Dismissing an Employee

Last revision: Last revision:25 April 2024
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1. Introduction

Dismissing an employee in the Philippines is not like the movies: an employer cannot just call in an employee to dismiss him for any reason that they can think of, or worse, for no reason at all. Under Philippine law, an employee may only be dismissed for specific reasons and the proper procedure should be followed. After complying with the company and legal procedures for dismissing an employee, a termination letter may be used to inform the employee of the employer's decision to terminate his employment.

2. Causes for Dismissing an Employee

An employee can only be dismissed for just and authorized causes. Just causes are due to the fault or negligence of the employee. On the other hand, authorized causes are due to the employer's needs, changes in economic conditions, or the illness of an employee.

2.1 Just Causes

The following are the just causes for dismissing an employee:

1. Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

2. Gross and habitual neglect by the employee of his duties;

3. Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

4. 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

5. Other causes analogous to the foregoing.

2.1.1 Serious Misconduct

Misconduct is an improper or wrong action by the employee. In order to be a cause for the dismissal of the employee, it must be serious in that the misconduct is not trivial or unimportant. Finally, it must be connected to the work of the employee.

2.1.2 Willful Disobedience

Willful disobedience is when an employee willfully disobeys the lawful and reasonable orders instructions or regulations of the employer that the employee was sufficiently informed of and that the same were connected to the work of the employee.

2.1.3 Gross and Habitual Neglect

In order for neglect to be a cause for the dismissal of an employee, it must be both gross and habitual. Gross neglect of duties means a lack of diligence that an ordinary man would use in managing his or her affairs or business. On the other hand, habitual neglect means a repeated failure to perform the duties assigned to the employee over a period of time.

It is not necessary that the employer suffer actual damages due to the gross and habitual neglect of duties of the employee, it is sufficient that the employer is prejudiced by the same.

2.1.4 Fraud or Willful Breach of Trust

Fraud is the willful act, omission, or concealment by the employee that violates the trust or confidence of the employer. In order to be a cause for dismissal, the employee must hold a position of trust and confidence in employees who regularly handle the employer's money or property.

2.1.5 Commission of a Crime or Offense

A commission of a crime or offense can only be a ground for dismissal of an employee if it is committed against the employer, his immediate family, or his duly authorized representatives. A crime or offense is an act or omission that is prohibited or punished by law.

2.1.6 Analogous Causes

The determination of whether a willful act or omission of the employee is analogous or similar to the four (4) other justifying causes will depend on the circumstances surrounding the case. However, to be considered as an analogous cause, the same must be expressly specified in the company rules, regulations, or policies.

3.1 Authorized Causes

The authorized causes for dismissing an employee are:

1. Installation of labor-saving devices

2. Redundancy

3. Retrenchment

4. Closing or cessation of business

5. Illness of the employee

For the first three authorized causes, there must be a fair and reasonable criterion in selecting the employees that will be dismissed. Moreover, there is a general "Last-in, First-Out Rule." This means that most recently hired employees are the first employees to be dismissed except when another employee or employees volunteer to be separated from employment.

3.1.1 Installation of Labor-Saving Device

An employee may be dismissed when the employer installs machinery that performs the job or functions of the employee. However, to justify the dismissal of the employee, the installation of the machinery should be done in good faith and the purpose for the installation must be valid. Valid reasons for installing machinery include saving on costs, improving efficiency, and other economic reasons.

3.1.2 Redundancy

Redundancy happens when the position of the employee becomes unnecessary or superfluous. This means that the position of the employee is in excess of the actual requirements of the employer to operate economically and efficiently. However, there must be good faith in abolishing redundant positions and proof of redundancy.

3.1.3 Retrenchment

Retrenchment is when an employee is dismissed in good faith in order to avoid or minimize losses. In order to be a ground for dismissal, the losses to the employer must be substantial and actual. However, if the losses have not yet been incurred, they must be reasonably imminent. In either case, the actual or imminent loss must be proved by sufficient and convincing evidence.

3.1.4 Closing or Cessation of Business

Closure or cessation of business means that the employer decided to totally or partially close or cease the operation of the business of the employer. There must be good faith in the closing of the business. This means that the business is closed with the intention of closing it permanently and not for the purpose of dismissing employees only to reopen again.

3.1.5 Illness of the Employee

An illness of the employee can be a cause for dismissal when the continued employment of the employee is prohibited by law or when it is prejudicial to the health of the employee and the health of his or her co-workers. To be a cause for dismissal, there must be a certification from a competent public health authority that the disease cannot be cured within six (6) months even if there is proper medical treatment.

4. Procedure for Dismissing an Employee

The proper procedure for dismissing an employee depends on whether the employee is being dismissed for just or authorized causes. It must be noted that if the procedure for dismissal is not followed but the reason for dismissal is valid as a just or authorized cause, the dismissal is still valid however the employee will have to pay indemnity to the dismissed employee.

4.1 Just Cause

To dismiss an employee based on just causes, the employer must give the employee two (2) written notices before the dismissal which should be given personally or sent to the employee's last known address.

4.1.1 First Notice

The first notice should inform the employee of the specific just causes for termination under the Labor Code and company policies, if any. It must include a detailed narration of facts and circumstances that are the grounds for dismissal. Finally, it should direct the employee to submit a written explanation within a reasonable period. A reasonable period, in this case, is at least five (5) calendar days from receipt of the notice.

4.1.2 Ample Opportunity to be Heard

After giving the first notice, the employee must be given an ample opportunity to be heard. This means that the employee must be given an opportunity to answer the charges in the first notice and to provide evidence to support his defense. The opportunity to be heard may be verbal or written. However, if the employee requests for a formal hearing or conference in writing, if substantial disputes on evidence exist, or if company rules or practice require it, or the same is justified by the circumstances, a formal hearing becomes mandatory.

4.1.3 Second Notice

If the dismissal is justified after considering the defenses of the employee, the employer should give the employee a second notice. The second notice should show that all the circumstances relating to the charge against the employee have been considered and that the grounds for the dismissal of the employee have been established to justify the dismissal of the employee.

4.2 Authorized Cause

If the dismissal is for authorized causes, the employer must give a written notice of dismissal to the employee and to the appropriate Regional Office of the Department of Labor and Employment at least thirty (30) days before the dismissal becomes effective. The written notice must state the ground or grounds for dismissal.

4.2.1 Separation Pay

Separation pay is required to be paid when the employee is dismissed for authorized causes, except if the cause for dismissal is the closure or cessation of business due to serious business losses. The amount of separation pay depends on the cause of dismissal.

  • If the dismissal is due to the installation of labor-saving devices or redundancy, the separation pay should be equivalent to at least one (1) month pay or at least one (1) month pay for every year of service, whichever is higher.
  • If the dismissal is due to retrenchment or closure or cessation of business for reasons other than serious business losses, the separation pay should be equivalent to at least one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher.

Separation pay is not required if the closure is due to serious business losses.

In all cases, a fraction of six (6) months is considered as one whole year.

5. Consequences of Illegal Dismissal

Illegal dismissal is when an employee is dismissed from employment without just or authorized causes. When an employee is illegally dismissed, the employee will be entitled to reinstatement and/or backwages.

5.1 Reinstatement

Reinstatement restores the illegally dismissed employee to the position from which they were removed without loss of any privilege or seniority rights. It creates the scenario that the illegally dismissed employee had been working continuously for the employer without any break in their service that was caused by the illegal dismissal.

Reinstatement is immediately executory (meaning it takes effect immediately) even if the decision of reinstatement is appealed. This means that once it is ordered, the employer must immediately admit the employee back to work even while the appeal is still pending. However, the employer may also choose to simply add the employee back to the payroll so that, even if the employee is not admitted back to work or doing actual work, the employee would still receive their salary and other benefits.

If the employer wins the appeal, the employee will not be required to reimburse the salary that they received while the appeal was pending.

5.2 Separation Pay in Lieu of Reinstatement

There are times when reinstatement may not be possible due to strained relations. This means that the relationship between the employer and employee has fallen into such bad terms that it would defeat the purpose of reinstatement. In this case, the court may order that separation pay be paid instead of reinstatement.

5.3 Payment of Backwages

The payment of backwages means that the employee can recover from the employer the salary that they would have earned if they were not illegally dismissed. This means that the employer will have to pay the whole amount of the salaries and all other benefits which the employee would have been entitled to without any deductions.

For example, Juan was illegally dismissed on January 2019. He filed a case for illegal dismissal with the National Labor Relations Commission. In July 2019, the NLRC found that Juan was illegally dismissed and therefore ordered reinstatement and payment of backwages. The backwages that will be paid will be the salary that Juan would have earned from the date of the illegal dismissal until the date of the reinstatement.

However, the courts may mitigate or even not order the payment of backwages if there is good faith in the dismissal of the employee.

6. Conclusion

The process of dismissing an employee involves careful consideration of just and authorized causes, ensuring fairness and adherence to legal procedures. Just causes pertain to employee misconduct or negligence, while authorized causes are related to employer needs or circumstances such as redundancy or retrenchment.

The dismissal procedure varies depending on the cause, with requirements for written notices, opportunities for the employee to respond, and, in some cases, the obligation to provide separation pay. Illegal dismissal, without proper justification, can lead to severe consequences for the employer, including reinstatement and backwages for the affected employee.

Understanding and following these procedures are crucial for maintaining a fair and lawful working environment, balancing the rights and responsibilities of both employers and employees.

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