Dear PAO,

I am one of the several employees of XYZ Corp. who were informed that the company would cease operations due to serious business losses. We were told that before we could receive our separation pay, accrued leave credits, termination benefits and 13th month pay, we needed to sign a release document with a quit claim and vacate our living quarters on company property. Can our company validly do this?


Dear Mike,

Yes. The imposition of clearance procedures before the release of last payments is allowed under our labor laws and jurisprudence.

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The Supreme Court held in the case of Emer Milan, et al., v. NLRC, GR 202961, Feb. 4, 2015, penned by Associate Justice Marvic Mario Victor Leonen, that,

"[O]ur 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:

"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 ours)

"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 petitioners would argue.


"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, respondent Solid Mills has the right to withhold petitioners' wages and benefits because of this existing debt or liability."

Further, citing the case of Solas v. Power and Telephone Supply, Phils., Inc., et al., GR 162332, Aug. 28, 2008, penned by Former Associate Justice Ma. Alicia Austria- Martinez, the Supreme Court held that:

"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."

Based on the foregoing, your company can validly require you to undergo a clearance procedure such as the execution of a release with quitclaim and to vacate the living quarters as a condition for the release of your last payments, e.g., separation pay, 13th month pay, to ensure that, before your separation from work, the properties of your employer in your possession are returned to them. Such measures qualify as valid reasons to withhold an employee's last pay for the purpose of verifying and ensuring that an employee's obligation or other accountabilities in favor of the employer are settled.

We hope that we were able to answer your query. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor's note: Dear PAO is a daily column of the Public Attorney's Office. Questions for Chief Acosta may be sent to [email protected]