LABOR STANDARDS | WORKER'S PREFERENCE

88.Development
Bank
of
the
Philippines vs. NLRC, 242 SCRA 59
FACTS: On March 21, 1977 private
respondent Leonor A.
Ang started
employment as Executive Secretary with
Tropical Philippines Wood Industries, Inc.
(TPWII), a corporation engaged in the
manufacture and sale of veneer, plywood
and sawdust panel boards. In 1982, she
was promoted to the position of Personnel
Officer. In September 1983, petitioner
Development Bank of the Philippines, as
mortgagee of TPWII, foreclosed its plant
facilities and equipment. Nevertheless,
TPWII continued its business operations
interrupted only by brief shutdowns for the
purpose of servicing its plant facilities and
equipment.
On
January
1986,
the
petitioner
took
possession
of
the
foreclosed properties, and from then on
the company ceased its operations. As a
consequence, the private respondent was
verbally terminated from the service. After
the hearing, the Labor Arbiter found TPWII
primarily liable to private respondent but
only for her separation pay and vacation
and sick leave pay because her claims for
unpaid wages and 13th month pay were
later paid after the complaint was filed.
The General Manager was absolved of any
liability. But with respect to petitioner, it
was held subsidiarily liable in the event
the company failed to satisfy the
judgment. The Labor Arbiter rationalized
that the right of an employee to be paid
benefits due him from the properties of his
employer is superior to the right of the
latter's mortgagee.
ISSUE: Whether or not there is grave
abuse of discretion on the part of NLRC.
HELD:
Yes. We hold that public
respondent gravely abused its discretion
in affirming the decision of the Labor
Arbiter. Art. 110 should not be treated
apart from other laws but applied in
conjunction with the pertinent provisions
of the Civil Code and the Insolvency Law
to the extent that piece-meal distribution
of the assets of the debtor is avoided. Art.
110, then prevailing, provides:

Art. 110. Worker preference in case of

bankruptcy. - In the event of bankruptcy or
liquidation of an employer's business, his
workers shall enjoy first preference as
regards wages due them for services
rendered during the period prior to the
bankruptcy or liquidation, any provision to
the contrary notwithstanding. Unpaid
wages shall be paid in full before other
creditors may establish any claim to a
share in the assets of the employer.
89.Batongbuhay Gold Mines vs. De la
Serna, 312 SCRA 45
FACTS: 5 February 1987 - Elsie Rosalinda
B. Ty, Antonia L. Mendelebar, Ma.
Concepcion O.Reyes and 1,247 others filed
a complaint against Batong Buhay Gold
Mines, Inc. for:
Non-payment of their basic pay and
allowances for the period of 6 July 1983 to
5July 1984, inclusive, under Wage Order
No. 22. Non-payment of their basic pay
and allowances for the period 16 June
1984 to 5October 1986, inclusive under
Wage Order No. 53. Non-payment of their
salaries for the period 16 March 1986 to
the present. Non-payment of their 13th
month pay for 1985, 1986 and 19875.
Non-payment of their vacation and sick
leave, and the compensatory leaves of
mine site employees. Non-payment of the
salaries of employees who were placed on
forced leavessince November, 1985 to the
present, if this is not feasible, the
affectedemployees
be
awarded
corresponding separation pay.
On 27 February 1987, the complainants
filed a Motion for the issuance of an
inspectionauthority.
On 13 July 1987, the Labor Standards and
Welfare
Officers
submitted
their
reportrecommending that an Order of
Compliance
be
issued
directing
respondent BatongBuhay Gold Mines Inc.
to pay complainants' Elsie Rosalina Ty, et
al. (P4,818,746.40) byway of unpaid
salaries of workers from March 16, 1987 to
present, unpaid and ECOLAdifferentials
under Wage Order Nos. 2 and 5 unpaid
13th months pay for 1985 and1986, and
unpaid vacation/sick/compensatory leave
benefits. And on 31 July 1987, the

LABOR STANDARDS | WORKER'S PREFERENCE

Regional
Director
adopted
the
recommendation of the LSWOs and issued
an orderdirecting the respondent to pay
the complainants of the said amount
On 31 July 1987, the Regional Director
adopted the recommendation of the
LSWOs andissued an order directing the
respondent to pay the complainants.
When the respondent failed to post a
cash/surety bond, and upon motion for
theissuance of a writ of execution by the
complainants, the Regional Director, on
14September 1987 issued a writ of
execution appointing Mr. John Espiridion C.
Ramos asSpecial Sheriff and directing him
to collect the amount, otherwise he has to
execute thiswrit by attaching the goods
and chattels of BBGMI and not exempt
from execution or incase of insufficiency
thereof against the real or immovable
property of the respondent.
The Special Sheriff proceeded to execute
the appealed Order on 17 September
1987and seized three (3) units of
Peterbuilt trucks and then sold the same
by public auction.Various materials and
motor vehicles were also seized on
different dates and sold atpublic auction
by said sheriff.
BBGMI appealed the Order dated July 31,
1987 of Regional Director Luna C. Piezas
to respondent Undersecretary Dionisio de
la Serna, contending that the Regional
Directorhad no jurisdiction over the case.
ISSUE: Whether Regional Director has
jurisdiction over the complaint filed by the
employees of BBGMI.
HELD:
The
Regional
Director
has
jurisdiction over the BBGMI employees
who are the complainants.The subject
labor standards case of the petition arose
from the visitorial and enforcementpowers
by the Regional Director of Department of
Labor
and
Employment
(DOLE).
Laborstandards refers to the minimum
requirements prescribed by existing laws,
rules andregulations relating to wages,
hours of work, cost of living allowance and
other monetary andwelfare benefits,
including occupational, safety and health
standards.

90.Barayoga vs. Asset Privatization

Trust, G.R. No. 160073, October
24, 2005
FACTS: Asset Privatization Trust (APT), a
public
trust
was
created
under
Proclamation No. 50, as amended,
mandated to take title to and possession
of, conserve, provisionally manage and
dispose of non-performing assets of the
Philippine
government
identified
for
privatization or disposition.
Pursuant to Section 23 of Proclamation No.
50, former President Corazon Aquino
issued Administrative Order No. 14
identifying certain assets of government
institutions that were to be transferred to
the National Government. Among the
assets transferred was the financial claim
of the Philippine National Bank against
BISUDECO in the form of a secured loan.
Consequently, by virtue of a Trust
Agreement executed between the National
Government and APT on February 27,
1987, APT was constituted as trustee over
BISUDECOs account with the PNB.
Sometime later, BISUDECO contracted the
services of Philippine Sugar Corporation
(Philsucor) to take over the management
of the sugar plantation and milling
operations until August 31, 1992.
Meanwhile, because of the continued
failure of BISUDECO to pay its outstanding
loan with PNB, its mortgaged properties
were foreclosed and subsequently sold in
a public auction to APT, as the sole bidder.
On April 2, 1991, APT was issued a
Sheriffs Certificate of Sale.
The union filed a complaint for unfair labor
practice, illegal dismissal, illegal deduction
and underpayment of wages and other
labor standard benefits plus damages.
In the meantime, APTs Board of Trustees
issued a resolution accepting the offer of
Bicol-Agro-Industrial Cooperative (BAPCI)
to buy the sugar plantation and mill.
Again, on September 23, 1992, the board
passed another resolution authorizing the
payment of separation benefits to

LABOR STANDARDS | WORKER'S PREFERENCE

BISUDECOs employees in the event of the
companys privatization. Then, on October
30, 1992, BAPCI purchased the foreclosed
assets of BISUDECO from APT and took
over its sugar milling operations under the
trade
name
Peafrancia
Sugar
Mill
(Pensumil).
The union alleged that when Philsucor
initially took over the operations of the
company, it retained BISUDECOs existing
personnel under the same terms and
conditions of employment. Nonetheless, at
the start of the season sometime in May
1991, Philsucor started recalling workers
back to work, to the exception of the union
members. Management told them that
they will be re-hired only if they resign
from the union. Just the same, thereafter,
the company started to employ the
services of outsiders under the pakyaw
system.
ISSUE: Whether APT is liable to pay
petitioners monetary claims, including
back wages from May 1, 1991, to October
30, 1992 (the date of the sale of
BISUDECO assets to BAPCI)
HELD: No. Pursuant to Administrative
Order No. 14, Series of 1987, PNBs assets,
loans and receivables from its borrowers
were transferred to APT as trustee of the
national government. Among the liabilities
transferred to APT was PNBs financial
claim against BISUDECO, not the latters
assets and chattel. BISUDECO remained
the owner of the mortgaged properties in
August 1988, when the Philippine Sugar
Corporation (Philsucor) undertook the
operation and management of the sugar
plantation until August 31, 1992, under a
so-called Contract of Lease between the
two corporations. At the time, APT was
merely a secured creditor of BISUDECO.
It was only in April 1991 that APT
foreclosed the assets and chattels of
BISUDECO
because
of
the
latters
continued failure to pay outstanding loan
obligations to PNB/APT. The properties
were sold at public auction to APT, the
highest bidder, as indicated in the Sheriffs
Certificate of Sale issued on April 2, 1991.
It was only in September 1992 (after the
expiration of the lease/management

Contract with Philsucor in August 1992),

however, when APT took over BISUDECO
assets,
preparatory to
the latters
privatization.
In the present case, petitioner-unions
members who were not recalled to work
by Philsucor in May 1991 seek to hold APT
liable for their monetary claims and
allegedly illegal dismissal. Significantly,
prior to the actual sale of BISUDECO
assets to BAPCI on October 30, 1992, the
APT board of trustees had approved a
Resolution. The Resolution authorized the
payment of separation benefits to the
employees of the corporation in the event
of its privatization. Not included in the
Resolution, though, were petitioner-unions
members who had not been recalled to
work in May 1991.
The duties and liabilities of BISUDECO,
including its monetary liabilities to its
employees, were not all automatically
assumed by APT as purchaser of the
foreclosed properties at the auction sale.
Any assumption of liability must be
specifically and categorically agreed upon.
Unless expressly assumed, labor contracts
like collective bargaining agreements are
not enforceable against the transferee of
an enterprise.
No succession of employment rights and
obligations can be said to have taken
place between the two. Between the
employees of BISUDECO and APT, there is
no privity of contract that would make the
latter a substitute employer that should be
burdened with the obligations of the
corporation.
Furthermore, under the principle of
absorption, a bona fide buyer or
transferee of all, or substantially all, the
properties of the seller or transferor is not
obliged to absorb the latters employees.
The most that the purchasing company
may do, for reasons of public policy and
social justice, is to give preference of
reemployment to the selling companys
qualified separated employees, who in its
judgment are necessary to the continued
operation of the business establishment.
In any event, the national government (in
whose trust APT previously held the

LABOR STANDARDS | WORKER'S PREFERENCE

mortgage credits of BISUDECO) is not the
employer of petitioner-unions members,
who had been dismissed sometime in May
1991, even before APT took over the
assets of the corporation. Hence, under
existing law and jurisprudence, there is no
reason to expect any kind of bailout by the
national government. Even the NLRC
found
that
no
employer-employee
relationship existed between APT and
petitioners.
The liabilities of the previous owner to its
employees are not enforceable against the
buyer or transferee, unless (1) the latter
unequivocally assumes them; or (2) the
sale or transfer was made in bad faith.
Thus, APT cannot be held responsible for
the monetary claims of petitioners who
had been dismissed even before it actually
took over BISUDECOs assets.
Moreover, it should be remembered that
APT merely became a transferee of
BISUDECOs assets for purposes of
conservation because of its lien on those
assets -- a lien it assumed as assignee of
the loan secured by the corporation from
PNB. Subsequently, APT, as the highest
bidder in the auction sale, acquired
ownership of the foreclosed properties.

has no preference over special preferred

credits.
Workers claims for unpaid wages and
monetary benefits cannot be paid outside
of a bankruptcy or judicial liquidation
proceedings against the employer. The
application of Article 110 of the Labor
Code is contingent upon the institution of
those proceedings, during which all
creditors are convened, their claims
ascertained and inventoried, and their
preferences determined.
91.Phil. Airlines vs. Zamora, G.R. No.
166996, Feb. 6, 2007
FACTS: Respondent Zamora had been in
the employ of petitioner PAL since 9
February 1981 when the former was hired
as a Cargo Representative at petitioner
PALs
Import
Operations
Division.
Respondent Zamora was then dismissed
from service for having been found by
petitioner PALs management to be liable
for insubordination, neglect of customer,
disrespect for authority and absence
without official leave.

Relevant to this transfer of assets is Article

110 of the Labor Code, as amended by
Republic Act No. 6715, which reads:

On 12 March 1996, respondent Zamora

filed a complaint against petitioners PAL
and Francisco X. Yngente IV before the
NLRC for illegal dismissal, unfair labor
practice, non-payment of wages, damages
and attorneys fees

Article 110. Workers preference in case

of bankruptcy. In the event of bankruptcy
or liquidation of the employers business,
his workers shall enjoy first preference as
regards their unpaid wages and other
monetary claims shall be paid in full
before the claims of the Government and
other creditors may be paid.
Under Articles 2241 and 2242 of the Civil
Code, a mortgage credit is a special
preferred credit that enjoys preference
with respect to a specific/determinate
property of the debtor. On the other hand,
the workers preference under Article 110
of the Labor Code is an ordinary preferred
credit. While this provision raises the
workers money claim to first priority in
the order of preference established under
Article 2244 of the Civil Code, the claim

On 1 February 2005, the Court of Appeals

promulgated
an
Amended
Decision
modifying its 13 August 2004 Decision but
at the same time resolving petitioner PAL's
Motion for Reconsideration in this wise:
WHEREFORE, this Court's August 13, 2004
decision
is
hereby
AMENDED,
the
dispositive portion to read as follows:
WHEREFORE, in view of the foregoing, the
petition is GRANTED. The NLRC resolution
dated April 27, 2001 is MODIFIED.
Considering that petitioner is a detention
prisoner making reinstatement impossible,
PAL is hereby ordered to pay petitioner
Zamora his separation pay, in lieu of
reinstatement, to be computed at one
month salary for every year of service
from February 9, 1981 and back wages to
be computed from December 19, 1995,

LABOR STANDARDS | WORKER'S PREFERENCE

both up to October 1, 2000, the date of his
incarceration.
Considering that PAL is still under
receivership, the monetary claims of
petitioner Zamora must be presented to
the PAL Rehabilitation Receiver, subject to
the rules on preference of credits. The
Court of Appeals took into account
respondent Zamora's incarceration when it
recalled its order of reinstatement. Anent
its earlier pronouncement against the
suspension of the proceedings of the case
owing to the present rehabilitation of
petitioner PAL, the appellate court only
had this to say: However, since PAL is still
under receivership, the provisions of PD
902-A, should apply. The enforcement of
the monetary claims of petitioner should
be brought before the PAL Rehabilitation
Receiver for proper disposition.
ISSUE:
WON respondent Zamoras monetary
claim should be presented to the PAL
rehabilitation receiver, subject to the rules
on preference of credits
RULING:
No. The relevant law dealing with the
suspension of actions for claims against
corporations is Presidential Decree No.
902-A, 52 as amended. The term "claim,"
as contemplated in Sec. 6 (c) of
Presidential Decree No. 902-A, refers "to
debts or demands of a pecuniary nature. It
means 'the assertion of a right to have
money paid.
It is plain from the foregoing provisions of
law that "upon the appointment [by the
SEC] of a management committee or a
rehabilitation receiver" all actions for
claims against the corporation pending
before any court, tribunal or board shall
ipso jure be suspended.
The law is clear: upon the creation of a
management
committee
or
the
appointment of a rehabilitation receiver,
all claims for actions "shall be suspended
accordingly." No exception in favor of labor
claims is mentioned in the law. Since the
law makes no distinction or exemptions,
neither should this Court.

Otherwise stated, no other action may be

taken in, including the rendition of
judgment during the state of suspension
what
are
automatically
stayed
or
suspended are the proceedings of an
action or suit and not just the payment of
claims during the execution stage after
the case had become final and executory.
The suspension of action for claims
against a corporation under rehabilitation
receiver or management committee
embraces all phases of the suit, be it
before the trial court or any tribunal or
before this Court. Furthermore, the actions
that are suspended cover all claims
against a distressed corporation whether
for damages founded on a breach of
contract
of
carriage,
labor
cases,
collection suits or any other claims of a
pecuniary nature. As to the appellate
court's amended directive that "the
monetary claims of petitioner Zamora
must
be
presented
to
the
PAL
Rehabilitation Receiver, subject to the
rules on preference of credits," the same
is erroneous for there has been no
declaration of bankruptcy or judicial
liquidation. Thus, the rules on preference
of credits do not apply.
92.Phil. Airlines vs. Phil. Airlines
Employees Association, 525 SCRA
29 [2007], citing Rubberworld vs.
NLRC, 305 SCRA 721 [1999]
FACTS: This case arose from a labor
Complaint, filed by herein PALEA against
herein PAL and one Mary Anne del Rosario,
Director of Personnel, PAL, on 1 March
1989, charging them with unfair labor
practice for the non-payment of 13th
month pay of employees who had not
been regularized as of the 30th of April
1988, as allegedly stipulated in the
Collective Bargaining Agreement (CBA)
entered into by herein parties.
the facts are:
On 6 February 1987, herein parties, PAL
and PALEA, the collective bargaining agent
of the rank and file employees of PAL,
entered into a CBA that was to cover the
period of 1986 1989. Part of said
agreement required PAL to pay its rank
and file employees the following bonuses:

LABOR STANDARDS | WORKER'S PREFERENCE

Section 4 13th Month Pay (Mid-year
Bonus)
A 13th month pay, equivalent to one
month's current basic pay, consistent with
the existing practice shall be paid in
advance in May.
Section 5 Christmas Bonus
The equivalent of one month's basic pay
as of November 30, shall be paid in
December as a Christmas bonus. Payment
may be staggered in two (2) stages. It is
distinctly understood that nothing herein
contained shall be construed to mean that
the Company may not at its sole discretion
give an additional amount or increase the
Christmas bonus.
Prior to the payment of the 13th month
pay (mid year bonus), PAL released an
implementing guideline on 22 April 1988.
It stated that:
1) Eligibility
a) Ground employees in the general
payroll who are regular as of April 30,
1988;
b) Other ground employees in the general
payroll, not falling within category a)
above shall receive their 13th Month Pay
on or before December 24, 1988;
2) Amount
a) For category a) above, one month basic
salary as of April 30, 1988;
b) Employees covered under 1 b) above
shall be paid not less than 1/12 of their
basic salary for every month of service
within the calendar year.
3) Payment Date: May 9, 1988 for
category 1 a) above.
PALEA assailed the implementation of the
foregoing guideline. In response to the
above, PAL informed PALEA that rank and
file employees who were regularized after
30 April 1988 were not entitled to the 13th
month pay as they were already given the
Christmas bonus in December of 1988, per
the Implementing Rules of Presidential
Decree No. 851.
PALEA, disagreeing with PAL, filed a
Complaint for unfair labor practice before
the NLRC.
PAL answered that those rank and file
employees who were not regularized by

30 April of a particular year are, in

principle, not denied their 13 month pay,
considering they receive said mandatory
bonus in the form of the Christmas Bonus.
The Labor Arbiter rendered his decision
dismissing the complaint for lack of merit.
The Labor Arbiter ruled that PAL was not
guilty of unfair labor practice in
withholding the grant of the 13th Month
Pay or Mid-Year Bonus, as set out in
Section 4 of the CBA, to the concerned
employees. The giving of the particular
bonus was said to be merely an additional
practice made in the past, "such being the
case, it violated no agreement or existing
practice or committed unfair labor
practice, as charged."
On appeal to the NLRC, the assailed
decision of the Labor Arbiter was reversed.
Undaunted, PAL went to this Court via a
Petition for Review on Certiorari, however,
the petition was referred to the Court of
Appeals for proper resolution.
The Court of Appeals promulgated its
Decision dismissing the petition filed by
PAL. It affirmed the 28 January 1998 NLRC
Resolution.
Hence, this
Certiorari.

Petition

for

Review

on

ISSUE: Can a court or quasi-judicial

agency amend or alter a Collective
Bargaining Agreement by expanding its
coverage to non-regular employees who
are not covered by the bargaining unit?
HELD: The Securities and Exchange
Commission (SEC) had mandated the
rehabilitation of PAL. Thus, PAL is still
undergoing rehabilitation.
The
pertinent
law
concerning
the
suspension of actions for claims against
corporations due to its rehabilitation is
Presidential
Decree
No.
902-A,
as
amended.
The aforementioned law provides that SEC
assumes jurisdiction in cases where the
corporation is undergoing rehabilitation

LABOR STANDARDS | WORKER'S PREFERENCE

with pending money claims against the
corporation.
The underlying principle behind the
suspension
of
claims
pending
rehabilitation proceedings was explained
in the case of BF Homes, Incorporated v.
Court of Appeals:
the real justification is to enable the
management committee or rehabilitation
receiver to effectively exercise its/his
powers free from any judicial or extrajudicial interference that might unduly
hinder or prevent the "rescue" of the
debtor company. To allow such other
action to continue would only add to the
burden of the management committee or
rehabilitation receiver, whose time, effort
and resources would be wasted in
defending claims against the corporation
instead of being directed toward its
restructuring and rehabilitation.
The Supreme Court citing Rubberworld vs.
NLRC said:
we held that worker's claims before the
NLRC and labor arbiters are included
among the actions suspended upon the
placing
under
receivership
of
the
employer-corporations. Although strictly
speaking, the ruling in Rubberworld dealt
with actions for claims pending before the
NLRC and labor arbiters, we find that the
rationale for the automatic suspension
therein set out would apply to the instant
case where the employee's claim was
elevated on certiorari before this Court
In another PAL case, specifically, Philippine
Airlines, Inc. v. Court of Appeal, the SC
held that:
that this Court is "not prepared to depart
from the well-established doctrines"
essentially maintaining that all actions for
claims against a corporation pending
before any court, tribunal or board shall
ipso jure be suspended in whatever stage
such actions may be found upon the
appointment by the SEC of a management
committee or a rehabilitation receiver.
In view of the ongoing rehabilitation of
petitioner Philippine Airlines, Inc., herein
proceedings are heretofore SUSPENDED

93.Garcia vs. Phil Air Lines, G.R. No.

164856, January 20, 2009
FACTS: The case stemmed from the
administrative charge filed by PAL against
its employees-herein petitioners3 after
they were allegedly caught in the act of
sniffing shabu when a team of company
security personnel and law enforcers
raided the PAL Technical Centers Toolroom
Section on July 24, 1995.
After due notice, PAL dismissed petitioners
on October 9, 1995 for transgressing the
PAL Code of Discipline, prompting them to
file a complaint for illegal dismissal and
damages resolved by the Labor Arbiter in
their favor, thus ordering PAL to, inter alia,
immediately
comply
with
the
reinstatement aspect of the decision.
Prior to the promulgation of the Labor
Arbiters decision, the Securities and
Exchange Commission (SEC) placed PAL
(hereafter referred to as respondent),
which was suffering from severe financial
losses, under an Interim Rehabilitation
Receiver, who was subsequently replaced
by a Permanent Rehabilitation Receiver on
June 7, 1999.
The Labor Arbiter issued a Writ of
Execution
(Writ)
respecting
therein
statement aspect of his January 11, 1999
Decision, and on October 25, 2000, he
issued a Notice of Garnishment (Notice).
Respondent thereupon moved to quash
the Writ and to lift the Notice while
petitioners
moved
to
release
the
garnished amount.
ISSUE:
1.
Whether petitioners may collect
their wages during the period between the
Labor Arbiters order of reinstatement
pending appeal and the NLRC decision
overturning that of the Labor Arbiter, now
that
respondent
has
exited
from
rehabilitation proceedings.
2.
WON peculiar predicament of a
corporate
rehabilitation
rendered
it
impossible for respondent to exercise its
option under the circumstances.

LABOR STANDARDS | WORKER'S PREFERENCE

HELD:
1.
The decision of the Labor Arbiter
reinstating a dismissed or separated
employee, insofar as the reinstatement
aspect is concerned, shall immediately be
executory, pending appeal. The employee
shall either be admitted back to work
under the same terms and conditions
prevailing prior to his dismissal or
separation or, at the option of the
employer, merely reinstated in the payroll.
The posting of a bond by the employer
shall
not
stay
the
execution
for
reinstatement provided herein.
The view as maintained in a number of
cases is that:
x x x [E]ven if the order of reinstatement
of the Labor Arbiter is reversed on appeal,
it is obligatory on the part of the employer
to reinstate and pay the wages of the
dismissed employee during the period of
appeal until reversal by the higher court.
On the other hand, if the employee has
been reinstated during the appeal period
and such reinstatement order is reversed
with finality, the employee is not required
to reimburse whatever salary he received
for he is entitled to such, more so if he
actually rendered services during the
period.
In other words, a dismissed employee
whose case was favorably decided by the
Labor Arbiter is entitled to receive wages
pending appeal upon reinstatement, which
is immediately executory. Unless there is a
restraining order, it is ministerial upon the
Labor Arbiter to implement the order of
reinstatement and it is mandatory on the
employer to comply therewith.
The Court reaffirms the prevailing principle
that even if the order of reinstatement of
the Labor Arbiter is reversed on appeal, it
is obligatory on the part of the employer
to reinstate and pay the wages of the
dismissed employee during the period of
appeal until reversal by the higher court. It
settles the view that the Labor Arbiter's
order of reinstatement is immediately
executory and the employer has to either
re-admit them to work under the same

terms and conditions prevailing prior to

their dismissal, or to reinstate them in the
payroll, and that failing to exercise the
options in the alternative, employer must
pay the employees salaries.
2.
The
spirit
of
the
rule
on
reinstatement pending appeal animates
the proceedings once the Labor Arbiter
issues the decision containing an order of
reinstatement. The immediacy of its
execution
needs
no
further
elaboration.Reinstatement pending appeal
necessitates its immediate execution
during the pendency of the appeal, if the
law is to serve its noble purpose. At the
same time, any attempt on the part of the
employer to evade or delay its execution,
as observed in Panuncillo and as what
actually
transpired
in
Kimberly,
Composite, Air Philippines, and Roquero,
should not be countenanced.
After the labor arbiters decision is
reversed by a higher tribunal, the
employee may be barred from collecting
the accrued wages, if it is shown that the
delay in enforcing the reinstatement
pending appeal was without fault on the
part of the employer.
The test is two-fold: (1) there must be
actual delay or the fact that the order of
reinstatement pending appeal was not
executed prior to its reversal; and (2) the
delay must not be due to the employers
unjustified act or omission. If the delay is
due to the employers unjustified refusal,
the employer may still be required to pay
the salaries notwithstanding the reversal
of the Labor Arbiters decision.
The new NLRC Rules of Procedure, which
took effect on January 7, 2006, now
require the employer to submit areport of
compliance within 10 calendar days from
receipt of the Labor Arbiters decision,
disobedience to which clearly denotes a
refusal to reinstate. The employee need
not file a motion for the issuance of the
writ of execution since the Labor Arbiter
shall thereafter motu proprio issue the
writ. With the new rules in place, there is
hardly any difficulty in determining the

LABOR STANDARDS | WORKER'S PREFERENCE

employers intransigence in immediately
complying with the order.

normal effect of the non-exercise of the

options, did not attach.

In the case at bar, petitioners exerted

efforts to execute the Labor Arbiters order
of reinstatement until they were able to
secure a writ of execution, albeit issued on
October 5, 2000 after the reversal by the
NLRC of the Labor Arbiters decision.
Technically, there was still actual delay
which brings to the question of whether
the delay was due to respondents
unjustified act or omission.

While reinstatement pending appeal aims

to avert the continuing threat or danger to
the survival or even the life of the
dismissed employee and his family, it does
not contemplate the period when the
employer-corporation itself is similarly in a
judicially monitored state of being
resuscitated in order to survive.

It is apparent that there was inaction on

the part of respondent to reinstate them,
but whether such omission was justified
depends on the onset of the exigency of
corporate rehabilitation.
It is settled that upon appointment by the
SEC of a rehabilitation receiver, all actions
for claims before any court, tribunal or
board against the corporation shall ipso
jure be suspended. As stated early on,
during the pendency of petitioners
complaint before the Labor Arbiter, the
SEC placed respondent under an Interim
Rehabilitation Receiver. After the Labor
Arbiter rendered his decision, the SEC
replaced
the
Interim
Rehabilitation
Receiver with a Permanent Rehabilitation
Receiver.
Case law recognizes that unless there is a
restraining order, the implementation of
the order of reinstatement is ministerial
and
mandatory.
This
injunction
or
suspension of claims by legislative fiat
partakes of the nature of a restraining
order that constitutes a legal justification
for respondents non-compliance with the
reinstatement order. Respondents failure
to exercise the alternative options of
actual
reinstatement
and
payroll
reinstatement was thus justified. Such
being the case, respondents obligation to
pay the salaries pending appeal, as the

The parallelism between a judicial order of

corporation rehabilitation as a justification
for the non-exercise of its options, on the
one hand, and a claim of actual and
imminent substantial losses as ground for
retrenchment, on the other hand, stops at
the red line on the financial statements.
More importantly, there are legal effects
arising from a judicial order placing a
corporation
under
rehabilitation.
Respondent was, during the period
material to the case, effectively deprived
of the alternative choices under Article
223 of the Labor Code, not only by virtue
of the statutory injunction but also in view
of
the
interim
relinquishment
of
management control to give way to the
full exercise of the powers of the
rehabilitation receiver. Had there been no
need to rehabilitate, respondent may have
opted for actual physical reinstatement
pending appeal to optimize the utilization
of resources. Then again, though the
management may think this wise, the
rehabilitation
receiver
may
decide
otherwise, not to mention the subsistence
of the injunction on claims.
In sum, the obligation to pay the
employees salaries upon the employers
failure to exercise the alternative options
under Article 223 of the Labor Code is not
a hard and fast rule, considering the
inherent
constraints
of
corporate
rehabilitation