Attorney’s Fees in Employee Reinstatement Awards under Philippine Law
(A comprehensive doctrinal and jurisprudential survey)
1. Introduction
In illegal-dismissal litigation the usual monetary core is (a) backwages, (b) reinstatement wages (if the employee is kept on the payroll while the case is on appeal), and (c) damages and other benefits. Almost invariably the decision also contains a line that reads:
“Plus ten percent (10 %) of the total monetary award as attorney’s fees.”
Because that single sentence has generated recurring questions—What is the legal basis? Is the 10 % fixed? When is it denied? Does it already belong to counsel?—this article gathers “everything there is to know” about attorney’s fees in the specific context of employee reinstatement awards in the Philippines.
2. Statutory Foundations
| Provision | Key text | Relevance to reinstatement awards |
|---|---|---|
| Article 111, Labor Code (renumbered Art. 229) | § (a) “In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent (10 %) of the amount of wages recovered.” § (b) “It shall be unlawful … to demand or accept … attorney’s fees which exceed 10 % of the wages recovered.” |
Principal statutory peg. Backwages and reinstatement wages are “wages” for purposes of the article; hence the standard 10 %. |
| Article 2208, Civil Code | Allows courts to award attorney’s fees “in actions for the recovery of wages” and when the party is compelled to litigate by the defendant’s act. | Serves as suppletory authority when the Labor Code does not squarely apply (e.g., mixed money claims, separation pay). |
| NLRC Rules of Procedure (Rule XI, § 10) | The Labor Arbiter or the NLRC may grant attorney’s fees “in accordance with Art. 111 of the Code.” | Implements the statutory rule and confirms that the award is discretionary, not automatic. |
3. Dual Nature of Attorney’s Fees
| As Indemnity for Damages | As Compensation for Counsel |
|---|---|
| Awarded to the employee to indemnify the cost of vindicating a right. The employer pays it in addition to wages and benefits. | The lawyer collects his professional fee from the employee. When the case involves recovery of wages, Art. 111(b) caps that fee at 10 %. |
| Creature of the court’s judgment; may be reduced or deleted on appeal. | Creature of the lawyer-client contract, subject to the statutory ceiling. |
Practical effect: The 10 % written in the decision belongs first to the employee; counsel must still apply or agree with the client to receive it, and cannot exceed the 10 % ceiling for wage recoveries.
4. When Are Attorney’s Fees Awarded?
Unlawful withholding of wages
Illegal dismissal automatically implies wages were withheld. Hence, once dismissal is found illegal, attorney’s fees may be awarded even without a separate showing of bad faith.
Key cases- Session Delights Ice Cream v. CA (G.R. 172149, 28 Nov 2008) – reaffirmed that illegal dismissal is, by itself, “unlawful withholding.”
- Coca-Cola Bottlers Phils. v. Garcia (G.R. 196271, 31 July 2013) – 10 % upheld despite absence of explicit finding of malice.
Bad-faith conduct or obstinate refusal to reinstate
Even if the original dismissal was in good faith, attorney’s fees may attach where the employer defies a reinstatement order, necessitating execution proceedings (Aris [Phil.] Inc. v. NLRC, G.R. 94927, 10 Dec 1996).Employee compelled to litigate for reinstatement wages
When the employer opts for payroll reinstatement but fails to pay during appeal, the withheld amounts are treated like backwages; Art. 111 applies.Discretionary denial
The NLRC or the Court may delete attorney’s fees if the employer acted in good faith and immediately pays after judgment, or when equities strongly favor it (Gotesco Investment Corp. v. NLRC, G.R. 114794, 19 Feb 1998).
5. Computation Base and Rate
| Component of the award | Included in the 10 % base? | Notes |
|---|---|---|
| Backwages | ✔ | From dismissal up to actual reinstatement (or finality of decision if no reinstatement). |
| Reinstatement wages (payroll reinstatement during appeal) | ✔ | Treated as withheld wages. |
| Separation pay in lieu of reinstatement | ✔ | The entire separation-pay equivalent (usually one month’s pay per year of service). |
| 13th-month pay, service incentive leave, COLA, allowances | ✔ | All form part of “monetary benefits” recovered. |
| Moral & exemplary damages | ✖ | These are damages, not wages; some decisions include them, but prevailing view is to exclude. |
| Interest imposed by judgment | ✖ | Attorney’s fees attach to the principal monetary award, not to post-judgment interest. |
Is 10 % mandatory?
No. Art. 111 says “may be assessed,” and the Civil Code provision is discretionary. Nevertheless, 10 % has become the standard, reduced only when the total recovery is very large and the Supreme Court finds 10 % “oppressive or unconscionable” (e.g., Salazar v. NLRC, G.R. 109015, 17 Oct 1996, where it was reduced to 5 %).
6. Ceiling on Private Fee Arrangements
- Absolute statutory cap: In wage-recovery cases, any agreement for counsel fees beyond 10 % of wages is void for the excess.
- No cap on non-wage items: Where the award consists largely of damages or retirement benefits (not “wages”), the client and lawyer may stipulate higher fees, but the court-awarded indemnity remains discretionary and usually still pegged at 10 %.
- Contingency fee contracts are permitted, provided they respect the 10 % ceiling for the wage component.
7. Enforcement and Attorney’s Liens
Once final, the attorney’s-fees component is collected together with the principal award. If the employee refuses to turn over the fee, counsel may assert an attorney’s lien before the Labor Arbiter or the regular courts. The lien is enforced via:
- Motion to withhold the corresponding percentage from the sheriff’s levy; or
- Independent action to collect fees if already received by the client.
8. Tax Treatment
Under current BIR rules and jurisprudence (Commissioner of Internal Revenue v. Mansorara, et al., 2022), the entire monetary award—including the share representing attorney’s fees—is subject to withholding tax in the hands of the employee-payee. The lawyer who subsequently receives his agreed fee issues a receipt to the client and treats it as professional income.
9. Common Pitfalls and Practical Tips
| For Employees | For Employers |
|---|---|
| ● Engage counsel under a written agreement that expressly respects the 10 % limit on wage claims. ● If separation pay is awarded, clarify whether the 10 % will apply to that item as well. ● Monitor compliance with payroll reinstatement; delayed payments enlarge both backwages and the attorney’s-fees base. |
● Good-faith reinstatement or prompt separation-pay payment mitigates or eliminates attorney’s fees. ● If you immediately offer reinstatement after service of the complaint, document it; this can convince the arbiter that “unlawful withholding” ceased and justify the denial of fees. ● Deposit reinstatement wages in court during appeal to avoid additional 10 % exposure. |
10. Key Supreme Court Decisions at a Glance
| Case | G.R. No. / Date | Doctrine on Attorney’s Fees |
|---|---|---|
| Session Delights Ice Cream v. CA | 172149 – 28 Nov 2008 | Illegal dismissal = unlawful withholding → 10 % proper even without explicit bad faith finding. |
| Coca-Cola Bottlers v. Garcia | 196271 – 31 Jul 2013 | 10 % upheld; Art. 111 is “social-justice legislation” construed liberally in labor’s favor. |
| Gotesco Investment v. NLRC | 114794 – 19 Feb 1998 | Deleted attorney’s fees where employer acted in good faith and promptly complied. |
| Salazar v. NLRC | 109015 – 17 Oct 1996 | Reduced 10 % to 5 % because the total award was exceptionally large; courts may moderate fee to avoid windfall. |
| Aris (Phil.) Inc. v. NLRC | 94927 – 10 Dec 1996 | Employer’s failure to reinstate after final order justified fees; award computed on wages accumulated post-decision. |
11. Conclusion
Attorney’s fees in reinstatement awards rest on a delicate balance between compensating the worker for the cost of vindicating a fundamental right and protecting him from excessive legal charges. The 10 % benchmark, traceable to Article 111 of the Labor Code, has proven both easy to administer and faithful to the social-justice complexion of labor law, yet it remains discretionary—courts may reduce or even delete it in the rare case where equities so demand. Understanding the statutory framework, jurisprudential refinements, and practical mechanics ensures that both employees and employers can navigate reinstatement litigation with clear expectations about this often-misunderstood component of the judgment.
(This article is for informational purposes only and does not constitute legal advice. For case-specific guidance, consult a Philippine labor-law practitioner.)