Clearance process

Clearance process is valid and has legal bases. Final pay subject to clearance process. Wages may be withheld for debts or obligations to the employer.

1. Concept

Clearance process is a requirement imposed by the management on an employee to settle all debts and obligations, including return of Company properties or documents, to be cleared of any accountability and be issued a clearance document.

2. Valid requirement

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. (Milan v. NLRC, Solid Mills, Inc., G.R. No. 202961, 04 February 2015)

The requirements and procedures for clearance is a management prerogative and thus within the discretion of the employer to formulate or design.

Generally, clearance covers the following:

1) Return of company-issued properties;

2) Proper turnover of duties and responsibilities; and

3) Settlement of accountabilities, if any.

a. Return of company-issued properties

Employees are required to return company-issued properties on/before their exit from the employment. Failure and/or refusal to return Company properties may expose them to legal action.

The company-issued properties may come in various forms, such as a car, laptop, mobile device, to name a few.

1) Exception: If employee already owns them

Company-issued properties are owned by the employer. Thus, on/before exit from employment, the employee has the obligation to return these properties to the employer.

By way of exception, the employee may be entitled to the company-issued properties if there is a valid and legal reason. These include but are not limited to, these were given to the employees as part of their incentive/benefit/bonus, or the employee was allowed to purchase such items, or it is stipulated in the employment contract, company policy, collective bargaining agreement, or other employment agreement, among others.

However, it should be emphasized that the employee’s entitlement to the company-issued properties is not presumed or assumed. There must be clear and specific legal basis for the right to own such properties.

2) Consequences for failure to return

The consequences for the failure and/or refusal to return company-issued properties may vary depending on the nature of the items and relevant circumstances. The following are some of the possible legal liabilities.

a) Damages

The primary liability of employees who fail and/or refuse to return company-issued properties is for damages.

Usually, the damages will be the value of the item subject to depreciation costs. However, if the item cannot be easily bought in the market – such as those that are customized or made to order, the full market value of the item may be demanded.

In addition, if there is a resulting damage or impact on the business for the employee’s failure/refusal to return the company-issued properties, these may also be demanded by the employer. For instance, if a licensed software was installed on the laptop and it is heavily relied upon by the Company for its business operations, the employee may be held liable for damages should the Company face liability as a result of being unable to delivery on commitments to customers/clients. If the affected customers/clients sue and win a breach of contract with damages against the Company, the latter may charge reimbursement against the former employee who caused the incident.

b) Intellectual property violation

There may also be a potential liability for intellectual property violation if the former employee’s work involved creating intellectual property for the Company, such as designs, trademarks, plans, to name a few. These are all owned by the Company. Hence, on/before leaving employment, employees should turn-over any intellectual property that they may have created in connection with their work for the Company.

b. Proper turnover of duties and responsibilities

Prior to exit of the Company, employees are duty-bound to properly turnover their duties and responsibilities. The employer should provide for clear instructions to the outgoing employees as to how they may be able to properly endorse their tasks to the one who may be designated. This may be done via directives from the immediate supervisor/manager and/or through applicable company policies and regulations.

c. Settlement of accountabilities

Employees are likewise expected to settle any accountabilities that they may have prior to their exit from the Company.

Accountabilities may come in may come in many forms, including but not limited to:

1) Monetary debts owing to the Company – e.g. salary loans, liabilities resulting from fault or negligence, etc.;

2) Non-monetary obligations to the Company – e.g. tasks prior to last day, such as documents that have to be delivered/signed prior, unique responsibilities that only the outgoing employee may be able to perform, etc.; and  

3) Analogous thereto.

3. No clearance, no final pay

The law does not sanction a situation where employees who do not even assert any claim over the employer’s property are allowed to take all the benefits out of their employment while they simultaneously withhold possession of their employer’s property for no rightful reason. 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. (Ibid.)

a. Exemption to non-withholding of wages

GENERAL RULE:As a general rule, employers are prohibited from withholding wages from employees… and the elimination or diminution of benefits.

EXCEPTION:However, our law supports the employers’ institution of clearance procedures before the release of wages. (Milan v. NLRC, Solid Mills, Inc., supra.)

MILAN v. NLRC, G.R. No. 202961, 04 February 2015

⦁ As an exception to the general rule that wages may not be withheld and benefits may not be diminished, the Labor Code provides:

Art. 113. Wage deduction. No employer, in his own behalf or in behalf of any person, shall make any deduction from the wages of his employees, except:

1. In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

2. For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and

3. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment. (Emphasis supplied)

⦁ The Civil Code provides that the employer is authorized to withhold wages for debts due:

Article 1706. Withholding of the wages, except for a debt due, shall not be made by the employer.

⦁ “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 [the Complainants] would argue. (Milan v. NLRC, Solid Mills, Inc., supra.)

⦁ [the Company] and [the Union], the union representing [the Complainants], agreed that the release of [the Complainants’] 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.

⦁ It may be true that not all employees enjoyed the privilege of staying in [the Company’s] property. However, this alone does not imply that this privilege when enjoyed was not a result of the employer-employee relationship. Those who did avail of the privilege were employees of [the Company]. [the Complainants’] possession should, therefore, be included in the term “accountability.”

⦁ Accountabilities of employees are personal. They need not be uniform among all employees in order to be included in accountabilities incurred by virtue of an employer-employee relationship. [the Complainants] do not categorically deny [the Company’s] ownership of the property, and they do not claim superior right to it. What can be gathered from the findings of the Labor Arbiter, National Labor Relations Commission, and the Court of Appeals is that [the Company] allowed the use of its property for the benefit of [the Complainants] as its employees. [the Complainants] were merely allowed to possess and use it out of [the Company’s] liberality. The employer may, therefore, demand the property at will.

⦁ 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, [the Company] has the right to withhold [the Complainants]’ wages and benefits because of this existing debt or liability…

⦁ For these reasons, we cannot hold that [the Complainants] are entitled to interest of their withheld separation benefits. These benefits were properly withheld by [the Company] because of their refusal to return its property.

SOLAS v. POWER AND TELEPHONE SUPPLY PHILS., INC.,

# Case Law: Solas v. Power and Telephone Supply Phils., Inc., G.R. NO. 162332, 28 August 2008

⦁ There was valid reason for [the Company’s] withholding of [the Complainant’s] salary for the month of February 2000. [The Complainant] does not deny that he is indebted to his employer in the amount of around 95,000.00. [The Company] explained that [the Complainant’s] salary for the period of February 1-15, 2000 was applied as partial payment for his debt and for withholding taxes on his income; while for the period of February 15-28, 2000, [the Complainant] was already on absence without leave, hence, was not entitled to any pay.

⦁ The law does not sanction a situation where employees who do not even assert any claim over the employer’s property are allowed to take all the benefits out of their employment while they simultaneously withhold possession of their employer’s property for no rightful reason. 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.

4. Final pay subject to clearance process

The general rule is that employers are prohibited from withholding wages from employees under the Labor Code. “However, our law supports the employers’ institution of clearance procedures before the release of wages.” (Ibid.)

The Civil Code provides: “Article 1706. Withholding of the wages, except for a debt due, shall not be made by the employer.”

The debt described in that provision refers to “any obligation due from the employee to the employer,” as well as accountability, whether for Company properties, equipment, uniforms, or otherwise. (Milan v. NLRC, Solid Mills, Inc., supra.)

In addition, employees or their unions may consent or agree with the employer that the release of their final pay and/or benefits 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.” (Ibid.)

References

DOLE Labor Advisory No. 06, Series of 2010

/Last Updated: February 15, 2023

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