Excessively low compromise agreements are invalid — SC

The Supreme Court (SC) has ruled that compromise agreements and settlements that offer employees excessively low amounts are invalid.

In a decision promulgated in May, the SC Second Division invalidated the compromise agreement between two companies and several illegally dismissed employees.

The SC said the petitioners were 12 out of 35 employees earlier declared as illegally dismissed by the two companies. The court ordered the companies to pay the employees backwages and separation pay.

According to the SC, the employees later agreed to receive settlement amounts ranging from 5.20% to 23.42% of the backwages and separation pay they were entitled.

The National Labor Relations Commission (NLRC) ruled that the agreements were invalid because the amounts given to the petitioners were unreasonable.

However, the Court of Appeals found that the agreements were valid as they were voluntarily signed by the petitioners.

This prompted the present petition before the High Court.

In its ruling, the SC affirmed the ruling of the NLRC and reversed and set aside the ruling of the appellate court. 

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

According to the court the employees only received a total of P1 million, lower than the P6 million award that they should have received.

“From this, and as can be seen from the table above, it is immediately clear that the settlement amounts are startingly lower than what petitioners are legally entitled to. The NLRC, therefore, did not commit grave abuse of discretion in denying the petition,” the SC said.

Due to this, the SC ordered the companies to pay the petitioners their monetary awards, which shall bear a legal interest rate of 6% per annum from the finality of the decision until full payment. 

Meanwhile, the SC said that there is no exact percentage that determines the reasonableness of a monetary consideration in quitclaims and compromise agreements and must be determined on a case-to-case basis.—AOL, GMA Integrated News