Employee Termination in the Philippines: A Guide for Employers

Are you planning on setting up an office and hiring a team in the Philippines? As a prospective employer, you’ll need a firm understanding of the country’s labor rights policies regarding employee termination. 

Whether you’re letting go of an employee due to performance, redundancy, or business reasons, following the correct legal process helps you avoid the common threat of wrongful dismissal claims and costly legal disputes.

This guide provides a clear overview of employee termination regulations in the Philippines, the proper procedures to follow, and how you can minimize legal risks while staying compliant.

The Philippine Labor Laws on Employee Termination

Terminating an employee is a legal process governed by strict regulations under the Philippine Labor Code and enforced by the Department of Labor and Employment (DOLE). Even with valid reasons, failing to follow proper procedures can result in wrongful dismissal claims, reinstatement orders, or financial penalties.

Wrongful dismissal cases are not uncommon in the Philippines, as employees are well aware of their rights, often challenging terminations that don't fully comply with labor laws. Courts and labor tribunals closely scrutinize termination cases, making it crucial for employers to ensure strict adherence to procedural requirements.

This means every termination must be backed by clear documentation, lawful justification, and a well-documented termination process to minimize legal risks. Understanding the distinction between just and authorized causes can, therefore, help you avoid costly disputes and maintain compliance with Philippine labor regulations.

Legal Grounds for Employee Termination in the Philippines 

Voluntary Resignation by the Employee 

Employees in the Philippines have the right to resign at any time, but they are generally required to give at least 30 days’ notice under Article 300 (formerly Article 285) of the Labor Code. This gives you time to transition their responsibilities smoothly.

In some cases, employees can resign immediately if there are valid reasons, such as workplace mistreatment or health concerns. However, if an employee leaves without proper notice, they may forfeit certain benefits, (unless their contract states otherwise) including: 

• Separation pay.
• Prorated 13-month pay.
• Unreleased commissions or incentives.
• Conversion of unused leave to cash.

Termination by Employer with Just Causes

Under Article 297 (formerly Article 282) of the Labor Code, you have the right to terminate an employee for serious violations or failure to fulfill their duties. These are known as just causes, which include:

• Serious misconduct or willful disobedience– When an employee deliberately violates company rules or disobeys lawful orders.
• Negligence of duties– Consistently failing to meet job expectations, resulting in losses or inefficiencies.
• Fraud or willful breach of trust– Engaging in dishonest acts that compromise the company’s interests.
• Commission of a crime or legal offense– If an employee is convicted of a crime related to their work.
• Other analogous causes– Any actions similar in nature and severity to the above.

Authorised Causes of Termination by Employer

Unlike just causes, authorized causes allow you to terminate an employee due to business-related reasons, and not their actions or conduct. These include:

• Redundancy– When a position is no longer needed due to restructuring or operational changes.
• Retrenchment– Workforce reduction due to financial losses or economic downturn.
• Closure or cessation of business– If the company shuts down its operations or ceases certain services.
• Disease or disability– If a licensed physician certifies an employee’s condition prevents them from performing their job and poses a risk to their health or others.

You must be careful in assessing whether termination circumstances genuinely meet the legal criteria for authorized causes to avoid wrongful dismissal claims. To mitigate the risks, Emerhub's payroll experts can assist in preparing and maintaining thorough documentation, ensuring you follow due processes as outlined by DOLE.

The Employee Termination Process in the Philippines

Termination Procedures for Just and Authorised Causes

Termination procedures in the Philippines depend on whether an employee is dismissed for just causes (misconduct or negligence) or authorized causes (business-related reasons). While both require written notice and final pay, key differences lie in the need for a hearing and entitlement to separation pay.

1. Written Notice– In both cases, you must provide a written notice stating the reason for termination. For authorized causes, this must be given at least 30 days in advance. Immediate dismissal applies only to serious misconduct cases.
2. Hearing– Required only for just causes. Employees must be given a chance to defend themselves before termination. No hearing is needed for authorized causes.
3. Separation Pay– Employees dismissed due to authorized causes are entitled to separation pay based on their length of service. Those terminated for just causes do not receive separation pay but are still entitled to their final pay, including unpaid wages and benefits.

Termination Compensation and Employee Entitlements

When an employee leaves a company– whether due to termination or voluntary resignation, they are entitled to certain payments under articles 297 to 103 of the Labor Code. These fall into two categories:

• Separation Pay: Provided only when an employee is terminated for authorized causes under the Labor Code, an employment contract, a Collective Bargaining Agreement (CBA), or company policy.
• Final Pay: Given to all employees upon separation, regardless of the reason, and includes unpaid wages, prorated benefits, and other due compensation.

1. Separation Pay for Authorized Causes

Separation pay is required when an employee is terminated due to company-related reasons beyond their control. Under the Labor Code of the Philippines (Article 298), separation pay applies in these scenarios:

• Redundancy: If a position is no longer needed due to restructuring or operational changes, they are entitled to one month’s salary for every year of service, or at least half a month’s salary for service less than one year.
  • Calculation: (Monthly salary) × (Number of years in service)
• Calculation: (Monthly salary) × (Number of years in service)
• Retrenchment & Business Closure: When a company reduces its workforce or shuts down, the separation pay varies depending on the reason for termination–
  • If the company is closing without serious financial losses, employees receive one month’s salary per year of service.
    • Calculation: (Monthly salary) × (Number of years in service)
  • If the closure is due to proven serious financial losses, employees receive half a month’s salary per year of service.
    • Calculation: (Monthly salary × ½) × (Number of years in service)
• If the company is closing without serious financial losses, employees receive one month’s salary per year of service.
  • Calculation: (Monthly salary) × (Number of years in service)
• Calculation: (Monthly salary) × (Number of years in service)
• If the closure is due to proven serious financial losses, employees receive half a month’s salary per year of service.
  • Calculation: (Monthly salary × ½) × (Number of years in service)
• Calculation: (Monthly salary × ½) × (Number of years in service)
• Health-Related Termination: Employees declared unfit to work by a licensed physician and whose continued employment would endanger their health or others receive the same separation pay as retrenched employees (one or half month pay, whichever is higher).

2. Final Pay, Including Unpaid Wages, Leave Conversions, and Benefits

All employees, regardless of the cause of termination, are legally entitled to their final pay under Article 103 of the Labor Code, which includes:

• Unpaid wages up to the last working day.
• Unused vacation and sick leave (if convertible to cash).
• Prorated 13th-month pay.
• Government-mandated contributions (such as withheld SSS, Pag-IBG, or PhilHealth deductions).
• Any other accrued benefits stipulated in the employment agreement.

Keep in mind that employees dismissed for just causes (such as serious misconduct, or willful disobedience) are typically not entitled to separation pay unless a CBA or company policy provides otherwise. However, they are still entitled to their final pay which includes any accrued benefits.

Seamless Workforce Management Emerhub’s Local Expertise

Navigating employment regulations in the Philippines requires strict compliance with labor laws, payroll processes, and tax obligations. From drafting employment contracts to handling terminations, these processes can become prone to costly mistakes and legal risks without the right local expertise. 

Emerhub serves as your local partner, handling the administrative burdens of workforce management. Our end-to-end payroll solutions ensure your full compliance with local laws, covering:

• Salary disbursements and tax filings
• Government contributions and compliance reporting
• Onboarding paperwork and employment record management
• Legally compliant termination procedures when necessary

Fill out the form below, and one of our local experts will get in touch with you!