Overview

In the Philippines, it is common for employers to (a) issue a Notice to Explain (NTE) or require an employee to answer allegations even after the employee tenders a resignation, and (b) require clearance (return of company property, settlement of accountabilities) before releasing the employee’s final pay.

These practices are not automatically illegal—but withholding final pay has strict limits under Philippine labor standards. In general:

Yes, an employer may issue an NTE after a resignation (or while the employee is on the way out) to investigate misconduct or accountabilities.
No, an employer generally cannot withhold earned wages (including final pay components that are already due) as a penalty or leverage—except to the extent allowed by law, valid policy, and lawful deductions/set-offs.

The legality depends on what is being withheld, why, and whether the employer has a lawful basis to deduct or defer payment.

Key Concepts

1) What is a Notice to Explain (NTE)?

An NTE is the written notice given to an employee asking them to explain alleged violations (misconduct, breach of policy, failure to return property, shortages, fraud, etc.). It is part of administrative due process in workplace discipline.

Even if resignation is pending or already submitted, an NTE is often used to:

create an official record;
give the employee a chance to respond;
establish a factual basis for accountability and future legal action.

2) What is “final pay”?

“Final pay” (often called final pay and benefits or last pay) usually includes:

unpaid salary/wages up to the last working day;
pro-rated 13th month pay;
cash conversion of unused leave if convertible under law/policy (commonly SIL conversion where applicable, or convertible VL under policy/CBA);
tax refund/adjustments (as applicable);
other amounts due under company policy, CBA, or employment contract (commissions, incentives—subject to their conditions).

Final pay is different from:

separation pay (not generally due for voluntary resignation unless law/contract/CBA provides);
damages/penalties the employer wants to impose (often not deductible from wages without legal basis).

Can an Employer Issue an NTE After an Employee Resigns?

Yes—an NTE may still be issued and processed.

Resignation does not erase potential liability for misconduct committed during employment. An employer may still:

investigate a reported incident;
require a written explanation;
conduct an administrative conference (if practicable);
document findings.

Practical and legal limits

If the employee has already left and refuses to participate, the employer may proceed based on available records, but should still document that the employee was given a chance to respond.
The employer can no longer impose certain employment-status penalties (e.g., “dismissal” is moot once the employee has separated), but it can:
- record the findings (for internal files, future reference checks subject to data privacy and fairness considerations);
- pursue civil recovery (e.g., collection for unreturned property, liquidated damages if valid);
- pursue criminal complaints in appropriate cases (e.g., theft, estafa) if evidence supports.

Why employers do this

Issuing an NTE can be relevant to:

proving that the employee was afforded due process;
supporting a claim for accountability (property, shortages);
determining whether certain conditional benefits are payable under policy (e.g., incentives contingent on no pending administrative case—though such conditions must still be lawful and not defeat mandatory benefits).

Can the Employer Withhold Final Pay Because an NTE Was Issued?

General rule: Earned wages must be paid; withholding as leverage is risky.

Philippine labor standards strongly protect wages. As a rule, the employer should pay what is already earned and due, and only deduct amounts when deductions are expressly allowed.

The fact that an employer issued an NTE or has an ongoing investigation does not automatically justify withholding final pay.

Timing expectation for final pay

As a general labor standard practice recognized in DOLE issuances, final pay is typically expected to be released within a reasonable period (commonly within 30 days from separation) unless a more favorable company policy/CBA applies. Employers often cite “clearance” processing, but clearance procedures do not override wage-protection rules—especially for amounts that are already due and undisputed.

When Withholding or Deductions May Be Lawful

A) Statutory/mandatory deductions

These are typically allowed:

withholding tax;
SSS, PhilHealth, Pag-IBIG contributions (as applicable for the final payroll period).

B) Deductions authorized by law or regulations

Philippine rules allow certain deductions in limited situations, such as:

lawful union dues/agency fees under applicable requirements;
deductions specifically permitted under labor regulations.

C) Deductions with the employee’s written authorization

Common examples:

company loans;
salary advances;
company purchases charged to payroll.

Best practice: written authorization should be clear, voluntary, and specific as to the amount or method of computation.

D) Set-off/compensation for a due and demandable, liquidated obligation

Employers sometimes rely on legal compensation (set-off) concepts under civil law. However, for wage deductions, labor standards restrictions still apply in practice. A “set-off” is safest when the obligation is:

clearly established and quantifiable (liquidated),
due and demandable, and
not in dispute, or supported by a written agreement/acknowledgment.

If the alleged liability is uncertain, contested, or unproven (e.g., “possible damages” pending investigation), unilaterally withholding wages is much more likely to be challenged.

E) Conditional/contingent benefits vs. mandatory benefits

Not all “final pay components” are legally mandatory in the same way.

Mandatory: unpaid wages and pro-rated 13th month pay are generally treated as statutory obligations once earned.
Policy-based: some bonuses/incentives are discretionary or conditional. If the policy clearly makes payment contingent on certain conditions (e.g., still employed on payout date, performance metrics, no pending case), the employer may argue non-payment—but conditions must not be illegal, unconscionable, or used to defeat mandatory benefits.

When Withholding Is Commonly Challenged or Unlawful

1) Withholding final wages to force clearance or return of property

Employers often say: “No clearance, no final pay.” This is a common source of complaints.

If the employee truly has unreturned property, the employer can require its return and pursue recovery.
But withholding earned wages as a blanket rule can be seen as an improper withholding—especially if the employer could instead:
- pay the undisputed amounts; and
- separately demand return of property or file a claim.

A more defensible approach is to release undisputed wages and handle accountabilities through lawful deductions (with authorization) or separate legal action.

2) Deducting “damages,” “penalties,” or “training bonds” without a clear lawful basis

Liquidated damages clauses (e.g., training bonds) are not automatically enforceable. They must be reasonable, not contrary to law or morals, and properly documented.
Even if enforceable as a civil obligation, unilateral payroll deduction without written consent is often disputed.

3) Deducting alleged shortages, cash advances, or losses without due process and proof

If the employee disputes the shortage/loss, unilateral deduction from wages is a red flag. Employers should be prepared to prove:

the factual basis for the shortage/loss,
the employee’s responsibility,
the computation, and
the legal basis for deduction (authorization, policy, or adjudication).

4) Forfeiting statutory benefits due to an NTE or “bad exit”

Employers generally cannot “forfeit” legally mandated items like:

unpaid salary;
earned 13th month pay.

Even if misconduct is proven, these are typically treated as earned statutory obligations.

Resignation Rules That Matter in Final Pay Disputes

1) 30-day notice rule (and exceptions)

Philippine law generally requires a resigning employee to give 30 days’ notice, unless there is a just cause for immediate resignation (e.g., serious insult, inhuman treatment, commission of a crime by the employer/representative, and similar grounds).

If an employee fails to comply with the notice period without valid cause, employers sometimes claim damages. That claim is separate and does not automatically justify withholding wages, unless the amount is validly established and deductible under lawful rules.

2) Clearance processes are administrative—wage rules still apply

Clearance is useful and valid as an internal process, but it should not operate as an automatic bar to receiving earned wages.

What Employers Should Do (Legally Safer Practices)

Issue the NTE promptly and specify:
- the acts/omissions complained of,
- the time/place, evidence basis (as appropriate),
- a reasonable deadline to respond.
Separate “investigation” from “payment of undisputed wages.”
- Pay what is clearly due (final wages, pro-rated 13th month, etc.).
- If there is a legitimate accountability, document it.
Use written authorizations for deductions whenever possible.
- Have employees sign loan/advance authorizations at the time the obligation is incurred, not only upon resignation.
If liability is disputed, consider separate recovery channels
- demand letters;
- civil action for collection/replevin (for property);
- criminal complaint when appropriate and evidence-based.
Document returned property and accountability
- turnover forms, asset acknowledgments, inventory reconciliation.

What Employees Can Do if Final Pay Is Withheld

Request an itemized final pay computation and the specific legal/policy basis for any deduction or withholding.
Offer turnover/return of property with documentation (photos, signed receipts).
File a complaint with the appropriate DOLE office or pursue a money claim through the proper labor forum, depending on the nature and amount of the claim and the applicable procedures.
Challenge improper deductions and demand release of undisputed amounts.

Frequently Asked Questions

Can the employer still investigate me after I resign?

Yes. Resignation does not erase alleged misconduct committed during employment. Employers can investigate and document findings, and pursue lawful remedies.

Can an employer refuse to release final pay until I sign a quitclaim?

A quitclaim/release is not a legal prerequisite to receiving earned wages. While quitclaims can be valid in certain circumstances, final pay should not be coerced or conditioned on waiving rights.

If I didn’t return company equipment, can they deduct its cost from my final pay?

They may demand the return of the equipment and may seek recovery. Deducting from wages is safest only if there is clear written authorization or an undisputed, quantifiable accountability consistent with wage-protection rules. If disputed, unilateral deduction is commonly challenged.

Can they withhold my 13th month because I have an NTE?

Pro-rated 13th month pay is generally treated as a statutory entitlement once earned for the period worked; withholding it purely because an NTE exists is highly contestable.

Bottom Line

Issuing an NTE after resignation: generally allowed and often prudent.
Withholding final pay because of an NTE or pending clearance: often legally risky unless the employer is withholding only what is lawfully deductible/withholdable and can clearly justify it under Philippine wage rules and documented obligations.
Best practice: release undisputed final pay amounts on time; handle disputed liabilities through proper documentation, written authorizations, or separate legal action.

This article is for general information in the Philippine context and is not a substitute for legal advice based on specific facts.