This country-specific Q&A provides an overview to Employment & Labour Law laws and regulations that may occur in Philippines.
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?
An employer may terminate an employment only for just or authorized causes provided under the Labor Code.
The just causes for termination are:
gross and habitual neglect of duty;
fraud or breach of trust;
commission of a crime or offense against the employer, his family or representative; and
other analogous causes.
Authorized causes, on the other hand, are:
installation of labor-saving devices;
retrenchment to prevent losses;
closure and cessation of business; and
disease / illness not curable within six months as certified by competent public authority, and continued employment of the employee is prejudicial to his health or to the health of his co-employees.
In addition, employment of probationary employees may also be terminated due to failure to meet the employment standards for regularization. It is imperative that the probationary employee should have been appraised of the standards for regularization and that the termination should be done on or before the end of the probationary period; otherwise, he will be deemed a regular employee and cannot be dismissed except for just or authorized causes.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
Mass dismissals based on the first four authorized causes above, to be valid, must satisfy the following requisites –
Dismissal due to installation of labor-saving devices:
introduction of machinery, equipment, or other devices;
introduction thereof must be done in good faith;
purpose for such introduction must be valid (e.g., cost savings, enhance efficiency);
no other option available to the employer than the said introduction, and the consequent
termination of employment of those affected thereby; and
fair and reasonable criteria in selecting employees to be terminated.
Dismissal due to redundancy:
superfluous positions or services of employees;
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;
good faith in abolishing redundant positions;
fair and reasonable criteria in selecting employees to be terminated; and
adequate proof of redundancy (e.g., feasibility studies, new staffing pattern).
Dismissal due to retrenchment or downsizing:
must be reasonably necessary and likely to prevent business losses;
losses, if already incurred, are substantial, serious, actual, and real, or if only expected, are reasonably imminent;
expected or actual losses must be proved by sufficient and convincing evidence;
must be done in good faith and not to defeat the employees’ right to security of tenure; and
fair and reasonable criteria in ascertaining the employees to be dismissed or retained.
Dismissal due to closure or cessation of operation:
decision to close or cease operation of the enterprise by the management;
decision must be made in good faith; and
no other option available to the employer except to close or cease operations.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
In a sale of all or substantially all the assets of a business done in good faith, the buyer is not statutorily liable to absorb the employees affected by the sale or to pay for their claims; it may, however, give preference to the qualified separated personnel in filling vacancies. On the other hand, the seller may dismiss the employees to be affected by the asset sale due to authorized causes, but is liable for the payment of separation pay.
A corporate employer possesses a separate and distinct personality from that of its shareholders; thus, a shift in the composition of its shareholders will not affect its existence and continuity. In a business sale undertaken through a share sale, therefore, the corporation continues as the employer, liable for the payment of employees’ claims. Dismissal of employees may not legally be undertaken in the absence of a just or authorized cause.
What, if any, is the minimum notice period to terminate employment?
For termination based on just causes, it is required that the employee be served with two written notices.
The first written notice (i.e. notice to explain) must contain:
the specific causes or grounds for termination under the Labor Code and/or company policies;
detailed narration of facts and circumstances that serve as basis for the charge;
statement on the imposable sanctions in case the violation is proven; and
a directive that the employee is given opportunity to submit a written explanation within a reasonable period (i.e., at least five (5) calendar days from receipt of the notice).
The second written notice (i.e. notice of decision) is served after the employee has been given ample opportunity to be heard and to defend himself with the assistance of his counsel/representative, if he so desires. The notice should indicate:
all circumstances involving the charge against the employee have been considered;
the grounds have been established to justify the severance of the employment; and
the effective date of termination, if applicable.
The second written notice must be served on the employee or the employee’s last known address.
For termination based on authorized causes, written notice must be simultaneously served upon the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least 30 days prior to the effectivity of the termination, specifying the grounds for termination.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Service of the required written notice/s is a requirement of procedural due process under Philippine Law. Failure to comply will not, however, automatically invalidate the termination, as the employer will merely be liable to pay nominal damages.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to say at home and not participate in any work?
Where termination is due to authorized causes, there is no legal prohibition on requiring a worker to be on garden leave.
In a just cause termination, the employer may preventively suspend an employee undergoing investigation if the employee’s continued presence in the company premises during the investigation poses a serious and imminent threat to the life or property of the employer or the employee’s co-workers. The suspension should only be for a maximum period of 30 days, during which period the employee is not entitled to his wage and other benefits. After the lapse of the 30-day period, the employee must be reinstated to his former position or to a substantially equivalent position. The 30-day period may be extended by the employer for a justifiable reason, but the employee shall be entitled to his wages and other benefits during said extension.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.
For termination based on just causes, after serving the first notice (please refer to our reply under Question 4), the employer is required to conduct an administrative hearing to afford the employee an ample opportunity to be heard and to defend himself with the assistance of counsel (if the employee desires). If found that the termination of employment is justified, the employer shall serve the employee the second notice discussed above.
For termination based on authorized causes, the employer is required to serve the notices discussed under Question 4 and, if applicable, to pay the employee separation pay.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
Failure to comply with the procedural due process does not render the dismissal invalid. However, the employer may be liable to pay nominal damages to the employee in the amount of up to Php30,000 (for just cause termination) or up to Php50,000 (for authorized cause termination).
How, if at all, are collective agreements relevant to the termination of employment?
Collective Bargaining Agreements (CBAs) may contain contractual undertakings relevant to employee terminations, in addition to the substantive and procedural requirements provided under the law. Examples include:
a union security clause (requiring union membership as a condition of employment), a violation of which may be ground for termination;
payment of separation even in cases of voluntary resignation;
providing for a grievance machinery for the resolution of termination disputes before resorting to the labor tribunals; and
requirement for the employer to inform the union if any employee is to be dismissed.
Does the employer have to obtain the permission of or inform a third party (eg local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
For just causes, the employer need not inform/obtain the permission of the labor authorities or the courts to validly terminate employment.
For authorized causes, the employer is required to serve a written notice to the DOLE at least thirty days before the intended termination date, otherwise the employer may be held liable to pay nominal damages to the employee in the amount of up to P50,000.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
The Labor Code ensures equal work opportunities, regardless of sex, race or creed. It also makes unlawful for an employer to discriminate against any person with respect of the terms and conditions of employment on account of his age.
Various special laws also provide for the protection of the rights of women, children, persons with disabilities, indigenous people, and other employees who need special protection with regard to discrimination and termination of employment. These include:
The Magna Carta of Women and Women in Development and Nation Building Act prohibit discrimination of women on account of their gender, and makes it unlawful for the employer to discriminate or otherwise prejudice a female employee by reason of her marriage or on account of her pregnancy.
The Responsible Parenthood and Reproductive Health Act protects employees’ rights to reproductive health and family planning and prohibits employers to impose conditions pertaining to such as a condition for continued employment.
The Anti-Sexual Harassment Act protects employees against persons in authority who demand, request or otherwise require a sexual favor as a condition for the hiring or continued employment of the employee, or in granting the employee favorable compensation, terms, conditions, promotions, or privileges.
The Magna Carta for Disabled Persons prohibits discrimination of disabled persons by reason of disability.
The Anti-Age Discrimination in Employment Act prohibits employers from imposing age limitations in employment, forcibly laying off employees because of old age, and imposing early retirement due to old age.
The Philippine AIDS Prevention and Control Act prohibits termination, based on the actual, perceived, or suspected HIV status of an individual.
The Indigenous People’s Rights Act prohibits an employer to discriminate against indigenous people with respect to the terms and conditions of employment.
The Solo Parents’ Welfare Act prohibits discrimination against any solo parent.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
Penalties are provided under the Labor Code or the special law violated, which include the imposition of a fine of up to Php500,000, or imprisonment of up to six years, or both, at the discretion of the court.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
The rules on termination of employment generally apply to all workers, regardless of category.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
It is unlawful for an employer to take retaliatory measures by refusing to pay or reducing the wages and benefits, discharging, or in any manner discriminating against an employee who has filed any complaint or instituted any proceeding or has testified or is about to testify in such proceedings.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
For terminations based on just causes, the employee is not entitled to separation pay unless so provided in company policy or under CBA. Under Philippine jurisprudence, however, there have been exceptional cases where, as an act of social justice, a legally dismissed employee was awarded separation pay (equivalent to 1/2 month’s pay for every year of service) upon a finding that the dismissal was not for serious misconduct, and does not reflect on the moral character of the employee or involve acts of moral turpitude.
For terminations based on authorized causes, the amount of separation pay is as follows:
If based on installation of labor-saving devices or redundancy, at least one month of pay or one month per year of service, whichever is higher;
If based on disease, retrenchment, or closing of operations not due to serious business losses or financial reverses, at least one month pay or at least ½ month pay for every year of service, whichever is higher.
A fraction of at least six months is considered as one whole year.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
Termination of employment by the employer can only be based on just or authorized causes and must strictly comply with the procedural requirements discussed above.
If the termination of employment is made at the instance of the employee, the employer may require the employee’s execution of a quitclaim for amounts received from the employer as settlement of all employee claims. Quitclaims are valid and enforceable, provided:
the employee executes the quitclaim voluntarily;
there is no fraud or deceit on the part of any of the parties;
the consideration of the quitclaim is credible and reasonable; and
the contract is not contrary to law, public order, public policy, morals or good customers, nor prejudicial to a third person with a right recognized by law.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
Non-compete clauses are valid provided that these are reasonable and limited as to time, place, and trade. In determining whether it is reasonable, the following are considered:
protection of legitimate business interest of the employer;
creation of an undue burden on the employee;
injury to public welfare;
reasonableness of the time, trade and territorial limitations; and
reasonableness from the standpoint of public policy.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
Confidentiality agreements between the employer and the employee pertaining to information obtained in the course of employment are valid and enforceable, and if entered into during the employment, remain enforceable even after the termination of employment in accordance with its terms.
Are employers obliged to provide references to new employers if these are requested?
Employers are not legally obliged to provide references to new employers even if requested.
What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
No filing fees are imposed for instituting labor complaints; it is thus not difficult for employees to file labor cases against the employers even if without merit. Since Philippine law adheres to the principle of social justice and imposes a presumption in favor of labor, the burden is on the employer to show that it has complied with the substantive (availability of just or authorized cause) and procedural requirements for terminating employment. Employers are therefore advised to craft their code of conduct thoroughly and meticulously as this lays down the foundation on what specific acts are prohibited and the corresponding penalties. Furthermore, employers should ensure proper documentation of the termination process, which may be adduced as evidence in illegal dismissal cases filed against it.
Are any legal changes planned that are likely to impact on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
We see no substantial planned legal changes that will affect termination of employment in the Philippines.