In February, the Supreme Court released a ruling on the case of Milan vs National Labor Relations Commission. The case discussed the age-old question: Are exit clearances required by the company lawful? Can an employer withhold the final pay of its employees? And if so, for how long?
In a 2004 case, the Supreme Court held that employers have no legal authority to withhold an employee’s final pay and benefits despite the fact that the employee effectively transferred his liability to his employer by defaulting on a loan guaranteed by the latter. Specifically, the Court held: “What an employee has worked for, his employer must pay.” An employer therefore cannot refuse to pay the employee his benefits simply because he or she defaulted on a loan guaranteed by the employer.
In the Milan case, however, the Supreme Court appears to have changed its stand. The Milan case involves former employees of Solid Mills who filed a complaint when their final pay was not released by the company.
The employees claimed that sometime in September 2003, they were informed that Solid Mills will cease operation by October 2003 due to serious business losses. They were required to sign a memorandum of agreement (MoA) with release and quit claims before the release of their vacation leave and sick leave benefits, 13th month pay and separation pay. Accordingly, employees who signed the MoA also had to agree to vacate the housing provided by Solid Mills to give way to the demolition.
The complaint was lodged by the employees after Solid Mills refused to release their final pay in view of their refusal to sign their quit claims and to vacate the houses provided by the company. According to these employees, “accountabilities” should be interpreted to refer only to accountabilities that were incurred by petitioners while they were performing their duties as employees of the company and therefore does not include the housing benefit. Thus, failure to vacate the premises is not a justifiable reason to withhold their final pay.
The Supreme Court ruled in favor of Solid Mills and held that its act of withholding benefits was justified because of the employees’ refusal to return the company property. First, the Supreme Court clarified that requiring exit clearance procedure is “a standard procedure among employers, whether public or private.” This is allowed to ensure that the “real or personal properties of the employer currently in possession of the employee” is returned before his or her departure. Our law clearly supports the employers’ institution of clearance procedures before the release of the employees’ final pay. The Court held that this is a valid exercise of management prerogative, granted that it is within the limits of the law.
It must be noted that the “right to regulate all aspects of employment” is not absolute and must not be construed as license to temporarily withhold salaries or wages without the consent of the employee. Such interpretation will be considered unlawful. It is against Article 116 of the Labor Code that prohibits withholding of wages and kickbacks without proper consent of the employee.
Article 113 of the Labor Code however provides for certain exceptions to the general rule. It states that “no employer, in his own behalf or in behalf of any person, shall make any deductions from the wages of his employees” except for insurance premiums, union dues or “in cases where the employer is authorized by law or regulators issued by the Secretary of Labor and Employment.” On the other hand, Article 1706 of the Civil Code also prohibits employers from withholding wages except for a debt due.
In this regard, the Supreme Court in the Milan case defined the term “debt,” the existence of which necessarily allows an employer to temporarily withhold their employee’s final pay. “Debt” was defined as “any obligation due from the employee to the employer,” which includes any accountability the former has to the latter. The term is not limited to those incurred in the worksite. As long as the debt or obligation was incurred by virtue of the employer-employee relationship, it is considered as an accountability or debt and shall constitute as a sufficient basis for the employer to withhold wages.
In essence, while the law respects the right of employees to be justly compensated through their terminal pay, the employee must return any and all properties properly and originally possessed by the employer. As highlighted in the ruling, it needs to be consistent with the equitable principle that “no one should be unjustly enriched or benefited at the expense of another.”
Roxanne Katrin M. De Los Reyes is an associate of the Angara Abello Concepcion Regala & Cruz Law Offices (Accralaw).
mdelosreyes@accralaw.com
In the Milan case, however, the Supreme Court appears to have changed its stand. The Milan case involves former employees of Solid Mills who filed a complaint when their final pay was not released by the company.
The employees claimed that sometime in September 2003, they were informed that Solid Mills will cease operation by October 2003 due to serious business losses. They were required to sign a memorandum of agreement (MoA) with release and quit claims before the release of their vacation leave and sick leave benefits, 13th month pay and separation pay. Accordingly, employees who signed the MoA also had to agree to vacate the housing provided by Solid Mills to give way to the demolition.
The complaint was lodged by the employees after Solid Mills refused to release their final pay in view of their refusal to sign their quit claims and to vacate the houses provided by the company. According to these employees, “accountabilities” should be interpreted to refer only to accountabilities that were incurred by petitioners while they were performing their duties as employees of the company and therefore does not include the housing benefit. Thus, failure to vacate the premises is not a justifiable reason to withhold their final pay.
The Supreme Court ruled in favor of Solid Mills and held that its act of withholding benefits was justified because of the employees’ refusal to return the company property. First, the Supreme Court clarified that requiring exit clearance procedure is “a standard procedure among employers, whether public or private.” This is allowed to ensure that the “real or personal properties of the employer currently in possession of the employee” is returned before his or her departure. Our law clearly supports the employers’ institution of clearance procedures before the release of the employees’ final pay. The Court held that this is a valid exercise of management prerogative, granted that it is within the limits of the law.
It must be noted that the “right to regulate all aspects of employment” is not absolute and must not be construed as license to temporarily withhold salaries or wages without the consent of the employee. Such interpretation will be considered unlawful. It is against Article 116 of the Labor Code that prohibits withholding of wages and kickbacks without proper consent of the employee.
Article 113 of the Labor Code however provides for certain exceptions to the general rule. It states that “no employer, in his own behalf or in behalf of any person, shall make any deductions from the wages of his employees” except for insurance premiums, union dues or “in cases where the employer is authorized by law or regulators issued by the Secretary of Labor and Employment.” On the other hand, Article 1706 of the Civil Code also prohibits employers from withholding wages except for a debt due.
In this regard, the Supreme Court in the Milan case defined the term “debt,” the existence of which necessarily allows an employer to temporarily withhold their employee’s final pay. “Debt” was defined as “any obligation due from the employee to the employer,” which includes any accountability the former has to the latter. The term is not limited to those incurred in the worksite. As long as the debt or obligation was incurred by virtue of the employer-employee relationship, it is considered as an accountability or debt and shall constitute as a sufficient basis for the employer to withhold wages.
In essence, while the law respects the right of employees to be justly compensated through their terminal pay, the employee must return any and all properties properly and originally possessed by the employer. As highlighted in the ruling, it needs to be consistent with the equitable principle that “no one should be unjustly enriched or benefited at the expense of another.”
Roxanne Katrin M. De Los Reyes is an associate of the Angara Abello Concepcion Regala & Cruz Law Offices (Accralaw).
mdelosreyes@accralaw.com
source: Businessworld
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