We often hear our foreign clients that are doing business in the Philippines compare their rules on employment termination especially those who come from states that allow fire-at will, that is, an employment may be terminated without a valid cause and no prior notice. That is not the case in the Philippines.
For a valid dismissal of employees, an employer company has to comply with both substantive and procedural aspects of due process. Substantive due process requires that there must be a valid ground for the dismissal of an employee while procedural due process to follow depends on the type of employment, that is, whether the employee is a probationary or regular employee, and on the cause of termination, that is, whether just or authorized cause.
An employment may be terminated based on the following grounds:
1. Just cause
2. Authorized cause
3. Disease
4. Failure to meet the reasonable standards for regularization.
Just Causes
Just causes are attributable to the misconduct, fault or negligence of an employee. Just causes under the law are enumerated under Article 297 [282] of the Labor Code and these are:
- Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;
- Gross and habitual neglect by the employee of his duties;
- Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;
- Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives; and
- Other causes analogous to the foregoing.
Some of these analogous causes include abandonment, gross inefficiency, disloyalty or conflict of interest, dishonesty or violation of company policies, rules and regulations.
Termination Procedure
To dismiss an employee based on a just cause, the employer has to observe the two-notice rule and to set a conference or hearing in some cases. The first notice is commonly known as show cause letter or notice to explain.
First Notice
The first notice is a show cause letter informing the respondent employee of the nature of the accusations and the grounds for termination and giving the employee ample opportunity to refute the allegations against him. Although there is no prescribed number of days to be considered an “ample opportunity,” jurisprudence considers a five-day notice an ample time for the employee to gather evidence in support of his defense. The first notice shall likewise set the date of conference where the employee will present evidence why he should not be terminated from work.
All efforts must be exerted to serve the notice to the employee personally. If the same proves futile, the employer may send it by registered mail to his last known address.
Administrative Hearing or Conference
During the hearing or conference, the respondent employee, with the assistance of counsel if he so desires, is given an opportunity to respond to the charge, present his evidence, or rebut the evidence presented against him.
A hearing is not always required to be set. What is critical is that the employee is given an opportunity to be heard or to explain his side. For instance, the employee may be given an opportunity to submit a written explanation instead.
Second Notice
After the investigation and hearing, the company will then decide on whether to retain or dismiss the employee. The second letter is a written notice to the employee stating that grounds have been established to justify the dismissal of the employee considering all the circumstances, evidence submitted, and records on hand.
Authorized Causes
Authorized causes are attributable to the business or simply a business decision to shutdown operations.
Authorized causes may be found under Article 298 [283] of the Labor Code and these are:
- Installation of labor-saving devices;
- Redundancy; and
- Retrenchment to prevent losses or the closing or cessation of operation.
Termination Procedure
In order for a termination of employment based on authorized cause to be valid, the employer has to:
- Serve notice to the Department of Labor and Employment and to the affected employees at least 30 days before the effective date of termination; and
- Payment of separation pay.
Separation Pay
Separation pay is either:
- one (1) month pay; or
- one-half (1/2) month or one (1) month pay per year of service, whichever is higher.
A fraction of at least six (6) months is considered as one (1) whole year.
An employee is entitled to one-half (1/2) month pay in the following instances:
- Retrenchment to prevent losses;
- Closure or cessation of operation not due to serious losses or financial reverses.
Retrenchment requires that the loss be substantial, actual, serious or reasonably imminent. Further, the loss must be proved by sufficient and convincing evidence such as audited financial statements.
If the closure or cessation is due to serious losses or financial reverses, the employer is not obliged to pay separation pay.
Separation pay equivalent to one (1) month pay is required to be paid in the following cases:
- Installation of labor-saving devices; and
- Redundancy.
Disease
An employee suffering from a disease may be dismissed subject to compliance with the following requisites pursuant to Article 299 [284] of the Labor Code:
- The employee must be suffering from any disease;
- The continued employment of the employee is prohibited by law or prejudicial to his health as well as to the health of his co-employees; and
- There must be certification by a competent public health authority that the disease is incurable within a period of six (6) months even with proper medical treatment.
Termination Procedure
A disease is classified as an authorized cause to terminate employment. As such the employer is required to pay a separation pay equivalent to one (1) month salary or one-half (1/2) month pay for every year of service, whichever is higher.
In one case, however, the Supreme Court held that the two-notice requirement applies in the terminations based on a disease. That is, a show cause letter and a notice of decision after a hearing have be issued to the affected employee.
In all of the above discussed causes, Department Order No. 147-15 dated 07 September 2015 issued by the Department of Labor and Employment sets out the criteria for each ground of termination.
Failure to Meet the Reasonable Standards for Regularization
Although a probationary employee has limited employment term, said employee is still entitled to security of tenure. For that reason, the employee may only be dismissed for a cause provided under the law or an employment contract including just or authorized causes.
In addition to the above discussed causes, a probationary employee may also be dismissed for failure to comply with the reasonable standard for regularization that is made known to the employee at the time of engagement.
Termination Procedure
To dismiss a probationary employee based on the above particular ground, there must be an evaluation of the employee performance. This may be proved by a memorandum or a performance review. The notice termination has to be served within a reasonable time to give the affected employee ample time to look for a new employment.
In conclusion, it is important for an employer to observe the requirements in dismissing an employee. Otherwise, it can cause a financial burden for the employer.
If you wish to know more about the requirements of valid dismissal by an employer or any other related concerns, please send your email to [email protected].
