How to Terminate an Employee in the Philippines

November 28, 2024

Terminating an employee in the Philippines is a sensitive process that requires careful adherence to legal procedures and due process. Whether due to performance issues, misconduct, redundancy, or other valid causes, an employer must follow specific steps to ensure compliance with the law. Failing to adhere to these steps can result in legal ramifications, including the payment of illegal dismissal claims and the reputational damage to your company. Below are the critical steps in the termination process, explaining what constitutes due process in the Philippines and exploring the potential consequences of improper termination.

Understanding the Grounds for Termination

In the Philippines, the Labor Code specifies the valid grounds for terminating an employee. These grounds fall under two categories: just causes and authorized causes. Understanding these causes is crucial for any employer before terminating an employee.

Just Causes for Termination

Just causes arise from employee actions or behavior violating company policies or the law. These include:

Serious misconduct: Refers to behavior that is detrimental to the company’s interests and is grossly inappropriate, such as theft, fraud, or physical violence.
Willful disobedience: Involves an employee’s deliberate refusal to follow lawful and reasonable orders from the employer, especially concerning the performance of duties.
Gross and habitual neglect of duties: Includes cases where an employee consistently fails to perform tasks required by their job, even after being given an opportunity to improve.
Fraud or willful breach of trust: Typically seen in cases where an employee dishonestly manipulates company resources, information, or finances for personal gain.
Commission of a crime or offense: If an employee is convicted of a crime that renders them unfit for continued employment, such as illegal drug use or violent crimes.
Other analogous causes: This category covers other severe misconduct that negatively impacts the employee’s work performance and disrupts the workplace environment.

Authorized Causes for Termination

Authorized causes refer to circumstances beyond the employee’s control that may lead to termination. These include:

Redundancy: This occurs when there is an overstaffing situation in the company, and certain positions are no longer necessary.
Retrenchment: This involves cutting back the workforce due to financial difficulties or a decrease in the company’s operational needs.
Inability to perform duties due to a medical condition: If an employee is unable to perform their job due to illness or a medical condition, and all reasonable accommodation options have been exhausted.
Closure of the business: This happens when the business ceases its operations, whether temporarily or permanently, and the employees can no longer be retained.
Installation of labor-saving devices: If technology or machinery is introduced that eliminates the need for certain positions, resulting in termination.

Understanding which grounds apply is critical in avoiding illegal dismissal claims, as each type requires different procedures and documentation.

Due Process in Employee Termination

The concept of due process is central to the termination process in the Philippines. Due process ensures that employees are given a fair chance to defend themselves before any decision is made regarding their termination. The Labor Code mandates that employers follow a two-step process for valid termination: Notice and Hearing.

Step 1: Notice of Termination

The employer must provide the employee with a written notice indicating the reasons for termination. This notice must be sent at least five days before the intended termination. The purpose of the notice is to inform the employee of the charges or grounds for dismissal, allowing them to respond. The notice should include:

A clear statement of the grounds for dismissal, citing the specific actions or circumstances that led to the decision.
Any evidence or documentation supporting the grounds for termination, if applicable.
The employee’s right to submit a written explanation or attend a hearing.

This initial notice serves as a formal notification that the employee is being considered for termination and must be given ample time to prepare a defense.

Step 2: Hearing or Conference

Once the notice has been given, the employer must hold a hearing or conference where the employee can explain their side. This is where the employee can present their evidence, make arguments, and challenge the charges against them. The hearing is an essential part of ensuring that due process is followed. Employers must ensure that this step is carried out in good faith, fairly, and impartially.

The hearing should include the following:

A neutral party, such as an HR manager or external consultant, will preside over the hearing.
A detailed review of the evidence and the employee’s defense.
A fair opportunity for both sides to present their case.

In cases of serious misconduct, the employer may opt for a summary dismissal, where the employee is terminated immediately without a hearing. However, this is only allowed in specific instances, such as when the employee has committed a crime that renders them unfit for employment, and a hearing would be impractical.

Issuance of Termination Notice

If the employer determines that termination is warranted after the hearing, a final written notice must be issued. This notice should clearly state the decision to terminate the employee, citing the grounds and explaining the outcome of the hearing or conference. It must be delivered to the employee, either personally or via registered mail.

The termination notice must be clear, precise, and legally sound. This document must include the effective date of the termination, the grounds for dismissal, and, if applicable, any severance benefits or final pay the employee is entitled to.

Severance Benefits and Final Pay

When terminating an employee in the Philippines, employers must provide severance benefits if the termination falls under authorized causes such as redundancy or retrenchment. These benefits include:

Severance pay: The equivalent of one month’s salary for every year of service or at least half a month’s salary for every year of service if the employee has served less than one year.
Pro-rated 13th month pay: Employees are entitled to a 13th month pay, which must be computed based on the number of months worked during the year.
Unused vacation and sick leaves: Any accumulated leave credits must be paid to the employee upon termination.

These benefits must be calculated accurately and processed promptly to avoid unlawful termination claims.

Final Pay and Clearance

After the termination is finalized, the employer must settle the employee’s final pay. This includes:

All earned wages up to the last day of employment.
Any unused vacation, sick leave, or other benefits as mandated by the company policy or law.
Any other entitlements, such as overtime pay or bonuses, that the employee is owed.

Employers must also ensure that the employee completes the clearance process. This involves returning company property, settling outstanding debts or loans, and completing any necessary paperwork to end the employer-employee relationship formally.

Consequences of Improper Termination

Improper termination or failure to follow due process can result in serious consequences. Employees who believe they were wrongfully terminated may file a complaint for illegal dismissal with the Department of Labor and Employment (DOLE). If the complaint is upheld, the employer could be required to reinstate the employee, pay back wages, or provide additional compensation.

Additionally, the employer may face reputational damage, as wrongful termination claims can lead to public relations challenges. It is, therefore, critical for employers to follow the proper legal procedures to minimize these risks.

Termination of Probationary Employees

Probationary employees are typically employed for a period of six months to allow the employer to assess their performance and suitability for regular employment. Under Philippine law, an employer can terminate a probationary employee for failure to meet the reasonable standards set for the job. However, some specific conditions and guidelines must be followed.

Performance Evaluation: Probationary employees must be evaluated based on specific performance criteria set forth at the beginning of their employment. These criteria must be clearly communicated to the employee and should be realistic, achievable, and measurable. Common grounds for termination during the probationary period include poor work performance, lack of skills, or failure to meet the company’s standards.
Notice Requirement: Even though probationary employees have fewer rights than regular employees, the employer must provide notice of termination. A written notice must be given at least 30 days before the termination date. The employee must be informed of the reasons for the termination. If the employee has not been informed of their failure to meet the standards during the probationary period, this could lead to a violation of due process.
No Entitlement to Separation Pay: In most cases, probationary employees are not entitled to separation pay if they are terminated for performance reasons. However, they are entitled to all benefits accrued during their employment, including final pay for unused leave credits and other entitlements.

Is Assistance Available?

At Triple i Consulting, we understand the complexities involved in employee termination and are here to help ensure that the process is handled correctly, legally, and professionally. Whether you need assistance navigating the legal requirements of termination, conducting due process, or calculating severance benefits, our team of experts can guide you through every step. We can help you avoid the pitfalls of improper termination and ensure that your company complies with Philippine labor laws.

Contact us today to schedule an initial consultation. Let us help you make the termination process smooth, efficient, and legally compliant.