16 July 2015

TO
:
DSL
FROM:
CPV
RE
:
Rules on Final Pay when an Employee Resigns
______________________________________________________________________________
This memorandum is to address the question on whether an employer
has the right to hold on to the final pay of a resigning employee and the
length of time that the employer can withhold the final pay.
Discussion
As a rule, an employee may terminate his contract of employment by
means of resignation and, generally, he must serve his employer a written
notice of the intended resignation at least one month in advance prior to the
date of its effectivity. This is expressly provided for under Article 285 of the
Labor Code:
Article 285 (1) An employee may terminate without just cause
the employee-employer relationship by serving a written notice
on the employer at least one month in advance. The employer
upon whom no such notice was served may hold the employee
liable for damages. x x x

In addition, the same article gives an employee the right to terminate

his contract of employment, provided that the cause or causes of such
termination is due to the following circumstances:
Article 285 (2) An employee may put an end to the
relationship without serving any notice on the employer for any
of the following just causes:
1. Serious insult by the employer or his representative on
the honor and person of the employee;
2. Inhuman and unbearable treatment accorded the
employee by the employer or his representative;
3. Commission of a crime or offense by the employer or his
representative against the person of the employee or
any of the immediate members of his family; and
4. Other causes analogous to any of the foregoing.

Employee rights upon resignation

An employees right to receive his salary for the period prior to the
effectivity of his resignation continues to accrue, since within this period the
employee still has to render services for the employer, which under the law
must be compensated.
Moreover, the resigning employee is also entitled to other benefits.
One of these benefits is the payment of his 13th month pay. Under the
Revised Guidelines on the Implementation of the 13th Month Pay Law, an
employee who has resigned or whose service was terminated at any time
before the time for payment of the 13th month pay is entitled to this
monetary benefit in proportion to the length of time he has worked during
the calendar year up to the time of his resignation or termination from the
service.
Further, the employee is also entitled to the commutation of his
accumulated service incentive leave credits to cash, as provided under Book
III, Rule V, Section 5 of the Implementing Rules and Regulations of the Labor
Code.

However, the employer may not immediately give the salary and
benefits due to the employee. The employee still has to be cleared from any
accountability with the company before the final pay is released. The
rationale for such is for the employer to be given a chance to clear the
employee from any liability. Should there be any, the employer may
withhold such reasonable amount covering the said liability due to the
company from the employees salary.
Nonetheless, the Labor Code has not provided any rule with respect to
the length of time for an employer to withhold the final pay of an employee.
In this regard, it may be noted that every employee has a contract of
employment with his/her company and such contract binds both the
employer and the employee. Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in
good faith (Article 1159 of the Civil Code).
In contracts, the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy
(Article 1306, Civil Code). Thus, should there be any stipulations in the
contract of employment as to the manner of release of an employees final
pay, said stipulations shall bind the both the employer and the employee,
provided that said stipulations do not run counter to any law, public policy or
morals. In the absence of any stipulation of such nature, the customary
practice of the company should be consulted.
Conclusion
In view of the foregoing, it appears that there is no law, jurisprudence,
rule or guideline that provides for a period or deadline on the release of the
final pay of resigning employees. It is actually the policies or practice of the
company that govern the withholding of the salary due to an employee on
account of his resignation.
Despite the silence of the law or rules on when the final pay of
resigning employees should be given, it should be noted that when there is a
labor issue, the law almost always favors the employees, hence, it is
suggested that such release should be made within a reasonable time
without prejudicing the interest of the employee, i.e. within 30-90 days from
the effectivity of the resignation.