Quick answer

When an employee is illegally dismissed, the reliefs are reinstatement and full backwages; where reinstatement is no longer viable, separation pay is awarded in lieu of reinstatement, together with backwages. Backwages and separation pay are two distinct awards computed differently. Backwages represent the earnings the employee lost by reason of the illegal dismissal; they are computed from the time compensation was withheld (the date of dismissal) up to the finality of the decision ordering reinstatement, or, where separation pay is awarded instead of reinstatement, up to the finality of the decision. Full backwages generally include the basic salary and the regular allowances and benefits the employee was receiving or would have received (such as 13th month pay and, in appropriate cases, other regular benefits), without deducting the earnings the employee may have obtained elsewhere during the period (the 'no deduction' rule under prevailing jurisprudence). Separation pay in lieu of reinstatement, on the other hand, is generally computed at one month salary for every year of service, a fraction of at least six months being considered as one whole year, reckoned from the start of employment up to the finality of the decision. It is important to note that backwages and separation pay in lieu of reinstatement are cumulative in an illegal dismissal case, they are not alternatives to each other; the employee gets both when reinstatement is not ordered. The 'strained relations' doctrine is a common reason reinstatement is replaced by separation pay. So backwages compensate lost earnings from dismissal to finality, while separation pay in lieu of reinstatement is one month per year of service, and an illegally dismissed employee generally receives both when not reinstated.

The Reliefs for Illegal Dismissal

An illegally dismissed employee gets reinstatement + full backwages, or, if reinstatement is not viable, separation pay in lieu of reinstatement + backwages. Backwages and separation pay are distinct and computed differently.

Backwages

Backwages = the earnings lost due to the dismissal, from the date of dismissal to the finality of the decision, including basic salary and regular benefits (e.g., 13th month), and generally without deducting earnings from other work.

Separation Pay in Lieu of Reinstatement

Generally one month salary per year of service (a fraction of 6+ months = one year), from hiring to finality. Backwages and separation pay are cumulative — the employee gets both when not reinstated. Strained relations often replace reinstatement with separation pay.

Practical Takeaways

Frequently Asked Questions

What is the difference between backwages and separation pay? Backwages compensate the earnings lost from the date of dismissal to the finality of the decision. Separation pay in lieu of reinstatement is generally one month salary per year of service, awarded when reinstatement is no longer viable.

How are backwages computed? From the time compensation was withheld (the dismissal) up to the finality of the decision, including the basic salary and regular allowances and benefits, and generally without deducting earnings obtained elsewhere during the period.

Does an illegally dismissed employee get both backwages and separation pay? Yes, when reinstatement is not ordered. Backwages and separation pay in lieu of reinstatement are cumulative, not alternatives. The employee receives both.

Why is separation pay sometimes awarded instead of reinstatement? Commonly under the strained relations doctrine, where the relationship between employer and employee has become so antagonistic that reinstatement is no longer in the best interest of the parties.

This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.

If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.