Separation Pay in Employment Termination and Resignation in the Philippines

Separation pay may refer to two distinct labor-related concepts, to wit: (a) separation pay in lieu of reinstatement in illegal dismissal cases; and (b) separation pay in cases of termination based on authorized causes. Before discussing these concepts, we dispose of two issues connected with separation pay. First, the payment of separation pay is not a ground for termination; without a just or authorized cause, the dismissal is illegal notwithstanding the payment of separation pay. Second, an employee who voluntarily resigns is not entitled to separation pay, except when granted by the company or expressly provided in the company policy or Collective Bargaining Agreement (CBA).

Separation Pay in Termination and Resignation Philippines

SEPARATION PAY IN LIEU OF REINSTATEMENT

An illegally dismissed employee is entitled to reinstatement as a matter of right. However, where reinstatement is no longer advisable because of strained relations between the employee and the employer, separation pay is granted, computed at one (1) month pay for every year of service. 

Under the doctrine of strained relations, the payment of separation pay is considered an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust. 

Strained relations must be demonstrated as a fact. There must be substantial evidence to show that the relationship between the employer and the employee is indeed strained as a necessary consequence of the judicial controversy.

SEPARATION PAY IN AUTHORIZED CAUSES OF TERMINATION

Separation pay is warranted when the cause for termination is not attributable to the employee’s fault (e.g., Articles 298 to 299 of the Labor Code). Otherwise stated, separation pay is not demandable when the cessation of employment resulted because of the employee’s action (i.e., resignation) or the employee’s fault (just causes for termination).

Authorized causeComputation
* Installation of labor-saving devices1 month pay, or at least 1 month pay for every year of service, whichever is higher
* Redundancy1 month pay, or at least 1 month pay for every year of service, whichever is higher
* Retrenchment1 month pay, or at least 1/2 month pay for every year of service, whichever is higher
* Closure or cessation of business operation not due to serious business losses1 month pay, or at least 1/2 month pay for every year of service, whichever is higher
* Closure or cessation of business operation is due to serious business losses or financial reversesNo separation pay
* Disease1 month pay, or at least 1/2 month pay for every year of service, whichever is higher

In computing the separation pay for the causes enumerated above, a fraction of six (6) months of service is considered as one (1) whole year.

Due process in these cases involves the service of a written notice to both the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of the termination, specifying the ground or grounds for termination. For due process in just causes for termination, see Twin-Notice Rule and Procedural Requirements in Employment Termination Proceedings.

Atty.Fred

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