Employees have 3 years to recover their monetary claims arising out of employment.

The employee is only allowed to recover any and all monetary claims within a period of three years from the date the cause of action accrues. This so provided in the Labor Code, viz:

Article 305. MONEY CLAIMS

All money claims arising from employer-employee relations accruing during the effectivity of this [Labor] Code shall be filed within three (3) years from the time the cause of action accrued; otherwise they shall be forever barred…

Thus, any monetary claim beyond the 3-year period will no longer be enforceable. Beyond the 3-year period, the employee cannot anymore recover as they are “forever barred”.

Being a special law on labor, the 3-year prescriptive period in the Labor Code will be followed for employment contracts – and not the 10-year prescriptive period for all other contracts in the Civil Code.[1]

What are monetary claims?

Monetary claims are any and all employment-related amounts, including but not limited to, salaries, holiday pay, overtime pay, premium pay, night shift differential pay, service charges, 13th month pay, separation pay, retirement pay, monetary equivalents of leaves and benefits provided for by the employer.

The Labor Code provision is categorical on the matter. It states “all monetary claims”. As no exception is provided, it refers to any and all claims by an employee against the employer arising out of the employment relations. It even includes those incremental proceeds arising from tuition fee increases in private schools.[2]

If the employee does not make a claim within 3 years, it is possible that he/she will lose his monetary claims – even retirement pay and separation pay. Thus:

All money claims arising from an employer-employee relation are covered by the three-year prescriptive period mandated by Article 291 [now: Article 305] of the Labor Code, and not by Article 1144 of the Civil Code which provides for a ten-year prescriptive period for written agreements. Thus, Article 291 [now: Article 305] of the Labor Code applies to [the employees] money claim, which is based on a provision of the Collective Bargaining Agreement (CBA) on retirement and separation benefits and is a consequence of employer-employee relation.[3]

For employers, it is good to know of the time up to when the employee may only make a monetary claim. This will spare the employers from shelling out payments when such monetary claims have already expired.

When do you start counting?

The Labor Code does not provide for a provision on when the counting will start. It simply states that money claims become due “from the time the cause of action accrued.” A cause of action accrues only when “the party obligated refuses, expressly or impliedly, to comply with its duty.”[4]

A cause of action consists of three elements.

… a cause of action has three elements, to wit: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff.

It bears stressing that it is only when the last element occurs that a cause of action arises…[5]

Thus, the counting will vary depending on when the employer denied the employee’s monetary claim. Consequently, even if the monetary claim is beyond 3 years from the formal demand but there is no denial thereof within that time, the employee may still recover the monetary claims within the prescriptive period after the employer finally makes a denial.

… [the employee] repeatedly demanded payment from respondent Maersk [on different dates earlier than the October 1993 letter], respondent Maersk warded off these demands by saying that it would look into the matter until years passed by. In October 1993, Serrano finally demanded in writing payment of the unsent money orders. Then and only then was the claim categorically denied by respondent A.P. Moller in its letter dated November 22, 1993. … [the employee’s] cause of action accrued only upon respondent A.P. Moller’s definite denial of his claim in November 1993. Having filed his action five (5) months thereafter or in April 1994, we hold that it was filed within the three-year (3) prescriptive period provided in Article 291 of the Labor Code.[6]

In Ludo & Luym Corporation v. Ludo Employees Union,[7] the employees made a formal demand in writing of their employment benefits. The demand letter was served in January 1995. The employment benefits sought to be recovered were for the years 1977 through 1987. Prior to the demand letter, the employers did not deny or approve of these said claims instead made promises “to review the records to determine the validity of the claims.” In the case, the employer raised as defense the 3-year prescription. However, it was held that the employees are not yet barred and hence still entitled to their monetary claims. The case went on to state that “it will be the height of injustice if we will brush aside the employees’ claims on a mere technicality, especially when it is [the employer’s] own action that prevented them from interposing the claims within the prescribed period.”

Promissory Estoppel: Recovery After 3 Years Allowed

An employer who made promises to pay the money claims of the employee who relied therein may still be held liable even after the lapse of the 3-year period. This is a recognized exception to the 3-year prescriptive for monetary claims.

[The employers] aver that the action of the respondents [heirs of the employee who died] for the recovery of unpaid wages, separation pay and 13th month pay has already prescribed since the action was filed almost five years from the time Jones severed his employment from ASI. Jones filed his resignation on October 31, 1997, while the complaint before the LA was instituted on September 29, 2002. [The employers] contend that the three-year prescriptive period under Article 291 of the Labor Code had already set-in, thereby barring all of respondents money claims arising from their employer-employee relations.

Based on the findings of facts of the LA, it was [the employer] which was responsible for the delay in the institution of the complaint. When Jones filed his resignation, he immediately asked for the payment of his money claims. However, the management of ASI promised him that he would be paid immediately after the claims of the rank-and-file employees had been paid. Jones relied on this representation. Unfortunately, the promise was never fulfilled even until the time of Jones death.

In light of these circumstances, we can apply the principle of promissory estoppel, which is a recognized exception to the three-year prescriptive period enunciated in Article 291 of the Labor Code.

Promissory estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon, as in fact it was relied upon, and if a refusal to enforce it would virtually sanction the perpetration of fraud or would result in other injustice. Promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the court can understand the obligation assumed and enforce the promise according to its terms.

In order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise was reasonably expected to induce action or forbearance; (2) such promise did, in fact, induce such action or forbearance; and (3) the party suffered detriment as a result.

All the requisites of promissory estoppel are present in this case. Jones relied on the promise of ASI that he would be paid as soon as the claims of all the rank-and-file employees had been paid. If not for this promise that he had held on to until the time of his death, we see no reason why he would delay filing the complaint before the LA. Thus, we find ample justification not to follow the prescriptive period imposed under Article 291 of the Labor Code. Great injustice will be committed if we will brush aside the employees claims on a mere technicality, especially when it was petitioners own action that prevented respondent from interposing the claims within the required period.[8]

Full backwages includes monetary benefits even after 3 years

If an employee is illegally dismissed, the Labor Code requires payment of full backwages. This will necessarily include monetary equivalent of benefits such as the service incentive leave. “Since a service incentive leave is clearly demandable after one year of service — whether continuous or broken — or its equivalent period, and it is one of the ‘benefits’ which would have accrued if an employee was not otherwise illegally dismissed, it is fair and legal that its computation should be up to the date of reinstatement” as provided in the Labor Code.[9]

Likewise, 13th month pay and underpaid wages may also be recovered as a consequence of illegal dismissal.

[The Supreme Court stated the extent of recovery in full backwages:]… The thirteenth month pay awarded should be computed for each year of service from the time each employee was hired up to the date of his actual reinstatement. The same computation applies to the award of the service incentive leave and underpaid wages. Each employee is to be paid the remaining underpaid wages from the date of his or her hiring in accordance with the then prevailing wage legislations. Likewise, a refund of P12 shall be computed for each day of service of each employee, to be reckoned from the date such employee was hired. The damages awarded should be sustained because the employer acted in bad faith. Back wages are to be computed from the date of dismissal up to the date of actual reinstatement without any deductions or conditions.[10]

Thus, the 3-year prescriptive period will NOT apply to monetary claims that are covered by the full backwages as a consequence of illegal dismissal.

Seafarer’s monetary claims subject to 3-year period

For seafarer’s monetary claims, the 3-year prescriptive period in the Labor Code will be followed – and not Section 28 of the Standard Employment Contract for Seafarers (SEC).[11]

Labor Code will be followed versus foreign law

Should an employment contract cite a foreign law with a prescriptive period shorter than 3 years, the same will not be valid as “courts of the forum will not enforce a foreign claim obnoxious to the forum’s policy.”[12] The 1987 Constitution expressly provides for policies providing for full protection to labor, among others.[13] Hence, an employment contract citing a foreign law allowing 1 year only for an employee to claim is void for being contrary to public policy. In that case, the 3-year prescriptive period in the Labor Code will then be followed.

Best legal practice

As a matter of best legal practice, the employer should take note of the 3-year prescriptive period. If monetary claims are made within that period, the employer will be required to pay them provided they are due. Conversely, the employer will not be required to pay monetary claims beyond the 3-year expiration.

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[1] Cadalin v. Brown & Root International, G.R. No. L-104776, 05 December 1994.

[2] Cebu Institute of Technology v. Ople, G.R. No. L-58870, L-68345, L-69224-5, L-70832, L-76521, L-76596, 15 April 1988

[3] De Guzman v. Nasipit Lumber, G.R. No. 132257, 12 October 1998.

[4] China Banking Corporation v. Armed Forces and Police Savings & Loan Association, G.R. No. 153267, 23 June 2005.

[5] China Banking Corporation v. Armed Forces and Police Savings & Loan Association, G.R. No. 153267, 23 June 2005.

[6] Serrano v. Maersk-Filipinas Crewing, Inc., G.R. No. 139420, 15 April 2001.

[7] G.R. No. 140960, 20 January 2003.

[8] Accessories Specialist v. Alabanza, G.R. No. 168985, 23 July 2008.

[9] Fernandez v. Lhuilier and/or Agencia Cebuana-H., G.R. No. 105892, 28 January 1998.

[10] Caurdanetaan Piece Workers Union v. Corfarm Grains, G.R. Nos. 113542 and 114911, 24 February 1998.

[11] CA Azucena, The Labor Code with Comments and Cases, Vol. II-A (8thed.), Rex Bookstore, 2013.

[12] Cadalin v. Brown & Root International, supra.

[13] Section 3, Article XIII.