LABOR RELATIONS

TERMINATION OF EMPLOYMENT
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. !" of the #abor Code. The provision recognizes two kinds
of resignation $ without cause and with cause. If the resignation is without cause, the employee
is re%uired to give a &'(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
)ust causes for resignation *with cause+
,erious 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
/ther analogous causes.
In this second type of resignation, the employee need not serve a written notice. 0orced
resignation is not allowed and is considered 1constructive2 dismissal $ a dismissal in disguise.
3mployee retirement is either voluntary or compulsory under art. !& of the #abor Code.
Dismissal of an Employee in the Philippines
4n e%uality of rights exists between employer and employee. 5hile 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 )ust 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.
6ust 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. 77, #abor Code+.
4uthorized 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. 7!, #abor Code+. 8efore the employer can terminate employment
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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. !', #abor Code-
Implementing 9ules of 8ook :I, #abor Code+.
Those hired on a temporary basis, that is, for a 1term2 or 1fixed period2 are not regular
employees, but are 1contractual employees.2 Conse%uently, there is no illegal dismissal when
their services are terminated by reason of the expiration of their contracts. #ack of notice of
termination is of no conse%uence, because a contract for employment for a definite period
terminates by its own term at the end of such period.
An Illegal Strie !an "e !a#se for Termination of Employment
3mployment 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. !, #abor Code+. ;nder the Corporation Code
*sec. 7'+, 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 labor 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. 8y the fact of merger or consolidation, a
succession of employment rights and obligations occurs.
Noti!e an$ prior pro!e$#ral safeg#ar$s
4s stated above, dismissals based on )ust 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. 4 termination for an authorized cause
re%uires payment of separation pay. 5hen the termination of employment is declared illegal,
reinstatement and full backwages are mandated under art. 7< of the #abor Code. If
reinstatement is no longer possible where the dismissal was un)ust, separation pay may be
granted.
Procedurally, *"+ if the dismissal is based on a )ust cause under art. 77 of the #abor
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 *+ if the dismissal is based on authorized causes under arts. 7& and 7= of the
#abor Code, the employer must give the employee and the >epartment of #abor and
3mployment written notices &' days prior to the effectivity of the separation.
Se%eran!e pay &ith Termination
4s already noted, separation pay is re%uired to be paid to the employee when there is
termination of employment by the employer for an authorized cause, the amount of which
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depends on the cause. If the termination is due to the installation of labor(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. 7!, #abor 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. 7! and !', #abor Code+. ?owever, there is no
re%uirement for separation pay if the closure is due to serious business losses.
A%en#es for re$ress
0rom the foregoing, four possible situations may be derived@ *"+ the dismissal is for a )ust
cause under art. 7' of the #abor Code, or for an authorized cause $ business reason under
art. 7! or health reason under art. !' $ and due process was observed- *+ the dismissal is
without )ust or authorized cause but due process was observed- *&+ and there no process- *=+
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. 7< of the #abor
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 e%uivalent 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. 5hile the procedural infirmity
cannot be cured, it should not invalidate the dismissal. ?owever, the employer should be held
liable for nominal damages for non(compliance with the procedural re%uirements 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 #abor 4rbiters of
the Aational #abor 9elations Commission and their decisions are appealable to the Commission
*arts. & and =, #abor Code+.
In view of the stated preference for voluntary modes of settling labor disputes under art.
"& *&+ of the Constitution and art. "Bof the #abor Code, voluntary arbitration of illegal
dismissals is recognized on the basis of mutual agreement between the parties *art. C7, #abor
Code+.
Compulsory arbitration is both the process of settlement of labor 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.
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5hile a voluntary arbitrator is not part of the labor department, he or she renders
arbitration services provided for under labor laws. Denerally, the voluntary arbitrator is expected
to decide only %uestions that are expressly delineated by the submission agreement. ?owever,
since arbitration is the final resort for the ad)udication 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 )ust
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.
Differen!e "et&een a '#st an$ A#thori(e$ )a#se of Termination
6ust 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. 4uthorized
cause refers to a cause brought about by changing economic or business conditions of the
employer.
)a#ses for Termination "y the Employer
". ,erious misconduct-
. 5illful disobedience of employer.s lawful orders connected with work-
&. Dross and habitual neglect of duty-
=. 0raud or breach of trust-
<. Commission of a crime or offense against the employer, employer.s family or
representative- and
C. /ther analogous causes.
'#st )a#ses for Termination "y the Employee
". ,erious 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
=. /ther analogous causes.
A#thori(e$ )a#ses for Termination
". Installation of labor(saving devices-
. 9edundancy-
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&. 9etrenchment to prevent losses-
=. Closure or cessation of business- and
<. >isease not curable within six months as certified by competent public authority, and
continued employment of the employee is pre)udicial to his or her health or to the health
of his or her co(employees.
D#e Pro!ess in the )onte*t of Termination of Employment
>ue process means the right of an employee to be notified of the reason for his or her
dismissal and, in case of )ust causes, to be provided the opportunity to defend himself or
herself.
)omponents of D#e Pro!ess in Termination )ases
In a termination for a )ust cause, due process involves the two(notice rule@
". 4 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-
. 4 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-
&. 4 notice of dismissal indicating that upon due consideration of all the circumstances,
grounds have been established to )ustify 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 &' days before the date of termination. 4 copy
of the notice shall be furnished the 9egional /ffice of the >epartment of #abor and 3mployment
of the Philippines *>/#3+.
An Employee may +#estion the Legality of his or her Dismissal
The legality of the dismissal may be %uestioned before the #abor 4rbiter of the Aational
#abor 9elations Commission *A#9C+ of the Philippines, through a complaint for illegal
dismissal. In establishments with a collective bargaining agreement *C84+, the dismissal may
be %uestioned through the grievance machinery established under the C84. If the issue is not
resolved at this level, it will be submitted to voluntary arbitration.
Pro%ing the Dismissal is Legal
In a case of illegal dismissal, the employer as the burden of proving that the dismissal is
legal.
,ro#n$s for an Employee to +#estion his or her Dismissal
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4n employee may %uestion his or her dismissal based on substantive or procedural
grounds. The ,ubstantive aspect pertains to the absence of a )ust or authorized cause
supporting the dismissal. The Procedural aspect refers to the notice of termination or the
opportunity to present an explanation.
-hat are the rights affor$e$ to an #n.#stly $ismisse$ employee/
4n employee who is dismissed without )ust cause is entitled to any or all of the following@
". 9einstatement without loss of seniority rights, or separation pay if reinstatement is not
possible-
. 0ull backwages, inclusive of allowances and other benefits or their monetary e%uivalent
from the time compensation was withheld from him or her up to the time of
reinstatement-
&. >amages and attorney.s fees if the dismissal was done in bad faith.
Reinstatement
9einstatement means restoration of the employee to the position from which he or she
has been un)ustly removed.
9einstatement 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.
5hen a #abor 4rbiter rules for an illegal dismissal, reinstatement is immediately
executory even pending appeal.
Forms in &hi!h reinstatement "e effe!te$
9einstatement may be actual or payroll in nature, at the option of the employer.
F#ll Ba!&ages
0ull backwages refer to all compensations, including allowances and other benefits with
monetary e%uivalent that should have been earned by the employee but was not collected by
him or her because of un)ust 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 )ob may still
be entitled to collect full backwages from his or her former employer. 0ull 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.
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The former position of the employee no longer e*ists at the time of reinstatement
In that case, the employee shall be given a substantially e%uivalent 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 &hen the Esta"lishment no longer e*ists
5hen an establishment no longer exisits at the time an order for reinstatement is made
the employee can claim benefits. The employee is entitled to a separation pay e%uivalent 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. ?e or she may also claim
backwages to cover the period between dismissal from work and the closure of the
establishment.
Separation Pay
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 e%uivalent of one month pay or one(half month pay,
whichever is higher, for every year service.
In )ust cause terminations, separation pay is also the amount given to employees who
have been dismissed without )ust cause and could no longer be reinstated.
Reinstatement is not possi"le so that separation pay shall "e gi%en to an illegally
$ismisse$ employee
". 5hen company operations have ceased-
. 5hen the employee.s position or an e%uivalent thereof is no longer available-
&. 5hen the illegal dismissal case has engendered strained relations between the parties,
in cases of )ust causes and usually when the position involved re%uires the trust and
confidence of the employer-
=. 5hen a substantial amount of years have lapsed from the filing of the case to its finality.
E*!eption for an employee $ismisse$ for .#st !a#se "e entitle$ to separation pay
4s a rule, no. 8ut in instances where the )ust cause for dismissal is other than serious
misconduct or moral turpitude, the employee may be awarded 0inancial 4ssistance in the
amount of one month.s pay as a form of compassionate )ustice.
Proof of Finan!ial Losses is Ne!essary to '#stify Retren!hment
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Ees. Proof of actual or imminent financial losses that are substantive in character must
be proven to )ustify retrenchment.
Proof of Finan!ial losses is NOT ne!essary to .#stify re$#n$an!y
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 )on$itions "efore an Employee may "e Dismisse$ on the ,ro#n$ of Re$#n$an!y
It must be shown that@
Dood faith in abolishing redundant position-
There is a fair and reasonable criterion in selecting the employees to be dismissed, such
as but not limited to less preferred status *e.g. temporary employee+, efficiency and
seniority.
4 one(month prior notice is given to the employee as prescribed by law.
Fail#re to )omply &ith the D#e Pro!ess Re0#irements
0ailure to comply with the due process re%uirements will A/T invalidate a dismissal with
an otherwise established )ust 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
)ust or authorized cause.
Differen!e "et&een Transfer an$ 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
%uestioned. 4n employee.s refusal to transfer may constitute willful disobedience, a )ust cause
for his or her dismissal.
An Employer Transferring an Employee to another pla!e of &or &itho#t prior noti!e
Denerally, an employer cannot transfer an employee to another place of work without
prior notice. 8ut if the urgency of the service re%uires 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.
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Non1#nion mem"er a%ailing of the grie%an!e ma!hinery in !ase 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. /n 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.
Reasona"le perio$ for an Employee s#".e!te$ to Dismissal to ans&er !harges against
him or her "y the Employer
4 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. 9easonableness of the period should be based, among others, on the gravity of
the charges against the employee.
An employee !harge$ &ith an offense may "e pla!e$ #n$er pre%enti%e s#spension &hile
he or she is preparing to ans&er !harges file$ against him or her "y the employer
/nly 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 &' days may be placed under preventive suspension. 4fter &' days, the
employee should be reinstated to his or her former position or in a substantially e%uivalent
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
re%uired 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.
2ali$ity of the Employer3s De!ision on Termination
4 dismissed employee may still %uestion the validity or legality of his or her dismissal by
filing a complaint for illegal or un)ust dismissal before the 4rbitration 8ranch of A#9C. In such a
case, the burden of proving that the dismissal is for a valid or authorized cause rests on the
employer.
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D#ring the pen$en!y of the termination !ase4 an employee may "e "e retaine$ in his or
her &or
4n employee may be retained in his or her work even during the pendency of a termination
case under the following circumstances@
". ;pon serving the preventive suspension period of &' days- and
. ;pon 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 Effe!ts of Termination may "e S#spen$e$ Pen$ing Resol#tion of the )ase
The ,ecretary of #abor of the Philippines may provisionally order a reinstatement in the
event of prima facie finding that the dismissal may cause a serious labor dispute as in a strike or
lock(out, or is in implementation of mass lay(off.
Ser%i!es of an Employee Terminate$ $#e to Disease
The employer may terminate employment on ground of disease only upon the issuance
of a certification by a competent public health authority that the disease is of such nature or at
such stage that it cannot be cured within a period of six months even with proper medical
treatment.
S#spen$ing Operations of a B#siness
If the period of suspension of operations does 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
e%uipment 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
e%uivalent to closure of the establishment leading to termination of employment. In such a case,
the re%uirements of the law and rules on employee dismissals must be observed.
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