Reinstatement Salaries After Business Closure: Employer Liability Rules

The Labor Code makes a Labor Arbiter's reinstatement order immediately executory, even while an appeal is pending. But what happens to the salaries that accrue during that period if the arbiter's ruling is later reversed — and the employer has since validly closed its business? In Samahang Manggagawa sa General Offset Press, Inc. v. General Offset Press, Inc. (G.R. No. 212960, June 8, 2016), the Supreme Court clarified when an employer can avoid paying reinstatement salaries after a reversal.

The Dispute

The union and 40 members filed an illegal dismissal complaint against General Offset Press, Inc. (GOPI). The Labor Arbiter ruled in their favor, ordering reinstatement of 25 employees plus moral damages. Pending GOPI's appeal, the workers moved for execution pending appeal. A writ was issued, and P79,530.26 was garnished from GOPI's bank account and deposited with the NLRC Cashier.

The NLRC later reversed the arbiter — it declared the closure valid, the strike illegal, and dismissed the unfair labor practice charge. The reversal was affirmed by the Court of Appeals and became final in 2010. GOPI then asked for the garnished amount to be returned. The workers argued they were entitled to it as reinstatement salaries for the period they were not reinstated pending appeal.

The Issue

Who gets the garnished amount — the workers, as payment for accrued reinstatement salaries, or the employer, because the reinstatement order was later reversed?

The Ruling

The Supreme Court ruled against the workers and ordered the amount returned to GOPI. The Court applied the two-fold test from Garcia v. Philippine Airlines, Inc. and Philippine Airlines, Inc. v. Paz:

1. There must be actual delay — the reinstatement order was not executed before its reversal.
2. The delay must not be due to the employer's unjustified act or omission.

If the delay is due to the employer's unjustified refusal, the employer must still pay salaries despite the reversal. But if the delay was not the employer's fault, the claim fails.

Why the Employer Won

The Court distinguished this case from Islriz Trading v. Capada, where the employer had no justifiable excuse for failing to reinstate. Here, GOPI had validly ceased operations in March 2002 — a closure later upheld by the NLRC, the CA, and the Supreme Court.

Because the closure was legitimate and not an attempt to defeat the reinstatement order, it was legally impossible for GOPI to reinstate the workers. As the NLRC aptly stated: an employer may not be ordered to pay backwages beyond the date of closure where the closure was due to legitimate business reasons. The workers were entitled to backwages only up to the date of closure, not beyond.

Practical Takeaways

• Immediate executory rule has limits. Article 229 of the Labor Code (formerly Article 223) makes reinstatement orders immediately executory, but this is not absolute — a valid business closure can excuse compliance.
• The two-fold test governs. To claim reinstatement salaries after a reversal, workers must show (1) actual delay in execution and (2) that the delay was due to the employer's unjustified act or omission.
• Closure cuts off backwages. A legitimate business closure ends the accrual of backwages; the employer cannot be liable for salaries beyond that date.
• Rehabilitation is a recognized excuse. Like closure, corporate rehabilitation receivership can justify an employer's failure to reinstate, as in the PAL cases.
• Document the closure's legitimacy. Employers facing reinstatement orders should preserve evidence that a closure or cessation was for genuine business reasons, not to evade labor obligations.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.