Philippines: Employment & Labour Law

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This country-specific Q&A provides an overview to employment and labour law in Philippines.

It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..

This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/

  1. Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?

    In order to lawfully terminate an employee, the employer must have either just or authorized causes. This is anchored on the principle of the security of tenure which is not only statutorily provided, but is constitutionally enshrined.

    The following are just causes for termination:

    (a) Serious misconduct or willful disobedience;

    (b) Gross and habitual neglect of duties;

    (c) Fraud or willful breach of trust;

    (d) Commission of a crime or offense by the employee against his employer, the employer’s immediate family or his duly authorized representatives; and

    (e) Other causes analogous to the foregoing.

    On the other hand, the following are authorized causes for termination:

    (a) Installation of labor-saving devices;

    (b) Redundancy;

    (c) Retrenchment to prevent losses;

    (d) Closure or cessation of business; and

    (e) Disease not curable within six months as certified by competent public authority, and continued employment of the employee is prejudicial to his health or to the health of his co-employees.

  2. What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?

    Large numbers of dismissals may be done under the first four authorized causes discussed in Question 1.

    An employer may implement termination by redundancy when the following are present:

    (a) Superfluous positions or services of employees;

    (b) Positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;

    (c) Good faith in abolishing redundant positions;

    (d) Fair and reasonable criteria in selecting the employees to be terminated: and

    (e) Adequate proof of redundancy such as feasibility studies/proposals.

    A valid retrenchment program requires the following:

    (a) Retrenchment must be reasonably necessary and likely to prevent business losses;

    (b) Losses, if already incurred, are substantial, serious, actual and real, or if only expected, are reasonably imminent;

    (c) Expected or actual losses must be proved by sufficient and convincing evidence;

    (d) Retrenchment must be in good faith and not to defeat or circumvent the employees' right to security of tenure; and

    (e) Fair and reasonable criteria in ascertaining the retention and dismissal of employees, such as: status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.

    Mass termination due to closure of business requires the following:

    (a) Decision to close or cease operation of the enterprise by the management;

    (b) Decision was made in good faith; and

    (c) No other option available to the employer except to close or cease operations.

    A valid termination due to the installation of labor-saving devises requires the following:

    (a) Introduction of machinery, equipment or other devices;

    (b) Introduction must be done in good faith;

    (c) Purpose for such introduction must be valid such as to save on cost, enhance efficiency and other justifiable economic reasons;

    (d) No other option available to the employer than the introduction of machinery, equipment or device and the consequent termination of employment of those affected thereby; and

    (e) Fair and reasonable criteria in selecting employees to be terminated.

  3. What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?

    There are two types of business sales, namely: sale of one entity of all or substantially all its assets to another distinct entity, and stock sales which take place at the shareholder level within the same entity.

    In asset sales, provided that the sale is in good faith, the transferee has no legal duty to absorb the employees of the transferor. However, the transferee may, give preference to the qualified separated employees in filling vacancies.

    In stock sales, because the corporation possesses a personality separate and distinct from that of its shareholders, changing the shareholders will not affect the corporation’s continuity. Thus, the corporation, despite change in shareholders, cannot dismiss its employees absent a just or authorized cause.

  4. What, if any, is the minimum notice period to terminate employment?

    Notice is always required in terminations by the employer. The notice requirements, however, differ as to the kind of the termination involved.

    For just causes, the employer must allow the employee to have a period of at least five calendar days to submit a written explanation to the employer.

    For authorized causes, the minimum notice period is one month prior to the intended date of termination.

    The full requirements of procedural due process will be discussed in Question 7.

  5. Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?

    In terminations at the instance of the employer, whether for just or authorized causes, there can be no payment in lieu of notice. Nevertheless, failure to comply with the notice requirement does not invalidate a termination where just and/or authorized causes actually exist. In such cases, the employer may be held liable for nominal damages, as discussed in Question 8.

  6. Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to say at home and not participate in any work?

    The employer may put the worker in a garden leave during the notice period, but must ensure that the employee is still accorded his procedural rights. Nevertheless, care must be taken in implementing the garden leave since there is a risk that the employee on garden leave may claim constructive dismissal. There is constructive dismissal when the employee is compelled to give up his job because continued employment is rendered impossible, unreasonable, or unlikely as when there is clear discrimination, insensibility, or disdain on the part of the employer to the employee.

    Nevertheless, during the notice and hearing period in a just cause termination, where the employee poses a serious and imminent threat to the employer or his co-workers, the employee may be placed on preventive suspension for a period not longer than thirty days without pay. A preventive suspension which exceeds this period may also be deemed to have ripened to constructive dismissal.

  7. Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.

    The procedure for a valid termination of an employer depends on the cause for the same.

    For just causes, the employer is required to:

    (a) Serve the employee with a written notice containing the specific grounds of termination against him, giving him an opportunity to explain at least five calendar days from receipt to clarify his defense;

    (b) Conduct a hearing to allow the employee to explain his defenses, present evidence, and rebut the evidence presented against him; and

    (c) Serve the employee a written notice of termination indicating that all circumstances involving the charge against him has been considered and that the grounds to justify the severance of his employment.

    For authorized causes, the employer must send written notices to the worker and to the appropriate Department of Labor and Employment (“DOLE”) Regional Office at least one month before the intended date of termination. The employee must also be granted separation pay.

  8. If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?

    If the employer fails to follow the procedural requirements under the law:

    (a) In terminations for a just cause, the dismissal will be valid but the employer will be required to pay nominal damages of up to PhP30,000.00 for violating the employee’s right to due process in the form of the two notices and hearing.

    (b) In terminations for an authorized cause, the dismissal will be valid but the employee is entitled to nominal damages of up to PhP50,000.00 and to separation pay.

  9. How, if at all, are collective agreements relevant to the termination of employment?

    Collective Bargaining Agreements (“CBAs”) are relevant in terminations since the refusal of an employee to comply with a union security clause embodied in a CBA is recognized as a ground for termination. CBAs also allow employees to dispute terminations in organized establishments through the grievance machinery provided in the CBA.

  10. Does the employer have to obtain the permission of or inform a third party (eg local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?

    In terminations due to authorized causes, the employer is required to notify the appropriate DOLE Regional Office of the same. However, the permission of the DOLE is not required. For terminations due to just causes, neither permission nor notice to the DOLE is required.

  11. What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?

    Philippine law accords protection to women, mothers, persons with disabilities (“PWDs”), the elderly, indigenous people (“IP”), single parents, and members of the LGBT community against discrimination, including in the context of termination.

    The Labor Code prohibits discrimination against women on account of her sex. The Reproductive Health Act expressly declares that “pregnancy or the number of children shall not be a ground for non-hiring or termination from employment.”

    The Magna Carta for Disabled Persons prohibits discrimination against a qualified PWD by reason of disability. It is illegal to dismiss the services of a disabled employee by reason of his disability unless the employer can prove that he impairs the satisfactory performance of the work involved to the prejudice of the business entity.

    The Anti-Age Discrimination in Employment Act prohibits an employer from (1) forcibly laying off an employee because of old age; or (2) imposing early retirement on the basis of such employee's age.

    The Indigenous People’s Rights Act (“IPRA”) makes it unlawful for an employer to discriminate against an IP with respect to the terms and conditions of employment.

    The Solo Parents’ Welfare Act of 2000 also provides that “[n]o employer shall discriminate against any solo parent employee with respect to terms and conditions of employment on account of his/her status.”

    Jurisprudence has also made clear that, based on the Constitutional and statutory provision on equal opportunity for all regardless of sex, discrimination based on sexual orientation, including in the context of termination, is prohibited.

  12. What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?

    The penalty for discrimination in the context of termination depends on the law violated.

    The penalty for discriminating against women under the Labor Code includes a fine of up to PhP10,000.00 or imprisonment of up to three years, or both.

    A violation of the Reproductive Health Act may subject the employer to the penalty of a fine of up to PhP100,000.00 or imprisonment of up to six months, or both.

    The penalty for discriminating against PWDs includes a fine of up to PhP200,000.00 or imprisonment of up to six years, or both, as well as the possible the cancellation or revocation of the business permit, permit to operate, franchise and other similar privileges granted to any business entity.

    The penalty for discriminating due to age is a fine of up to PhP500,000.00, or imprisonment of up to two years, or both.

    The penalty for discriminating against IPs include a fine of up to PhP500,000 or imprisonment of up to twelve years, or both.

    However, the Solo Parents’ Welfare Act of 2000 provides no specific penalty for the violation thereof.

  13. Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?

    The laws against discrimination in relation to employment discussed in Question 11 apply equally to all workers regardless of category.

  14. Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?

    It is unlawful for employers to discharge, or discriminate against any employee who has filed a complaint or has instituted any proceedings, or testified in relation to their wages. Further, in organized establishments, it is considered an unfair labor practice when an employer dismisses, discharges or otherwise prejudices or discriminates against an employee for giving such testimony.

  15. What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?

    For terminations due to just causes, the Labor Code does not require the payment of separation pay. Nevertheless, in exceptional cases, the Supreme Court has granted separation pay in the amount equivalent to one-half month’s pay for every year of service to a legally dismissed employee as an act of social justice where the dismissal (1) was not for serious misconduct; and (2) does not reflect on the moral character of the employee or involve acts of moral turpitude.

    For terminations due to redundancy or the installation of labor saving devices, the separation pay is at least one month pay or at least one month pay for every year of service, whichever is higher. In cases of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, with a fraction of at least six months being considered one whole year.

  16. Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.

    An employer and employee may sign a deed of release, waiver and quitclaim (“RWQ”). As a general rule, an RWQ is looked upon with disfavor by Philippine Courts. However, it may be considered valid if the following requirements are present: (1) there was no fraud or deceit on the part of any of the parties; (2) the consideration for the quitclaim is sufficient and reasonable; and (3) the contract is not contrary to law, public order, public policy, morals or good customs, or prejudicial to a third person with a right recognized by law.

    There should be two witnesses to the execution of the quitclaim who must also sign. The document should also be subscribed and sworn to under oath.

  17. Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.

    It is possible to restrict a worker from working for competitors through a non-compete clause, provided that the same is reasonable, based on the following:

    (a) Protection of a legitimate business interest of the employer;

    (b) Creation an undue burden on the employee;

    (c) Injury to the public welfare;

    (d) Reasonableness of the time, trade and territorial limitations; and

    (e) Reasonableness from the standpoint of public policy.

  18. Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?

    An employer can require a worker to keep information relating to the employer confidential through a confidentiality clause. The latter, freely entered into by the parties in an employment contract, creates an obligation that has the force of law between the parties and should be complied with in good faith.

  19. Are employers obliged to provide references to new employers if these are requested?

    There is no legal obligation to provide references to new employers.

  20. What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?

    In the Philippines, the following are the frequent areas of difficulty faced by employers in termination:

    (a) Employers face a difficulty in proving that terminations are valid due to the presumption in favor of labor. When interests of labor and capital are conflicted, the law will generally sympathize with the underprivileged worker.

    For mitigation, it is essential that employers who claim that any termination is valid are able to support their claims with sufficient documentation.

    (b) Employers face a difficulty in proving that an employee has been terminated for just cause due to strict requirements imposed by jurisprudence which must be duly proven by the employer in cases of termination for (a) Serious Misconduct, (b) Gross and Habitual Neglect of Duties, (c) Fraud and (d) Willful Breach of Trust and Confidence.

    For mitigation, the employer is advised to carefully craft their company rules and regulations as to clearly determine what acts may be cause for disciplinary action and ultimately, dismissal. An employee may be validly dismissed for violation of a reasonable company rule or regulation adopted for the conduct of the company business.

    (c) Employers face a difficulty in imposing termination as a penalty as case law considers termination to be a penalty which should only be a last resort.

    To mitigate this risk, the employer must ensure that it strictly complies with the requirements of due process and ensure that there is clear and convincing evidence to prove that there exists a just or authorized cause for termination.

  21. Are any legal changes planned that are likely to impact on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?

    There have been no moves in changing Philippine termination laws which have been generally stable since the Labor Code was first implemented in 1974.