In the Philippine labor landscape, the 13th-month pay is a statutory mandatory benefit under Presidential Decree No. 851. While the general rule allows employers to require a "clearance process" before releasing final pay, the intersection of this practice with illegal dismissal cases creates significant legal friction.

1. The Mandatory Nature of 13th-Month Pay

The 13th-month pay is not a bonus dependent on employer discretion; it is a form of deferred compensation earned by the employee through service. It must be paid to all rank-and-file employees who have worked for at least one month during the calendar year, regardless of the nature of their employment or the manner of their separation.

2. The Management Prerogative of Clearance

The Supreme Court has consistently recognized the employer’s right to require a clearance before the release of final pay (including 13th-month pay). This is considered a valid exercise of management prerogative, intended to ensure that:

Company properties (laptops, uniforms, IDs) are returned.
Outstanding monetary liabilities (cash advances, liquidated damages) are settled.

3. Impact of an "Illegal Dismissal" Claim

The filing of an illegal dismissal case does not automatically waive the employee's right to their 13th-month pay, nor does it automatically negate the employer's right to demand clearance. However, the dynamics change based on the following:

The Proportionate Pay Rule

Under the Rules Implementing P.D. 851, an employee who is terminated before the end of the year is entitled to proportionate 13th-month pay. This is computed as:

Retention Pending Clearance

Even if an employee claims they were illegally dismissed, the employer may generally withhold the 13th-month pay only if there is a clear, proven debt or company property still in the employee's possession. The withholding must be reasonable and proportionate to the value of the property or debt.

4. Legal Limitations on Withholding

The right to withhold is not absolute. Under Article 113 of the Labor Code, deductions from wages are prohibited except in specific cases (e.g., insurance premiums or when the employer is authorized by law). The Supreme Court clarified in Milan vs. NLRC that while withholding for clearance is allowed, it becomes illegal when:

The employer uses it as a tool for harassment.
The employee has already complied with the clearance requirements, but the employer refuses to release the funds.
The amount withheld is grossly disproportionate to the value of the unreturned property.

5. Consequences in Illegal Dismissal Rulings

If a Labor Arbiter eventually rules that the dismissal was illegal, the employer is usually ordered to pay:

Full Backwages: Inclusive of the 13th-month pay that would have been earned had the employee not been dismissed.
Reinstatement (or Separation Pay in lieu of reinstatement).
Legal Interest: Usually 6% per annum on the total monetary award from the time of judicial demand.

If the 13th-month pay was withheld solely because the employee refused to sign a waiver/release (quitclaim) due to the pending illegal dismissal case, the withholding is considered in bad faith. An employer cannot condition the release of statutory benefits on the signing of a quitclaim that waives the right to sue for illegal dismissal.

6. Summary of Key Principles

Accrued Right: 13th-month pay is a vested right; it is earned per month of service.
Separation of Issues: The validity of the dismissal is a separate legal issue from the entitlement to 13th-month pay for work already performed.
Clearance as a Shield, Not a Sword: Clearance can be used to protect company property but cannot be used to coerce an employee into dropping an illegal dismissal suit.
Timelines: Under Labor Advisory No. 06, Series of 2020, final pay (which includes the 13th-month pay) should generally be released within 30 days from the date of separation, unless a longer period is justified by the clearance process.