of his regular basic salary.

Then on October 6, 2000, the Regional Tripartite Wage and Productivity Board, National Capital Region, issued Wage
Order No. NCR-0810 (WO No. 8) which raised the daily minimum wage from PhP 223.50 to PhP 250 effective November
1, 2000. Conformably, the wages of 17 probationary employees, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon,
Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine
Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay
(second group), were increased to PhP 250.00 effective November 1, 2000.

On various dates during the last quarter of 2000, the above named 17 employees attained regular employment11 and
received 25% of 10% of their salaries as granted under the provision on regularization increase under Article X, Sec. 2 of
the CBA.

In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine employees (first
group), who were senior to the above-listed recently regularized employees, received less wages.

On January 19, 2001, a few weeks after the salary increase for the year 2001 became effective, TSPIC’s Human
Resources Department notified 24 employees,12 namely: Maria Fe Flores, Janice Olaguir, Rachel Novillas, Fe
Capistrano, Jerico Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John Hernandez, Nimfa Anilao, Rose
Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice
Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, and Marie Ann Delos Santos, that
due to an error in the automated payroll system, they were overpaid and the overpayment would be deducted from their
salaries in a staggered basis, starting February 2001. TSPIC explained that the correction of the erroneous computation
was based on the crediting provision of Sec. 1, Art. X of the CBA.

The Union, on the other hand, asserted that there was no error and the deduction of the alleged overpayment from
employees constituted diminution of pay. The issue was brought to the grievance machinery, but TSPIC and the Union
failed to reach an agreement.

Consequently, TSPIC and the Union agreed to undergo voluntary arbitration on the solitary issue of whether or not the
acts of the management in making deductions from the salaries of the affected employees constituted diminution of pay.

On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the unilateral deduction made by TSPIC
violated Art. 10013 of the Labor Code. The fallo reads:

WHEREFORE, in the light of the law on the matter and on the facts adduced in evidence, judgment is hereby rendered in
favor of the Union and the named individual employees and against the company, thereby ordering the [TSPIC] to pay as
follows:

1) to the sixteen (16) newly regularized employees named above, the amount of P12,642.24 a month or a total of
P113,780.16 for nine (9) months or P7,111.26 for each of them as well as an additional P12,642.24 (for all), or P790.14
(for each), for every month after 30 September 2001, until full payment, with legal interests for every month of delay;

2) to the nine (9) who were hired earlier than the sixteen (16); also named above, their respective amount of entitlements,
according to the Union’s correct computation, ranging from P110.22 per month (or P991.98 for nine months) to P450.58 a
month (or P4,055.22 for nine months), as well as corresponding monthly entitlements after 30 September 2001, plus legal
interests until full payment,

3) to Suzette Dulay, the amount of P608.14 a month (or P5,473.26), as well as corresponding monthly entitlements after
30 September 2001, plus legal interest until full payment,

4) Attorney’s fees equal to 10% of all the above monetary awards.

The claim for exemplary damages is denied for want of factual basis.

The parties are hereby directed to comply with their joint voluntary commitment to abide by this Award and thus, submit to
this Office jointly, a written proof of voluntary compliance with this DECISION within ten (10) days after the finality hereof.

SO ORDERED.14

TSPIC filed a Motion for Reconsideration which was denied in a Resolution dated November 21, 2001.

Aggrieved, TSPIC filed before the CA a petition for review under Rule 43 docketed as CA-G.R. SP No. 68616. The
appellate court, through its October 22, 2003 Decision, dismissed the petition and affirmed in toto the decision of the
voluntary arbitrator. The CA declared TSPIC’s computation allowing PhP 287 as daily wages to the newly regularized
employees to be correct, noting that the computation conformed to WO No. 8 and the provisions of the CBA. According to
the CA, TSPIC failed to convince the appellate court that the deduction was a result of a system error in the automated
payroll system. The CA explained that when WO No. 8 took effect on November 1, 2000, the concerned employees were
still probationary employees who were receiving the minimum wage of PhP 223.50. The CA said that effective November
1, 2000, said employees should have received the minimum wage of PhP 250. The CA held that when respondents
became regular employees on November 29, 2000, they should be allowed the salary increase granted them under the
CBA at the rate of 25% of 10% of their basic salary for the year 2000; thereafter, the 12% increase for the year 2001 and
the 10% increase for the year 2002 should also be made applicable to them.15

TSPIC filed a Motion for Reconsideration which was denied by the CA in its April 23, 2004 Resolution.

TSPIC filed the instant petition which raises this sole issue for our resolution: Does the TSPIC’s decision to deduct the
alleged overpayment from the salaries of the affected members of the Union constitute diminution of benefits in violation
of the Labor Code?

TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator and affirmed by the CA, was flawed,
inasmuch as it completely disregarded the "crediting provision" contained in the last paragraph of Sec. 1, Art. X of the
CBA.

We find TSPIC’s contention meritorious.

A Collective Bargaining Agreement is the law between the parties

It is familiar and fundamental doctrine in labor law that the CBA is the law between the parties and they are obliged to
comply with its provisions.16 We said so in Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda:

A collective bargaining agreement or CBA refers to the negotiated contract between a legitimate labor organization and
the employer concerning wages, hours of work and all other terms and conditions of employment in a bargaining unit. As
in all contracts, the parties in a CBA may establish such stipulations, clauses, terms and conditions as they may deem
convenient provided these are not contrary to law, morals, good customs, public order or public policy. Thus, where the
CBA is clear and unambiguous, it becomes the law between the parties and compliance therewith is mandated by the
express policy of the law. 17

Moreover, if the terms of a contract, as in a CBA, are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of their stipulations shall control.18 However, sometimes, as in this case, though the provisions
of the CBA seem clear and unambiguous, the parties sometimes arrive at conflicting interpretations. Here, TSPIC wants
to credit the increase granted by WO No. 8 to the increase granted under the CBA. According to TSPIC, it is specifically
provided in the CBA that "the salary/wage increase for the year 2001 shall be deemed inclusive of the mandated minimum
wage increases under future wage orders that may be issued after Wage Order No. 7." The Union, on the other hand,
insists that the "crediting" provision of the CBA finds no application in the present case, since at the time WO No. 8 was
issued, the probationary employees (second group) were not yet covered by the CBA, particularly by its crediting
provision.

As a general rule, in the interpretation of a contract, the intention of the parties is to be pursued. 19 Littera necat spiritus
vivificat. An instrument must be interpreted according to the intention of the parties. It is the duty of the courts to place a
practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and the
purpose which it is intended to serve.20 Absurd and illogical interpretations should also be avoided. Considering that the
parties have unequivocally agreed to substitute the benefits granted under the CBA with those granted under wage
orders, the agreement must prevail and be given full effect.

Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement that, effective January 1, 2001, all
employees on regular status and within the bargaining unit on or before said date shall be granted a salary increase
equivalent to twelve (12%) of their basic monthly salary as of December 31, 2000. The 12% salary increase is granted to
all employees who (1) are regular employees and (2) are within the bargaining unit.

Second paragraph of (c) provides that the salary increase for the year 2000 shall not include the increase in salary
granted under WO No. 7 and the correction of the wage distortion for November 1999.

The last paragraph, on the other hand, states the specific condition that the wage/salary increases for the years 2001 and
2002 shall be deemed inclusive of the mandated minimum wage increases under future wage orders, that may be issued
after WO No. 7, and shall be considered as correction of the wage distortions that may be brought about by the said future
wage orders. Thus, the wage/salary increases in 2001 and 2002 shall be deemed as compliance to future wage orders
after WO No. 7.

Paragraph (b) is a general provision which allows a salary increase to all those who are qualified. It, however, clashes
with the last paragraph which specifically states that the salary increases for the years 2001 and 2002 shall be deemed
inclusive of wage increases subsequent to those granted under WO No. 7. It is a familiar rule in interpretation of contracts
that conflicting provisions should be harmonized to give effect to all.21 Likewise, when general and specific provisions are
inconsistent, the specific provision shall be paramount to and govern the general provision. 22 Thus, it may be reasonably
concluded that TSPIC granted the salary increases under the condition that any wage order that may be subsequently
issued shall be credited against the previously granted increase. The intention of the parties is clear: As long as an
employee is qualified to receive the 12% increase in salary, the employee shall be granted the increase; and as long as
an employee is granted the 12% increase, the amount shall be credited against any wage order issued after WO No. 7.

Respondents should not be allowed to receive benefits from the CBA while avoiding the counterpart crediting provision.
They have received their regularization increases under Art. X, Sec. 2 of the CBA and the yearly increase for the year
2001. They should not then be allowed to avoid the crediting provision which is an accompanying condition.

Respondents attained regular employment status before January 1, 2001. WO No. 8, increasing the minimum wage, was
issued after WO No. 7. Thus, respondents rightfully received the 12% salary increase for the year 2001 granted in the
CBA; and consequently, TSPIC rightfully credited that 12% increase against the increase granted by WO No. 8.

…..PROPER FROMULA FOR COMPUTING SALARIES…

With these computations, the crediting provision of the CBA is put in effect, and the wage distortion between the first and
second group of employees is cured. The first group of employees who attained regular employment status before the
implementation of WO No. 8 is entitled to receive, starting January 1, 2001, a daily wage rate within the range of PhP
264.67 to PhP 275.85, depending on their wage rate before the implementation of WO No. 8. The second group that
attained regular employment status after the implementation of WO No. 8 is entitled to receive a daily wage rate of PhP
260.50 starting January 1, 2001.

Diminution of benefits

TSPIC also maintains that charging the overpayments made to the 16 respondents through staggered deductions from
their salaries does not constitute diminution of benefits.

We agree with TSPIC.

Diminution of benefits is the unilateral withdrawal by the employer of benefits already enjoyed by the employees. There is
diminution of benefits when it is shown that: (1) the grant or benefit is founded on a policy or has ripened into a practice
over a long period; (2) the practice is consistent and deliberate; (3) the practice is not due to error in the construction or
application of a doubtful or difficult question of law; and (4) the diminution or discontinuance is done unilaterally by the
employer.27

As correctly pointed out by TSPIC, the overpayment of its employees was a result of an error. This error was immediately
rectified by TSPIC upon its discovery. We have ruled before that an erroneously granted benefit may be withdrawn
without violating the prohibition against non-diminution of benefits. We ruled in Globe-Mackay Cable and Radio Corp. v.
NLRC:

Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous application of the law.
Payment may be said to have been made by reason of a mistake in the construction or application of a "doubtful or
difficult question of law". (Article 2155, in relation to Article 2154 of the Civil Code). Since it is a past error that is being
corrected, no vested right may be said to have arisen nor any diminution of benefit under Article 100 of the Labor Code
may be said to have resulted by virtue of the correction.28

Here, no vested right accrued to individual respondents when TSPIC corrected its error by crediting the salary increase for
the year 2001 against the salary increase granted under WO No. 8, all in accordance with the CBA.

Hence, any amount given to the employees in excess of what they were entitled to, as computed above, may be legally
deducted by TSPIC from the employees’ salaries. It was also compassionate and fair that TSPIC deducted the
overpayment in installments over a period of 12 months starting from the date of the initial deduction to lessen the burden
on the overpaid employees. TSPIC, in turn, must refund to individual respondents any amount deducted from their
salaries which was in excess of what TSPIC is legally allowed to deduct from the salaries based on the computations
discussed in this Decision.

As a last word, it should be reiterated that though it is the state’s responsibility to afford protection to labor, this policy
should not be used as an instrument to oppress management and capital.29 In resolving disputes between labor and
capital, fairness and justice should always prevail. We ruled in Norkis Union v. Norkis Trading that in the resolution of
labor cases, we have always been guided by the State policy enshrined in the Constitution: social justice and protection of
the working class. Social justice does not, however, mandate that every dispute should be automatically decided in favor
of labor. In any case, justice is to be granted to the deserving and dispensed in the light of the established facts and the
applicable law and doctrine.30

WHEREFORE, premises considered, the September 13, 2001 Decision of the Labor Arbitrator in National Conciliation
and Mediation Board Case No. JBJ-AVA-2001-07-57 and the October 22, 2003 CA Decision in CA-G.R. SP No. 68616
are hereby AFFIRMED with MODIFICATION. TSPIC is hereby ORDERED to pay respondents their salary increases in
accordance with this Decision, as follows:

[ GR Nos. 97652-53, Oct 19, 1999 ] JOSE H. RUTAQUIO v. NLRC 

At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court assailing the Resolution of the National
Labor Relations Commission in NLRC Case Nos. RAB-IV-10-2874-89 and RAB-IV-10-2878-89, dated July 11, 1990, and
the Resolution, dated February 15, 1991, denying Petitioners' Motion for Reconsideration.
The facts that matter are as follows:
Petitioners Jose H. Rutaquio and Erlinda F. Villareal are Savings Bookkeeper and Cashier, respectively, of the
respondent Rural Bank of Baler, Inc., the respondent herein.
On September 15, 1989, M.Y. Mateo & Company, Certified Public Accountants of respondent bank, recommended the
reprimand of the employees, Jose Rutaquio and Erlinda Villareal, who were found guilty of negligence in the performance
of their duties and responsibilities, to wit:
"1. After a reconciliation of the cash account, cash in the custody of the Cashier exceeded her accountability per books by
P7,730.65.
2. At the time of the examination, recording in the books of account was behind by about a week as the last posting was
August 31, 1989. The daily proofsheets covering the period from September 1 to 8, 1989 were prepared and up-dated
during the examination to determine the exact accountability of the Cashier.
3. It should be pointed out at this juncture that a week's delay in the recording of transactions in the books of account and
a shortage or overage in cash accountability regardless of amount constituted negligence on the part of the employees
concerned."[1]

Acting thereupon, on September 29, 1989, Flordeliza Carpio, President and Manager of the Bank, issued Board
Resolution No. 89-35 recommending disciplinary action against Erlinda Villareal and Jose Rutaquio. They were required
to submit their formal resignation effective immediately upon receipt of the letter. [2]
On October 1, 1989, the employees sent a letter to the Manager questioning their illegal dismissal, stating that they would
resign only after vindicating their names before the proper dispenser of justice, theorizing that the imputation of
negligence was malicious.[3]
On October 3, 1989, the President replied thus:
"In the case of Mr. Rutaquio: the Bank was fined by the Central Bank in an amount of approximately P35,000.00 for late
financial reports; books of account of the bank remain unbalanced, and lately, even after being aware that the new
management intends to dismiss him, entries in the books of account were late.
In the case of Mrs. Villareal: she could not account for a P10,000.00 check and the fact that she paid them the sum when
the new management took over is no mitigation. In the cash count made last month, there was an average of over
P7,000.00.
When a small bank with a paid-up capital of only P500,000.00 has only one bookkeeper and only one cashier with such
unreliability, the viability thereof is in imminent danger. Moreover, you have always been acting in an insolent manner
towards the new management which is anathema to the smooth operation of the bank.
You are dismissed from the Bank as of the of last month."[4]

On October 5, 1989, the employees presented an Answer to the Notice of Dismissal and Request for Hearing,
contending:
xxx                                    xxx                                    xxx
"As to the statement of Capital Required and Capital Accounts-CBP Form -7-19-07 from June to December 1987
mentioned by the Central Bank, in its letter of July 25, 1987, it is worth mentioning that the Rural Bank of Baler, Inc., had
never prepared and submitted the same until a form was furnished by the Central Bank, thru (sic) Director Jesse Domingo
in 1988, hence the incumbent bookkeeper could not be held liable for failure to prepare and submit said statement of
Capital Required and Capital Accounts, for there is no available record in the Bank to show that said report had been
prepared and submitted before I (Jose H. Rutaquio) assumed office as General Bookkeeper in May 1987.
With respect to the Ten Thousand Pesos (P10,000.00) check, which was lost, the incident happened during that time
when there was panic withdrawal from the depositors. And after discovering that the check was in fact lost, all necessary
actions were made to safeguard the interest of the Bank. But after sometime the amount was charged to my (Erlinda F.
Villareal) account. The full amount, however, was recovered after Mr. Alberto Ong issued Solidbank Check No. CA
496704, dated February 14, 1989 in favor of the Rural Bank of Baler, Inc.
As to the overage amounting to Seven Thousand Seven Hundred Thirty Pesos and 65/100 (P7,730.65) during the Cash
Audit made by Mr. Bartolome I. Conde in the presence of Ms. Flordeliza S. Carpio, President/Manager of the Bank on
September 8, 1989, at about 2:30 P.M. without any written authority from the Central Bank to audit the Rural Bank of
Baler, Inc., the cash audit was undertaken even if the bank transaction was still going on. Hence, the overage of Seven
Thousand Seven Hundred Thirty Pesos and 65/100 (P7,730.65) has been recorded, which may be explained as follows:
a) Under Savings Deposit Number 3760, the amount of Eight Thousand Pesos (P8,000.00) for deposit was received,
however the said deposit was accounted the following banking day dated September 11, 1989 and therefore the cash on
hand exceeded the recorded cash on hand.
b) On the same day, Savings Deposit Number 2181, withdrew the amount of Two Hundred Seventy Pesos (P270.00). The
said withdrawal had been paid-up but accounted and recorded on September 15, 1989.

Finally, Section 5 of Rule XIV of the Omnibus Rules Implementing the Labor Code on termination of employment, requires
the employer to give the worker ample opportunity to be heard and defend himself with the assistance of his counsel or
representative.
In view of all the foregoing, we respectfully request for a hearing and be given the opportunity to prove that the Bank has
no just cause to dismiss us and granting arguendo that the Bank believes there is any, the dismissal should be made only
after due process, is afforded us, as provided under Section 1, Rule XIV of the Omnibus Rules Implementing the Labor
Code on termination of employment."[5]
 xxx                                     xxx                                     xxx

On October 13, 1989, Jose Rutaquio brought a Complaint, docketed as NLRC Case No. RB-IV-10-2878-89 before the
Arbitration Branch, Region No. IV, for illegal Dismissal and Damages in the amount of One Hundred Thousand
(P100,000.00) Pesos.
On November 7, 1989, Erlinda F. Villareal and Jose Rutaquio filed their Position Papers with Rutaquio's Position paper
praying:
"Wherefore, premises considered it is most respectfully prayed unto this Honorable Commission, that after hearing,
judgment be rendered in favor of the complainant against respondent, declaring illegal and unlawful the dismissal of
herein complainant by respondent, granting and awarding to said complainant, the following:
a) His salary from October 1, 1989 until the case is finally terminated;
b) His monthly allowance from October 1, 1989 until the case is finally terminated;
c) The money value of his earned leave;
d) His separation pay;
e) Payment for damages in the amount of P100,000.00
f) Attorney's fee in the amount of P30,000.00; and
g) Other reliefs which are just and equitable under the premises." [6]

So, also, on November 14, 1989, a Certification was issued by P/Sgt. Miguel R. Barribal, Jr., INP relating to the Police
Blotter, alleging that:
"xxx he was threatened by Manuel Suaverdez and Gregorio Suaverdez on or about 072030 January 89 during a
conference held at Rural Bank of Baler Incorporated at Recto Street this municipality. This incident happened after said
Jose Rutaquio has explained in the said conference the present financial statement of the said Rural Bank. Likewise
Gregorio Suaverdez uttered defamatory words and expressions against Jose Rutaquio, to wit: "PUTANG-INA MO. PARA
KANG MAY-ARI NG BANGKO KUNG MAGSALITA". Gregorio Suaverdez asked Danilo Natividad to get his gun from his
wife (Vilma Suaverdez), and he also said "KUNG GUSTO MO TAPUSIN KA NA NAMIN". More so, Manuel Suaverdez
and Gregorio Suaverdez also uttered the following: "PAG PINATAY KA NAMIN, ANG WITNESS MO LAMANG AY SI EX-
MAYOR PIMENTEL" xxx[7]

On December 21, 1989, Flordeliza S. Carpio, with the assistance of her counsel, filed a Revised Position Paper stating:
"The respondents are engaged in banking business. Confidence and trust are the principal consideration in the selection
and hiring of employees. In the same manner, loss of confidence and breach of trust should also be the principal
consideration in the removal or dismissal of the employees.
Respondents have enumerated the irregularities, incompetence, disobedience, negligence, misbehavior and misconduct
of complainant. All these facts are inimical to the employer's interest. In consonance with the ruling of the Supreme Court
in San Miguel Corporation vs. NLRC, 142, (sic) SCRA 376, an employer has the right to dismiss an employee whose
continuance in office is inimical to the employer's interests.
The respondents have lost confidence in complainant when he continuously neglected his duties on account of which the
respondent bank was penalized twice in the total amount of P32,890.00. The right of the employer to dismiss the
bookkeeper based on loss of confidence due to incompetence, serious irregularities grave misconduct cannot be
precluded. Such is the ruling of the Supreme Court in Metro Drug Corp. vs. NLRC, 143 SCRA 132.
xxx It was only after his refusal to take advantage of the magnanimity of the bank that he was finally considered resigned
at the end of business hour on September 29, 1989. xxx"[8]

On February 8, 1990, Jose Rutaquio filed his Comment to the Respondent's Revised Position Paper.
On July 1, 1990, Labor Arbiter Ambrocio B. Sison found that subject employees were illegally dismissed and ordered thus:
"In the light of the foregoing facts and jurisprudence, it is crystal clear that the dismissals of the complainants are illegal,
hence they must be reinstated to their former positions, considering however, the strained relationship which culminated
between the parties, it is believed more appropriate under the premises not to reinstate complainants to prevent further
the already acrimonious relationship between the contending parties. Payment therefore of a separation pay (one-half
month pay for every year of service) is in order in the interest of justice with damages for their social humiliation, sleepless
nights, mental anguish occasioned by their unwarranted dismissals which has dawned upon them without the benefit of
due process.
Premises considered, judgment is hereby rendered declaring the dismissals of the complainants as illegal and therefore
respondents are hereby ordered:
1. To pay complainant Erlinda F. Villareal backwages from the date when she was illegally dismissed on September 30,
1989 up to July 1, 1990 the date of the rendition of this decision, in the amount of P25,012.80, the amount of P28,139.40
as separation pay and the amount of P15,000.00 as moral damages;
2. To pay complainant Jose H. Rutaquio his backwages from the time he was illegally dismissed on September 30, 1989
to July 1, 1990 the amount of P23,968.80, the amount of P9,321.20 as separation pay and the amount of P15,000.00 as
moral damages;
3. To pay complainant's counsel ten percent (10%) of the total award as Attorney's fees." [9]

On August 3, 1990, the Bank filed its Memorandum on Appeal while the employees filed theirs on August 9, 1990.
On December 13, 1990, the Third Division of the National Labor Relations Commission modified the Decision of the Labor
Arbiter, to wit:
"Although the case of City Service Corp. Workers Union vs. City Service Corp., 135 SCRA 565, the Supreme Court held
that an employee unjustly dismissed shall be entitled under the Labor Code to reinstatement and backwages from the
time his compensation was withheld to the time of his reinstatement. Such fact is not obtainable in this case considering
that the Labor Arbiter awarded separation pay to the complainants in lieu of reinstatement. However, to obviate protracted
litigations that may arise in the computation of complainant's backwages, We deemed it proper to fix the award of
backwages to one (1) year without qualification and deduction.
Likewise, We delete the award of moral damages and attorney's fees for lack of factual and legal basis. In the case of
Gutierrez vs. Villegas, 8 SCRA 527, the Supreme Court held that no award for moral damages can be made where the
record shows no proof of mental anguish. The other issues and arguments raised by the complainants in their appeal are
dismissed for want of merit.
Anent the appeal of the respondents, records show that the questioned decision was received by the respondents, thru
(sic) counsel on July 24, 1990 and the appeal was filed on October 30, 1990 which is way beyond the ten (10) calendar
days reglementary period for the filing of appeals as required by the Revised NLRC Rules. Well rooted is the principle that
perfection of an appeal within the statutory or reglementary period is not only mandatory but jurisdictional and failure to do
so renders the questioned decision final and executory that deprives the appellate or body of jurisdiction to alter the final
judgment much less entertain the appeal (Acda vs. Minister of Labor, 306-307, (sic) SCRA 119, Dec. 15, 1982). Likewise,
the records indicate that no appeal fee was paid by the respondents. It has been held that the non-payment of appeal fee
is an essential requirement in the perfection of an appeal. Appellant must conform to the requisites of law (Art. 221)
considering that the right to appeal is not a natural right but merely statutory right (Acda vs. MOLE, 119 SCRA, 507). For
these reasons, We dismiss respondents' appeal.
WHEREFORE, premises considered, the appealed decision is hereby modified to delete the award of moral damages and
attorney's fees. Accordingly, respondents are hereby ordered to pay complainants Jose F. Rutaquio and Erlinda F.
Villareal their backwages fixed at one (1) year without qualification and deduction. All other dispositions stand. [10]

On February 1, 1991, the employees interposed a Motion for Reconsideration of the aforesaid Decision but the same was
denied in the Resolution of February 15, 1991.
Undaunted, the petitioners found their way to this Court through the present Petition for Certiorari; assigning as errors,
that:
I
"PUBLIC RESPONDENTS ERRED IN FIXING THE BACKWAGES OF HEREIN PETITIONERS AT ONLY ONE YEAR
WITHOUT QUALIFICATION.
II
PUBLIC RESPONDENTS ERRED IN AWARDING TO HEREIN PETITIONERS SEPARATION PAY EQUIVALENT TO
ONLY ONE-HALF (1/2) MONTH FOR EVERY YEAR OF SERVICE.
III
 PUBLIC RESPONDENT COMMISSION ERRED IN NOT AWARDING MORAL DAMAGES AND ATTORNEY'S FEES
FOR "LACK OF FACTUAL AND LEGAL BASIS."[11]
The pivot of inquiry here is the correctness of the award of backwages, separation pay, moral damages and attorney's
fees.
On the issue of backwages, the award of a fixed amount of one (1) year backwages without qualification and deduction is
not proper under the circumstances. The illegal dismissal of the herein employees-complainants was effective September
30, 1989, or after Republic Act 6715 (Herrera-Veloso Law) took effect on March 15, 1989. Absent any exceptional
circumstance, it is now settled that an employee who is unjustly dismissed from work shall be entitled to full backwages,
inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation
was withheld from him to the time of his actual reinstatement. [12] In the landmark case of Osmalik Bustamante, et al. v.
National Labor Relations Commission, G.R. No. 111651, November 28, 1996, 265 SCRA 61, the Court ruled:
"xxx conformably with the evident legislative intent as expressed in Rep. Act No. 6715, above-quoted, backwages to be
awarded to an illegally dismissed employee, should not, as a general rule, be diminished or reduced by the earnings
derived by him elsewhere during the period of his illegal dismissal. The underlying reason for this ruling is that the
employee, while litigating the legality (illegality) of his dismissal, must still earn a living to support himself and his family,
while full backwages have to be paid by the employer as part of the price or penalty he has to pay for illegally dismissing
his employee. The clear legislative intent of the amendment in Rep. Act No. 6715 is to give more benefits to workers than
was previously given them under the Mercury Drug Rule or the deduction of earnings elsewhere rule. Thus, a closer
adherence to the legislative policy behind Rep. Act No. 6715 points to full backwages as meaning exactly that, i.e.,
without deducting from backwages the earnings derived elsewhere by the concerned employee during the period of his
illegal dismissal. In other words, the provision calling for full backwages to illegally dismissed employees is clear, pain and
free from ambiguity and, therefore, must be applied without attempted or strained interpretation. Index animi sermo est."

With respect to separation pay, the dismissal of petitioners being illegal, the Court holds that the award below of one-half
month pay for every year of service cannot be upheld. Respondent commission erred in adopting the Labor Arbiter's
award of one-half month pay for every year of service. Following the prevailing doctrine enunciated in the case
of Reformist Union of R.B. Liner, Inc. v. National Labor Relations Commission, 266 SCRA 728, citing Sealand Service,
Inc. v. National Labor Relations Commission, 206 SCRA 701,710,petitioners are entitled to a separation pay equivalent to
one month pay for every year of service, as an alternative to reinstatement.
Illegally dismissed, as they are, petitioners who were awarded separation pay in lieu of reinstatement, are granted full
backwages from the time of their illegal dismissal up to the date of this decision of the Court, without qualification or
deduction.
As regards the award of moral damages, employer contends that mere allegation of entitlement to moral damages would
not suffice to justify the award, absent any concrete proof. The Court is of the sense that moral damages must have a
factual basis. In the case under consideration, petitioners were unable to substantiate their claim for moral damages. In
the absence of fraud or bad faith on the part of the employer in dismissing petitioners, an award of moral damages is not
proper.
"Moral damages are recoverable only where the dismissal was attended by bad faith or fraud, or constituted an act
oppressive to labor, or was done in a manner contrary to morals, good customs or public policy." (Lopez v. Javier, 252
SCRA 68)

With respect to attorney's fees, the Court believes, and so rules, that an award of attorney's fees is warranted since it has
been established that legal services have been rendered by the lawyer of the petitioners. Taking into account the
attendant facts and circumstances, ten (10%) percent of the total award is a reasonable amount of attorney's fees. In the
case of Philippine National Construction Corporation v. National Labor Relations Commission, 277 SCRA 91, the Court
held.
"It is settled that in actions for recovesry of wages or where an employee was forced to litigate and, thus, incur expenses
to protect his rights and interest, the award of attorney's fees is legally and morally justifiable."

WHEREFORE, the Decision of the National Labor Relations Commission in NLRC Case Nos. RB-IV-102874-89 and
NLRC Case No. RB-IV-10-2878 is AFFIRMED with MODIFICATION and petitioners are hereby adjudged entitled to full
backwages from the time of their illegal dismissal to the finality of this Decision, without qualification and deduction, one
month separation pay for every year of service and attorney's fees equivalent to ten (10%) percent of the total award. No
pronouncement as to costs.
SO ORDERED.