WITHHOLDING OF TERMINAL PAY IS VALID PENDING RETURN OF COMPANY PROPERTY AND PAYMENT OF DEBT AND LIABILITY

Withholding of final wages and benefits of separated employees is prohibited as a general rule. The exception applies where the employees refuse to return the company property and to settle their debts, liabilities, and accountabilities as held in the case of Milan vs. NLRC.

Emer Milan, Randy Masangkay, Wilfredo Javier, et al. Vs. National Labor Relations Commission, Solid Mills, Inc. and/or Philip Ang
G.R. No. 202961, February 4, 2015

Facts:

Petitioners Emer Milan and his union (Milan, et al.) are Solid Mills, Inc.’ s (Solid Mills) employees. They are represented by the National Federation of Labor Unions (NAFLU), their collective bargaining agent.

As Solid Mills’ employees, Milan, et al. and their families were allowed to occupy SMI Village, a property owned by Solid Mills. According to Solid Mills, this was “[o]ut of liberality and for the convenience of its employees . . . [and] on the condition that the employees . . . would vacate the premises anytime the Company deems fit.”

Milan, et al. were informed that effective October 10, 2003, Solid Mills would cease its operations due to serious business losses. NAFLU recognized Solid Mills’ closure due to serious business losses in the memorandum of agreement. The memorandum of agreement provided for Solid Mills’ grant of separation pay less accountabilities, accrued sick leave benefits, vacation leave benefits, and 13th month pay to the employees. Pertinent portions of the agreement provide that the company agrees to grant financial assistance less accountabilities.

Solid Mills filed its Department of Labor and Employment termination report. Later, Solid Mills, through Alfredo Jingco, sent to Milan, et al. individual notices to vacate SMI Village. Milan, et al. were no longer allowed to report for work by October 10, 2003.

They were required to sign a memorandum of agreement with release and quitclaim before their vacation and sick leave benefits, 13thmonth pay, and separation pay would be released. Employees who signed the memorandum of agreement were considered to have agreed to vacate SMI Village, and to the demolition of the constructed houses inside as condition for the release of their termination benefits and separation pay. Milan, et al. refused to sign the documents and demanded to be paid their benefits and separation pay.

Hence, Milan, et al. filed complaints before the Labor Arbiter for alleged non-payment of separation pay, accrued sick and vacation leaves, and 13th month pay. They argued that their accrued benefits and separation pay should not be withheld because their payment is based on company policy and practice. Moreover, the 13th month pay is based on law, specifically, Presidential Decree No. 851. Their possession of Solid Mills property is not an accountability that is subject to clearance procedures. They had already turned over to Solid Mills their uniforms and equipment when Solid Mills ceased operations.

On the other hand, Solid Mills argued that Milan, et al.’ complaint was premature because they had not vacated its property.

LA Ruling:

The Labor Arbiter ruled in favor of Milan, et al.. According to the Labor Arbiter, Solid Mills illegally withheld Milan, et al.’ benefits and separation pay. Milan, et al.’ right to the payment of their benefits and separation pay was vested by law and contract.

The memorandum of agreement stated no condition to the effect that Milan, et al. must vacate Solid Mills’ property before their benefits could be given to them. Milan, et al.’ possession should not be construed as Milan, et al.’ “accountabilities” that must be cleared first before the release of benefits. Their possession “is not by virtue of any employer-employee relationship.” It is a civil issue, which is outside the jurisdiction of the Labor Arbiter.

Solid Mills appealed to the National Labor Relations Commission. It prayed for, among others, the dismissal of the complaints against it and the reversal of the Labor Arbiter’s decision.

NLRC Ruling:

The National Labor Relations Commission affirmed paragraph 3 of the Labor Arbiter’s dispositive portion, but reversed paragraphs 1 and 2.

The National Labor Relations Commission ruled that because of Milan, et al.’ failure to vacate Solid Mills’ property, Solid Mills was justified in withholding their benefits and separation pay. Solid Mills granted the Milan, et al. the privilege to occupy its property on account of Milan, et al.’ employment.

It had the prerogative to terminate such privilege. The termination of Solid Mills and Milan, et al.’ employer-employee relationship made it incumbent upon Milan, et al. to turn over the property to Solid Mills. Milan, et al. filed a motion for partial reconsideration but this was denied by the NLRC.

Milan, et al., thus, filed a petition for certiorari before the Court of Appeals.

CA Ruling:

The CA dismissed the petition

The Court of Appeals ruled that Solid Mills’ act of allowing its employees to make temporary dwellings in its property was a liberality on its part. It may be revoked any time at its discretion. As a consequence of Solid Mills’ closure and the resulting termination of Milan, et al., the employer-employee relationship between them ceased to exist. There was no more reason for them to stay in Solid Mills’ property. Moreover, the memorandum of agreement between Solid Mills and the union representing Milan, et al. provided that Solid Mills’ payment of employees’ benefits should be “less accountabilities.”

Issue/s:

Whether or not the LA has jurisdiction over the return of company’s real property in relation to the release of final wages and benefits of separated employees

Whether or not the employer can validly withhold terminal pay pending return of company property

Whether or not withholding of wages and benefits is valid pending settlement of employee’s accountabilities

SC Ruling:

The SC held that the National Labor Relations Commission has jurisdiction to determine, preliminarily, the parties’ rights over a property, when it is necessary to determine an issue related to rights or claims arising from an employer-employee relationship.

Milan, et al.’ claim that they have the right to the immediate release of their benefits as employees separated from Solid Mills Solid Mills is a question arising from the employer-employee relationship between the parties. Claims arising from an employer-employee relationship are not limited to claims by an employee. Employers may also have claims against the employee, which arise from the same relationship.

Re-numbered copy of the Labor Code 2017 now available

In Bañez v. Valdevilla, it was ruled that Article 217 of the Labor Code also applies to employers’ claim for damages, which arises from or is connected with the labor issue. Bañez was cited in Domondon v. National Labor Relations Commission where the Court ruled that since the transfer of ownership of the vehicle to the employee was connected to his separation from the employer and arose from the employer-employee relationship of the parties, the employer’s claim fell within the Labor Arbiter’s jurisdiction.

As a general rule, therefore, a claim only needs to be sufficiently connected to the labor issue raised and must arise from an employer-employee relationship for the labor tribunals to have jurisdiction.

The SC held that employer is allowed to withhold terminal pay and benefits pending the employee’s return of its properties.

In this case, Solid Mills Solid Mills claims that its properties are in Milan, et al.’ possession by virtue of their status as its employees. Solid Mills Solid Mills allowed Milan, et al. to use its property as an act of liberality. Put in other words, it would not have allowed Milan, et al. to use its property had they not been its employees. The return of its properties in Milan, et al.’ possession by virtue of their status as employees is an issue that must be resolved to determine whether benefits can be released immediately. The issue raised by the employer is, therefore, connected to Milan, et al.’ claim for benefits and is sufficiently intertwined with the parties’ employer-employee relationship. Thus, it is properly within the labor tribunals’ jurisdiction.

Requiring clearance before the release of last payments to the employee is a standard procedure among employers, whether public or private. Clearance procedures are instituted to ensure that the properties, real or personal, belonging to the employer but are in the possession of the separated employee, are returned to the employer before the employee’s departure.

As a general rule, employers are prohibited from withholding wages from employees (Art. 116 of the Labor Code). The Labor Code also prohibits the elimination or diminution of benefits (Art. 100).

However, the law supports the employers’ institution of clearance procedures before the release of wages. As an exception to the general rule that wages may not be withheld and benefits may not be diminished, the Labor Code provides under Article 113 that no employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except, among others, that In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.

Article 1706 of the Civil Code provides that the employer is authorized to withhold wages for debts due. “Debt” in this case refers to any obligation due from the employee to the employer. It includes any accountability that the employee may have to the employer. There is no reason to limit its scope to uniforms and equipment, as Milan, et al. would argue. More importantly, Solid Mills Solid Mills and NAFLU, the union representing Milan, et al., agreed that the release of Milan, et al.’ benefits shall be “less accountabilities.”

“Accountability,” in its ordinary sense, means obligation or debt. The ordinary meaning of the term “accountability” does not limit the definition of accountability to those incurred in the worksite. As long as the debt or obligation was incurred by virtue of the employer-employee relationship, generally, it shall be included in the employee’s accountabilities that are subject to clearance procedures.

The return of the property’s possession became an obligation or liability on the part of the employees when the employer-employee relationship ceased. Thus, Solid Mills Solid Mills has the right to withhold Milan, et al.’ wages and benefits because of this existing debt or liability. In Solas v. Power and Telephone Supply Phils., Inc., et al., the Court recognized this right of the employer when it ruled that the employee in that case was not constructively dismissed.

Withholding of payment by the employer does not mean that the employer may renege on its obligation to pay employees their wages, termination payments, and due benefits. The employees’ benefits are also not being reduced. It is only subjected to the condition that the employees return properties properly belonging to the employer. This is only consistent with the equitable principle that “no one shall be unjustly enriched or benefited at the expense of another.” These benefits were properly withheld by Solid Mills Solid Mills because of their refusal to return its property.

The preferential treatment given by our law to labor, however, is not a license for abuse. It is not a signal to commit acts of unfairness that will unreasonably infringe on the property rights of the company. Both labor and employer have social utility, and the law is not so biased that it does not find a middle ground to give each their due.