The Philippine Constitution guarantees an employee’s right to security of tenure, such that no employee shall be terminated from work except for just and authorised causes, and on observance of due process. The Department of Labour and Employment Department Order No. 147 (2015) lays down the procedural and substantive guidelines that employers must observe to effect a valid termination of employment, which is founded on two principles:
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- The legality of the act of dismissal, which means that the dismissal must be for just and authorised causes provided under article 297 (termination by employer), article 298 (closure of establishment and reduction of personnel), and article 299 (diseases as grounds for termination) of the Labour Code of the Philippines; and
- The legality of the manner of dismissal, otherwise known as the “twin notice” requirement, which requires the observance of procedural due process in the termination of employees.
The presence of both procedural and substantive due process requirements determines the legality of dismissal and shall be the basis for granting relief as provided under the Labour Code.
Valid termination
Juan Victor Valdez
Senior Partner
Ocampo Manalo Valdez & Lim Law Firm
Makati
Tel: +632 7751 8889
Email: jvv@omlawphil.com
In cases where the dismissal is for just cause under article 297 of the Labour Code, or authorised cause under articles 298 and 299, and the requirement of the “twin notice” rule is observed, the dismissal shall be upheld as valid, and the employer will not suffer any liability.
Entitlement to separation pay. The law imposes an additional requirement of payment of separation pay to effect a valid termination for authorised causes. Section 298 of the Labour Code mandates separation pay of at least one month’s pay, or at least one-half to one month’s pay, for every year of service, whichever is higher, depending on the cause.
The requirement of separation pay in termination for authorised cause is imposed because the dismissal process in this case is initiated by the employer’s exercise of management prerogative. However, no separation pay is due if closure or cessation of operations results from serious business losses or financial reverses, as the employer’s financial incapacity negates this obligation.
Nevertheless, the payment of separation pay is not exclusive in terminations for authorised causes. PCIB v Abad would dictate that separation pay may still be granted to employees dismissed for just causes on the basis of equity, as long as the dismissal does not fall under either of two circumstances:
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- There was serious misconduct; or
- The dismissal reflected on the employee’s moral character.
Therefore, an employee dismissed for just cause may still be awarded separation pay as a measure of social justice, except when the dismissal involves serious misconduct or grounds that reflect on the employee’s moral character or personal integrity.
Illegal termination
If the termination is without just or authorised cause, regardless of whether due process was observed, the termination is illegal. In this case, the law mandates that the employee is entitled to:
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- Reinstatement without loss of seniority rights and other privileges;
- Full back wages, inclusive of allowances; and
- Other benefits or their monetary equivalent, computed from the time the compensation was not paid up to the time of actual reinstatement (article 294 of the Labour Code).
Reinstatement. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges. They are also entitled to full back wages, including allowances, and other benefits or their monetary equivalents computed from the time that compensation was withheld up to the time of actual reinstatement.
Separation pay in lieu of reinstatement. As an exception to the general rule under article 294 of the Labour Code, as mentioned in the preceding discussion, when reinstatement is no longer feasible due to strained relations, separation pay of one month’s salary per year of service is granted to the employee.
For illegally dismissed employees, back wages are only granted from the time of the termination until the decision declaring the dismissal as illegal. Thereafter, the employee will only be entitled to separation pay because of strained relations, which must be supported by substantial evidence.
Back wages. Illegally dismissed employees are entitled to back wages only for the period they could have worked had they not been illegally dismissed.
Generally, the grant of reinstatement carries with it an award of back wages. However, in Palteng v UCPB, the Supreme Court ordered reinstatement without back wages as a penalty for the misconduct committed by the employee. Thus, an employee who is illegally dismissed will not be entitled to back wages if the employee is not entirely without fault for the offences imputed against such employee.
Just cause, no due process
Aileen Love Reyes
Associate
Ocampo Manalo
Valdez & Lim Law Firm Makati
Tel: +632 7751 8889
Email: ahr@omlawphil.com
While procedural due process is an indispensable requirement to effect a valid dismissal, it must be emphasised that failure to observe such a requirement does not render the dismissal illegal per se. The Supreme Court has promulgated numerous decisions on the effect of failure to comply with procedural due process despite the existence of a valid cause for dismissal.
In 1989, the case of Wenphil v NLRC laid down the doctrine that in dismissals for just or authorised cause, but which failed to observe due process, the employer is liable for a certain indemnity depending on the facts of each case and the gravity of the omission by the employer.
In the case of Serrano v NLRC, decided in 2000, the Supreme Court revised Wenphil, holding that an employer’s failure to observe due process warranted payment of full back wages from dismissal until the court’s decision became final.
In 2004, the court reversed its decision and partially reinstated Wenphil with its ruling in Agabon v NLRC. The court ruled that an employer who fails to comply with procedural due process will have to pay indemnity in the form of nominal damages, but not back wages. The indemnity to be paid by the employer will depend on the gravity of the disregard of due process. In the Agabon case, the amount of indemnity was PHP30,000 (USD526).
Not long after, in 2005, the court further modified the doctrine in Agabon with its ruling in Jaka Food Processing Corp v Pacot et al. This case created a distinction between just causes under article 297 and authorised causes under article 298 of the Labour Code, where there was a violation of procedural due process.
Nominal damages are tempered when the dismissal is for a just cause since it was a result of an act of the dismissed employee. The award of damages is higher if based on an authorised cause since the dismissal was an exercise of the employer’s management prerogative.
The Jaka doctrine was reaffirmed in the case of Genuino v NLRC, when the court ruled that dismissals will remain valid if a just or authorised cause is established by substantial evidence, despite failure to comply with procedural due process. However, the employer was liable to pay nominal damages to the employee in recognition of the violation of his right to due process.
Similarly, in the case of Bughaw Jr v Treasure Island Industrial Corp, the court applied the Jaka ruling, setting the amount of nominal damages to be paid depending on the cause of termination. If the cause was based on a just cause, the employer shall be liable for PHP30,000. The amount is increased to PHP50,000 if the termination is based on an authorised cause. In the latter case, the sanction is stiffer because the dismissal process was initiated by the employer’s exercise of management prerogative and does not necessarily imply culpability on the part of the employee.
Jurisprudence has consistently underscored that dismissal must be both substantively justified and procedurally proper, with any deviation subject to remedies under the law. While valid terminations shield employers from liability, equity and social justice principles occasionally temper the strict application of the rules. Conversely, illegal dismissal triggers full statutory relief, emphasising the Philippine labour laws’ policy of affording protection to labour.
The long line of Philippine jurisprudence on the substantive and procedural rules for dismissals, as well as the liabilities and indemnities for violations, reflects a deliberate balance between the employer’s exercise of management prerogatives in business operations and the employee’s constitutional right to security of tenure.
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