This article provides general legal information in the Philippine context.

1) What “inventory shortage” claims usually mean in employment

“Inventoy shortage” (often called shrinkage, variance, cashier shortage, stock loss, pilferage, or unaccounted goods) typically arises when an employer’s audit or reconciliation shows that stocks (or cash equivalents tied to stock movement) are missing or less than what records indicate.

In practice, an employer’s “claim” can take several forms, each with its own rules and prescriptive period (deadline to sue or file):

Workplace discipline (administrative case; sanctions up to dismissal)
Wage deduction / set-off (deducting shortages from wages, final pay, cash bond, or deposits)
Labor case (asserting a claim/counterclaim in a labor dispute)
Civil case (collection of sum of money or damages in regular courts)
Criminal case (theft/qualified theft/estafa), with civil liability attached

A correct prescription analysis starts by identifying what cause of action is being pursued and where it will be filed.

2) The threshold issue: is the employer trying to recover money, punish misconduct, or both?

An inventory shortage may be treated as:

Negligence (poor handling of stocks, failure to follow procedures)
Breach of duty/contract (failure to account, violating accountability undertakings)
Fraud/dishonesty (falsified records, deliberate misappropriation)
Criminal act (theft/qualified theft, estafa)

It is common for employers to pursue discipline and recovery at the same time—but prescription can differ per track.

3) Workplace discipline and dismissal: no fixed statutory “prescription,” but delay can weaken the case

A. No single “prescriptive period” in the Labor Code for administrative discipline

Philippine private employment law generally does not impose a universal statutory deadline (e.g., “file admin case within X months”) for an employer’s internal administrative case.

B. Practical/legal limits still apply

Even without a set statutory prescription, timing matters because:

Due process requirements apply (notice and opportunity to explain; for dismissal, the “two-notice rule” plus opportunity to be heard).
Unreasonable delay can be argued as condonation/waiver or as undermining credibility (e.g., if the employer sat on the issue but continued trusting the employee in a sensitive post).
Company rules, CBA provisions, or policies may impose internal deadlines (e.g., “must issue an NTE within X days from discovery”). These can be enforceable as management’s own rules of procedure, depending on wording and consistent application.

C. Best practice for “discovery-based” shortages

Inventory shortages are often discovered only after periodic counts. Employers commonly anchor administrative timelines on date of discovery (audit completion date), then act promptly.

4) Wage deductions for shortages: permitted only in narrow situations (and improper deductions create employee claims)

Before prescription, it’s crucial to know whether the employer may lawfully deduct shortages from wages at all.

A. General rule: wages cannot be deducted or withheld freely

Philippine wage rules restrict deductions. Deductions are generally allowed only when:

required by law, or
authorized by regulations, or
authorized in writing by the employee for limited purposes, and in a manner consistent with labor standards.

B. “Loss/damage” deposits or cash bonds (accountability deposits)

The Labor Code provisions on deposits for loss/damage (commonly cited in practice) and their implementing rules are often invoked when employees handle property, tools, equipment, or cash/inventory. Typical compliance conditions include:

a clear policy or practice permitting deposits,
a showing that the employee is responsible (fault/negligence or breach of duty),
due process (the employee is heard), and
deduction/charge limited to the actual loss and done fairly.

C. Why this matters to prescription

Improper deductions can expose the employer to:

employee claims for unpaid wages/illegal deductions, and
potential penalties/administrative consequences.

Those employee money claims are commonly subject to the Labor Code 3-year prescriptive period (discussed below). This often drives employer strategy: some employers avoid unilateral deductions and instead pursue recovery via a formal claim.

5) Labor tribunals (NLRC/Labor Arbiter): the 3-year prescriptive period for “money claims” is a central reference point

A. The Labor Code rule on money claims (3 years)

The Labor Code provides that money claims arising from employer-employee relations must generally be filed within three (3) years from the time the cause of action accrued (commonly cited as Article 291, renumbered in later compilations as Article 306).

This 3-year rule is most frequently applied to employee claims (unpaid wages, benefits), but the text is broad enough that it often becomes relevant when:

an employer asserts a counterclaim or
the controversy is packaged as a monetary dispute “arising from employment.”

B. Jurisdiction complication: can an employer file a standalone money/damages claim against an employee in the NLRC?

In practice, employer claims to recover losses (especially those resembling tort, fraud, theft, or purely civil debt) are often treated as matters for regular courts, not labor tribunals—unless they are properly raised as a counterclaim closely connected to an employee-initiated labor case and arise from the employment relationship.

Because jurisdiction can determine which prescription rule applies (Labor Code vs Civil Code), employers commonly choose between:

raising the matter in labor proceedings (when procedurally proper), or
filing a civil/criminal action outside the NLRC.

C. Prescription in labor cases often turns on “accrual”

For shortage-based monetary claims framed within labor contexts, accrual is frequently argued to be:

the date the shortage was discovered and established (audit date), or
the date the amount became demandable (after notice and final determination), depending on policy and documentation.

6) Regular civil court actions: Civil Code prescriptive periods usually govern employer recovery suits

When an employer sues an employee (or former employee) in regular court for reimbursement, collection, or damages, Philippine Civil Code prescription rules typically apply. The applicable period depends on the legal basis of the action:

A. 10 years: written contract, obligation created by law, or judgment

An employer claim may prescribe in 10 years if based on:

a written undertaking (e.g., written accountability agreement, written promissory note, written reimbursement agreement), or
an obligation created by law, or
a prior judgment.

Common shortage pattern fitting 10 years: the employee signed a written document expressly agreeing to be liable for shortages or to reimburse a quantified loss.

B. 6 years: oral contract or quasi-contract

If the claim is based on:

an oral agreement (e.g., verbal reimbursement promise), or
quasi-contract (e.g., unjust enrichment-type theories), the prescriptive period is commonly 6 years.

C. 4 years: injury to rights or quasi-delict (tort)

If the employer frames the case as:

quasi-delict (fault/negligence causing damage), or
an action upon “injury to rights,” the prescriptive period is commonly 4 years.

Common shortage pattern fitting 4 years: negligence-based loss where the employer alleges breach of the employee’s duty of care resulting in inventory loss, without relying on a specific written reimbursement promise.

D. 5 years: “all other actions” (catch-all)

If the action does not fall neatly under the categories above, a 5-year prescriptive period may apply under the Civil Code’s catch-all rule.

7) Criminal cases (theft/qualified theft/estafa): prescriptive period depends on the penalty, not the label “inventory shortage”

When inventory shortage is suspected to be intentional misappropriation, employers sometimes pursue criminal complaints such as:

Theft / Qualified Theft (the latter often alleged where there is grave abuse of confidence or similar qualifying circumstances), or
Estafa (depending on how the facts fit statutory elements)

A. Prescription of crimes under the Revised Penal Code framework

Under the Revised Penal Code scheme, the prescription of crimes generally depends on the penalty attached to the offense. Because penalties for theft/estafa vary based on amount and circumstances, the prescriptive period can vary widely (often in the range of years, and longer for higher-penalty cases).

B. Civil liability from crime vs civil actions

A criminal case can carry civil liability (restitution, reparation, indemnification). The timing and strategy can be complex:

sometimes civil recovery is pursued within/alongside the criminal case,
sometimes separately (subject to rules on reservation and the particular procedural posture).

8) Accrual: when does the prescriptive period start running for shortage claims?

Across Philippine prescription doctrines, a common baseline principle is that prescription starts when the cause of action accrues—i.e., when the claimant can first validly sue.

For inventory shortages, accrual disputes are frequent. Common accrual anchors include:

Date of shortage occurrence (e.g., date goods went missing)
Date of discovery/confirmation (e.g., audit count completion date)
Date of demandability (e.g., employer’s final written demand after investigation and quantification)
Per-incident accrual (each shortage event counts separately) vs continuing loss theories (usually harder to sustain without tight facts)

Practical takeaway: Employers typically strengthen prescription positions by documenting:

the audit date,
the date the shortage was finalized/quantified, and
the date of written demand.

9) Interruption of prescription: acts that can stop or reset the running period

Philippine civil prescription rules recognize common interruption triggers, such as:

Filing of a case in the proper forum
Extrajudicial written demand (for civil obligations)
Written acknowledgment of the debt/obligation by the employee (including partial payments or signed admissions)

In shortage situations, interruption arguments often rely on:

demand letters,
signed variance acknowledgments,
promissory notes,
compromise agreements, or
payment arrangements.

Caution: Documents executed under coercion or in a manner violating labor standards (e.g., forced admissions tied to release of wages) can be attacked for validity, which can also affect interruption arguments.

10) Employer recovery via set-off against final pay: legally sensitive and frequently contested

Employers sometimes try to recover shortages by withholding or offsetting against:

final pay,
accrued wages,
13th month, or
other due amounts.

Philippine labor standards generally treat wages and certain benefits as protected, and unilateral set-offs—especially without clear legal basis, due process, and proper documentation—are frequently disputed.

Where set-off is challenged, the situation can pivot into:

an employee money claim for illegal withholding/deduction (often under the 3-year rule), and
a separate employer attempt to recover losses via a proper claim in the correct forum.

11) Evidence and due process: what typically determines viability (even before prescription does)

Even a timely claim can fail if the employer cannot prove accountability. In inventory shortage controversies, decision-makers often scrutinize:

the reliability of the inventory system (receiving, issuing, recording, access controls)
audit methodology (who counted, how discrepancies were handled)
chain of custody and access (multiple personnel access weakens direct attribution)
POS logs, stock cards, gate passes, delivery receipts
CCTV handling and authenticity
admissions (voluntariness, context, coercion claims)
whether the position is a “trust” position (relevant in discipline/dismissal)

12) Practical synthesis: a working “prescription map” for employer shortage claims

A. Internal discipline (including dismissal)

No single statutory prescriptive period, but act promptly; long delay can be argued as waiver/condonation and can undermine just cause.

B. Labor money-claim framing (often as counterclaim in labor disputes)

The 3-year prescriptive period for money claims arising from employer-employee relations is commonly the key reference point.

C. Civil court recovery

10 years if anchored on a written obligation to reimburse
6 years if anchored on oral contract or quasi-contract
4 years if anchored on quasi-delict/injury to rights
5 years for other actions not fitting the specific categories

D. Criminal route

Prescription depends on the penalty for the specific offense charged (value/circumstances matter), and civil liability may be pursued with or alongside the criminal case, subject to procedural rules.

13) Bottom-line principles

“Inventory shortage” is a factual event; prescription depends on the legal theory and forum.
The Labor Code’s 3-year money-claim rule is central in employment monetary disputes, but civil court actions often follow Civil Code prescription periods.
For intentional misappropriation, criminal prescription can be materially different and depends on the offense’s penalty.
Because shortages are often discovered by audit, prescription battles commonly focus on accrual and the quality of documentation establishing when the claim became enforceable.