BY GEROME DALIPE IV
ILOILO City – The Supreme Court has ruled against compromise agreements between employers and employees that offer excessively low settlement amounts, emphasizing their invalidity.
This decision should serve as a reminder to employers that settlements cannot bypass legal entitlements through unreasonably low offers to settle disputes with their workers.
The SC’s Second Division, in a decision penned by Associate Justice Antonio T. Kho, Jr., nullified the compromise agreements executed by San Roque Metals, Inc. (SRMI) and Prudential Customs Brokerage Services, Inc. (PCBSI) with a group of illegally dismissed employees.
The tribunal has reinforced the principle that compromise agreements and settlements between employers and employees are invalid if they offer employees excessively low amounts.
The Court found the settlements to be unreasonably low and not reflective of the employees’ rightful claims, making them unjust and legally invalid.
The case involved 12 petitioners, part of the original 35 employees declared by the Supreme Court as having been illegally dismissed by the PCBSI and SRMI.
Both companies were previously ordered to pay back wages and separation pay to the affected employees.
The petitioners later entered into separate compromise agreements with the companies. The settlement amounts ranged from 5.20 percent to 23.42 percent of the total back wages and separation pay owed to them. These reduced amounts were deemed unfair and insufficient, given the employees’ rights.
The Executive Labor Arbiter (ELA) noted in the agreements that the settlements would not affect ongoing proceedings regarding the calculation of back wages and separation pay owed to the petitioners’ rightful entitlements stemming from the illegal dismissal case.
The PCBSI and SRMI argued that the petitioners were no longer entitled to receive the remaining backwages and separation pay because they had already accepted the settlement amounts.
The ELA ruled that the settlement amounts should be considered as advances on backwages and separation pay rather than full payment.
SRMI filed a petition for extraordinary remedies with the National Labor Relations Commission (NLRC).
The NLRC denied the petition, ruling the compromise agreements invalid because the settlement amounts were unreasonable.
The Court of Appeals overturned the NLRC decision, upholding the validity of the compromise agreements, stating they were voluntarily signed by the petitioners.
The case was elevated to the Supreme Court, where the petitioners challenged the validity of the compromise agreements.
The Supreme Court ultimately sided with the petitioners, declaring the agreements invalid due to the excessively low amounts offered, reinforcing the principle that fairness must underpin all settlements.
The high court reinforced the right of workers to receive just compensation and not be coerced into accepting unfair settlements.
The SC also clarified the legal standards for the validity of settlements, also regarded as quitclaims, in labor cases.
For a quitclaim to be valid, the employee must sign the agreement without coercion. There should be no deceit or misrepresentation by either party.
Likewise, the settlement must also reflect a fair and just amount. It must not violate legal norms, public policy, or good customs.
The Court found that the settlements represented only 5.20 percent to 23.42 percent of the back wages and separation pay owed to the petitioners.
The tribunal ruled that the reasonableness of settlement amounts is determined on a case-by-case basis, not by a fixed percentage.
In this case, the amounts were deemed unreasonable due to their significant deviation from the petitioners’ rightful entitlements.
The high court ordered SRMI and PCBSI to pay the petitioners the balance of their back wages and separation pay after deducting amounts already received.
The companies were also ordered to pay six percent annual interest from the date of the decision until the full payment was made./PN
