Employee Rights When a Company Withdraws Allowances Due to Project Dissolution (Philippines)
A comprehensive, practice-oriented guide for employees, HR, and counsel
Executive Summary
When a Philippine company dissolves a project, it may try to withdraw or reduce allowances (e.g., project allowance, site allowance, hazard, per diem, transport, communications, meal, “client uplift”). Whether this is lawful depends on:
- The legal nature of the allowance (wage component vs. contingent benefit),
- How it was granted (by law, CBA, written policy, contract, or long-standing company practice), and
- Why it’s being withdrawn (genuine project cessation vs. cost shaving), including procedures followed.
The non-diminution of benefits rule generally prohibits unilateral reduction of benefits that are regularly and deliberately given over time. Allowances expressly contingent on a live project or site conditions may end when that condition no longer exists, provided the employer proves the contingency and applies the change fairly and prospectively. If project dissolution leads to redundancy/closure, separation pay and due-process rules may apply in addition to benefit issues.
Key Legal Anchors (Plain-English)
Wage vs. Benefit vs. Allowance
- If an allowance is integrated into pay (regular, fixed, not truly reimbursable), it may be part of wage and protected from unilateral reduction absent a valid cause.
- If it is contingent (e.g., tied to a specific site, client-funded uplift, hazardous duty, on-call assignment, or per diem for travel actually incurred), it generally ends with the condition.
Non-Diminution of Benefits (Article 100, Labor Code concept) Employers cannot unilaterally reduce benefits that have ripened into a company practice:
- Consistent and deliberate grant,
- Over a substantial period,
- Clear intent to be a benefit, not a mere error or one-off. Exceptions:
- Benefit was granted by mistake;
- Benefit is expressly conditional (e.g., “while assigned to Project X”);
- CBA renegotiation or lawful restructuring with mutual consent;
- Authorized causes (closure, redundancy, retrenchment) properly invoked with notices and separation pay—but even then, you terminate employment, you don’t just cut a vested benefit while work continues.
Management Prerogative Valid, if exercised in good faith, for legitimate business reasons, with fair criteria, and without violating law/CBA/vested benefits.
Authorized Causes & Procedure (when the project truly ends)
- Redundancy / Retrenchment / Closure: 30-day written notice to employees and DOLE, plus separation pay at statutory rates; good-faith business records to substantiate.
- Temporary suspension (floating/off-detail): allowed up to 6 months in bona fide suspension, with recall or conversion to authorized cause thereafter.
Classifying the Allowance (Decision Tree)
Is the allowance mandated by law/CBA/contract?
- Yes: Follow the law/CBA/contract. Unilateral withdrawal is generally not allowed.
- No: Go to 2.
Is it expressly conditional? (e.g., “Project X allowance while assigned to Site A,” “Hazard allowance during hazardous work,” “Client uplift while deployed to Client Y”)
- Yes: Employer may stop the allowance when the condition ceases (project dissolved, reassignment to non-hazard site), if the policy is clear, consistently applied, and not a pretext.
- No: Go to 3.
Has it ripened into a company practice? Ask:
- Was it regularly and deliberately granted, regardless of project or site?
- Over a substantial period (typically years), to a defined class of employees?
- Without explicit contingency language? If yes, withdrawal likely violates non-diminution.
Is it a reimbursement (per diem) only when expenses are actually incurred?
- Yes: If travel/site work ends, no per diem is due. Withdrawing a reimbursement isn’t diminution; it simply follows the factual need.
- No: Treat as a wage/benefit and analyze under 1–3.
Typical Allowance Types and How Project Dissolution Affects Them
Project/Site Allowance (fixed monthly while assigned):
- Lawful to stop upon reassignment or project end if the allowance is explicitly tied to that assignment and policy says so.
- Not lawful to stop if historically paid even after reassignments, or irrespective of project, creating practice.
Hazard/Hardship Allowance:
- Ends when the hazardous condition ceases. Employer should document the risk assessment showing the change.
Transport/Meal/Communication Allowance:
- If fixed and long-running to support the role (not mere reimbursement), unilateral removal risks diminution—unless you can prove it was project-specific.
Client-Funded Uplift (pass-through):
- If policy clearly states it is co-terminous with client/project billing, withdrawal upon client termination is typically valid—but make sure pay slips/policies reflect this.
Per Diems / Reimbursements:
- Stop naturally when no expense is incurred; that is not diminution.
If You’re an Employee: What to Do When Allowance Is Withdrawn
Gather the paper trail
- Contracts, addenda, policy manuals, memos, CBAs, emails announcing allowances, HR FAQs, pay slips showing the allowance across assignments and time.
- If the allowance appeared regardless of project and for a long period, you’re building a non-diminution case.
Check the reason and timing
- Is the project actually dissolved (notice, client termination, completion certificate)?
- Are you reassigned to comparable work?
- Was the withdrawal immediate and without written basis? Those are red flags.
Request for Clarification / Protest (in writing)
- Ask HR to cite the policy/clause and effective date, explain the condition that ended, and provide transition measures (e.g., redeployment).
- State that if no clear contingent basis exists, the change may be non-diminution.
Escalate
- Grievance (if unionized/CBA), DOLE Single-Entry Approach (SEnA) for mediation, then labor complaint for money claims (allowance differentials, damages) and, if coupled with adverse actions, illegal dismissal.
- Prescriptive periods: generally 3 years for money claims; 4 years for illegal dismissal.
Compute the claim
- Sum the allowance differentials from withdrawal date until restoration or separation, plus 13th-month impact (if the allowance forms part of basic wage for 13th-month computations under company practice), and premium pay impact if historically treated as wage.
If You’re HR/Management: How to Do This Lawfully (and Avoid Liability)
Prove the contingency
- Issue a written policy that the allowance is project/site/client-contingent. Keep client contracts, task orders, risk assessments, and costing to show the basis and co-terminus nature.
Communicate clearly and prospectively
- Written notice explaining project dissolution, the policy clause, the effective date, and transition (redeployment options). Avoid retroactive cuts.
Apply objective criteria
- No discriminatory targeting. If some similarly situated employees keep the allowance, explain why (e.g., they remain on residual close-out work at the site).
Offer redeployment
- If allowance loss coincides with lower overall pay, consider temporary wage protection or bridging assistance to mitigate claims and preserve morale.
If work truly disappears
- Don’t weaponize allowance withdrawal to force resignations. Invoke authorized cause properly (30-day notices and separation pay) or, if temporary, a bona fide suspension (≤6 months) with recall or conversion later.
Audit for company practice
- If the allowance has been universal and unconditional for years, treat it as a vested benefit and negotiate changes (e.g., CBA, MOU) with consideration rather than impose unilaterally.
Gray Areas & Practical Guidance
Mixed communications (“project allowance” in name but paid even off-project): Courts look at substance over labels. Regular, unconditional payment → benefit. Keep your documentation consistent.
“Temporary” withdrawal that becomes permanent: Temporary cost-saving is not a legal basis to diminish vested benefits while work continues. Either prove contingency or negotiate.
Redeployment to a lower-cost site: Lawful to replace a site allowance with a different site’s rate if policy supports it and application is uniform.
Wage distortion risk: Removing an allowance for one group may collapse pay gaps between job classes. If a CBA exists, follow distortion-resolution procedures.
Remedies & Claims Snapshot (Employee)
- Money claims: unpaid/withheld allowances (plus proportional 13th-month, where applicable), legal interest.
- Damages/attorney’s fees: in bad-faith withdrawals.
- ULP (unfair labor practice): if done to undermine union/collective bargaining.
- Illegal dismissal: if allowance withdrawal is part of constructive dismissal (e.g., drastic pay cut without basis, demotion, or hostility forcing resignation).
Burden of proof: Employer must prove the contingent basis, good faith, and consistent policy. Employee must prove the existence, regularity, and unconditionality of the allowance.
Model, Copy-Ready Templates
A) Employee Letter Seeking Clarification/Protest
Subject: Request for Basis and Reconsideration of Allowance Withdrawal Dear HR, I received notice that my [name of allowance] is withdrawn effective [date] due to project dissolution. Kindly provide the written policy clause showing that this allowance is expressly contingent on [project/site], and the documents evidencing project dissolution or my reassignment. My records show this allowance has been regularly paid even [off-project/over multiple assignments] since [year]. Absent a clear contingency, its unilateral withdrawal may constitute diminution of benefits. I respectfully request reconsideration or a written explanation within 5 working days.
B) HR Notice of Project-Contingent Allowance Cessation
Subject: Cessation of Project-Contingent Allowance – Project [X] Dear Team, Under Policy [code], the [allowance] applies only while assigned to Project [X]/Site [Y]. With the dissolution of Project [X] effective [date], this allowance will cease on [date]. Affected employees will be redeployed to [assignment] under [new applicable allowances]. For questions, please contact HR.
Quick Checklists
For Employees (to gauge a diminution case)
- Written policy does not say the allowance is contingent
- Allowance paid regularly for years, across assignments
- Withdrawal announced unilaterally with no project documents
- Others similarly situated still receive the allowance without clear basis
For HR (to defend a lawful cessation)
- Policy explicitly ties allowance to project/site/client/hazard
- Project dissolution or reassignment is documented
- Uniform application to all similarly situated staff
- Prospective notice; no retroactive deductions
- Considered redeployment or authorized-cause options where appropriate
FAQs
Is an employer always allowed to stop a project allowance when the project ends? Yes, if the allowance is clearly contingent on that project/site and the condition truly ceases. No, if history shows it became unconditional (practice), or if employees continue similar work without the allowance.
What if I’m reassigned but still doing comparable duties? If the allowance was role-based (not site-based), its removal is suspect. If it was site/hazard-based, compare the new site/hazard profile.
Can we “temporarily” stop allowances during a dip? Cost saving alone doesn’t defeat non-diminution. Either prove contingency, negotiate changes (with consideration), or invoke authorized causes lawfully.
Does separation pay factor in lost allowances? If the allowance is part of wage (regular and integrated), it can affect the basic pay basis for separation pay computations. If it’s contingent/reimbursement, typically no.
Bottom Line
- Labels don’t control; practice does. If an allowance walks and talks like part of pay, it’s protected.
- Contingent allowances end when the condition ends, but the employer must prove the contingency and apply changes fairly.
- Project dissolution may justify cessation of truly project-tied allowances—or require redundancy/closure procedures if work disappears.
- Employees should document history and assert rights; HR should clarify policies, give notice, and choose the correct legal pathway rather than risk diminution or constructive dismissal findings.