Termination of Employment in the Philippines
Terminating an employee in the Philippines is taken VERY seriously and can be a complex process, especially after the employee is regularized. The Philippine Constitution says, no involuntary servitude in any form shall exist except as punishment for a crime whereof the party shall have been duly convicted. In view of the prohibition on involuntary servitude, an employee is given the right to resign under Art. 285 of the Labor Code. The provision recognizes two kinds of resignation – without cause and with cause. If the resignation is without cause, the employee is required to give a 30-day advance written notice to the employer, to enable the employer to look for a replacement to prevent work disruption. If the employee fails to give a written notice, he or she runs the risk of incurring liability for damages. The same provision also indicates the just causes for resignation (with cause):
- Serious insult to the honor and person of the employee;
Inhuman and unbearable treatment;
Crime committed against the person of the employee or any of the immediate members of the employee’s family; and
Other analogous causes.
In this second type of resignation, the employee need not serve a written notice. Forced resignation is not allowed and is considered “constructive” dismissal – a dismissal in disguise. Employee retirement is either voluntary or compulsory under Art. 287 of the Labor Code.
Dismissal of an Employee in the Philippines
An equality of rights exists between employer and employee. While the employer cannot force the employee to work against his or her will, neither can the employee compel the employer to continue giving him or her work if there is a lawful reason not to do so. Thus, the employer may terminate the services of an employee for just or authorized causes after following the procedure laid down by law, but the employer has the burden of proving the lawfulness of the employee’s dismissal in the proper forum.
Just causes are blameworthy acts on the part of the employee such as serious misconduct, willful disobedience, gross and habitual neglect of duties, fraud or willful breach of trust, commission of a crime and other analogous causes (Art. 282, Labor Code).
Authorized causes are of two types – business reasons and disease. The business reasons are installation of labor-saving devices, redundancy, retrenchment and closure or cessation of operation (Art. 283, Labor Code). Before the employer can terminate employment on the ground of disease, he must obtain from a competent public health authority a certification that the employee’s disease is of such a nature and at such a stage that it can no longer be cured within a period of six months even with medical attention (Art. 284, Labor Code; Implementing Rules of Book VI, Labor Code).
Those hired on a temporary basis, that is, for a “term” or “fixed period” are not regular employees, but are “contractual employees.” Consequently, there is no illegal dismissal when their services are terminated by reason of the expiration of their contracts. Lack of notice of termination is of no consequence, because a contract for employment for a definite period terminates by its own term at the end of such period.
An Illegal Strike can be cause for Termination of Employment
Employment is not deemed terminated when there is a bona fide suspension of the operations of a business or undertaking for a period not exceeding six months, or when the employee fulfills a military or civic duty (Art. 286, Labor Code). Under the Corporation Code (sec. 80), the surviving or consolidated entity in a merger or consolidation automatically assumes all rights and obligations, assets and liabilities of the combining entities. This includes obligations or liabilities under valid agreements, like labour contracts. The surviving or consolidated entity must, therefore, recognize the security of tenure and length of service of the workers of the merging or consolidating corporations. By the fact of merger or consolidation, a succession of employment rights and obligations occurs.
Notice and prior procedural safeguards
As stated above, dismissals based on just causes contemplate acts or omissions attributable to the employee while dismissals based on authorized causes involve grounds – business or health – allowing the employer to terminate. A termination for an authorized cause requires payment of separation pay. When the termination of employment is declared illegal, reinstatement and full backwages are mandated under Art. 279 of the Labor Code. If reinstatement is no longer possible where the dismissal was unjust, separation pay may be granted.
Procedurally, (1) if the dismissal is based on a just cause under Art. 282 of the Labor Code, the employer must give the employee two written notices and a hearing or opportunity to be heard before terminating the employment, that is, a notice specifying the grounds for which dismissal is sought and, after hearing or opportunity to be heard, a notice of the decision to dismiss; and (2) if the dismissal is based on authorized causes under Arts. 283 and 284 of the Labor Code, the employer must give the employee and the Department of Labour and Employment written notices 30 days prior to the effectivity of the separation.
Severance pay with Termination
As already noted, separation pay is required to be paid to the employee when there is termination of employment by the employer for an authorized cause, the amount of which depends on the cause. If the termination is due to the installation of labour-saving devices or redundancy, the separation pay is one month’s pay for every year of service or one month pay, whichever is higher (Art. 283, Labor Code). If the termination is due to retrenchment to prevent losses, or closure or cessation of operation of the establishment not due to serious business losses, or due to disease, the separation pay is one-half month’s pay for every year of service or one month pay, whichever is higher (Arts. 283 and 284, Labor Code). However, there is no requirement for separation pay if the closure is due to serious business losses.
Avenues for redress
From the foregoing, four possible situations may be derived: (1) the dismissal is for a just cause under Art. 282 of the Labor Code, or for an authorized cause – business reason under Art. 283 or health reason under Art. 284 – and due process was observed; (2) the dismissal is without just or authorized cause but due process was observed; (3) and there no process; (4) for a not observed.
In the first situation, the dismissal is undoubtedly valid and the employer will not incur any liability, save for separation pay when the dismissal is for an authorized cause.
In the second and third situations, where the dismissals are illegal, Art. 279 of the Labor Code mandates that the employee is entitled to reinstatement without loss of seniority rights and other privileges and full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time the compensation was not paid up to the time of actual reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot be cured, it should not invalidate the dismissal. However, the employer should be held liable for nominal damages for non-compliance with the procedural requirements of due process. If the dismissal is for an authorized cause, the employee is also entitled to separation pay.
Compulsory arbitration of illegal dismissal cases is conducted by the Labour Arbiters of the National Labour Relations Commission and their decisions are appealable to the Commission (Arts. 217 and 218, Labor Code).
In view of the stated preference for voluntary modes of settling labour disputes under Art. 13 (3) of the Constitution and Art. 211of the Labor Code, voluntary arbitration of illegal dismissals is recognized on the basis of mutual agreement between the parties (Art. 262, Labor Code).
Compulsory arbitration is both the process of settlement of labour disputes by a government agency which has the authority to investigate and issue an award binding on all the parties, as well as a mode of arbitration where the parties are compelled to accept the resolution of their dispute through arbitration by a third party.
While a voluntary arbitrator is not part of the labour department, he or she renders arbitration services provided for under labour laws. Generally, the voluntary arbitrator is expected to decide only questions that are expressly delineated by the submission agreement. However, since arbitration is the final resort for the adjudication of disputes, the arbitrator can assume that he or she has the power to make a final settlement. Thus, assuming that the submission agreement empowers the arbitrator to decide whether an employee was discharged for just cause, the arbitrator can reasonably assume that his or her powers extend beyond giving a mere yes-or-no answer and include the authority to reinstate with or without back pay.
Difference between a Just and Authorized Cause of Termination
Just cause refers to a wrong doing committed by the employer or employee on the basis of which the aggrieved party may terminate the employer-employee relationship. Authorized cause refers to a cause brought about by changing economic or business conditions of the employer.
Causes for Termination by the Employer
- Serious misconduct;
- Willful disobedience of employer’s lawful orders connected with work;
- Gross and habitual neglect of duty;
- Fraud or breach of trust;
- Commission of a crime or offense against the employer, employer’s family, or representative; and
- Other analogous causes.
Just Causes for Termination by the Employee
- Serious insult by the employer or his or her representative on the honor and person of the employee;
- Inhuman and unbearable treatment accorded the employee by the employer or his or her representative;
- Commission of a crime by the employer or his or her representative against the person of the employee or any of the immediate members of his or her family; and
- Other analogous causes.
Authorized Causes for Termination
- Installation of labor-saving devices;
- Retrenchment to prevent losses;
- Closure or cessation of business; and
- Disease not curable within six months as certified by competent public authority, and continued employment of the employee is prejudicial to his or her health or to the health of his or her co-employees.
Due Process in the Context of Termination of Employment
Due process means the right of an employee to be notified of the reason for his or her dismissal and, in case of just causes, to be provided the opportunity to defend himself or herself.
Components of Due Process in Termination Cases
In a termination for a just cause, due process involves the two-notice rule:
- A notice of intent to dismiss specifying the ground for termination, and giving to said employee reasonable opportunity within which to explain his or her side;
- A hearing or conference where the employee is given opportunity to respond to the charge, present evidence, or rebut the evidence presented against him or her;
- A notice of dismissal indicating that upon due consideration of all the circumstances, grounds have been established to justify the termination.
In a termination for an authorized cause, due process means a written notice of dismissal to the employee specifying the grounds given, at least 30 days before the date of termination. A copy of the notice shall be furnished by the Regional Office of the Department of Labor and Employment of the Philippines (DOLE).
An Employee may Question the Legality of his or her Dismissal
The legality of the dismissal may be questioned before the Labor Arbiter of the National Labor Relations Commission (NLRC) of the Philippines, through a complaint for illegal dismissal. In establishments with a collective bargaining agreement (CBA), the dismissal may be questioned through the grievance machinery established under the CBA. If the issue is not resolved at this level, it will be submitted to voluntary arbitration.
Proving the Dismissal is Legal
In a case of illegal dismissal, the employer has the burden of proving that the dismissal is legal.
Grounds for an Employee to Question his or her Dismissal
An employee may question his or her dismissal based on substantive or procedural grounds. The Substantive aspect pertains to the absence of a just or authorized cause supporting the dismissal. The Procedural aspect refers to the notice of termination or the opportunity to present an explanation.
What are the rights afforded to an unjustly dismissed employee?
An employee who is dismissed without just cause is entitled to any or all of the following:
- Reinstatement without loss of seniority rights, or separation pay if reinstatement is not possible;
- Full backwages, inclusive of allowances and other benefits or their monetary equivalent from the time compensation was withheld from him or her up to the time of reinstatement;
- Damages and attorney’s fees if the dismissal was done in bad faith.
Reinstatement means restoration of the employee to the position from which he or she has been unjustly removed.
Reinstatement without loss of seniority rights means that the employee, upon reinstatement, should be treated in matters involving seniority and continuity of employment as though he or she had not been dismissed from work.
When a Labor Arbiter rules for an illegal dismissal, reinstatement is immediately executory even pending appeal.
Forms in which reinstatement be effected
Reinstatement may be actual or payroll in nature, at the option of the employer.
Full backwages refer to all compensations, including allowances and other benefits with monetary equivalent, that should have been earned by the employee but was not collected by him or her because of unjust dismissal. It includes all the amounts he or she could have earned starting from the date of dismissal up to the time of reinstatement.
In cases of illegal dismissal, a dismissed employee who has found another job may still be entitled to collect full backwages from his or her former employer. Full backwages is a form of penalty imposed by law on an employer who illegally dismisses his or her employee. The fact that the dismissed employee may already be employed and earning elsewhere does not extinguish the penalty.
The former position of the employee no longer exists at the time of reinstatement
In that case, the employee shall be given a substantially equivalent position in the same establishment without loss of seniority rights and to backwages from the time compensation was withheld up to the time of reinstatement.
Employee Benefits when the Establishment no longer exists
When an establishment no longer exists at the time an order for reinstatement is made, the employee can claim benefits. The employee is entitled to a separation pay equivalent to at least one-month pay or at least one-month pay for every year of service whichever is higher. A fraction of at least six months shall be considered as one whole year. The period of service is deemed to have lasted up to the time of closure of the establishment. He or she may also claim backwages to cover the period between dismissal from work and the closure of the establishment.
In authorized cause terminations, separation pay is the amount given to an employee terminated due to retrenchment, closure, or cessation of business or incurable disease. The employee is entitled to receive the equivalent of one month pay or one-half month pay, whichever is higher, for every year service.
In just cause terminations, separation pay is also the amount given to employees who have been dismissed without just cause and could no longer be reinstated.
Reinstatement is not possible so that separation pay shall be given to an illegally dismissed employee
- When company operations have ceased;
- When the employee’s position or an equivalent thereof is no longer available;
- When the illegal dismissal case has engendered strained relations between the parties, in cases of just causes and usually when the position involved requires the trust and confidence of the employer; and
- When a substantial amount of years have lapsed from the filing of the case to its finality.
Exception for an employee dismissed for just cause be entitled to separation pay
As a rule, no. But in instances where the just cause for dismissal is other than serious misconduct or moral turpitude, the employee may be awarded Financial Assistance in the amount of one month’s pay as a form of compassionate justice.
Proof of Financial Losses is Necessary to Justify Retrenchment
Yes. Proof of actual or imminent financial losses that are substantive in character must be proven to justify retrenchment.
Proof of Financial losses is NOT necessary to justify redundancy
In redundancy, the existing manpower of the establishment is in excess of what is necessary to run its operation in an economical and efficient manner.
Other Conditions before an Employee may be Dismissed on the Ground of Redundancy
It must be shown that:
- Good faith in abolishing redundant position;
- There is fair and reasonable criteria in selecting the employees to be dismissed, such as but not limited to less preferred status (e.g. temporary employee), efficiency, and seniority; or
- A one-month prior notice is given to the employee as prescribed by law.
Failure to Comply with the Due Process Requirements
Failure to comply with the due process requirements will NOT invalidate a dismissal with an otherwise established just or authorized cause. The employee, however, will be entitled to backwages from the time of termination till finality of the decision confirming the presence of a just or authorized cause.
Difference between Transfer and Promotion
Promotion is the advancement of an employee from one position to another with an increase in duties and responsibilities, and is usually accompanied by an increase in salary. Promotion is a privilege and as such may be declined by the employee.
Transfer is a lateral movement that does not amount to a promotion. It constitutes a valid exercise of management prerogative, unless it is done to defeat an employee’s right to self-organization, to get rid of undesirable workers, or to penalize an employee of his or her union activities. If done in good faith, management’s decision to transfer an employee may not be questioned. An employee’s refusal to transfer may constitute willful disobedience, a just cause for his or her dismissal.
An Employer Transferring an Employee to another place of work without prior notice
Generally, an employer cannot transfer an employee to another place of work without prior notice. But if the urgency of the service requires a transfer, and such transfer is exercised in good faith for the advancement of the employer’s interest and will not adversely affect the rights of the employee, the transfer may be undertaken even without the employee’s consent.
Non-union member availing of the grievance machinery in case of termination
If a non-union member belonging to an appropriate bargaining unit of the recognized bargaining agent and pays agency fees to the union and accepts the benefits under the collective agreement, said non-union members may avail of the grievance machinery. On the other hand, if the non-union member is not part of the appropriate bargaining unit of the recognized bargaining agent and is expressly excluded in the collective agreements, said employee cannot avail of the grievance machinery.
Reasonable period for an Employee subjected to Dismissal to answer charges against him or her by the Employer
A reasonable period should be provided wherein the employee can answer all the charges against him or her, gather evidence, and confront the witnesses against him or her. It should include the opportunity to secure the assistance of a representative who could be a union officer. Reasonableness of the period should be based, among others, on the gravity of the charges against the employee.
An employee charged with an offense may be placed under preventive suspension while he or she is preparing to answer charges filed against him or her by the employer
Only on grounds that his or her continued presence inside the company premises poses a serious imminent threat to the life or property of the employer or his or her co-workers, and only for a period of 30 days may be placed under preventive suspension. After 30 days, the employee should be reinstated to his or her former position or in a substantially equivalent position.
The employer, however, may extend the period of suspension provided that the employee is paid his or her wages and other benefits during the extension. If the employer decides to dismiss the employee after completion of the investigation, the employee is not bound to reimburse the amount paid to him or her during the extended period. The employer is required to immediately notify the employee in writing of a decision to dismiss him or her stating clearly the reasons for the dismissal.
Preventive suspension is not a disciplinary measure, and should be distinguished from suspension imposed as a penalty.
Validity of the Employer’s Decision on Termination
A dismissed employee may still question the validity or legality of his or her dismissal by filing a complaint for illegal or unjust dismissal before the Arbitration Branch of NLRC. In such a case, the burden of proving that the dismissal is for a valid or authorized cause rests on the employer.
During the pendency of the termination case, an employee may be be retained in his or her work
An employee may be retained in his or her work even during the pendency of a termination case under the following circumstances:
- Upon serving the preventive suspension period of 30 days; and
- Upon management prerogative allowing the employee to be retained at work and his or her continued employment poses no serious nor imminent threat to the life or property of the employer or his or her co-employees.
The Effects of Termination may be Suspended Pending Resolution of the Case
The Secretary of Labor of the Philippines may provisionally order a reinstatement in the event of prima facie finding that the dismissal may cause a serious labor dispute as in a strike or lock-out, or is in implementation of mass lay-off.
Services of an Employee Terminated due to Disease
The employer may terminate employment on ground of disease only upon the issuance of a certification by a competent public health authority that the disease is of such nature or at such stage that it cannot be cured within a period of six months even with proper medical treatment.
Suspending Operations of a Business
If the period of suspension of operations do not exceed six months, the workers shall be reinstated to their respective positions without loss of seniority rights if they indicated their desire to resume work not later than one month from the resumption of operations of business.
If the shutdown is for a period of not more than six months such as may occur in equipment check or repair, stock inventory, or lack of raw materials, the employee is only temporarily laid off and, therefore, employer-employee relationship is not severed. If it will last for a period of more than six months and is of an indefinite character, it may be considered as equivalent to closure of the establishment leading to termination of employment. In such a case, the requirements of the law and rules on employee dismissals must be observed.