FIRST DIVISION

EQUITABLE BANKING CORPORATION (now known as EQUITABLE-PCI BANK), petitioner, - versus - RICARDO SADAC, Respondent.

G.R. No. 164772 Present: PANGANIBAN, C.J. Chairperson, YNARES-SANTIAGO,* AUSTRIA-MARTINEZ,** CALLEJO, SR., and CHICO-NAZARIO, JJ. Promulgated: June 8, 2006

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D e C I S i o n

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari with Motion to Refer the Petition to the Court En Banc filed by Equitable Banking Corporation (now known as Equitable-PCI Bank), seeking to reverse the Decision[1] and Resolution[2] of the Court of Appeals, dated 6 April 2004 and 28 July 2004, respectively, as amended by the Supplemental Decision[3] dated 26 October 2004 in CA-G.R. SP No. 75013, which reversed and set aside the Resolutions of the National Labor Relations Commission (NLRC), dated 28 March 2001 and 24 September 2002 in NLRC-NCR Case No. 00-11-05252-89.

The Antecedents

As culled from the records, respondent Sadac was appointed Vice President of the Legal Department of petitioner Bank effective 1 August 1981, and subsequently General Counsel thereof on 8 December 1981. On 26 June 1989, nine lawyers of petitioner Bank’s Legal Department, in a letter-petition to the Chairman of the Board of Directors, accused respondent Sadac of abusive conduct, inter alia, and ultimately, petitioned for a change in leadership of the department. On the ground of lack of confidence in respondent Sadac, under the rules of client and lawyer relationship, petitioner Bank instructed respondent Sadac to deliver all materials in his custody in all cases in which the latter was appearing as its counsel of record. In reaction thereto, respondent Sadac requested for a full hearing and formal investigation but the same remained unheeded. On 9 November 1989, respondent Sadac filed a complaint for illegal dismissal with damages against petitioner Bank and individual members of the Board of Directors thereof. After learning of the filing of the complaint, petitioner Bank terminated the services of respondent Sadac. Finally, on 10 August 1989, respondent Sadac was removed from his office and ordered disentitled to any compensation and other benefits.[4]

In a Decision[5] dated 2 October 1990, Labor Arbiter Jovencio Ll. Mayor, Jr., dismissed the complaint for lack of merit. On appeal, the NLRC in its Resolution[6] of 24 September 1991 reversed the Labor Arbiter and declared respondent Sadac’s dismissal as illegal. The decretal portion thereof reads, thus:

WHEREFORE, in view of all the foregoing considerations, let the Decision of October 2, 1990 be, as it is hereby, SET ASIDE, and a new one ENTERED declaring the dismissal of the complainant as illegal, and consequently ordering the respondents jointly and severally to reinstate him to his former position as bank Vice-President and General Counsel without loss of seniority rights and other privileges, and to pay him full backwages and other benefits from the time his compensation was withheld to his actual reinstatement, as well as moral damages of P100,000.00, exemplary damages of P50,000.00, and attorney’s fees equivalent to Ten Percent (10%) of the monetary award. Should reinstatement be no longer possible due to strained relations, the respondents are ordered likewise jointly and severally to grant separation pay at one (1) month per year of service in the total sum of P293,650.00 with backwages and other benefits from November 16, 1989 to September 15, 1991 (cut off date, subject to adjustment) computed at P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00 (exemplary damages) and attorney’s fees equal to Ten Percent (10%) of all the monetary award, or a grand total of P1,649,329.53.[7]

Petitioner Bank came to us for the first time via a Special Civil Action for Certiorari assailing the NLRC Resolution of 24 September 1991 in Equitable Banking Corporation v. National Labor Relations Commission, docketed as G.R. No. 102467.[8]

In our Decision[9] of 13 June 1997, we held respondent Sadac’s dismissal illegal. We said that the existence of the employer-employee relationship between petitioner Bank and respondent Sadac had been duly established bringing the case within the coverage of the Labor Code, hence, we did not permit petitioner Bank to rely on Sec. 26, Rule 138[10] of the Rules of Court, claiming that the association between the parties was one of a client-lawyer relationship, and, thus, it could terminate at any time the services of respondent Sadac. Moreover, we did not find that respondent Sadac’s dismissal was grounded on any of the causes stated in Article 282 of the Labor Code. We similarly found that petitioner Bank disregarded the procedural requirements in terminating respondent Sadac’s employment as so required by Section 2 and Section 5, Rule XIV, Book V of the Implementing Rules of the Labor Code. We decreed:

WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: That private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with law; that private respondent shall be paid an additional amount of P5,000.00; that the award of moral and exemplary damages are deleted; and that the liability herein pronounced shall be due from petitioner bank alone, the other petitioners being absolved from solidary liability. No costs.[11]

On 28 July 1997, our Decision in G.R. No. 102467 dated 13 June 1997 became final and executory.[12]

Pursuant thereto, respondent Sadac filed with the Labor Arbiter a Motion for Execution[13] thereof. Likewise, petitioner Bank filed a Manifestation and Motion[14] praying that the award in favor of respondent Sadac be computed and that after payment is made, petitioner Bank be ordered forever released from liability under said judgment.

Per respondent Sadac’s computation, the total amount of the monetary award is P6,030,456.59, representing his backwages and other benefits, including the general increases which he should have earned during the period of his illegal termination. Respondent Sadac theorized that he started with a monthly compensation of P12,500.00 in August 1981, when he was appointed as Vice President of petitioner Bank’s Legal Department and later as its General Counsel in December 1981. As of November 1989, when he was dismissed illegally, his monthly compensation amounted to P29,365.00 or more than twice his original compensation. The difference, he posited, can be attributed to the annual salary increases which he received equivalent to 15 percent (15%) of his monthly salary.

Respondent Sadac anchored his claim on Article 279 of the Labor Code of the Philippines, and cited as authority the cases of East Asiatic Company, Ltd. v. Court of Industrial Relations,[15] St. Louis College of Tuguegarao v. National Labor Relations Commission,[16] and Sigma Personnel Services v. National Labor Relations Commission.[17] According to respondent Sadac, the catena of cases uniformly holds that it is the obligation of the employer to pay an illegally dismissed employee the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases to which he would have been normally entitled had he not been dismissed; and therefore, salary increases should be deemed a component in the computation of backwages. Moreover, respondent Sadac contended that his check-up benefit, clothing allowance, and cash conversion of vacation leaves must be included in the computation of his backwages.

Petitioner Bank disputed respondent Sadac’s computation. Per its computation, the amount of monetary award due respondent Sadac is P2,981,442.98 only, to the exclusion of the latter’s general salary increases and other claimed benefits which, it maintained, were unsubstantiated. The jurisprudential precedent relied upon by petitioner Bank in assailing respondent Sadac’s computation is Evangelista v. National Labor Relations Commission,[18] citing Paramount Vinyl Products Corp. v. National Labor Relations Commission,[19] holding that an unqualified award of backwages means that the employee is paid at the wage rate at the time of his dismissal. Furthermore, petitioner Bank argued before the Labor Arbiter that the award of salary differentials is not allowed, the established rule being that upon reinstatement, illegally dismissed employees are to be paid their backwages without deduction and qualification as to any wage increases or other benefits that may have been received by their co-workers who were not dismissed or did not go on strike.

On 2 August 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. rendered an Order[20] adopting respondent Sadac’s computation. In the main, the Labor Arbiter relying on Millares v. National Labor Relations Commission[21] concluded that respondent Sadac is entitled to the general increases as a component in the computation of his backwages. Accordingly, he awarded respondent Sadac the amount of P6,030,456.59 representing his backwages inclusive of allowances and other claimed benefits, namely check-up benefit, clothing allowance, and cash conversion of vacation leave plus 12 percent (12%) interest per annum equivalent to P1,367,590.89 as of 30 June 1999, or a total of P7,398,047.48. However, considering that respondent Sadac had already received the amount of P1,055,740.48 by virtue of a Writ of Execution[22] earlier issued on 18 January 1999, the Labor Arbiter directed petitioner Bank to pay respondent Sadac the amount of P6,342,307.00. The Labor Arbiter also granted an award of attorney’s fees equivalent to ten percent (10%) of all monetary awards, and imposed a 12 percent (12%) interest per annum reckoned from the finality of the judgment until the satisfaction thereof.

The Labor Arbiter decreed, thus:

WHEREFORE, in view of al (sic) the foregoing, let an “ALIAS” Writ of Execution be issued commanding the Sheriff, this Branch, to collect from respondent Bank the amount of Ph6,342,307.00 representing the backwages with 12% interest per annum due complainant.[23]

Petitioner Bank interposed an appeal with the NLRC, which reversed the Labor Arbiter in a Resolution,[24] promulgated on 28 March 2001. It ratiocinated that the doctrine on general increases as component in computing backwages in Sigma Personnel Services and St. Louis was merely obiter dictum. The NLRC found East Asiatic Co., Ltd. inapplicable on the ground that the original circumstances therein are not only peculiar to the said case but also completely strange to the case of respondent Sadac. Further, the NLRC disallowed respondent Sadac’s claim to check-up benefit ratiocinating that there was no clear and substantial proof that the same was being granted and enjoyed by other employees of petitioner Bank. The award of attorney’s fees was similarly deleted.

The dispositive portion of the Resolution states:

WHEREFORE, the instant appeal is considered meritorious and accordingly, the computation prepared by respondent Equitable Banking Corporation on the award of backwages in favor of complainant Ricardo Sadac under the decision promulgated by the Supreme Court on June 13, 1997 in G.R. No. 102476 in the aggregate amount of P2,981,442.98 is hereby ordered.[25]

Respondent Sadac’s Motion for Reconsideration thereon was denied by the NLRC in its Resolution,[26] promulgated on 24 September 2002.

Aggrieved, respondent Sadac filed before the Court of Appeals a Petition for Certiorari seeking nullification of the twin resolutions of the NLRC, dated 28 March 2001 and 24 September 2002, as well as praying for the reinstatement of the 2 August 1999 Order of the Labor Arbiter.

For the resolution of the Court of Appeals were the following issues, viz.:

(1) Whether periodic general increases in basic salary, check-up benefit, clothing allowance, and cash conversion of vacation leave are included in the computation of full backwages for illegally dismissed employees;

(2) Whether respondent is entitled to attorney’s fees; and

(3) Whether respondent is entitled to twelve percent (12%) per annum as interest on all accounts outstanding until full payment thereof.

Finding for respondent Sadac (therein petitioner), the Court of Appeals rendered a Decision on 6 April 2004, the dispositive portion of which is quoted hereunder:

WHEREFORE, premises considered, the March 28, 2001 and the September 24, 2002 Resolutions of the National Labor Relations Commissions (sic) are REVERSED and SET ASIDE and the August 2, 1999 Order of the Labor Arbiter is REVIVED to the effect that private respondent is DIRECTED TO PAY petitioner the sum of PhP6,342,307.00, representing full back wages (sic) which sum includes annual general increases in basic salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other sundry benefits plus 12% per annum interest on outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.[27]

The Court of Appeals, citing East Asiatic held that respondent Sadac’s general increases should be added as part of his backwages. According to the appellate court, respondent Sadac’s entitlement to the annual general increases has been duly proven by substantial evidence that the latter, in fact, enjoyed an annual increase of more or less 15 percent (15%). Respondent Sadac’s check-up benefit, clothing allowance, and cash conversion of vacation leave were similarly ordered added in the computation of respondent Sadac’s basic wage.

Anent the matter of attorney’s fees, the Court of Appeals sustained the NLRC. It ruled that our Decision[28] of 13 June 1997 did not award attorney’s fees in respondent Sadac’s favor as there was nothing in the aforesaid Decision, either in the dispositive portion or the body thereof that supported the grant of attorney’s fees. Resolving the final issue, the Court of Appeals imposed a 12 percent (12%) interest per annum on the total monetary award to be computed from 28 July 1997 or the date our judgment in G.R. No. 102467 became final and executory until fully paid at which time the quantification of the amount may be deemed to have been reasonably ascertained.

On 7 May 2004, respondent Sadac filed a Partial Motion for Reconsideration[29] of the 6 April 2004 Court of Appeals Decision insofar as the appellate court did not award him attorney’s fees. Similarly, petitioner Bank filed a Motion for Partial Reconsideration thereon. Following an exchange of pleadings between the parties, the Court of Appeals rendered a Resolution,[30] dated 28 July 2004, denying petitioner Bank’s Motion for Partial Reconsideration for lack of merit.

Assignment of Errors

Hence, the instant Petition for Review by petitioner Bank on the following assignment of errors, to wit:

(a) The Hon. Court of Appeals erred in ruling that general salary increases should be included in the computation of full backwages.

(b) The Hon. Court of Appeals erred in ruling that the applicable authorities in this case are: (i) East Asiatic, Ltd. v. CIR, 40 SCRA 521 (1971); (ii) St. Louis College of Tuguegarao v. NLRC, 177 SCRA 151 (1989); (iii) Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993); and (iv) Millares v. NLRC, 305 SCRA 500 (1999) and not (i) Art. 279 of the Labor Code; (ii) Paramount Vinyl Corp. v. NLRC, 190 SCRA 525 (1990); (iii) Evangelista v. NLRC, 249 SCRA 194 (1995); and (iv) Espejo v. NLRC, 255 SCRA 430 (1996).

(c) The Hon. Court of Appeals erred in ruling that respondent is entitled to check-up benefit, clothing allowance and cash conversion of vacation leaves notwithstanding that respondent did not present any evidence to prove entitlement to these claims.

(d) The Hon. Court of Appeals erred in ruling that respondent is entitled to be paid legal interest even if the principal amount due him has not yet been correctly and finally determined.[31]

Meanwhile, on 26 October 2004, the Court of Appeals rendered a Supplemental Decision granting respondent Sadac’s Partial Motion for Reconsideration and amending the dispositive portion of the 6 April 2004 Decision in this wise, viz.:

WHEREFORE, premises considered, the March 24 (sic), 2001 and the September 24, 2002 Resolutions of the National Labor Relations Commission are hereby REVERSED and SET ASIDE and the August 2, 1999 Order of the Labor Arbiter is hereby REVIVED to the effect that private respondent is hereby DIRECTED TO PAY petitioner the sum of P6,342,307.00, representing full backwages which sum includes annual general increases in basic salary, check-up benefit, clothing allowance, cash conversion of vacation leave and other sundry benefits “and attorney’s fees equal to TEN PERCENT (10%) of all the monetary award” plus 12% per annum interest on all outstanding balance from July 28, 1997 until full payment.

Costs against private respondent.[32]

On 22 November 2004, petitioner Bank filed a Supplement to Petition for Review[33] contending in the main that the Court of Appeals erred in issuing the Supplemental Decision by directing petitioner Bank to pay an additional amount to respondent Sadac representing attorney’s fees equal to ten percent (10%) of all the monetary award.

The Court’s Ruling

I.

We are called to write finis to a controversy that comes to us for the second time. At the core of the instant case are the divergent contentions of the parties on the manner of computation of backwages.

Petitioner Bank asseverates that Article 279 of the Labor Code of the Philippines does not contemplate the inclusion of salary increases in the definition of “full backwages.” It controverts the reliance by the appellate court on the cases of (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares. While it is in accord with the pronouncement of the Court of Appeals that Republic Act No. 6715, in amending Article 279, intends to give more benefits to workers, petitioner Bank submits that the Court of Appeals was in error in relying on East Asiatic to support its finding that salary increases should be included in the computation of backwages as nowhere in Article 279, as amended, are salary increases spoken of. The prevailing rule in the milieu of the East Asiatic doctrine was to deduct earnings earned elsewhere from the amount of backwages payable to an illegally dismissed employee.

Petitioner Bank posits that even granting that East Asiatic allowed general salary increases in the computation of backwages, it was because the inclusion was purposely to cushion the blow of the deduction of earnings derived elsewhere; with the amendment of Article 279 and the consequent elimination of the rule on the deduction of earnings derived elsewhere, the rationale for including salary increases in the computation of backwages no longer exists. On the references of salary increases in the aforementioned cases of (i) St. Louis; (ii) Sigma Personnel; and (iii) Millares, petitioner Bank contends that the same were merely obiter dicta. In fine, petitioner Bank anchors its claim on the cases of (i) Paramount Vinyl Products Corp. v. National Labor Relations Commission;[34] (ii) Evangelista v. National Labor Relations Commission;[35] and (iii) Espejo v. National Labor Relations Commission,[36] which ruled that an unqualified award of backwages is exclusive of general salary increases and the employee is paid at the wage rate at the time of the dismissal.

For his part, respondent Sadac submits that the Court of Appeals was correct when it ruled that his backwages should include the general increases on the basis of the following cases, to wit: (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and (iv) Millares.

Resolving the protracted litigation between the parties necessitates us to revisit our pronouncements on the interpretation of the term backwages. We said that backwages in general are granted on grounds of equity for earnings which a worker or employee has lost due to his illegal dismissal.[37] It is not private compensation or damages but is awarded in furtherance and effectuation of the public objective of the Labor Code. Nor is it a redress of a private right but rather in the nature of a command to the employer to make public reparation for dismissing an employee either due to the former’s unlawful act or bad faith.[38] The Court, in the landmark case of Bustamante v. National Labor Relations Commission,[39] had the occasion to explicate on the meaning of full backwages as contemplated by Article 279[40] of the Labor Code of the Philippines, as amended by Section 34 of Rep. Act No. 6715. The Court in Bustamante said, thus:

The Court deems it appropriate, however, to reconsider such earlier ruling on the computation of backwages as enunciated in said Pines City Educational Center case, by now holding that 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 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, plain and free from ambiguity and, therefore, must be applied without attempted or strained interpretation.  Index animi sermo est.[41]

Verily, jurisprudence has shown that the definition of full backwages has forcefully evolved. In Mercury Drug Co., Inc. v. Court of Industrial Relations,[42] the rule was that backwages were granted for a period of three years without qualification and without deduction, meaning, the award of backwages was not reduced by earnings actually earned by the dismissed employee during the interim period of the separation. This came to be known as the Mercury Drug rule.[43] Prior to the Mercury Drug ruling in 1974, the total amount of backwages was reduced by earnings obtained by the employee elsewhere from the time of the dismissal to his reinstatement. The Mercury Drug rule was subsequently modified in Ferrer v. National Labor Relations Commission[44] and Pines City Educational Center v. National Labor Relations Commission,[45] where we allowed the recovery of backwages for the duration of the illegal dismissal minus the total amount of earnings which the employee derived elsewhere from the date of dismissal up to the date of reinstatement, if any. In Ferrer and in Pines, the three-year period was deleted, and instead, the dismissed employee was paid backwages for the entire period that he was without work subject to the deductions, as mentioned. Finally came our ruling in Bustamante which superseded Pines City Educational Center and allowed full recovery of backwages without deduction and without qualification pursuant to the express provisions of Article 279 of the Labor Code, as amended by Rep. Act No. 6715, i.e., without any deduction of income the employee may have derived from employment elsewhere from the date of his dismissal up to his reinstatement, that is, covering the entirety of the period of the dismissal.

The first issue for our resolution involves another aspect in the computation of full backwages, mainly, the basis of the computation thereof. Otherwise stated, whether general salary increases should be included in the base figure to be used in the computation of backwages.

In so concluding that general salary increases should be made a component in the computation of backwages, the Court of Appeals ratiocinated, thus:

The Supreme Court held in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971) that “general increases” should be added as a part of full backwages, to wit:

In other words, the just and equitable rule regarding the point under discussion is this: It is the obligation of the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases, to which he would have been normally entitled had he not been dismissed and had not stopped working, but it is the right, on the other hand of the employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or worker would have earned in his old employment on the corresponding days he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned.

The doctrine in East Asiatic was subsequently reiterated, in the cases of St. Louis College of Tugueg[a]rao v. NLRC, 177 SCRA 151 (1989); Sigma Personnel Services v. NLRC, 224 SCRA 181 (1993) and Millares v. National Labor Relations Commission, 305 SCRA 500 (1999).

Private respondent, in opposing the petitioner’s contention, alleged in his Memorandum that only the wage rate at the time of the employee’s illegal dismissal should be considered – private respondent citing the following decisions of the Supreme Court: Paramount Vinyl Corp. v. NLRC 190 SCRA 525 (1990); Evangelista v. NLRC, 249 SCRA 194 (1995); Espejo v. NLRC, 255 SCRA 430 (1996) which rendered obsolete the ruling in East Asiatic, Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971).

We are not convinced.

The Supreme Court had consistently held that payment of full backwages is the price or penalty that the employer must pay for having illegally dismissed an employee.

In Ala Mode Garments, Inc. v. NLRC 268 SCRA 497 (1997) and Bustamante v. NLRC and Evergreen Farms, Inc. 265 SCRA 61 (1996) the Supreme Court held that the clear legislative intent in the amendment in Republic Act 6715 was to give more benefits to workers than was previously given them under the Mercury Drug rule or the “deductions of earnings elsewhere” rule.

The Paramount Vinyl, Evangelista, and Espejo cases cited by private respondent are inapplicable to the case at bar. The doctrines therein came about as a result of the old Mercury Drug rule, which was repealed with the passage of Republic Act 6715 into law. It was in Alex Ferrer v. NLRC 255 SCRA 430 (1993) when the Supreme Court returned to the doctrine in East Asiatic, which was soon supplanted by the case of Bustamante v. NLRC and Evergreen Farms, Inc., which held that the backwages to be awarded to an illegally dismissed employee, should not, as a general rule, be diminished or reduced by the earnings derived from him during the period of his illegal dismissal. Furthermore, the Mercury Drug rule was never meant to prejudice the workers, but merely to speed the recovery of their backwages.

Ever since Mercury Drug Co. Inc. v. CIR 56 SCRA 694 (1974), it had been the intent of the Supreme Court to increase the backwages due an illegally dismissed employee. In the Mercury Drug case, full backwages was to be recovered even though a three-year limitation on recovery of full backwages was imposed in the name of equity. Then in Bustamante, full backwages was interpreted to mean absolutely no deductions regardless of the duration of the illegal dismissal. In Bustamante, the Supreme Court no longer regarded equity as a basis when dealing with illegal dismissal cases because it is not equity at play in illegal dismissals but rather, it is employer’s obligation to pay full back wages (sic). It is an obligation of the employer because it is “the price or penalty the employer has to pay for illegally dismissing his employee.”

The applicable modern definition of full backwages is now found in Millares v. National Labor Relations Commission 305 SCRA 500 (1999), where although the issue in Millares concerned separation pay – separation pay and backwages both have employee’s wage rate at their foundation.

x x x The rationale is not difficult to discern. It is the obligation of the employer to pay an illegally dismissed employee the whole amount of his salaries plus all other benefits, bonuses and general increases to which he would have been normally entitled had he not been dismissed and had not stopped working. The same holds true in case of retrenched employees. x x x

x x x x

x x x Annual general increases are akin to “allowances” or “other benefits.” [46] (Italics ours.)

We do not agree.

Attention must be called to Article 279 of the Labor Code of the Philippines, as amended by Section 34 of Rep. Act No. 6715. The law provides as follows:

ART. 279.  Security of Tenure. – In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title.  An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. (Emphasis supplied.)

Article 279 mandates that an employee’s full backwages shall be inclusive of allowances and other benefits or their monetary equivalent. Contrary to the ruling of the Court of Appeals, we do not see that a salary increase can be interpreted as either an allowance or a benefit. Salary increases are not akin to allowances or benefits, and cannot be confused with either. The term “allowances” is sometimes used synonymously with “emoluments,” as indirect or contingent remuneration, which may or may not be earned, but which is sometimes in the nature of compensation, and sometimes in the nature of reimbursement.[47] Allowances and benefits are granted to the employee apart or separate from, and in addition to the wage or salary. In contrast, salary increases are amounts which are added to the employee’s salary as an increment thereto for varied reasons deemed appropriate by the employer. Salary increases are not separate grants by themselves but once granted, they are deemed part of the employee’s salary. To extend the coverage of an allowance or a benefit to include salary increases would be to strain both the imagination of the Court and the language of law. As aptly observed by the NLRC, “to otherwise give the meaning other than what the law speaks for by itself, will open the floodgates to various interpretations.”[48] Indeed, if the intent were to include salary increases as basis in the computation of backwages, the same should have been explicitly stated in the same manner that the law used clear and unambiguous terms in expressly providing for the inclusion of allowances and other benefits.

Moreover, we find East Asiatic inapplicable to the case at bar. In East Asiatic, therein petitioner East Asiatic Company, Ltd. was found guilty of unfair labor practices against therein respondent, Soledad A. Dizon, and the Court ordered her reinstatement with back pay. On the question of the amount of backwages, the Court granted the dismissed employee the whole amount of the salaries plus all general increases and bonuses she would have received during the period of her lay-off with the corresponding right of the employer to deduct from the total amounts, all the earnings earned by the employee during her lay-off. The emphasis in East Asiatic is the duty of both the employer and the employee to disclose the material facts and competent evidence within their peculiar knowledge relative to the proper determination of backwages, especially as the earnings derived by the employee elsewhere are deductions to which the employer are entitled. However, East Asiatic does not find relevance in the resolution of the issue before us. First, the material date to consider is 21 March 1989, when the law amending Article 279 of the Labor Code, Rep. Act No. 6715, otherwise known as the Herrera-Veloso Law, took effect. It is obvious that the backdrop of East Asiatic, decided by this Court on 31 August 1971 was prior to the current state of the law on the definition of full backwages. Second, it bears stressing that East Asiatic was decided at a time when even as an illegally dismissed employee is entitled to the whole amount of the salaries or wages, it was the recognized right of the employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or worker would have earned in his old employment on the corresponding days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned.[49] It is for this reason the Court centered its discussion on the duty of both parties to be candid and open about facts within their knowledge to establish the amount of the deductions, and not leave the burden on the employee alone to establish his claim, as well as on the duty of the court to compel the parties to cooperate in disclosing such material facts. The inapplicability of East Asiatic to respondent Sadac was sufficiently elucidated upon by the NLRC, viz.:

A full discernment of the pertinent portion of the judgment sought to be executed in East Asiatic Co., Ltd. would reveal as follows:

“x x x to reinstate Soledad A. Dizon immediately to her former position with backwages from September 1, 1958 until actually reinstated with all the rights and privileges acquired and due her, including seniority and such other terms and conditions of employment AT THE TIME OF HER LAY-OFF”

The basis on which this doctrine was laid out was summed up by the Supreme Court which ratiocinated in this light. To quote:

“x x x on the other hand, of the employer to deduct from the total of these, the amount equivalent to these salaries or wages the employee or worker would have earned in his old employment on the corresponding days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned x x x” (Ibid, pp. 547-548).

But the Supreme Court, in the instant case, pronounced a clear but different judgment from that of East Asiatic Co. decretal portion, in this wise:

“WHEREFORE, the herein questioned Resolution of the NLRC is AFFIRMED with the following MODIFICATIONS: that private respondent shall be entitled to backwages from termination of employment until turning sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in accordance with law; xxx”

Undisputably (sic), it was decreed in plain and unambiguous language that complainant Sadac “shall be entitled to backwages.” No more, no less.

Thus, this decree for Sadac cannot be considered in any way, substantially in essence, with the award of backwages as pronounced for Ms. Dizon in the case of East Asiatic Co. Ltd.[50]

In the same vein, we cannot accept the Court of Appeals’ reliance on the doctrine as espoused in Millares. It is evident that Millares concerns itself with the computation of the salary base used in computing the separation pay of petitioners therein. The distinction between backwages and separation pay is elementary. Separation pay is granted where reinstatement is no longer advisable because of strained relations between the employee and the employer. Backwages represent compensation that should have been earned but were not collected because of the unjust dismissal. The bases for computing the two are different, the first being usually the length of the employee’s service and the second the actual period when he was unlawfully prevented from working.[51]

The issue that confronted the Court in Millares was whether petitioners’ housing and transportation allowances therein which they allegedly received on a monthly basis during their employment should have been included in the computation of their separation pay. It is plain to see that the reference to general increases in Millares citing East Asiatic was a mere obiter. The crux in Millares was our pronouncement that the receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering. Whether salary increases are deemed part of the salary base in the computation of backwages was not the issue in Millares.

Neither can we look at St. Louis of Tuguegarao to resolve the instant controversy. What was mainly contentious therein was the inclusion of fringe benefits in the computation of the award of backwages, in particular additional vacation and sick leaves granted to therein concerned employees, it evidently appearing that the reference to East Asiatic in a footnote was a mere obiter dictum. Salary increases are not akin to fringe benefits[52]</