If you are a HR practitioner in the Philippines, you know that it’s important to be familiar with the laws that regulate employee termination.
While the laws grant that there are certain causes that lead to termination, they also protect an employee’s security of tenure.
This requires that you know how to balance the needs of the company and those of its employees.
Below I’ve provided an overview of termination and added links with actual termination stories and cases as well as processes to help a busy HR comply with the law.
Why you need to know Labor Law to Terminate
Everyone’s got a problem employee.
There are many ways to deal with one. However, termination becomes a distinct possibility when things become difficult.
If you’re at this point, you’ll need to figure out which legal cause applies and which process to follow, both of which are guided by the law.
It’s costly not following the law – separation pay or fines can be levied against you.
There are 2 kinds of causes when the employer terminates employment:
- Just Causes
- Authorized Causes
Just causes are primarily causes were the employee is at fault.
On the other hand, authorized causes are when there are business contingencies that force termination.
An employee’s health situation may also be a reason for termination.
Let’s first talk about just causes.
Just Causes or when the Employee is at Fault
You can terminate due to just cause when the employee is at fault.
Just causes are listed in Article 282 of the Labor Code and reproduced below:
- Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work
- Gross and habitual neglect by the employee of his duties
- Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative
- Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives and
- Other causes analogous to the foregoing
You and I may have our own notions about which specific situations correspond to the above.
However, these are technical terms around which the Supreme Court has built jurisprudence which defines each and provides guidance as to what conditions must be present for any one to be invoked.
For instance, loss of confidence covers only two types of employees that have an employer’s trust and confidence:
- An employee with managerial functions; OR
- An employee who manages and safeguards his employer’s money or property
It also stresses that loss of confidence applies to acts which are deliberate, work related, and backed up by substantial evidence.
There’s an entire body of doctrine which examines what constitutes fraud in labor, this in addition to the doctrine defining the process that must be followed to determine whether such fraud exists or not in the case of a particular employee.
What this means to you as an HR practitioner is that to effectively terminate, you need to understand what each of the grounds mean legally and what process you need to follow to comply with the legal process in order to best serve your company.
Considering the repercussions if a Labor Arbiter determines that the employee’s dismissal was against the law, the stakes can be just as high for the company as for the employee. This necessitates close study of the grounds and processes on the part of HR, as well as coordination with legal counsel.
Just Causes: Process to Follow
In addition to knowing what ground to use, you’ll need to follow the specific process for just causes.
- Notice to Explain
- Hearing where the employee may air his side
- Notice of Termination
Let’s take each one in turn.
Notice to Explain
The Notice to Explain (NTE or Show Cause Memo or Show Cause Order) is the start of the process.
It is a written notice to the employee that should have the following:
- Details the cause for termination based on Art 282
- Lists the facts and instances that might lead to dismissal
- Cites the particular company item in the company’s code of discipline
- Asks for a written explanation within 5 days [King of Kings Transport vs. Tinga and Velasco, G.R. 166208]
- Should be served at the employees last known address
Every effort should be made to deliver to the employee in person. If it cannot be then you should send it by registered mail to his last known address.
A signed receipt is also good practice, should you later on need to present evidence.
An administrative hearing is really for the employee to air his side.
He can present facts in his defense and counter the employer’s charge. He can explain his side, and even bring along counsel.
You may correctly think that some employees might skip this step in an effort to avoid the administrative hearing and therefore later claim that the company did not follow process.
You’d be correct – this does happen.
However, the law recognizes that this isn’t the employer’s fault.
By providing an opportunity to be heard, you’ve complied with the law.
It’s up to the employee to now appear.
A good practice would be to send a written notice of the time and place of the hearing to the employee and to keep an attendance sheet.
Notice of Termination
If, after the administrative hearing, you find that the employee should be terminated, you’ll have to issue a notice of termination.
The notice of termination is a written letter that is ideally given to the employee in person. If that isn’t possible, then sending it through registered mail to his last known address can suffice.
You’ll need to state:
- all circumstances involving the charge against the employees have been considered; and
- grounds have been established to justify the severance of their employment.
The ground in the notice of termination should of course be the same as that which was in the Notice to Explain.
By complying with the process and correctly identifying the grounds needed for termination, you will be following the law and properly supporting your employer.
Authorized Causes or Business Exigencies
Sometimes, business pressures force down-sizing or letting go of employees.
Philippine law does recognize this in Article 283:
- The installation of labor-saving devices
- Retrenchment to prevent losses or
- The closing or cessation of operation
By now, you know enough to wonder how this has actually played out in jurisprudence.
You’d be right to wonder.
Cases have given us a common understanding of these items and the correct criteria to apply before invoking them.
For instance, for retrenchment to be used, the Court has specified that the following must exist:
that the losses expected are substantial and not merely de minimis in extent; that the expected losses are reasonably imminent such as can be perceived objectively and in good faith by the employer; that the retrenchment is reasonably necessary and likely to effectively prevent the expected losses; and that the imminent losses sought to be forestalled are substantiated. [G.R. 121314, Feb 12, 1998]
In other words, you’ve got to substantiate the above rather than simply just claiming retrenchment.
In the above quoted case, the employer was upheld by the Supreme Court.
The employer Edge Apparel showed evidence of its difficult financial position due to a loan and reported a loss from 1989 to 1992. It also rebutted claims that cutting the entertainment expenses would have enabled it to keep the 27 employees.
Authorized Cause Process to Follow
You need to follow a few guidelines if you are using authorized cause:
- Written notice to the employees 1 month before
- Notice to the DOLE 1 month before using their forms
Here’s what the DOLE form for retrenchment/closure looks like now:
It is a simpler process than termination for just cause.
Still, make sure to follow that process and file the forms correctly to ensure compliance with Philippine labor laws.
By doing this, you are serving the company’s interests and ensuring that the business is protected in court.
You will need to pay your employee his separation pay, with the amount depending on what ground was used:
- At least 1 month of pay or 1 month per year of service, whichever is higher for the installation of labor-saving devices or redundancy
- At last 1 month pay or at least ½ month pay for every year of service for retrenchment or the closing of operations not due to serious business losses or financial reverses.
Note that a fraction of a year of at least 6 months is considered one year.
Termination due to Illness
You can terminate due to illness under Art 284.
However, you can’t terminate simply because someone has a fever.
In fact the Court have laid down substantive requirements for this:
- Certification by a competent public health authority
- Serious or contagious disease that cannot be cured within 6 months
Recently, the Supreme Court has decided that termination due to health reasons needs to follow the two notice process. [G.R. No. 202996]
This is the same process described in the above section for just causes. Briefly, this means that there must be a Notice to Explain, an Administrative Hearing and a Notice of Termination.
Other Instances of Termination
You can cut the employee-employer relationship in other instances.
Some of them are when:
- When the project ends and the employees are project based
- When the employee was hired for seasonal labor
- When the employee was as a casual laborer
You can terminate when the employment is of this type as these are all understood and legally recognized.
Still, don’t forget to keep your papers in order and ensure you are following correct processes for termination.
Just to Sum It Up
You’ll notice that this post deals with both the process and the grounds for valid termination.
That’s because both are equally important if you want to protect your employer and fully do your job as an HR.
I’ve dealt with many HRs but one of the best that I knew had absolutely impeccable documentation, ably transacted with government agencies and knew the law like a man knew his wife.
If you are trying to terminate, you’ve got to know the law.
It’s the best defense for your employer and will absolutely set you apart from other HRs.