Overview

In the Philippines, resignation is generally a voluntary act by an employee to end the employment relationship. The Labor Code recognizes the employee’s right to resign, but it also requires a written notice at least 30 days in advance to give the employer time to adjust operations. Problems arise when an employee leaves immediately (or with short notice) and the employer wants to recover losses—sometimes by deducting “liquidated damages” from the employee’s final pay.

This article explains the governing rules, when damages may be enforceable, and what an employer may or may not deduct from final wages.

The 30-Day Notice Rule

General rule

An employee who resigns without just cause must serve a 30-day written notice. The purpose is operational continuity, turnover, and replacement.

Exceptions

A shorter notice (or immediate resignation) is allowed when resignation is for just causes attributable to the employer, such as:

serious insult by the employer/representative
inhuman or unbearable treatment
commission of a crime by the employer/representative against the employee or family
other similar causes

When resignation is for these reasons, no 30-day notice is required, and the employee cannot be penalized for leaving immediately.

What Are “Liquidated Damages” in Employment Contracts?

Liquidated damages are pre-agreed amounts in a contract, payable if a party breaches a specific obligation. In employment, these often appear in:

employment agreements
training bonds
company policies incorporated into contracts
employment handbooks expressly acknowledged by the employee

Example clauses:

“If the employee resigns without completing the 30-day notice, they shall pay ₱___ as liquidated damages.”
“Employee shall reimburse training costs of ₱___ if they resign within ___ months.”

Can an Employer Impose Liquidated Damages for Failure to Serve Notice?

Short answer

Yes, but only in limited situations. The employer must prove that:

There is a clear contractual basis for liquidated damages, voluntarily agreed to; and
The clause is reasonable and not contrary to law, morals, or public policy; and
The employee resigned without just cause; and
The damages relate to a real, legitimate employer interest (not a disguised penalty).

Key idea: not every “damage clause” is valid

Philippine labor law is protective of employees. Courts and labor tribunals scrutinize liquidated damages clauses to ensure they are not oppressive or used to restrict the right to resign.

A clause that effectively “forces” continued employment or imposes an excessive fee just for resigning may be void for being contrary to public policy.

The Critical Difference: Liquidated Damages vs. Penalty

Even if a contract calls the amount “liquidated damages,” it may be struck down if it is really a penalty.

Labor authorities look at:

proportionality: Is the amount excessive compared to actual harm?
purpose: Is it to compensate real losses or to punish resignation?
context: Did the employee get a genuine benefit (like expensive training) tied to the clause?

When Liquidated Damages Are More Likely Enforceable

1. Training Bonds / Scholarship or Specialized Training

If the employer paid substantial training costs and the employee agreed to stay for a period, damages for early resignation can be valid if reasonable.

Typical valid structure:

employer invests in training
employee commits to serve a minimum period
early resignation triggers reimbursement/liquidated damages tied to actual cost

2. Roles With Highly Specific Replacement Costs

For senior, specialized, or client-facing roles, a modest liquidated damages clause linked to handover disruption may be upheld if clearly justified.

When Liquidated Damages Are Unlikely Enforceable

1. Pure “No 30-Day Notice = Automatic Fine”

A blanket fine for not serving notice, without proof of special harm, can be viewed as punitive.

2. Excessive or One-Sided Clauses

If the amount is shockingly high compared to salary or actual loss, or if only the employee is penalized while the employer can terminate freely, the clause may be void.

3. If Employee Has Just Cause

If the employee resigns due to just causes attributable to the employer, damages cannot be collected.

4. If the Clause Restricts the Right to Resign

Resignation is a statutory right. Clauses that effectively prevent resignation are generally invalid.

Can the Employer Deduct Liquidated Damages From Final Pay?

General rule on deductions

Wages are protected. An employer cannot deduct from wages or final pay unless the deduction is:

authorized by law, or
authorized by the employee in writing, and
for a lawful and reasonable cause

In practice

Even if liquidated damages are valid as a claim, automatic unilateral deduction from final pay is risky unless:

the employee explicitly agreed in writing to that specific deduction; and
the amount is certain and uncontested

If the deduction is disputed, employers are expected to release final pay and pursue the claim separately through:

a civil action, or
a labor case (depending on the nature of the claim)

Unilateral offsets may expose employers to complaints for:

illegal deduction
non-payment/underpayment of wages
unfair labor practice (in extreme cases)

What Counts as “Final Pay” and What Must Be Released?

Final pay typically includes:

unpaid wages
prorated 13th-month pay
unused service incentive leave conversion
commissions earned
other benefits due under contract/policy

Employers must release final pay within a reasonable period (often guided by DOLE advisories and company clearance processes). Withholding final pay purely as leverage is not allowed.

Employer Remedies if Employee Leaves Without Notice

Even if deduction is restricted, employers have options:

Claim actual damages
- Employer must prove losses (e.g., cost of temporary replacement, project penalties, client loss).
Enforce valid liquidated damages clause
- But must be reasonable and tied to legitimate interest.
File administrative or civil action
- Especially for training bonds or clear contractual breaches.
Set-off only with clear written consent
- Preferably signed after resignation, not just a general policy acknowledgement.

Employee Defenses Against Liquidated Damages Claims

Employees can resist claims by proving:

resignation had just cause
clause is unreasonable or punitive
no real employer loss occurred
consent was not voluntary or fully informed
deduction violated wage protection rules

Practical Guidance

For employers

Use liquidated damages sparingly and only where you have strong justification (training, special roles).
Make clauses specific, proportional, and transparent.
Get separate written authorization for any wage deduction.
If contested, release final pay first, then pursue the claim.

For employees

Submit a written resignation and, if possible, serve the notice.
If leaving immediately, document your just cause.
If deductions are made without consent, you can file a complaint with DOLE/NLRC.

Bottom Line

An employee who resigns without the 30-day notice may be liable for damages, but only if the employer can point to a valid, reasonable, and lawful contractual basis, and the resignation was without just cause.

Even then, an employer cannot automatically deduct liquidated damages from final pay unless the employee clearly and specifically authorized that deduction in writing. Disputed claims should be pursued through proper legal channels, not by withholding or offsetting wages.

If you want, I can draft (1) a compliant liquidated damages clause for PH employment contracts, or (2) a short template demand/response letter for either side.