In the Philippines, handling cash is considered a position of trust and confidence. When a "shortage" occurs, it isn't just a mathematical error—it’s a potential ground for disciplinary action or even the termination of employment.
Under the Labor Code of the Philippines and prevailing jurisprudence, here is the comprehensive guide to the rules governing cash shortages.
1. The Legal Basis: Loss of Trust and Confidence
The most common ground for dismissal due to cash shortages is Loss of Trust and Confidence. This is a "Just Cause" under Article 297 (formerly 282) of the Labor Code.
To validly dismiss an employee on this ground, two conditions must be met:
- Position of Trust: The employee must hold a position where they are entrusted with the custody of the employer’s money or property (e.g., Cashiers, Tellers, Managers, Treasury Officers).
- Act of Breach: There must be a willful act establishing that the employee is no longer worthy of the trust required by the position.
2. Is a Shortage "Automatic" Grounds for Dismissal?
No. The Philippine Supreme Court has consistently ruled that "mismanagement of funds" must be characterized by some level of negligence or intent.
- Isolated vs. Habitual: A single, small, and unintentional shortage by an otherwise exemplary employee might only warrant a warning or reprimand.
- Gross and Habitual Neglect: If shortages happen repeatedly despite warnings, it qualifies as Gross and Habitual Neglect of Duty, which is another valid ground for dismissal.
- Amount Involved: While the amount doesn't strictly define the legality of the dismissal, it is a factor in determining the "proportionality" of the penalty.
3. Salary Deductions: The "Cachier’s Allowance" Rule
Employers often want to deduct the shortage directly from the employee's salary. This is generally prohibited under Article 113 of the Labor Code, unless:
- The employer is authorized by law or regulations issued by the Secretary of Labor (e.g., "Cash Bonds" or "Deductions for Loss/Damage").
- The deduction is fair and reasonable.
- The employee’s responsibility for the loss is clearly established.
Note: Many employers provide a "Laundry Allowance" or "Cashier's Integrity Allowance." If a shortage occurs, they may deduct from this specific allowance rather than the basic wage to avoid violating labor laws.
4. The Requirement of "Twin Notice Rule" (Due Process)
Even if the shortage is massive and the evidence is clear, an employer cannot fire an employee on the spot. Failure to follow Procedural Due Process results in "Illegal Dismissal" or a fine for "Nominal Damages."
The process must follow these steps:
- Notice to Explain (NTE): A written notice specifying the amount of the shortage, the date it occurred, and the company policy violated. It must give the employee at least five (5) calendar days to submit a written explanation.
- Administrative Hearing: An opportunity for the employee to explain their side, present evidence, or be assisted by counsel/representative.
- Notice of Decision: A written notice informing the employee of the penalty (e.g., Suspension, Final Warning, or Dismissal) after considering their defense.
5. Summary of Rules for Employers and Employees
| Aspect | Rule/Requirement |
|---|---|
| Proof Required | Substantial Evidence (not proof beyond reasonable doubt). |
| Deductions | Must not reduce the salary below the minimum wage or be done without a written policy/agreement. |
| Preventive Suspension | Only if the employee's continued presence poses a serious threat to life or property. Max 30 days. |
| Restitution | An employee can be required to pay back the shortage, but this does not automatically waive the right of the employer to terminate them. |
6. Common Defenses for Employees
If you are an employee facing disciplinary action for a shortage, common valid defenses include:
- System Errors: Glitches in the Point of Sale (POS) system.
- Shared Access: Other people had access to the same cash drawer or vault (this often negates "exclusive custody").
- Force Majeure: Robbery or theft where the employee was not at fault.
- Lack of Training: The employer failed to provide the necessary tools or training to handle large sums of money.
Conclusion
In the Philippines, while the law protects the employer's right to safeguard its property, it equally protects the employee's right to security of tenure. Shortages must be investigated thoroughly, and penalties must be proportionate to the offense.
Would you like me to draft a sample "Notice to Explain" (NTE) for a cash shortage incident?