Goodrich Manufacturing v. Ativo (2010): When a Quitclaim Holds

The workers were machine and maintenance operators at Goodrich Manufacturing Corporation. In late 2004, because of lingering financial constraints, the company gave all its employees the option to resign voluntarily. Several employees, including these workers, took the option. On December 29, 2004, they were paid separation pay. On January 3, 2005, they signed documents titled "Release, Waiver and Quitclaim", stating that they received the sum in full settlement of all claims and released the company from all actions.

The next day, January 4, 2005, they filed complaints for illegal dismissal and full monetary benefits. The Labor Arbiter found no illegal dismissal but held the company liable for unpaid emergency cost of living allowance, 13th month pay and service incentive leave pay, and found the separation pay insufficient. The NLRC reversed and dismissed the money claims, finding the amounts received not unreasonable and the quitclaims signed voluntarily. The Court of Appeals agreed that the workers resigned without coercion, but reinstated the Labor Arbiter's decision on the unpaid benefits. The company went to the Supreme Court.

Are the release, waiver and quitclaim documents signed by the workers valid and binding? May the workers still recover the difference between what they received and what they claimed?

The Supreme Court granted the petition, reversed the Court of Appeals and reinstated the NLRC decision dismissing the claims.

The law disfavors quitclaims, but not all of them. The Court said the law "looks with disfavor on quitclaims and releases by employees who have been inveigled or pressured into signing them by unscrupulous employers". It has given effect to quitclaims if the employer proves four requisites: (1) the employee signed the quitclaim voluntarily; (2) there was no fraud or deceit on the part of any of the parties; (3) the consideration is credible and reasonable; and (4) the contract is not contrary to law, public order, public policy, morals or good customs, or prejudicial to a third person with a right recognized by law.

The Periquet rule. The Court quoted its earlier ruling in Periquet v. NLRC (1990): "Not all waivers and quitclaims are invalid as against public policy." A voluntary agreement that represents a reasonable settlement "is binding on the parties and may not later be disowned simply because of a change of mind." The law steps in only where there is clear proof that the waiver was obtained from an unsuspecting or gullible person, or the terms are unconscionable on their face.

Applied to the workers. Both the Labor Arbiter and the NLRC found that the workers signed without coercion, and the workers admitted this. They argued they were deceived: they thought the company was closing and that they would be paid in full, but they later learned it had only taken a different name. The Court rejected this for three reasons. The quitclaim documents were simple, clear and unequivocal. The claim that the company continued under another name was not proven before the Labor Arbiter or the NLRC and rested on surmise. And the amounts they received did not appear "grossly inadequate" compared with what they should receive in full, especially since the Labor Arbiter's computation included 13th month pay for two years that had already been paid. The difference was "a fair and reasonable bargain on the part of both parties."

A quitclaim signed by an employee is valid and binding if the employer proves that it was signed voluntarily, without fraud or deceit, for a credible and reasonable consideration, and that it is not contrary to law, public order, public policy, morals or good customs or prejudicial to a third person; a voluntary and reasonable settlement may not later be disowned simply because of a change of mind.

Goodrich is a common reference for the four requisites of a valid quitclaim, and it carries the often quoted language of Periquet v. NLRC (1990). Read together, they mean that a quitclaim is neither automatically void nor automatically binding. The employer bears the burden of proving the requisites, and courts look at whether the employee understood what was signed and whether the amount was reasonable compared with what was due. A quitclaim obtained through pressure, deceit or for an unconscionably low amount may be set aside. For what a dismissed employee may recover, see illegal dismissal remedies.

Here is a made-up illustration, with invented names. Ramon accepts his company's voluntary resignation offer, reads a one-page quitclaim and signs it after receiving an amount close to what he computed as due. A month later he regrets it and files a claim for more. Under the reasoning in Goodrich, the quitclaim may be upheld if the company proves he signed freely and the amount was reasonable. If he had been told he would lose his final pay unless he signed a blank form, or the amount were very far below what was due, the result could be different.

See also the meaning of quitclaim.

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