Are Resigning Employees Entitled to Separation Pay? (Philippines)

January 23, 2014

At some point, every business will need to deal with employee resignations. Whether it’s to pursue a new opportunity, relocate, or simply take a break, workers are legally allowed to leave their jobs at any time. But when they do, a common question arises: Are they entitled to separation pay? Read more to learn what separation pay is, when it’s mandated by law, and whether it applies to resigning employees.

What is Separation Pay?

Separation pay is a form of financial compensation provided to employees terminated under specific circumstances. It is intended to provide a buffer to cover an employee’s living costs while they look for new work. It is different from final pay or last salary, which includes unpaid wages and benefits owed to an employee regardless of the reason for leaving.

Under Philippine labor laws, separation pay is not automatically granted in every case of termination. Instead, its applicability depends on:

The cause of termination
The company’s internal policies
Agreements made with the employee’s union.

When Is Separation Pay Mandated by Law?

Under Articles 283 and 284 of the Philippine Labor Code, certain types of termination are considered valid due to authorized causes. In these cases, the law mandates the payment of separation pay:

Installation of labor-saving devices or redundancy
The employee is entitled to separation pay equal to at least one (1) month’s salary or one (1) month’s salary for every year of service, whichever is higher.
Retrenchment to prevent losses, or closure or cessation of business operations
The employee is entitled to separation pay equal to one (1) month’s salary or at least one-half (1/2) month’s salary for every year of service, whichever is higher.
When an employee suffers from a disease that makes continued employment illegal or detrimental to the health of the employee or their co-workers (Article 284).

In all the above cases, separation pay is mandatory. When computing the amount, any fraction of at least six (6) months is considered one (1) full year.

When Else Is Separation Pay Granted?

In addition to the Labor Code, Philippine jurisprudence has recognized other situations where separation pay may be awarded, even if not expressly required by law:

As financial assistance, especially in cases where the employee is legally dismissed (under Article 282) for reasons other than serious misconduct or moral turpitude. This is considered an act of social justice.
When an employee is illegally dismissed, but reinstatement is no longer feasible due to strained relations between the employee and employer.
When company policy or a Collective Bargaining Agreement (CBA) grants separation pay regardless of the reason for termination.

In these instances, courts may order the payment of separation pay, or companies may voluntarily provide it based on their policies or agreements.

Do You Need to Provide Separation Pay to Resigning Employees?

In general, employees who resign voluntarily are not entitled to separation pay. This is because the separation is initiated by the employee and not due to any authorized cause or fault of the employer. However, there are exceptions. If company policy, a Collective Bargaining Agreement (CBA), or past company practices grant separation pay to resigning employees, then the employer must honor that provision.

Summary

To answer the question: Are resigning employees entitled to separation pay? The short answer is no, unless otherwise provided by company policy, a CBA, or past practice. Separation pay is generally reserved for those whose employment ends due to authorized causes or in specific situations upheld by jurisprudence.

Do You Have Questions About a Specific Case or Other Labor Law Concerns?

Navigating labor law can be challenging, especially in complex cases. Non-compliance can lead to costly penalties, legal disputes, and damage to your company’s reputation. Let our experts help you stay compliant and address other HR-related concerns. Reach out today and we’ll guide you every step of the way.