In the Philippine employment landscape, the "no work, no pay" principle serves as the bedrock of the compensation system. However, life often necessitates extended absences that fall outside the coverage of earned leaves. This state is known as Leave Without Pay (LWOP).
While LWOP is generally viewed as a suspension of the employer-employee relationship's financial obligations, it does not mean a total severance of rights. Understanding the legal nuances of LWOP is crucial for both HR practitioners and employees to ensure compliance with the Labor Code and related jurisprudence.
1. The Legal Basis of LWOP
LWOP is not explicitly defined as a standalone "right" under the Labor Code of the Philippines. Instead, it is governed by:
- Company Policy/Employee Handbooks: Most LWOP grants are discretionary and based on established company rules.
- Collective Bargaining Agreements (CBA): Unionized environments often have specific clauses regarding the duration and approval of LWOP.
- The Principle of "No Work, No Pay": As affirmed by the Supreme Court, if the employee does not perform service, the employer is generally not obligated to pay wages unless a specific law or contract provides otherwise.
2. Status of the Employment Bond
During LWOP, the employment contract is suspended, not terminated. This means:
- Security of Tenure: An employee on authorized LWOP cannot be terminated without just or authorized cause and due process.
- Seniority: Generally, periods of LWOP do not count toward "length of service" for the purpose of step increments or seniority-based promotions, unless company policy states otherwise.
- Exclusivity: The employee is still bound by their non-compete and confidentiality agreements. Taking another job during LWOP without permission may be grounds for disciplinary action or "abandonment."
3. Impact on Mandatory Benefits
One of the most complex areas of LWOP involves government-mandated benefits.
| Benefit | Status during LWOP |
|---|---|
| SSS (Social Security System) | No salary means no deductions. However, the employer is not required to pay the employer's share. Employees are encouraged to pay as "Voluntary Members" during this time to avoid gaps in their contribution records. |
| PhilHealth | Coverage continues only if contributions are updated. To maintain continuous health insurance, the employee may need to settle the full premium (both employer and employee shares) or transition to voluntary status temporarily. |
| Pag-IBIG Fund | Similar to SSS, mandatory contributions stop. This may affect the employee's eligibility for short-term loans or housing loans which require a specific number of consecutive monthly contributions. |
| 13th Month Pay | Under Presidential Decree No. 851, 13th-month pay is computed based on 1/12 of the total basic salary earned within a calendar year. Periods of LWOP are excluded from the computation, effectively reducing the final amount. |
4. Service Incentive Leave (SIL)
Under Article 95 of the Labor Code, an employee who has rendered at least one year of service is entitled to five days of SIL with pay.
- The "One Year" Requirement: For the purpose of earning SIL, the "one year of service" includes authorized absences. However, if the LWOP is excessively long, it may delay the completion of the "one year" requirement depending on how the company defines "service."
5. Retirement Pay and Separation Pay
- Retirement: Under RA 7641, retirement pay is based on "years of service." Jurisprudence suggests that authorized leaves (even without pay) do not necessarily break the continuity of service, but they may be deducted from the total "credited years" depending on the specific formula used in the retirement plan.
- Separation Pay: If an employee is retrenched or the company closes shortly after the employee returns from LWOP, the separation pay is usually calculated based on the last monthly salary. The period of LWOP may dilute the "years of service" multiplier.
6. The "Authorized" vs. "Unauthorized" Distinction
The legal protection afforded to an employee depends heavily on whether the LWOP was approved.
- Authorized LWOP: Protects the employee from charges of "Gross and Habitual Neglect of Duty" or "Abandonment."
- Unauthorized LWOP: Can be construed as abandonment (a form of Resignation) if the employee fails to report for work despite a notice to return. This can lead to legal termination without separation pay.
7. Key Limitations and Best Practices
- Exhaustion of Paid Leaves: Most Philippine companies require employees to exhaust all earned Sick Leaves (SL) and Vacation Leaves (VL) before LWOP is granted.
- Management Prerogative: Employers have the right to deny LWOP requests if the absence would cause significant disruption to business operations, provided the denial is not discriminatory or in bad faith.
- Documentation: It is vital that LWOP agreements are documented in writing, specifying the duration, the reason, and the agreed-upon return date to prevent future litigation regarding "constructive dismissal" or "abandonment."