Inquiry on the Legal Steps to Recover Last Pay and Backpay for Employment Separation

Letter:

Dear Attorney,

I hope this letter finds you well. I am writing to seek legal advice regarding a matter that has been causing me considerable concern. I have not yet received my last pay and backpay after separating from my employment with a company where I worked for several years. It has now been almost four months since my employment ended, yet despite following up with the company multiple times, I have not received the compensation that I am legally entitled to.

I would greatly appreciate it if you could guide me on the proper steps I can take to resolve this issue and claim my unpaid salary and backpay. Your assistance in helping me understand my rights and the legal recourses available to me would be invaluable.

Thank you for your time, and I look forward to your advice.

Sincerely,
[Concerned Former Employee]

Legal Article: Recovering Last Pay and Backpay in the Philippines—A Comprehensive Guide

When an employee separates from a company, whether through resignation, retirement, or termination, one of the key concerns is the proper settlement of financial obligations by the employer. These typically include the employee’s last pay and backpay, which are often considered rightful entitlements under the Labor Code of the Philippines. Yet, delays or disputes in receiving these payments are unfortunately common. In this comprehensive guide, we will explore the intricacies of last pay and backpay in the context of Philippine labor law, focusing on the rights of employees and the legal remedies available when these payments are unduly withheld.

Understanding Last Pay and Backpay

Definition of Last Pay
The term "last pay" refers to the final salary or wages due to an employee who has separated from the company. This can include any outstanding wages for work rendered up to the date of separation, including any overtime pay, unpaid leave credits, and other compensable work-related benefits.
Definition of Backpay
"Backpay" typically refers to the total monetary compensation due to an employee upon separation from employment, including unpaid salaries, allowances, unused service incentive leaves, prorated 13th-month pay, and other benefits the employee is entitled to under the law, their employment contract, or company policy.

While “last pay” and “backpay” are sometimes used interchangeably, they cover slightly different aspects of the financial settlement. “Last pay” focuses more narrowly on unpaid salary, while “backpay” can encompass a broader range of compensations.

The Legal Basis: What Philippine Law Says

Article 291 of the Labor Code
The Labor Code of the Philippines explicitly guarantees the employee’s right to receive wages and benefits earned during their employment. Article 291 establishes a 3-year prescriptive period within which claims for unpaid wages and benefits must be filed. If an employer fails to pay the rightful compensation due to an employee, the employee has three years from the time the payment should have been made to seek legal recourse.
DOLE Department Order No. 147-15
The Department of Labor and Employment (DOLE) issued Department Order No. 147-15, which provides further guidelines on the proper settlement of employee separation pay. Under this directive, employers are required to pay separated employees their full and final pay, including all statutory benefits, within a reasonable period—generally around 30 days from the official date of separation unless a longer period has been agreed upon by both parties or required by company policy. Employers are further mandated to provide a final pay slip indicating the detailed breakdown of all payments due.
Service Incentive Leave (SIL) and Prorated 13th-Month Pay
Philippine law requires that all employees be entitled to five days of service incentive leave per year, which, if unused, must be paid out as part of the employee’s backpay. Similarly, 13th-month pay, as mandated by Presidential Decree No. 851, must be paid in full for those who worked the entire calendar year. For those who separated before the year-end, the 13th-month pay must be prorated, based on the number of months worked in the calendar year.
Wage Theft and Unjust Delay
The withholding of an employee's rightful wages without legal justification constitutes wage theft under labor laws. In such cases, the employer may be held liable for not only the unpaid amount but also moral and exemplary damages, especially if the delay is deemed willful and malicious.

The Employee’s Rights and Legal Remedies

Filing a Complaint with the Department of Labor and Employment (DOLE)
The first step in addressing an unpaid last pay or backpay claim is often to file a complaint with DOLE. This process is available to all employees, regardless of whether they were terminated, resigned, or retired, and it is especially helpful in cases where there has been a clear violation of labor rights. DOLE provides a mechanism for mediation and conciliation, with the goal of amicably resolving disputes without the need for litigation.

Under the Single Entry Approach (SEnA) program, parties can participate in a mandatory 30-day conciliation-mediation period before formal complaints are escalated to litigation. If the employer and employee cannot settle their differences through conciliation, the case can be referred for further legal action.
Filing a Case with the National Labor Relations Commission (NLRC)
If an amicable settlement cannot be reached, the next recourse would be to file a formal complaint with the NLRC. The NLRC has jurisdiction over cases involving monetary claims arising from employer-employee relationships. The employee can file a complaint for recovery of unpaid wages, backpay, and other benefits. A favorable ruling may also include the imposition of penalties, such as legal interest on the unpaid amounts, as well as moral and exemplary damages.

Employees may represent themselves or hire a lawyer to help with their case. In some cases, an employee may be entitled to legal assistance through Public Attorneys' Office (PAO) if they qualify under the office’s financial guidelines.
Pursuing Civil Claims in Court
In certain situations, particularly where a significant amount of compensation is owed, the employee may choose to pursue a civil case. This may be applicable when the claim involves not just unpaid wages, but also damages arising from the employer’s bad faith in delaying payment. The employee may sue for breach of contract, unjust enrichment, or other relevant legal grounds. Civil actions may also include a demand for additional remedies such as payment for damages due to mental anguish or emotional distress caused by the employer’s non-payment.
Claiming Interest on Unpaid Wages
Philippine law allows for the imposition of legal interest on monetary claims such as unpaid wages or backpay. In Nacar v. Gallery Frames, the Supreme Court set the legal interest rate at six percent (6%) per annum for unpaid monetary obligations. Thus, if an employer fails to pay last pay and backpay within the legally permissible period, the employee may claim legal interest from the date the payment became due until the amount is fully settled.

Common Challenges and Considerations

Delayed Issuance of Clearance
One common issue employees face is the employer’s refusal to release backpay on the grounds of pending clearance requirements. While employers may have the right to demand the completion of clearance procedures (such as the return of company property or completion of turnover duties), this cannot be used as an indefinite excuse to withhold payment of last pay and backpay. Employees have a legal right to receive their earned wages regardless of pending clearances, provided they have complied with reasonable requirements set by the employer.
Documentation and Proof of Claim
Employees are strongly advised to keep thorough documentation of their employment, including pay slips, employment contracts, and other proof of salary and benefits received. This documentation will be crucial in substantiating claims for unpaid wages, especially in disputes over the amount of last pay or backpay owed.
Statutory vs. Contractual Benefits
It is essential to differentiate between statutory benefits (those mandated by law) and contractual benefits (those provided under a company’s internal policies or the employment contract). While statutory benefits such as 13th-month pay and service incentive leave are guaranteed by law, some employees may also be entitled to additional contractual benefits, which can form part of their backpay, depending on their employment agreement.

Conclusion

In conclusion, employees who experience delays in receiving their last pay and backpay have several legal remedies under Philippine law. The Labor Code, along with various labor issuances, safeguards workers’ rights to timely and complete compensation upon separation from employment. Through formal complaints with DOLE or the NLRC, and even civil litigation if necessary, employees can assert their rights and recover what is due to them.

It is crucial for both employers and employees to understand that delays in paying last pay and backpay are not merely administrative inconveniences but can have serious legal consequences. Employers must ensure compliance with the law, while employees should take prompt action to secure their rights in the event of non-payment.