16 July 2015

TO: DSLFROM: CPVRE: 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 on hold 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

The same article, however, gives an employee the right to terminate his 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; and4. Other causes analogous to any of the foregoing.

Employee Rights upon Resignation

An employees right to receive his salary while in 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.

In addition, the resigning employee is also entitled to other benefits. One of which is that a resigning employee is still entitled to 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 give yet the salary and benefits due to the employee for the reason that he still has to be cleared from any accountability with the company before the final pay is released. The rationale of such is that the employer should be given a chance to clear the employee from any liability, should there be any, before the release of the employees last salary.

Conclusion

There is no law, jurisprudence, rule or guidelines on the release of the final pay of resigning employees.

It has to be noted that every employee has a contract of employment with his/her company and that 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, if there are stipulations as to the manner of release of salary within the thirty-day period in the contract of employment (should there be any) prior to resignation, it will bind the employee, provided that they do not run counter to any law, public policy or morals. In the absence of a contract, the customary practice of the company should be consulted.

It is the policies of the company that generally govern the withholding of the salary due to an employee on account of his resignation.