Introduction

In the Philippine employment landscape, the management of employee leaves, particularly upon resignation, is governed by a combination of statutory provisions, jurisprudence, and company policies. The core question—whether management can approve the use of leave credits for a resigned employee as an alternative to paying out the monetary equivalent of unused leaves—touches on fundamental labor rights, contractual obligations, and practical considerations in human resource management. This article explores the legal framework under Philippine law, including the Labor Code of the Philippines (Presidential Decree No. 442, as amended), relevant Department of Labor and Employment (DOLE) issuances, and Supreme Court decisions. It delves into the types of leaves involved, the rights of resigned employees, the discretion of management, potential scenarios, and implications for both employers and employees.

While the general rule favors commutation of unused leaves to cash upon separation, exceptions and nuances exist based on mutual agreement, company policy, and the timing of the resignation process. Understanding these elements is crucial for compliance and to avoid labor disputes.

Legal Basis for Leave Credits in the Philippines

Statutory Leaves: Service Incentive Leave (SIL)

The Labor Code mandates a minimum of five (5) days of Service Incentive Leave (SIL) with pay for employees who have rendered at least one year of service (Article 95). This leave is intended to provide rest and recreation and is commutable to its monetary equivalent if unused at the end of the year or upon separation from employment. DOLE Department Order No. 18, Series of 2002 (now superseded by later issuances like DOLE Advisory No. 02-04), emphasizes that SIL is a non-negotiable benefit.

Upon resignation, an employee is entitled to the cash equivalent of unused SIL, calculated based on the employee's daily rate. The Supreme Court in cases like Auto Bus Transport System, Inc. v. Bautista (G.R. No. 156367, May 16, 2005) has affirmed that unused SIL must be paid in full upon termination, including voluntary resignation, as it forms part of the employee's earned benefits.

Company-Provided Leaves: Vacation and Sick Leaves

Beyond SIL, many employers offer additional leaves such as vacation leave (VL) and sick leave (SL), often totaling 10-15 days or more annually, as per company policy or collective bargaining agreements (CBAs). These are not statutorily mandated but, once granted, become vested rights under the principle of non-diminution of benefits (Article 100 of the Labor Code). The treatment of these leaves upon resignation depends largely on the employer's handbook or policy.

For instance, some policies allow accumulation of VL up to a certain limit, with unused portions either forfeited, carried over, or commuted to cash. SL is typically non-commutable and forfeitable if unused, as it is intended for health-related absences. However, jurisprudence, such as in Santos v. NLRC (G.R. No. 101699, March 21, 1996), holds that if company policy provides for commutation, it must be honored.

Terminal Pay and Final Pay Computation

Upon resignation, employees are entitled to "terminal pay" or "separation pay" equivalents, which include:

Prorated 13th-month pay.
Unused leave credits (SIL and any commutable company leaves).
Other accrued benefits like bonuses or incentives.

The DOLE requires employers to release the final pay within 30 days from the clearance process completion, as per the Labor Code and implementing rules.

The Resignation Process and Leave Approval

Definition of a "Resigned Employee"

A key distinction is whether the employee is "resigned" in the sense of having submitted a resignation letter but still serving the notice period, or fully separated from employment. Under Article 285 (now 300) of the Labor Code, voluntary resignation requires at least one month's notice to the employer, unless waived or a different period is stipulated in the contract.

During the Notice Period: The employee remains actively employed. Management retains discretion to approve leaves, including using accumulated credits. If approved, the employee can take leave days during this period, effectively reducing unused credits without cash payout. This is common practice to allow a smooth transition, but approval is not automatic—management can deny based on operational needs.
Post-Effective Resignation Date: Once the resignation takes effect, the employment relationship ends. At this point, the employee is no longer entitled to take leaves, as they are not performing work. Instead, unused leaves must be commuted to cash as part of the final pay.

Management's Discretion to Approve Leaves Instead of Payment

The central issue is whether management can unilaterally decide to approve leave usage post-resignation notice to avoid paying cash equivalents.

General Rule: Commutation to Cash: Philippine law leans toward protecting the employee's right to monetary benefits. In Industrial Timber Corporation v. NLRC (G.R. No. 115476, April 18, 1997), the Court ruled that earned but unused leaves must be paid in cash upon separation, emphasizing that these are property rights. Management cannot force an employee to take leave if the employee prefers cash, especially after the notice period begins, unless mutually agreed.
Exceptions Based on Mutual Agreement: If both parties consent, management can approve leave usage during the notice period. For example, an employee might agree to extend the notice period to consume leaves, or take terminal leave (a practice where the employee is on paid leave until the leave credits are exhausted, effectively delaying the separation date). This is permissible under DOLE guidelines, provided it does not violate the employee's rights or result in underpayment.
Company Policy Role: If the employee handbook explicitly allows for "terminal leave" or leave consumption upon resignation, management can enforce it, but only if it benefits the employee or is non-diminutive. Policies that mandate leave usage to evade cash payment may be challenged as unfair labor practice under Article 248 of the Labor Code.
Special Cases:
- Government Employees: Under Civil Service rules (e.g., Omnibus Rules on Leave), resigned public sector employees can opt for terminal leave, where unused leaves are used post-resignation, with pay continuing until credits are depleted. However, this is not directly applicable to private sector employees unless adopted by company policy.
- Forced Resignation or Constructive Dismissal: If resignation is involuntary, leaves must still be paid, and additional claims like backwages may arise.
- Pandemic or Force Majeure: During events like COVID-19, DOLE advisories (e.g., Labor Advisory No. 17-20) allowed flexible leave arrangements, but these are temporary and not standard.

Scenarios and Practical Implications

Scenario 1: Employee Requests Leave During Notice Period

If an employee with 10 unused VL days resigns with 30 days' notice and requests to take those days off, management can approve, reducing the cash payout to zero for those days. This is lawful if not coercive. However, if denied, the employee gets cash equivalent.

Scenario 2: Management Proposes Leave to Avoid Payout

Management suggests the employee take leave instead of receiving cash. This requires employee consent; unilateral imposition could lead to a money claim filed with the DOLE or NLRC. Penalties for non-payment include interest at 6% per annum and potential administrative fines.

Scenario 3: Accumulated Leaves Exceeding Notice Period

For employees with substantial credits (e.g., 60 days), management might approve a "terminal leave" extending beyond the notice period. This adjusts the separation date, and the employee receives pay during leave without additional cashout. Tax implications arise: cash commutation is taxable, while leave pay during employment may be treated differently under BIR rules.

Scenario 4: Denial of Leave Approval

If management denies leave and pays cash, this complies with law. Employees cannot insist on taking leave if it disrupts operations, per management prerogative (Article 82, Labor Code).

Employee Rights and Remedies

Employees aggrieved by non-payment or forced leave can file a complaint with the DOLE for mediation or the NLRC for adjudication. Remedies include payment of claims, damages, and attorney's fees. Prescription period is three years from separation (Article 291, Labor Code).

Employers should maintain accurate leave records to avoid disputes. Best practices include clear policies, prompt final pay release, and obtaining quitclaims only after full settlement.

Employer Obligations and Risks

Non-compliance risks DOLE inspections, backpay orders, and reputational damage. In Songco v. NLRC (G.R. No. L-50999, March 23, 1990), the Court stressed that benefits like leaves are integral to compensation, and deprivation constitutes illegal deduction.

Conclusion

In summary, while management has discretion to approve leaves for a resigned employee during the notice period as an alternative to cash payment, this is contingent on mutual agreement and company policy. The default legal position under Philippine law is commutation to cash upon separation to safeguard employee rights. Employers must balance operational needs with labor compliance, and employees should be aware of their entitlements to negotiate effectively. Consulting legal experts or DOLE for specific cases is advisable to navigate complexities. This framework ensures fairness in the employment termination process, aligning with the Labor Code's protective intent.