Can Employers Legally Forfeit Unused Leave Benefits


Puting Ilaw Company grants vacation leave benefits to its workers of thirty (30) days, non-commulative, non-convertible to cash in excess of ten (10) days. In 2018, the company issues a memo requiring employees to use the VL in excess of 10 or it shall be deemed forfeited thereafter.

Ab Sinero, an employee for five years, has used only 15 of his 30-day VL. When the company converted his 10 VL to cash, he is left with only 5 days. He did not use the remaining 5 days hence, it was forfeited by the company on December 31, 2018. Ab Sinero protested arguing that under the Labor Code, leave benefits are convertible to cash.

Question: Is Ab Sinero correct?When the Labor Code mentions about leave benefits, it pertains to Service Incentive Leave. Vacation leave and sick leave are not found in the Labor Code. However, this does not mean that the grant of VL and SL is not sanctioned by law.

The clear policy of the Labor Code is to grant service incentive leave pay to workers in all establishments, subject to a few exceptions. Section 2, Rule V, Book III of the Implementing Rules and Regulations provides that “every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.”

Service incentive leave is a right which accrues to every employee who has served “within 12 months, whether continuous or broken reckoned from the date the employee started working, including authorized absences and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that provided in the employment contracts, is less than 12 months, in which case said period shall be considered as one year.” (Section 3, Rule V, Book III, Implementing Rules and Regulations of the Labor Code.)

It is also “commutable to its money equivalent if not used or exhausted at the end of the year.” In other words, an employee who has served for one year is entitled to it. He may use it as leave days or he may collect its monetary value.

In this case, Ab Sinero is not correct because the company has already converted ten (10) days of the VL. It is above and beyond the mandated 5-day SIL in Article 95 of the Labor Code.

Ab Sinero is only correct if there is a company policy, CBA or company practice converting all remaining VLs even those in excess of 10 days. There being none in this case, forfeiture of Ab Sinero’s unused 5 days VL in excess of 10 that was converted is legally permissible.

On the contrary, there is a memo expressly stating the forfeiture of unused VLs. Likewise, the conversion of 10 unused VLs is more than the mandated by law of only five (5) days. Hence, the company’s forfeiture is legal.

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