The termination of an employment contract, initiated either by you or your employee, is a complicated part of managing employees in the Philippines. The Philippines’ Labor Code is more beneficial for the employees, and as it is not as a simple process as in many other countries, costly disputes are easy to arise.
In this article, we will walk you through the process of how to terminate an employee in the Philippines the legal way.
Table of contents
Types of employment termination
#1 Termination by the employer
You can only terminate an employee in the Philippines if you have a just cause or an authorized reason. A just cause can be an employee’s unethical behavior or negligence. Legal grounds, on the other hand, are the basis for authorized termination.
To end an employment contract, you need to document the employee’s behavior and bring out the specific instances that led to termination.
According to Article 282 of the Philippines Labor Code, the following just causes by the employee can be the basis for firing an employee in the Philippines:
- serious misconduct or willful disobedience
- gross and habitual neglect of duty
- fraud or deliberate breach of trust
- commission of a crime or offense
- other similar reasons
However, Article 283 states that you can also terminate an employee for authorized causes, including business reasons such as:
- installation of labor-saving devices
- reduction of costs to prevent losses
- the closing or cessation of operation
Also, if your employee suffers from a health condition that lasts more than six months or the law prohibits them from working with such disease or working is harmful to themselves or their co-workers, you are entitled to terminate their contract (Article 284, Labor Code).
#2 Voluntary resignation by the employee
The second type of employee termination is when the employee decides to resign. According to Article 285 of the Labor Code, employees in the Philippines can quit their jobs either with or without a just cause.
Without a cause, your employee needs to hand in a letter of resignation with a one-month notice. If they do not submit a notification, you can charge them for any concurrent damages. For example, for the amount of work they fail to deliver due to their untimely resignation.
However, if your employee resigns for any of the following reasons, they do not have to submit a resignation letter:
- a grave insult to the honor and person of the employee
- inhuman and unbearable treatment by the employer
- crime committed against the person of the employee or any immediate members of the employee’s family
- other similar causes
Note that you don’t have to pay separation compensation if your employee leaves voluntarily. The benefit only applies if the employee loses their job due to reasons that are not their fault. For example, if you close down the business or aggregate their position.
However, there are certain conditions where the employee is entitled to a separation pay:
- when the employment contract or Collective Bargaining Agreement (CBA) provides a separation payment
- when the company’s practice or policy authorize it
Termination of a probationary employee
According to Article 281 of the Labor Code, the probationary period in the Philippines can last for up to six months.
If during this period it becomes evident that the employee fails to meet the company’s standards or any of the above-mentioned just causes occur, you are eligible to terminate their contract.
Also, keep in mind that if your employee’s contract continues after the end of the probationary period, they automatically become a regular employee.
Separation pay in the Philippines
Separation pay is the compensation given to the employee if the termination occurs due to authorized reasons, which are health matters or business causes such as business closure.
The amount of severance pay depends on how long the employee has been working for you and what are the reasons for terminating their contract.
Reason for termination
Amount of separation pay
Business closure or reduction of personnel
One-month pay or half-a-month pay for every year of service, whichever is higher
Source: Article 283, 284 of the Labor Code
To learn about the wages and related benefits, read our article on payroll in the Philippines.
What is the due process of terminating an employee in the Philippines?
To ensure that everything is clear and there won’t be any complications for either party, make sure you follow the due process of terminating an employment contract in the Philippines.
Either you end an employees contract for a just cause or an authorized reason, the termination requires a separate procedure.
What are the consequences of employee’s unfair dismissal in the Philippines?
If you fail to follow the procedural due process in cases of legal and authorized termination of your employee, you may face further consequences as it will create a legitimate ground for the employee to complain.
In such cases, the burden to prove that the dismissal was valid will fall on the shoulders of the employer.
Article 279 of the Philippines’ Labor Code states that if you terminate an employee without a just cause, they are entitled to any of the following:
- Reinstatement without loss of seniority rights
- Separation pay of one month pay for every year of service
- Full back wages, inclusive of allowances and other benefits of their monetary equivalent from the time compensation was withheld up to the time of reinstatement
Hiring in the Philippines using an Employer of Record (EOR)
Another option to avoid dealing with such complicated matters of staff management is to use an employer of record service. An employer of record is a third-party service provider, such as Emerhub, that employs people who will work for you.
Furthermore, you don’t even need to have a legal entity in the Philippines.
Interested in learning more about the EOR service? Find more benefits in our previous article about using an employer of record service.
Contact Emerhub by filling in the form below or drop us an email at [email protected] We will assist you in drafting the correct documents regarding the delicate matter of employee termination in the Philippines.