Navigating Complexities of Employee Termination in the PH

Terminating an employee is different from resignation. It’s a more nuanced process that demands both legal precision and a compassionate approach. In the Philippines, this process is governed by the Labor Code, which outlines the procedures and criteria that must be followed. In this comprehensive guide, we will walk you through each step, ensuring compliance with the law while prioritizing fairness and empathy.

1. Understanding the Employment Contract Type

The first crucial step is to identify the type of employment contract your staff is under. There are three primary categories:

  • Trial Periods: These are also known as probationary periods and must be outlined in the contract. This trial period is reserved for skill assessment, with a legal duration not exceeding six months. However, some apprenticeship programs may have more extended periods (as long as it is stipulated in the contract).
  • Fixed-term Contracts: This category must be agreed upon for specific projects, with the contract specifying parties and project completion dates mentioned in the documents. The duration is often seasonal, aligning with the conclusion of a specific project or time frame. The employee is also hired to work until the end of the specified period. 
  • Open-ended Contracts: These are indefinite agreements where employees are enlisted for work considered essential or desirable for the employer’s business, excluding specific projects or periods.

2. Determining Justification for Dismissal

The justification for termination varies based on the type of contract:

  • Trial Periods: Stopping the contract is possible with valid reasons. Admissible reasons include an employee’s failure to qualify for a permanent/ regular position or any other valid reason. It’s essential to note that continuous work past the trial period automatically converts the contract into an open-ended one.
  • Fixed Term and Open-Ended Contracts: Grounds for dismissal include various reasons with strict guidelines to be followed. Reasons may vary, being personal or business-related in nature. You can find the exhaustive list in the Labor Code’s Articles 282, 283, and 284. Some these reasons are:

 

Termination for personal reasons: ‘just causes’ or individual faults:

  • Severe misconduct
  • Flagrant and habitual negligence
  • Deception or intentional breach of trust
  • Engagement in criminal activities
 

Other analogous circumstances to those mentioned above or termination for non-infringing reasons:

  • Medical conditions preventing the continuation of work as prohibited by law
  • Medical conditions preventing the continuation of work and posing a risk to employee health
 

Please note that for dismissals due to illness, employers must secure a medical certificate from the employee specifying the nature and stage of the illness. Additionally, the illness should not be treatable within a six-month period (which justifies the inability to work due to poor health).

 

Termination for business-related reasons:

 

  • Termination for labor-saving
  • Termination following the implementation of retrenchment measures
  • Termination to avert business closure
  • Termination justified by an impending business closure
 

It is important to highlight that the use of business-related grounds to sidestep other provisions on compensation and dismissal is deemed fraudulent. Furthermore, employers intending to utilize labor-saving and retrenchment techniques must inform the Department of Labor and Employment (DOLE). Retrenchment must be supported by evidence of the business’ financial losses. This may include accounting and bookkeeping records. Most of all, the selection of employees to be let go must adhere to objective criteria for fairness.

3. Notification to Labor Authorities and the Employee

Effectively communicating the termination is critical, and the method varies according to the contract type:

  • Trial Periods: Termination can be executed by sending a notice within a reasonable time before the intended termination date.
  • Dismissal for Personal Faults: The employer must send a notice specifying the reasons, allowing the employee ample time to respond to the issues raised. Following this, a final decision notice is issued.
  • Dismissal on Business Grounds: A written notice, specifying the reasons, must be given to the employee at least 30 days before the intended dismissal date. Simultaneously, a copy of this notice should be sent to the Department of Labor and Employment (DOLE) Regional Office.

4. Providing Separation Pay According to Dismissal Type

Separation pay is a mandatory consideration for dismissals not due to employee faults. The calculation varies depending on the reason for dismissal:

  • For dismissals due to illness, separation pay is equivalent to at least one month’s salary per year worked or half a month’s salary for each year of service.
  • Dismissals on business grounds warrant separation pay equal to one month’s salary per year worked or half a month’s salary for each year worked, whichever is higher.
 

It’s crucial to note that dismissal due to errors/ faults of the employee disqualifies said employee from receiving separation pay.

5. Procedural Fairness and Due Process

In every termination, procedural fairness and due process must be upheld for the sake of justice. This includes giving the employee an opportunity to respond to the allegations, conducting an unbiased investigation, and ensuring that the dismissal is proportionate to the offense committed.

6. Documenting the Termination Process

Thorough documentation is a key aspect of the termination process. This includes keeping records of the employee’s performance issues, any warnings or counseling provided, and the steps taken leading up to the decision to terminate. Proper documentation is vital in case of legal challenges.

 

Ensure the termination process complies with Philippine labor laws by seeking professional consultation as this adds assurance, ensuring a lawful and fair termination process. We can help you navigate the complexities of the laws while providing payroll services for correct final pay. Connect with our specialized accounting services for expert guidance on notice periods, separation pay calculations, and all legal requirements to ensure a compliant and smooth transition.

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