SHS Perforated Materials, Inc. v.
Diaz
TOPIC: Withholding wages
FACTS
SHS Perforated Materials, Inc. (SHS) is a start-up corporation registered with the Philippine
Economic Zone Authority.
Petitioner Winfried Hartmannshenn (Hartmannshenn), a German national, is its president, in
which capacity he determines the administration and direction of the day-to-day business affairs
of SHS.
Respondent Diaz was hired by SHS as manager for Business Development on probationary status
with a monthly salary of P100,000 where he would work at the plant for at least 2 days every
work week to observe technical processes involved in the manufacturing of the materials.
Since Hartmannshenn was always abroad, he relayed his instruction to respondent via e-mails or
phone call. However, Hartmannshen was dissatisfied with the poor performance of respondent
because respondent failed to make concrete business proposals or any specific measures to
improve productivity of the company along with his absences.
Hartmannshenn gave an instruction not to release respondent’s salary. Later that afternoon,
respondent called and inquired about his salary.
The accounting office informed respondent that his salary was being withheld and that he had
to immediately communicate with Hartmannshenn.
The next day, respondent served on SHS a demand letter and a resignation letter demanding
that he be paid his withheld salary and that that the reason he resigned was because of the
company’s unfair labor practice.
Hartmanshenn accepted the respondent’s resignation and said that respondent’s salary will be
released upon explanation of his failure to report to work. Furthermore, respondent was to
surrender all of company property and information in respondent’s possession.
Respondent: He agreed to the exit conditions but instead of complying with the conditions, he
sent an email pleading for the release of his salary.
Due to the unsettled difference between the respondent and company, the respondent filed a
complaint against the company for illegal dismissal, non-payment of wages and 13 th month pay
along with reinstatement and full backwages.
LA: ruled that the respondent was constructively dismissed because the withholding of his salary
was contrary to the Labor Code. He had no other alternative but to resign because he could not
be expected to continue working for an employer who withheld wages without valid cause.
NLRC: reversed the LA decision that the withholding of respondent’s salary was a valid exercise
of management prerogative. The act was deemed justified as it was reasonable to demand an
explanation for failure to report to work and to account for his work accomplishment.
CA: reversed NLRC ruling and held that there is no such thing as a management prerogative to
withhold wages temporarily. Petitioners’ averments of respondent’s failure to report to work
were found to be unsubstantiated allegations not corroborated by any other evidence.
ISSUE:
Whether or not the withholding of his salaries was valid? No.
HELD:
Art. 116 provides that it is unlawful for any person, directly or indirectly, to withhold any
amount from the wages of a worker or induce him to give up any part of his wages by force,
stealth, intimidation, threat or by any other means whatsoever without the worker’s consent.
The only allowable withholding of wages is provided in Art. 113 where it is in the form of wage
deductions:
o When the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance
o For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned;
o Employer is authorized by law.
Although management prerogative refers to “the right to regulate all aspects of employment,” it
cannot be understood to include the right to temporarily withhold salary/wages without the
consent of the employee.
Since there was no showing that the withholding of the wages fell under the exceptions in art.
113, the withholding is unlawful.
Petitioner: Article 116 of the Labor Code only applies if it is established that an employee is
entitled to his salary/wages and, hence, does not apply in cases where there is an issue or
uncertainty as to whether an employee has worked and is entitled to his salary/wages, in
consonance with the principle of “a fair day’s wage for a fair day’s work.”
SC: The evidence provided by the company is insufficient to prove that the respondent did not
work for the specific amount of days. Although it cannot be determined with certainty whether
respondent worked for the entire period from November 16 to November 30, 2005, the
consistent rule is that if doubt exists between the evidence presented by the employer and that
by the employee, the scales of justice must be tilted in favor of the latter.
As to the voluntary resignation
The SC held that the respondent was constructively dismissed and was essentially forced to
resign.
What made it impossible, unreasonable or unlikely for respondent to continue working for SHS
was the unlawful withholding of his salary. For said reason, he was forced to resign.
Petitioner: cited a case where the court held therein that the mere withholding of an
employee’s salary does not by itself constitute constructive dismissal.
SC: the SC said that the case cited by the petitioner does not apply to the circumstances because
in this case, the withholding of respondent’s salary does not fall under any of the circumstances
provided under Article 113. Neither was it established with certainty that respondent did not
work from November 16 to November 30, 2005.
