The Supreme Court ruled that compromise agreements and settlements between employers and employees that offer excessively low amounts are invalid.

This was stated in a decision written by Associate Justice Antonio T. Kho Jr. dated 29 May 2024, the Supreme Court’s Second Division invalidated the compromise agreements executed by San Roque Metals Inc. (SRMI) and Prudential Customs Brokerage Services Inc. (PCBSI) with a group of illegally dismissed employees.

Twelve of the original 35 employees filed a petition, and the Supreme Court ruled that they had been illegally dismissed by PCBSI and SRMI.

Both companies were ordered to pay the employees back wages and separation pay.

The petitioners later entered into separate compromise agreements where they agreed to receive settlement amounts from PCBSI and SRMI, ranging from 5.20 percent to 23.42 percent of the back wages and separation pay they were entitled to due to the illegal dismissal case.

The Executive Labor Arbiter (ELA) noted on the final page of each agreement that the settlement will not affect the outcome of ongoing proceedings related to the calculation of back wages and separation pay owed to the petitioners.

PCBSI and SRMI argued that the petitioners are not entitled to receive their remaining back wages and separation pay, as they have already accepted the settlement.

The ELA later ruled that the amounts in the compromise agreements should be considered advances on the back wages and separation pay owed, rather than full payment.

SRMI subsequently petitioned for extraordinary remedies with the NLRC, which was denied. The NLRC ruled that the compromise agreements were invalid, as the amounts provided to the petitioners were deemed unreasonable.

However, the Court of Appeals ruled that the compromise agreements were valid for being voluntarily signed by the petitioners, prompting them to file a petition before the Supreme Court.

The Supreme Court agreed with the NLRC and found the compromise agreements invalid and ruled that settlements are also considered quitclaims or legal documents signed by employees to waive their rights in favor of their employers.

The Court found that the compromise agreements signed by the petitioners only represent 5.20 percent to 23.42 percent of the amounts they are entitled to receive from the judgment in their illegal dismissal case.

The Court ordered SRMI and PCBSI to pay the petitioners the amounts owed to them from the illegal dismissal case, after deducting any amounts they have already received.