PHILIPPINE SPRING WATER RESOURCES INC. /DANILO Y. LUA vs.

COURT OF APPEALS and JUVENSTEIN B. MAHILUM

G.R. No. 205278 | June 11, 2014

FACTS:
Philippine Spring Water Resources, Inc. (PSWRI), engaged in the business of
manufacturing, selling and distributing bottled mineral water, hired Mahilum as Vice-President for
Sales and Marketing for the Bulacan-South Luzon Area, for a monthly salary of 15,000.00 plus
0.25% commission on every cash on delivery and another 0.25% on new accounts from July to
August, 2004.

Sometime in November 2004, Mahilum was designated as the over-all chairman of the
company’s Christmas party along with the PSWRI’s Bulacan plant inauguration. Mahilum called
all committee chairpersons to a meeting for the program of action and budget plan but was reset
to the following day. Mahilum requested Ms. Vicky Evangelista, Vice President for Administration
and Finance to take charge of the said meeting should he fail to come back on time due to prior
appointments but it was further postponed. Thereafter, meetings on the program of activities for
the said event were conducted without Mahilum’s presence; Evangelista took charge and
assumed the lead role.

On the inaugural day, Mahilum did not supervised as he delegated the task to
Evangelista. However, Mahilum’s attention was called when Lua (CEO) got furious because he
was not recognized in the program and was not called to deliver his speech. It turned out that
Lua’s speech appeared to be “optional” in the printed program as he previously declined. On the
following day, Mahilum was required to explain what happened and was placed under preventive
suspension for 30 days. Mahilum submitted his written explanation and an investigation was
conducted.

After the suspension, he reported for work but was prevented from entering the
workplace. Sometime in the first week of March 2005, he received a copy of the Memorandum,
dated January 31, 2005, terminating his services effective the next day or on February 1, 2005.
On February 9, 2005, a clearance certificate was issued to Mahilum. He received the amount of
₱43,998.56 and was made to execute the Release, Waiver and Quitclaim in favor of the company
and Lua.

Mahilum filed a complaint for illegal dismissal with prayer for reinstatement, payment of
back wages and damages. He argued that he was illegally suspended and, thereafter, dismissed
constructively from the service. He also claimed that he was forced to sign the waiver.

LA – DISMISSED

Lack of merit; the quitclaim he had executed barred his right to question his dismissal under the
principle of estoppel. Being a person of sufficient aptitude and intellect Mahilum could not have
been forced to sign the document.

NLRC – GRANTED

Illegally dismissed; The amount he received from the company consisted of his 13th month pay,
salaries for the period subsequent to his preventive suspension and earned commissions. These
were benefits which Mahilum had earned by virtue of his employment and not in consideration of
his separation from service. Failure to discharge said duties is not sufficient to deprive him of his
employment due to loss of confidence because he is a managerial employee; directed to pay
separation pay (₱15,000.00), backwages, salary, 0.25% commission, moral and exemplary
damages.

CA – REVERSED (September 30, 2008)

Mahilum’s conduct during the inauguration did not constitute willful disobedience or breach of
trust, hence, rendering his termination as illegal and without cause. However, it upheld the validity
of the executed quitclaim. As a top executive of the company, Mahilum could not have been an
unsuspecting or gullible person who misunderstood the import of the document; the amount
represented therein was the total amount of benefits owing to Mahilum at the time of his
termination and for his six- month stint with the company. The rule is that only when
termination is declared to be illegal that an employee is entitled to claim separation pay in
lieu of reinstatement. In this case, Mahilum, in effect, demanded for such pay prior to a
declaration of the illegality of dismissal.

MOTION FOR RECONSIDERATION BY MAHILUM

The ruling ran counter to the underlying policy for the grant of the reliefs outlined in Article 279 of
the Labor Code. Following the logic espoused therein, no employee could ever expect any benefit
from his complaint for illegal dismissal because at the time of its filing, there was, as of yet, no
declaration of the termination’s illegality.

CA – GRANTED (July 23, 2010)

Illegally dismissed; entitled to full backwages and separation pay in lieu of reinstatement. The
quitclaim is void; All that Mahilum received by virtue of the said document amounted to what he
was legally entitled like salaries and wages, 13th month pay and commissions.

ISSUE: Whether or not Mahilum was illegally dismissed

RULING: Yes. Having been hired in June 2004, he must be considered to have already served
the company for eight (8) months at the time of his dismissal on February 1, 2005 as prescribed
in Article 281 of the Labor Code and not based on a suspensive condition. Mahilum was a regular
employee who was entitled to security of tenure. Thus, he could only be dismissed from service
for causes provided in Article 282 of the Labor Code. Mahilum’s failure to effectively discharge his
assignment as the over-all chairman of the festivities was due to mere inadvertence and the
mistaken belief that he had properly delegated the details of the program to another officer.

Even as jurisprudence has distinguished the treatment of managerial employees or employees

occupying positions of trust and confidence from that of rank-and-file personnel, insofar as the
application of the doctrine of trust and confidence is concerned, such is inapplicable to the instant
case since as above-stated, private respondent’s lapse was justified, unintentional, without
deliberate intent and unrelated to the duty for which he was engaged.

Article 279 of the Labor Code provides that an employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other privileges, to full
backwages, inclusive of allowances, and to other benefits or their monetary equivalent computed
from the time his compensation was withheld from him up to the time of his actual reinstatement.

Back wages are granted on grounds of equity to workers for earnings lost due to their illegal
dismissal from work. They are a reparation for the illegal dismissal of an employee based on
earnings which the employee would have obtained, either by virtue of a lawful decree or order, as
in the case of a wage increase under a wage order, or by rightful expectation, as in the case of
one’s salary or wage.
The Court resolves to delete the inclusion of 0.25% commission on cash and delivery sales as
part of Mahilum’s backwages. It is well-established in jurisprudence that the determination of
whether or not a commission forms part of the basic salary depends upon the circumstances or
conditions for its payment.

Mahilum’s backwages must be pegged at his basic salary, excluding the commissions mentioned
by the NLRC, to be computed from the time of his dismissal up to the finality of this decision.
Nonetheless, the award of backwages shall earn legal interest at the rate of six percent (6%) per
annum in accordance with prevailing jurisprudence.

Finally, the Court resolves to delete the award for moral and exemplary damages in favor of
Mahilum. Worth reiterating is the rule that moral damages are recoverable where the dismissal of
the employee 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.

Mahilum, however, is entitled to attorney's fees in the amount of ten percent (10%) of his total
monetary award, having been forced to litigate in order to seek redress of his grievances, as
provided in Article 111 of the Labor Code.