Illegal Dismissal for Non-Payment of Salary in the Philippines: A Comprehensive Guide
Important: This article is for educational purposes only and is not legal advice. For an actual case, consult a Philippine labor-law practitioner or the Department of Labor and Employment (DOLE).
1. Core Legal Framework
| Source | Key Provisions |
|---|---|
| 1987 Constitution | Art. III §1 (due process), Art. XIII §3 (labor enjoys special protection), Art. II §18 (full protection to labor) |
| Labor Code of the Philippines (Pres. Decree 442, as amended and renumbered by D.O. No. 40-03 s.2022) | - Art. 296 (former §279) security of tenure - Art. 116 / 303-305 (penalties for non-payment of wages) - Art. 118 (withholding of wages) - Art. 297-298 (just & authorized causes for dismissal—none include non-payment of wages by the employee) |
| Civil Code | Art. 1159 (obligations must be complied with), Art. 1700-1712 (wages contract of labor), Art. 1146 (4-year prescriptive period for injury to rights) |
| DOLE Rules | Labor Arbiter jurisdiction (NLRC Rules of Procedure); SENA (Single-Entry Approach) for mandatory conciliation; Visitorial & enforcement power under D.O. No. 238-23 |
2. What Counts as “Non-Payment of Salary”?
- Total non-payment – wages remain completely unpaid after the regular payday (Labor Code Art. 103).
- Repeated late payment – chronic delay that deprives the worker of subsistence.
- Substitution with promissory notes, vouchers, scrip, or post-dated checks that bounce.
- Partial payment below the agreed or statutory minimum wage (diminution of benefits).
- Failure to release salary differentials, 13th-month pay, or mandated COLA.
3. Non-Payment as Constructive Dismissal
3.1 Concept
A worker is constructively dismissed when the employer, without explicitly firing the worker, makes continued employment “impossible, unreasonable, or unlikely” (jurisprudential test). Chronic non-payment is the classic example because it forces the employee to walk off the job in order to survive.
3.2 Supreme Court Guidance
| Case | G.R. No. | Ratio Decidendi |
|---|---|---|
| Sebastian v. Philippine Rabbit Bus Lines (2006) | 164674 | Persistent non-payment “negates good faith” and ipso facto constitutes constructive dismissal. |
| Mabeza v. NLRC (1996) | 118506 | Holding salaries hostage to force resignation is a dismissal in disguise. |
| G.R. Bank v. Diendo (2019) | 220642 | Even partial but chronic delay amounts to “substantial breach” of the employment contract. |
Take-away: The burden of proof is on the employer to show valid cause and observance of due process; otherwise dismissal is illegal.
4. Elements & Burden of Proof
| Element | Standard |
|---|---|
| 1. Existence of employer-employee relationship | Four-fold test: selection/hiring, payment of wages, power of dismissal, power of control. |
| 2. Act amounting to dismissal (actual or constructive) | Employee must prove dismissal prima facie; employer then must justify it. |
| 3. Illegality of dismissal | Employer must prove (a) just/authorized cause and (b) procedural due process (twin-notice + opportunity to be heard). Non-payment is never a just cause attributable to the worker. |
5. Procedure: How to File a Case
Document Everything
- Payslips, payroll summaries, bank statements, demand letters, text/email exchanges.
Serve a Written Demand
- Give the employer a reasonable period (often 5-10 days) to cure.
Single-Entry Approach (SEnA)
- File a Request for Assistance (RFA) at any DOLE field office; mediation within 30 days.
Complaint before NLRC
- If SEnA fails or if illegal dismissal is alleged, file a verified complaint with the NLRC Regional Arbitration Branch.
- Filing fees: ~₱600 for the first ₱20 000 of money claims plus increments.
Position Paper & Hearing
- Labor Arbiter decides within 30 days after submission.
Appeal to NLRC Commission En Banc → Court of Appeals (Rule 65) → Supreme Court (Rule 45).
Prescriptive periods
| Action | Period |
|---|---|
| Illegal dismissal | 4 years (Civil Code Art. 1146) |
| Money claims / unpaid wages | 3 years (Labor Code Art. 306) |
| Offenses (criminal) | 3 years (Labor Code Art. 305) |
6. Remedies & Monetary Awards
- Reinstatement (without loss of seniority) or separation pay in lieu if strained relations.
- Full Backwages – From date of dismissal/constructive dismissal up to actual reinstatement or finality of decision.
- Unpaid wages, salary differentials, 13th-month pay, COLA, allowances.
- Legal interest (currently 6 % p.a. from date of demand to full satisfaction, per Nacar v. Gallery Frames).
- Moral & Exemplary Damages – Granted where non-payment is in bad faith, malicious, or oppressive.
- Attorney’s Fees – Up to 10 % of monetary award when employee is forced to litigate.
- Penalty wages – Art. 302 allows DOLE to impose double-indemnity in minimum-wage cases.
7. Employer Defenses (Often Rejected)
| Defense | Why It Usually Fails |
|---|---|
| Financial losses / business downturn | Not a just cause; must proceed under authorized-cause retrenchment with 30-day notice and separation pay. |
| Employee never complained during employment | Silence does not waive statutory rights. |
| Cash flow timing / “bank error” | Payment of wages is an absolute statutory duty; delays beyond the next payday are actionable. |
| Salary was converted to “investment” or shares | Any arrangement that circumvents wage laws is void (Labor Code Art. 112-113). |
8. Criminal & Administrative Liability
- Criminal – Art. 303-305: fine ₱1000–₱10 000 or imprisonment 3 months–3 years + one day, or both, per affected employee; prosecution requires DOLE endorsement to the prosecutor.
- Administrative – DOLE Regional Director may issue a Compliance Order and a Stop-Work Order for imminent danger.
- Corporate Officers – Doctrine of corporate officers’ solidary liability where they acted with malice or bad faith (e.g., A.C. Ransom v. NLRC).
9. Practical Tips for Employees
- Keep originals of all payslips and contracts; photograph time-cards before surrender.
- Send demand letters by registered mail or email with read-receipts.
- Attend SEnA sessions; refusal of the employer to appear strengthens constructive-dismissal theory.
- Calculate claims early using DOLE’s Labor Inspectorate Pocket Conversion Table.
- Beware of “Quitclaims” – Valid only if: voluntarily signed, with full understanding, and for reasonable consideration; courts strictly scrutinize.
10. Practical Tips for Employers
- Prioritize wage payments over all other corporate obligations—they enjoy first-priority preference over claims of the government and creditors (Civil Code Art. 110).
- Document all payments; use bank transfer or payroll ATM to create an indelible trail.
- If losses are real, use authorized causes (retrenchment, closure) with 30-day notice and statutory separation pay; seek preventive mediation at NCMB.
- Never coerce workers into loans or promissory notes in lieu of salary.
- Set up an employee grievance mechanism to pre-empt constructive-dismissal claims.
11. Recent Statutory & Regulatory Developments
| Year | Development | Effect |
|---|---|---|
| 2022 | DO No. 40-03 (renumbered Labor Code) | Cited articles now use new numbering (e.g., old 282 → new 297). |
| 2023 | DOLE Department Order No. 238-23 | Expanded powers of DOLE Regional Directors to summon bank records for wage investigations. |
| 2024 | RA 11958 (Wage Recovery Facilitation Act) | Allows escrow of contested wage awards to fast-track execution; still subject to IRR. |
(All remain in force as of June 27 2025.)
12. Frequently Asked Questions
| Question | Answer (Philippine jurisdiction) |
|---|---|
| Is it illegal dismissal if I resigned because my salary was unpaid for two months? | Probably yes—constructive dismissal. File within 4 years; you may seek reinstatement and backwages. |
| Can an employer invoke force majeure (e.g., pandemic) to skip salaries? | No. They may place employees on temporary suspension (Art. 301) up to 6 months with no wages, provided they file a report to DOLE and commit to recall or legally retrench thereafter. |
| We agreed I’d be paid “profit-sharing” only. Can I still claim minimum wage? | Yes. Labor standards cannot be waived. Profit-sharing is on top of, not in lieu of, wages. |
| The company closed down while owing me salaries. Whom do I sue? | The corporate officers may be held solidarily liable; file against the corporation and the responsible officers. |
13. Checklist for an NLRC Complaint (Employee’s View)
Verified complaint form (NLRC RAB)
Annexes:
- Employment contract / appointment letter
- Payroll, payslips, or sworn statement of rates and paydays
- Demand letter & proof of service
- Affidavit narrating non-payment & forced resignation/absence
Computation of claims (backwages, benefits, interest)
Certificate of Non-Forum Shopping
(Tip: NLRC sheriffs execute monetary judgments by levy or garnishment; furnish them exact bank names and addresses.)
Bottom Line
- Non-payment of salary is never a valid ground to terminate an employee; instead, it is a ground for the employee to treat the relationship as terminated and sue for illegal (constructive) dismissal.
- The employer carries the double burden of proving cause and due process; failure on either point makes dismissal illegal.
- Remedies include reinstatement, backwages, wage arrears, damages, attorney’s fees, interest, and in egregious cases, criminal prosecution.
- Timely action—within 4 years for dismissal and 3 years for money claims—is essential.
By knowing the statutory rights, recent regulations, and controlling jurisprudence outlined above, both workers and employers can navigate wage-related disputes with clarity—and, ideally, resolve them before they escalate into full-blown litigation.