​Milan vs. NLRC, February 4, 2015

Facts:
As Solid Mills’ employees, petitioners and their families were allowed to occupy SMI Village, a property owned by Solid Mills.  According to Solid Mills, this was “[o]out of liberality and for the convenience of its employees and on the condition that the employees would vacate the premises anytime the Company deems it.
Thereafter, petitioners 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 dated September 1, 2003. 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. 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. Petitioners refused to sign the documents and demanded to be paid their benefits and separation pay. Petitioners 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.

Issue:
Whether Solid Mills is allowed to withhold terminal pay and benefits pending the petitioners’ return of its properties.

​Held:
Yes, an employer is allowed to withhold terminal pay and benefits pending the employee’s return of its properties. 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. 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 petitioners would argue. “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 respondent Solid Mills’ 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 respondent Solid Mills.  Petitioners’ possession should, therefore, be included in the term “accountability.”