How to Ensure Lawful Employee Termination in the Philippines

The Philippines currently stands as one of the most popular emerging markets for hiring remote back-office, customer service, and IT professionals. If you are considering outsourcing some of your operations to the Philippines, then you must have a firm understanding of Labor rights policies regarding employee termination.

In the Philippines, it is common for employees to file complaints against their employers for perceived wrongful termination. Handling these types of disputes therefore requires careful navigation of the regulatory landscape of employee offboarding. This article will walk you through efficient ways of resolving employee termination labor rights issues in the Philippines.

Labor Rights in the Philippines for Employee Termination

How does the Philippines labor code define termination?

Several potential reasons can result in the termination of an employment contract. While this can seem like a straightforward matter, the Philippine labor code does have specific stipulations in terms of when and how employee termination must be handled. Remember that if you do not follow the correct procedures, you could be liable for unlawful termination complaints.

Labor law divides termination into two categories. Article 282 covers just cause of termination, which pertains to employee-related reasons and issues that can result in the off-boarding procedure. Article 283, however, covers authorized causes. These pertain to employer-related situations that require the termination of an employment contract.

Regardless of whether the termination is the result of a just cause or authorized cause, you must carry out a termination in full compliance with the labor code and provide adequate time, attention, and thorough record-keeping throughout. 

Just causes for termination of employment in the Philippines

As defined by Article 282 of the Philippine labor code, just cause for termination is related to employee conduct in terms of the performance of the tasks that have been outlined in the signed contract:

• Inefficiency or poor performance: Consistent failure to meet required performance standards by a properly trained employee. 
• Gross Negligence: Willful disregard of duties by an employee.
• Fraud or willful breach of trust: Engagement by an employee in dishonesty, fraud, or embezzlement that results in financial harm to the employer.
• Commission of a crime: Conviction of a crime that severely impairs an employee’s ability to perform the duties.
• Willful disobedience: Refusal by an employee to follow lawful and reasonable instructions provided by superiors.

Authorized causes for employee termination in the Philippines

In certain circumstances, an employer chooses to terminate an employee as a response to a corporate or logistical decision. Employer-related terminations must fall within the Authorized causes in the Philippines, which are defined by Article 283:

• Redundancy: This applies when an employee’s tasks are considered unnecessary or excessive to company requirements for that service.
• Retrenchment to prevent losses: Termination of employment without prejudice to the employee as a result of economic downturns (recessions, seasonal fluctuations, shortages, automation)
• Installation of labor saving devices
• Closure or cessation of operation: If the establishment or company sees a partial or full closure of operations

In the Philippines, disease can sometimes fall under authorized causes for termination. This is generally evaluated on a case-by-case basis and must be overseen by a public health authority usually if continued employment is prohibited or prejudicial to the well-being of the employee or that of other co-employees.

Who Qualifies for Separation Pay Upon Termination in the Philippines?

Under the Philippines Labor Code, separation pay or severance pay is a form of financial compensation provided by the employer to employees if the employment is terminated due to an authorized cause such as redundancy, retrenchment, or closure of business. It serves as a safety net for workers who lose their jobs due to reasons beyond their control and helps them transition to new employment.

Employees terminated for just causes (e.g., serious misconduct, willful disobedience, gross neglect of duty) are typically not entitled to separation pay.

Computation of Separation Pay

The calculation of separation pay depends on the reason for termination:

1. For Redundancy or Installation of Labor-Saving Devices: One month pay or one month pay for every year of service, whichever is higher
   Calculation: (Monthly salary) x (Number of years in service)
2. For Retrenchment to Prevent Losses or Closure/Cessation of Business: One month pay or one-half month pay for every year of service
   Calculation: (Monthly salary ÷ 2) x (Number of years in service)

For example, if an employee with a monthly salary of ₱20,000 is being terminated due to redundancy after 5 years and 7 months of service:

Calculation: ₱20,000 x 6 years (rounding up 5 years and 7 months) = ₱120,000 separation pay

Refer to Philippines Separation Pay Calculator to calculate the exact separation pay based on salary and years of service.

How an EOR Resolves Labor Rights Issues in the Philippines

Internal processes that are in line with the Philippine labor code

By partnering with an Employer of Record, you can not only outsource your hiring process but also all the necessary HR and payroll services that will handle every step of the employee lifecycle, from onboarding to offboarding, or potential termination.

RecruitGo is well-versed in Philippine labor law in terms of employment contracts and ensuring that if you choose to terminate your remote employees, it will be done in full compliance with Philippine regulations. As the legal employer, we have an extensive internal process that is aligned with the Philippine labor code of due process for termination of employment:

1. You will conduct a performance evaluation for the Employee and their immediate supervisor will then discuss the outcome of the evaluation with them.
2. Signatures will be required from both the employee and supervisor to acknowledge the performance evaluation
3. The signed copy of the performance evaluation will be forwarded to RecruitGo HR.
4. RecruitGo HR will draft the termination notice based on the performance issue and, upon your review, it will be sent to the employee.
5. Once the employee signs the termination notice, we will handle the offboarding process, which includes clearances and turnover.
6. RecruitGo will draft the final pay and issue it following your review and approval.

Ensuring compliance with local regulations

Philippine labor code is strictly enforced, which is why terminations must be conducted lawfully to avoid legal disputes. Keep in mind that per Philippine law, immediate termination is not possible and could result in legal repercussions.

Keep in mind that the evaluation process of an employee must always be established with just cause for termination. Employees must also always be provided with a 30-day notice of termination period. At least one month’s pay should be issued according to the notice period, as stipulated by the Labor Code.

RecruitGo’s HR service providers understand the regulatory requirements of the Philippine market and can avoid the need to resolve potential labor rights issues. We will conduct the necessary discussions and provide all necessary documentation regarding the process, including turning over all accountabilities 

Effective Legal Approach to Labor Disputes in the Philippines

In the event of a labor rights issue in the Philippines, RecruitGo will represent and offer guidance throughout to ensure strict adherence to the Labor Code. As the legal employer of your remote teams, our approach is focused on ensuring that both the organization’s and the employee’s interests are protected through a comprehensive legal process:

1. Initial Consultation: Meet with our legal experts to discuss the circumstances surrounding termination and provide relevant documentation
2. Documentation Review: A meticulous review and comprehensive assessment of employment records will be conducted to determine the validity of termination.
3. Legal Analysis: Thorough analysis of Philippines labor laws and provisions to ensure adherence to due process requirements and substantiate just causes
4. Paper position and Preparation: Formal documentation will be prepared based on findings and submitted to the necessary authorities
5. Representation: RecruitGo’s legal team and Employee Relations Manager will represent the organization throughout the process and offer guidance and support at every stage.
6. Resolution: Actions will be taken that comply with the final ruling and appropriate remedies will be implemented if any issues are determined to require attention.

Hire talent in the Philippines while ensuring full HR compliance every step of the way. Contact RecruitGo’s advisors via the form below