The Supreme Court (SC) Second Division emphasized that compromise agreements and settlements between employers and employees are invalid if the amount is too low and unreasonable.

In a decision penned by Associate Justice Antonio T. Kho Jr., the High Court upheld the National Labor Relations Commission’s (NLRC) invalidation of the compromise agreements based on two grounds: (1) the settlement amounts were unconscionably low, and (2) the notation by the Executive Labor Arbiter (ELA) created ambiguity in the agreements, raising doubts about whether the petitioners fully understood their terms and conditions.

FACTS AND ISSUE

Several complaints were filed against Prudential Customs Brokerage Services, Inc. (PCBSI) and San Roque Metals, Inc. (SRMI) for illegal dismissal.

The ELA ruled that PCBSI and SRMI illegally dismissed the employees and ordered them to pay backwages and separation pay in lieu of reinstatement. Both employers appealed. 

The NLRC also ordered PCBSI to reinstate the employees without backwages but without loss of seniority rights. The employees moved for reconsideration, but the NLRC denied their motion.

Subsequently, the petitioners entered into separate compromise agreements with PCBSI and SRMI, agreeing to receive settlement amounts ranging from 5.20% to 23.42% of the backwages and separation pay awarded to them in the illegal dismissal case.

Twelve employees signed these agreements and filed a motion to admit the computation of the monetary award due to them.

However, the employers opposed the motion, arguing that the computations should be disregarded because the petitioners had already waived their rights by signing the compromise agreements.

The ELA ruled that the amounts in the compromise agreements did not constitute full payment to the petitioners. 

The NLRC invalidated the agreements, holding that the petitioners did not fully understand their implications. 

SRMI filed a motion for reconsideration, which the NLRC denied. SRMI then filed a petition for certiorari with the Court of Appeals (CA).

The CA found grave abuse of discretion on the part of the NLRC in invalidating the compromise agreements.

The primary issue in the case was whether the compromise agreements were valid.

RULING

The Supreme Court ruled that the CA erred in finding grave abuse of discretion by the NLRC, whose decision was supported by substantial evidence and case law.

“The Court agrees with the NLRC that the amounts stated in the compromise agreements are not reasonable,” the High Court held.

“There is no exact percentage that determines the reasonableness of a monetary consideration in quitclaims and compromise agreements. In several cases, the Court has deemed settlement amounts of varying percentages to be unreasonable, which shows that the reasonableness of a settlement amount is determined on a case-to-case basis rather than through a mathematical precision,” the decision read.

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