All questions

Discontinuing employment

i Dismissal

An employee may only be dismissed if there is a just or authorised cause for the dismissal. This policy is anchored on the principle of the security of tenure of employees, which is not only statutorily provided but is constitutionally enshrined.

Under the Labour Code, the just causes for termination are:

  1. serious misconduct or wilful disobedience;
  2. gross and habitual neglect of duties;
  3. fraud or wilful breach of trust;
  4. loss of confidence;
  5. commission of a crime or offence by the employee against his or her employer, the employer's immediate family or his or her duly authorised representatives; and
  6. other causes analogous to the foregoing.

The authorised causes for termination are:

  1. installation of labour-saving devices;
  2. redundancy;
  3. retrenchment to prevent losses;
  4. closure or cessation of business; and
  5. a disease not curable within six months as certified by a competent public authority, and when the continued employment of the employee is prejudicial to his or her health or to the health of his or her colleagues.

The cause of dismissal determines which procedure must be followed prior to the dismissal.

For just causes, an employer must:

  1. serve the employee with a written notice containing the specific causes or grounds of termination against him or her, giving him or her an opportunity to explain at least five calendar days from receipt of the notice to clarify his or her defence;
  2. conduct a hearing or conference to allow the employee to explain his or her defences, present evidence and rebut the evidence presented against him or her; and
  3. serve the employee a written notice of termination indicating that all circumstances involving the charge against him or her have been considered as well as the grounds to justify the severance of his or her employment.

Separation pay is not required for just cause dismissals, but may be granted in exceptional circumstances.

For authorised causes, the employer must send written notices to the employee and to the appropriate DOLE regional office at least one month before the intended date of termination. The employee must also be granted separation pay at the rate prescribed by the Labour Code or by a CBA.

Failure to comply with the procedural requirements for the dismissals shall not invalidate a dismissal where just or authorised causes actually exist. However, an erring employer may be held liable for nominal damages of up to 30,000 Philippine pesos for just causes or up to 50,000 Philippine pesos for authorised causes.

There is no legal requirement for notifying a union prior to a termination, but such a requirement may be provided in the CBA. Further, no employee class may be exempt from termination, subject to regulations on the termination of employees for authorised causes as may be prescribed in a CBA.

An employee may question his or her dismissal by claiming that it was not for cause and filing a case before the NLRC. The parties may freely enter into a settlement agreement while the dispute is pending.

ii Redundancies

An employer may validly dismiss an employee or a group of employees for authorised causes by sending written notices to the employee and to the appropriate DOLE regional office at least one month before the intended date of termination. The employee must also be granted the appropriate amount of separation pay as provided by law or as provided in a CBA.

An employer may implement termination by redundancy when the following are present:

  1. there must be superfluous positions or services of employees;
  2. the positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;
  3. there must be good faith in abolishing redundant positions;
  4. there must be fair and reasonable criteria in selecting the employees whose contracts are to be terminated; and
  5. there must be an adequate proof of redundancy such as feasibility studies or proposals.

An employer may also implement termination through a retrenchment programme that complies with the following requirements:

  1. the retrenchment must be reasonably necessary and likely to prevent business losses;
  2. the losses, if already incurred, are substantial, serious, actual and real, or if only expected, are reasonably imminent;
  3. the expected or actual losses must be proved by sufficient and convincing evidence;
  4. the retrenchment must be in good faith and not to defeat or circumvent the employees' right to security of tenure; and
  5. there must be fair and reasonable criteria in ascertaining the retention and dismissal of employees, such as status, efficiency, seniority, physical fitness, age and financial hardship for certain workers.

Mass termination as a result of closure of business may also be implemented when the following elements are present:

  1. there must be a decision to close or cease operation of the enterprise by the management;
  2. the decision was made in good faith; and
  3. there is no other option available to the employer except to close or cease operations.

Further, termination as a result of the installation of labour-saving devices is allowed when the following requirements are met:

  1. there must be introduction of machinery, equipment or other devices;
  2. the introduction must be done in good faith;
  3. the purpose for the introduction must be valid, such as to save on cost, enhance efficiency and other justifiable economic reasons;
  4. the introduction of machinery, equipment or devices and the consequent termination of employment of those affected is the only option available to the employer; and
  5. the criteria for selecting employees whose contracts are to be terminated are fair and valid.

An employee whose contract has been terminated as a result of the above causes is entitled to separation pay of at least one month's pay or half-a-month's pay for every year of service. However, when closure is the result of serious business losses or financial reverses, no separation pay is required.

An employee may question the dismissal and allege that they have been illegally dismissed by filing a case before the NLRC. Failure by the employer to prove the existence of each of the elements of a valid dismissal may lead to a finding that there was an illegal dismissal. The parties may freely enter into a settlement agreement while the dispute is pending.