In the Philippine labor landscape, the 13th-month pay is often viewed as a "Christmas bonus," but legally, it is a mandatory benefit. A common point of contention between employers and employees is whether this entitlement remains intact when an employee is terminated for just cause (e.g., serious misconduct, willful disobedience, or fraud).
Under Philippine law, the answer is categorical: An employee terminated for just cause is still entitled to their 13th-month pay.
1. Legal Basis and Philosophy
The 13th-month pay is governed by Presidential Decree No. 851 and its Implementing Rules and Regulations (IRR). Unlike a discretionary bonus, which depends on employer benevolence or company profit, the 13th-month pay is considered accrued wages.
Because it is earned through service rendered during the calendar year, it is treated as property of the employee. Depriving an employee of this benefit—regardless of the reason for their exit—is considered a violation of labor standards.
2. Computation for Terminated Employees
When an employment contract is severed before the end of the year, the benefit is referred to as the Pro-rated 13th Month Pay.
The formula remains the same:
(Total Basic Salary Earned during the Calendar Year) / 12 = Pro-rated 13th Month Pay
- "Basic Salary" includes all remunerations or earnings paid by the employer for services rendered.
- Exclusions: It generally excludes allowances, profit-sharing payments, and monetary benefits not considered part of the basic salary (unless integrated by company policy or collective bargaining agreement).
3. Just Cause vs. Authorized Cause
In Philippine Labor Law, there is a distinction between why an employee leaves:
- Authorized Cause: Redundancy, retrenchment, or disease.
- Just Cause: Serious misconduct, neglect of duties, commission of a crime, or breach of trust.
While an employee terminated for just cause loses their right to separation pay, they do not lose their right to back wages and accrued benefits like the 13th-month pay and unused service incentive leaves (SIL).
4. The "Property Right" Doctrine
The Supreme Court of the Philippines has consistently held that once an employee has worked for at least one month within a calendar year, the right to a pro-rated 13th-month pay vests.
Because it is a vested property right, it cannot be forfeited as a form of penalty or fine for the misconduct that led to the termination. An employer cannot use the employee's wrongdoing as a legal set-off to avoid paying this mandated benefit.
5. Timeline for Payment
According to Labor Advisory No. 06, Series of 2020, and existing jurisprudence, the 13th-month pay and other final pay components must be released within thirty (30) calendar days from the date of separation or termination, unless a more favorable company policy or agreement exists.
Summary Table: Entitlements After Just Cause Termination
| Benefit | Entitled? | Notes |
|---|---|---|
| 13th Month Pay | YES | Pro-rated based on months served in the year. |
| Unused Service Incentive Leave | YES | If the employee has at least 1 year of service. |
| Salary for Days Worked | YES | Payment for the final payroll period worked. |
| Separation Pay | NO | Disqualified if terminated for just cause. |
6. Deductions and "Quitclaims"
Employers may only deduct amounts from the 13th-month pay if the employee has existing debts to the company (e.g., unreturned equipment, salary loans). However, the employer cannot withhold the entire final pay indefinitely.
Once the "clearance process" is completed, the employer is legally obligated to release the 13th-month pay. Failure to do so can lead to a money claim case before the National Labor Relations Commission (NLRC).