Legal Guide: Withholding Commissions After Resignation in the Philippines
In the Philippine employment landscape, commissions are a vital component of compensation for many professionals. A recurring point of contention arises when an employee resigns: Can an employer legally withhold earned commissions?
Under Philippine law and jurisprudence, the answer is generally no, provided the commissions have already been "earned" or "vested" according to the employment contract.
1. Commission as "Wages"
Under Article 97(f) of the Labor Code of the Philippines, the definition of "wage" is broad:
" 'Wage' paid to any employee shall mean the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis..."
Because commissions are legally classified as wages, they enjoy the same protections as a basic salary. This means they cannot be arbitrarily withheld, and any deduction must comply with specific legal requirements.
2. The "Vesting" Principle
The legality of withholding commissions usually hinges on when the commission is considered earned.
- Earned/Vested Commissions: If the employee has completed all the conditions required to trigger the commission (e.g., closing a sale, signing a contract, or hitting a specific target) before their effective date of resignation, the commission is considered property of the employee.
- Pending Conditions: If the commission is contingent on future events that occur after resignation (e.g., the client making the full payment six months later), the entitlement depends strictly on the written agreement or company policy.
3. Legal Grounds for Withholding (The Exceptions)
While an employer cannot keep earned commissions as a penalty for resigning, there are limited scenarios where withholding is permissible:
- Final Clearance Process: Employers may temporarily hold the last salary and commissions pending the "completion of the clearance process." This ensures the employee returns company property (laptops, IDs, files) and settles any liquidated debts.
- Debt Settlement: Under Article 113 of the Labor Code, deductions are allowed if the employee is indebted to the employer (e.g., cash advances) or if there is a written authorization from the employee for a specific deduction.
- Company Policy on "Active Employment": Some contracts state that an employee must be "actively employed" at the time of payout to receive a discretionary bonus. However, if the commission is for work already performed and completed, courts often rule in favor of the employee, viewing such clauses as "equitably suspect."
4. Jurisprudence: The "No-Work, No-Pay" vs. "Earned Labor"
The Supreme Court has consistently held that once labor has been rendered, the compensation for that labor belongs to the worker. In cases where employers use "forfeiture of commission" as a penalty for resigning without a 30-day notice, the Department of Labor and Employment (DOLE) often finds this illegal.
While the employer may sue for damages caused by a sudden resignation (brach of contract), they cannot unilaterally "self-help" by confiscating wages or commissions already earned.
Summary Table: Rights and Obligations
| Scenario | Legal Status |
|---|---|
| Withholding for clearance | Legal, provided it is reasonable and temporary (usually 30 days). |
| Forfeiture as a penalty | Illegal. Commissions are wages and cannot be confiscated as a fine. |
| Unpaid Client Invoices | Depends on Contract. If policy states "commissions are earned upon collection," the employer may wait for payment. |
| Recovery of Company Debt | Legal, if the debt is proven and documented. |
5. Remedies for the Employee
If an employer refuses to release earned commissions after the clearance process is complete, the employee has several avenues for redress:
- SENA (Single Entry Approach): A mandatory conciliation-mediation process under DOLE to settle the dispute amicably.
- Labor Arbiter: If SENA fails, a formal complaint for "Non-payment of Wages/Commissions" can be filed with the National Labor Relations Commission (NLRC).
- Double Indemnity: Under Republic Act No. 8188, employers found to be intentionally withholding wages may be ordered to pay double the unpaid amount.