In the Philippine labor landscape, constructive dismissal occurs when an employer creates an environment so hostile, unbearable, or discriminatory that an employee is forced to resign. Legally, this is treated as a "dismissal in disguise," entitling the employee to the same remedies as those illegally terminated.
When litigating these cases before the National Labor Relations Commission (NLRC), the issue of attorney fees is often a central point of contention. Under Philippine law, the rules governing these fees are distinct, balancing the protection of workers' rights with the standard of "reasonable compensation."
1. Legal Basis for Attorney Fees
The primary legal basis for claiming attorney fees in labor cases is Article 111 of the Labor Code of the Philippines, supplemented by Article 2208 of the Civil Code.
- Article 111 (Labor Code): Explicitly states that in cases of unlawful withholding of wages, the culpable party may be assessed attorney fees equivalent to 10% of the amount of wages recovered.
- Civil Code Integration: Under Article 2208, attorney fees may be recovered when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect their interest.
2. The "10% Cap" Rule
In the context of constructive dismissal, the prevailing rule is that attorney fees are generally limited to 10% of the total monetary award. This award typically includes:
- Backwages (computed from the time of constructive dismissal up to finality of judgment).
- Separation pay (in lieu of reinstatement, which is common in constructive dismissal due to strained relations).
- Other monetary benefits (13th-month pay, service incentive leaves, etc.).
Note: This 10% is a statutory ceiling for fees taxed as costs against the employer. It does not necessarily dictate the private billing arrangement between the lawyer and the client, though the NLRC rarely awards more than this percentage in the final judgment.
3. Standards for Awarding Attorney Fees
Attorney fees are not automatically granted simply because an employee wins a constructive dismissal case. The Supreme Court of the Philippines has established two primary circumstances for their award:
| Basis | Description |
|---|---|
| Statutory (Extraordinary) | Awarded when there is an unlawful withholding of wages (Article 111). |
| Equity (Ordinary) | Awarded when the employer acted in bad faith, forcing the employee to litigate to seek redress for the illegal act. |
In constructive dismissal, bad faith is often inherent. Since the dismissal involves a "calculated" attempt by the employer to make the employee’s life miserable (e.g., demotion, salary reduction, or harassment), the labor arbiter usually finds sufficient ground to award the 10% fee.
4. Types of Fee Arrangements
While the law sets what the employer must pay, the lawyer and the employee often agree on one of the following:
- Contingency Fee Basis: This is the most common arrangement in the Philippines. The lawyer receives a percentage (often 10% to 30%) only if the case is won. While the court may only order the employer to pay 10%, the employee and lawyer may have a private contract for a higher percentage of the total recovery.
- Retainer/Fixed Fee: Less common for employees, where a set amount is paid regardless of the outcome.
- Quantum Meruit: Meaning "as much as he deserves." If there is no written contract, the court determines the fee based on the lawyer’s effort, the complexity of the case, and the professional standing of the counsel.
5. Moral and Exemplary Damages
If the constructive dismissal was carried out in a wanton, oppressive, or malevolent manner, the employee may be awarded moral and exemplary damages. Attorney fees are almost always awarded in cases where such damages are granted, as the presence of bad faith is legally established.
6. Common Pitfalls and Clarifications
- Reinstatement vs. Separation Pay: If an employee is "reinstated" in a constructive dismissal case (rare due to the nature of the claim), the attorney fees are still computed based on the backwages recovered.
- The "No-Win, No-Fee" Myth: While many labor lawyers work on contingency, the employee is often still responsible for "filing fees" (if the claim exceeds a certain amount) and "litigation expenses" (notary, mailing, transportation), unless otherwise agreed.
- Finality of Judgment: Attorney fees continue to accrue based on the total computation of the award until the moment the decision is fully executed.
Summary of Recoverable Amounts
In a successful constructive dismissal suit in the Philippines, the financial liability of the employer regarding legal representation typically looks like this:
- Total Monetary Award = (Backwages + Separation Pay + Benefits).
- Attorney Fees = 10% of the Total Monetary Award.
- Legal Interest = 6% per annum from the date of finality of judgment until full satisfaction.