Tax BlogAre Resigning Employees Entitled To Separation Pay?

I always encounter a question from a resigning employee or from an employer if a resigning employee is entitled to a separation pay?

Here is a short input about separation pay.

Separation pay is a statutory concept under Article 283 and 284 of the Labor Code of the Philippines cases of  legal termination or valid termination due to authorized causes namely:   installation of labor –saving devices or redundancy (separation pay is to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher),  retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking (separation pay is equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher) (Article 283) and if an employee is suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees (Art. 284) . These payments of separation pay under the grounds mentioned are specified by the law itself.  Please take note that in the computation of the separation pay a fraction of at least six (6) months shall be considered as one (1) whole year.

Aside from the grounds stated in Article 283 and 284 of the Labor Code, it is also settled in the Philippine Jurisprudence that separation pay maybe awarded under the following instances:

1. As financial assistance as an act of social justice, even in cases of legal dismissal under Article 282, where the employee is validly dismissed but for causes other than serious misconduct or those involving moral turpitude;
2. If an employee is illegally dismissed and is ordered reinstated but reinstatement is not viable because of the strained relationship of the employee and the employer.
3. When the payment of separation pay is part of the Company policy or a benefit granted under the CBA of the employer and the employee.

In the grounds 1-3 entrenched in the jurisprudence, 1 and 2, talks about a situation that there is an issue of dismissal whether legal or legal between the employer and employee submitted for the decision of the Court.  The 3^rd ground involves a a management prerogative whether they would like to provide as part of their Company Policy a separation pay for those who resigned or terminated whether illegally or legally and of course, the CBA is the result of an agreement between the employer and the employees union about the instances that the employee would be entitled to a separation pay.

While the Labor Law of the Philippines may seem to be intricate to follow, Triple I have a team of Lawyers and HR experts that provide Labor Consulting Services who can assist you to your day to day compliance concerns with the Labor Code. Contact us for inquiries.