Authorized Causes of Termination

In the Philippines, both the employer and employee can terminate the contract of employment. Therefore neither the employer can force an employee to continue working nor the employee is able to force the employer to give him work if there is no lawful reason to do so. Although both parties may terminate the employment relationship, the employer faces more difficulties when executing his right to dismiss the employee. While the employee may resign from work after rendering 30 days notice, the termination initiated by the employer is by no means easy.

This is due to the fact that termination of an employee is taken very seriously in the Philippines and can be a complicated and difficult process to manage especially after the employee has been regularized. It shall be noted that no employer shall terminate an employee without any valid cause recognized under the Labor Code as employees enjoy the right to security of tenure. This means that a regular employee shall not be terminated unless for a just or authorized cause and after the observance of procedural due process. The failure to comply with the substantive or procedural aspect of termination shall result in an illegal termination in which the employee may claim for relief.

Such relief can be in different forms such as reinstatement without loss of seniority rights or in lieu of reinstatement, an employee may also be given separation pay of one month pay for every year of service. On top of reinstatement, the employee may also be entitled to full backwages, inclusive of allowances and other benefits or their monetary equivalent from the time compensation was withheld up to the time of reinstatement and damages if the dismissal was done in bad faith.

In the Labor Code of Philippines, authorized causes can be found under article 283 and 284. These provisions allow the employer to legally terminate the employee’s service by reason not due to employee’s fault or negligence. In such cases, the employee shall be entitled to separation pay which is at least 1 month of the employee’s salary depending on the tenure of the employment and the termination cause. In general, the longer the employee has worked in the company, the higher the separation pay would be.

The authorized causes of termination stipulated in the Labor Code includes installation of labor-saving devices; redundancy; retrenchment to prevent losses; closure and cessation of business; and disease/ illness. In terminating the employee under article 283 of the labor code, the employer shall be required to prove that the dismissal is for a valid and lawful cause and not done in ill intention of depriving the employees’ of any privileges. The employer must also adopt fair, reasonable and transparent criteria when selecting the employees to be dismissed. However, the procedure is different for terminating the service of the employee by reason of disease. The law requires the employer to obtain from a competent public health authority a certification that the employee’s disease is of such a nature and at such a stage that it can no longer be cured within a period of six months even with medical attention before effecting the termination.

Explanation of Authorized Causes.

Authorized causes for termination are different from just causes under Philippines labor law article 282. In contrast, authorized causes are generally reasons of termination that are not attributable to the employee. The termination of the employee’s service is because of reasons initiated by the company to increase profitability such as installation of labor saving device, cessation of business operations or undertaking retrenchment program.

• Installation of labor-saving devices.

With labor-saving devices and machines, the production will become more efficient. With productivity  increases, the company is able to increase their profitability as well. This however may result in a reduction in the manpower requirement.

• Redundancy.

Redundancy is when there are more employees than what is required by the company and thus the company has no legal obligation to continue employees more than the number needed for the operation of the business. However, for termination due to redundancy, the company is also required to show that there is good faith in abolishing redundant position; and fair and reasonable criteria in selecting employees to be dismissed, such as but not limited to less preferred status (e.g. temporary employee), efficiency and seniority (Asian Alcohol Corp. vs. NLRC, 305 SCRA 416); and a one-month prior notice to be given to the employee and DOLE Regional Office as prescribed by law.

• Retrenchment to prevent losses.

When company is making a loss, in order to prevent further losses and the cessation of the operations, the company may choose to downsize or in other words have a retrenchment to reduce the number of employees on the payroll so that the operation cost will be lower.

• Closure or cessation of operation.

The closing down of the business is usually a last resort whereby the company has stopped all operations and shut the doors for good. This is usually due to financial losses and is a authorized cause of termination of the employees’ services.

• Disease.

The employer may terminate employment on ground of disease only upon the issuance of a certification by a competent public health authority that the disease is of such nature or at such stage that it cannot be cured within a period of six months even with proper medical treatment. However, disability should not be confused with disease. Disability itself, even if permanent, is not a ground for termination.

Employers should note that termination based on authorized causes shall entitle the employees to separation pay which is intended to provide the employee with the wherewithal during the period he is looking for another employment. (See Gabuay v. Oversea Paper Supply, G.R. No. 148837, August 13, 2004.)