Non-Payment of Back Pay Claim for Resigned Employees

Non-Payment of Back Pay Claim for Resigned Employees in the Philippines: A Comprehensive Overview

In Philippine labor law, employees who resign from their posts are generally entitled to receive what is colloquially known as a “back pay” or “final pay.” This final pay includes all compensation still owed to the employee up to the effective date of separation from the company. Despite clear guidelines by the Department of Labor and Employment (DOLE) and the Labor Code of the Philippines, disputes and delays in releasing back pay continue to arise. Below is a comprehensive discussion of the legal framework, obligations of employers, rights of employees, and remedies in cases of non-payment of back pay.


1. Definition of “Back Pay” or “Final Pay”

a. Nature of Back Pay

“Back pay” or “final pay” commonly refers to the sum of all unpaid compensation owed to the employee as of the date of separation from employment. Although the term “back pay” may sometimes be used in other contexts (for example, as a remedy in illegal dismissal cases), in the context of resignation, it generally aligns with “final pay.”

b. Components of Final Pay

Under existing DOLE guidelines and general employment practices, the following are typically included in the final pay:

  1. Unpaid Salary or Wages – Any salary for work rendered up to the last working day that remains unpaid.
  2. Pro-rated 13th Month Pay – If the separation occurs before the end of the year, the employee is entitled to the proportionate amount of the 13th-month pay for the period worked.
  3. Unused Service Incentive Leave (SIL) or Vacation Leave – If company policy provides for commutation of unused leaves, or if the employee is covered under the mandatory service incentive leave provisions (5 days per year) and the company’s leave policy allows for its conversion to cash.
  4. Other Benefits Stipulated by Company Policy or Contract – Any bonuses, allowances, or benefits that are contractually promised or provided under company policy that remain due at the time of resignation.

It is important to distinguish final pay from separation pay. Separation pay is usually granted to employees who are terminated due to authorized causes (e.g., redundancy, retrenchment, business closure, or illness). In cases of voluntary resignation, there is generally no requirement under the law to provide separation pay, unless such is mandated by the company policy, a collective bargaining agreement (CBA), or an employment contract.


2. Legal Basis and Guidelines

a. Labor Code Provisions

  1. Article 103 of the Labor Code (Payment of Wages)
    The Labor Code requires employers to pay wages due to employees within the periods required by law. Although it does not expressly state a specific timetable for releasing “final pay,” it provides the general rule that wages must be paid on time and without deductions unless authorized by law or regulations.

  2. Article 116 of the Labor Code (Withholding of Wages)
    Employers are prohibited from making deductions from the wages of employees except in certain circumstances (e.g., insurance premiums, union dues, or other payments authorized by law). When an employee resigns, the employer cannot arbitrarily withhold wages or benefits due unless there is a legal basis or an authorized deduction.

b. DOLE Labor Advisory No. 06-20 (Series of 2020) – “Guidelines on the Payment of Final Pay”

In 2020, the DOLE issued Labor Advisory No. 06-20, which addresses the payment of final pay for employees who are separated from service due to various reasons (e.g., resignation, termination, retirement). According to this advisory:

  1. Payment Period
    Employers are advised to release the final pay within thirty (30) days from the date of separation, unless a shorter period is provided in a company policy, contract, or CBA.
  2. Covered Employees
    The advisory covers all employees, regardless of rank or status, who resigned, were terminated, or otherwise separated from employment.
  3. Clearance Process
    While companies have internal clearance processes (e.g., returning company property, settling accountabilities), these should not be used to unreasonably delay the release of final pay.

3. Common Reasons for Non-Payment or Delay

Despite the guidelines, some employers either delay or refuse to pay the final pay of resigned employees for various reasons:

  1. Pending Clearance: Some companies have a stringent clearance process. Although clearance is standard practice, any delay should be reasonable.
  2. Alleged Accountabilities: Employers may claim the employee is liable for lost company property or unsettled debts. The employer must prove the liability and communicate it clearly to the employee before making any deductions.
  3. Financial Difficulties: Economic constraints sometimes lead employers to withhold wages. However, financial difficulty is not a valid legal justification to withhold legally mandated payments.
  4. Misunderstandings or Disputes: Disagreements on the computation of the employee’s remaining benefits or alleged policy violations sometimes lead to withheld final pay.

4. Employees’ Remedies for Non-Payment of Back Pay

When an employer refuses or unduly delays the payment of final pay, an employee has several possible remedies under Philippine law:

  1. Negotiation or Company Grievance Procedure

    • Employees are encouraged to first attempt an informal resolution through the Human Resources (HR) department or the company’s internal grievance mechanism.
    • Documentation is crucial: keep records of demands or communications to the employer regarding unpaid wages.
  2. Filing a Complaint at the Department of Labor and Employment (DOLE)

    • If amicable settlement fails, employees may approach the DOLE Regional Office where the employer or the employee is located.
    • The Single Entry Approach (SEnA) is a mandatory 30-day conciliation-mediation procedure that aims to resolve labor issues promptly without resorting to litigation.
  3. Filing a Case before the National Labor Relations Commission (NLRC)

    • Should negotiations fail or if the employer refuses to comply with the DOLE’s interventions, the aggrieved employee may file a case for money claims at the NLRC.
    • If the NLRC finds that the employer unjustifiably withheld the final pay, the employer can be ordered to release the unpaid amounts plus any applicable legal interests, and possibly attorney’s fees if the withholding was done in bad faith.
  4. Civil Claims

    • In certain situations, employees can also pursue civil claims for recovery of sum of money if the claim does not qualify as a labor dispute or if it involves matters outside the NLRC’s jurisdiction. However, most final pay disputes are considered labor matters and typically fall under the NLRC.

5. Potential Damages and Other Relief

  1. Legal Interest
    • If the employee’s back pay is unreasonably withheld, a legal interest may be imposed, currently at 6% per annum in line with Supreme Court issuances, computed from the time the employer’s obligation became due until full payment.
  2. Attorney’s Fees
    • If the employee is forced to hire counsel to litigate the matter, and the employer’s refusal to pay is in bad faith, the labor tribunals or courts may award attorney’s fees equivalent to 10% of the total monetary award.
  3. Moral and Exemplary Damages
    • Awarded only in exceptional circumstances where the employer’s actions are proven to be oppressive, malicious, or in bad faith.

6. Best Practices for Employers and Employees

For Employers:

  1. Establish Clear Policies
    • A well-defined exit clearance process and final pay computation policy helps prevent disputes.
    • Clearly communicate timelines (e.g., up to 30 days or less) for releasing final pay.
  2. Document All Deductions
    • If there are legitimate deductions (e.g., lost property, outstanding loans), ensure each deduction is authorized by law or by the employee.
  3. Avoid Unnecessary Delays
    • Delaying final pay can expose employers to labor complaints, including additional costs such as legal interest and damages.

For Employees:

  1. Serve Proper Notice of Resignation
    • Serve written resignation notices in compliance with statutory or contractual notice periods (generally 30 days under Article 300 [formerly Article 285] of the Labor Code, unless a shorter period is agreed upon by both parties).
  2. Complete Clearance Requirements Promptly
    • Return all company property and settle any liabilities as soon as possible to avoid giving the employer a reason to withhold final pay.
  3. Keep Records of Communications
    • Maintain written records (emails, letters) when following up on final pay; these documents are invaluable if legal action becomes necessary.

7. Frequently Asked Questions

1. Is there a mandatory timeframe for the release of final pay after resignation?
Yes. DOLE’s Labor Advisory No. 06-20 (Series of 2020) recommends releasing final pay within 30 days from the date of separation. However, if a shorter period is agreed upon in the employment contract or company policy, that shorter period must be followed.

2. Can an employer automatically deduct any amount from my final pay?
Employers can only make deductions that are allowed by law (e.g., SSS loans, PhilHealth, Pag-IBIG contributions) or authorized by the employee (e.g., salary loans, lost company property). Unilateral or unauthorized deductions are prohibited.

3. What if the employer fails to pay within 30 days?
Employees should first follow up with HR or use internal grievance procedures. If still unresolved, the next step is to approach DOLE or file a complaint before the NLRC.

4. Am I entitled to separation pay when I resign?
Generally, no. Separation pay is typically granted only for terminations based on authorized causes under the Labor Code (e.g., redundancy, closure, retrenchment). If your company policy or CBA provides for separation pay even upon resignation, then you may be entitled to it.

5. Can I claim moral or exemplary damages if I do not receive my final pay?
Moral and exemplary damages are awarded only in exceptional cases where bad faith or malicious intent is proven. The mere delay in releasing final pay is not automatically considered bad faith; however, willful or malicious refusal may entitle the employee to damages.


8. Conclusion

The prompt and proper payment of final pay to resigned employees is both a legal and moral obligation of employers under Philippine labor laws. Employees who have resigned in good faith are entitled to receive unpaid wages, pro-rated 13th month pay, accrued leave conversions, and any other benefits due under contract or company policy.

While employers may impose standard clearance procedures, these should not be used to delay or deny legitimate final pay claims. In the event of non-payment or undue delay, employees have multiple remedies, including filing a complaint with DOLE or pursuing a labor case before the NLRC. Maintaining open lines of communication and complying with the established guidelines not only fosters good employment relations but also upholds lawful employment practices, sparing both parties from unnecessary conflict and litigation.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.