Computing separation pay, backwages

The Supreme Court has already meticulously explained in Bani Rural Bank Inc. v. De Guzman[1] that:

The computation of separation pay is based on the length of the employee's service; and the computation of backwages is based on the actual period when the employee was unlawfully prevented from working.

The basis of computation of backwages

The computation of backwages depends on the final awards adjudged as a consequence of illegal dismissal, in that:

First, when reinstatement is ordered, the general concept under Article 279 of the Labor Code, as amended, computes the backwages from the time of dismissal until the employee's reinstatement. The computation of backwages (and similar benefits considered part of the backwages) can even continue beyond the decision of the labor arbiter or NLRC and ends only when the employee is actually reinstated.

Second, when separation pay is ordered in lieu of reinstatement (in the event that this aspect of the case is disputed) or reinstatement is waived by the employee (in the event that the payment of separation pay, in lieu, is not disputed), backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

Third, when separation pay is ordered after the finality of the decision ordering the reinstatement by reason of a supervening event that makes the award of reinstatement no longer possible x x x backwages is computed from the time of dismissal until the finality of the decision ordering separation pay.

The above computation of backwages, when separation pay is ordered, has been the [Supreme] Court's consistent ruling. In Session Delights Ice Cream and Fast Foods v. Court Appeals Sixth Division, we [the Supreme Court] explained that the finality of the decision becomes the reckoning point because in allowing separation pay, the final decision effectively declares that the employment relationship ended so that separation pay and backwages are to be computed up to that point.

We [the Supreme Court] may also view the proper computation of backwages (whether based on reinstatement or an order of separation pay) in terms of the life of the employment relationship itself.

When reinstatement is ordered, the employment relationship continues. Once the illegally dismissed employee is reinstated, any compensation and benefits thereafter received stem from the employee's continued employment. In this instance, backwages are computed only up until the reinstatement of the employee since after the reinstatement, the employee begins to receive compensation from his resumed employment.

When there is an order of separation pay (in lieu of reinstatement or when the reinstatement aspect is waived or subsequently ordered in light of a supervening event making the award of reinstatement no longer possible), the employment relationship is terminated only upon the finality of the decision ordering the separation pay. The finality of the decision cuts-off the employment relationship and represents the final settlement of the rights and obligations of the parties against each other. Hence, backwages no longer accumulate upon the finality of the decision ordering the payment of separation pay since the employee is no longer entitled to any compensation from the employer by reason of the severance of his employment.[2] (Citations omitted; emphases and underscoring supplied)

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[1] G.R. No. 170904, November 13, 2013.

[2] Id. at 350-352.