Introduction
The Philippines is a vibrant economic hub within the Asia-Pacific region, offering numerous business opportunities to thrive. However, understanding the intricacies of employment law is crucial for companies looking to operate smoothly in this market. The Philippines has specific laws and regulations that govern the termination of employees, aimed at protecting workers’ rights while allowing employers to manage their workforce effectively.
The Labour Code governs firing in the Philippines and mandates strict compliance with procedural and substantive due process. According to data from the Employers Confederation of the Philippines, of the thousands of cases filed annually, 75% are illegal dismissal cases. Moreover, labour wins 67% of these cases, underscoring the necessity for employers to adhere strictly to legal termination procedures.
Recent corporate layoffs further highlight the volatile nature of employment in the Philippines. For instance, despite Lazada Philippines celebrating an almost 300% sales lift after its platform-wide 11.11 sale last year, the company still faced significant layoffs. An estimated 30% of Lazada’s regional manpower is expected to be cut across its commercial, retail, and marketing functions, with even top executives being affected. This situation exemplifies businesses’ challenges in balancing operational needs with compliance with labour laws.
These statistics and instances underscore the importance of understanding and following legal termination processes to avoid disputes and maintain a compliant and fair workplace environment. This guide provides an overview of the legal landscape surrounding firing in the Philippines, helping businesses make informed decisions and maintain compliance with local regulations.
The complex legal landscape requires employers to navigate various just and authorised causes for termination, ensuring that employees’ rights are upheld while maintaining operational efficiency. Understanding these regulations not only helps mitigate legal risks but also promotes a fair and compliant workplace environment.
Sources: Employers Confederation of the Philippines and The Independent Investor
Permissible Grounds for Termination
In the Philippines, the Labour Code outlines the permissible grounds for terminating employees, ensuring that employers and employees are protected under the law. To be considered lawful, termination of employment must be justified by either just or authorised causes.
Just Causes
Just causes for termination are attributable to the employee’s conduct and performance. These include:
- Serious Misconduct: Any act of serious misconduct by the employee that is directly related to their work. This can include actions that are gravely inappropriate or unlawful within the workplace.
- Wilful Disobedience: Refusal to comply with lawful and reasonable orders from the employer. This includes direct insubordination or failure to follow specific instructions.
- Gross and Habitual Neglect of Duties: Repeated failure to perform job responsibilities with the expected level of diligence and care. This can encompass ongoing tardiness, absenteeism, or general neglect of job duties.
- Fraud or Breach of Trust: Acts that destroy the trust and confidence between the employer and employee, such as theft, dishonesty, or fraud.
- Commission of a Crime: Involvement in criminal activities against the employer or their representatives, which can undermine the safety and integrity of the workplace.
- Analogous Causes: Other similar acts that justify termination. This category is broad and can include various forms of gross inefficiency, habitual drunkenness, or similar behaviours that are detrimental to the company.
Authorised Causes
Authorised causes for termination are reasons beyond the employee’s control, typically related to the employer’s operational requirements. These include:
- Installation of Labour-Saving Devices: Introduction of new technology or machinery that makes certain jobs redundant.
- Redundancy: Elimination of positions due to a decrease in workload or reorganisation of the company structure.
- Retrenchment to Prevent Losses: Reduction of workforce to cut costs and prevent financial losses. This is a measure taken by the company to survive financially difficult times.
- Closure or Cessation of Business Operations: Shutting down the company or any of its divisions, regardless of whether the closure is due to financial losses or other reasons.
Legal Repercussions of Unjust Termination
Termination without valid cause can lead to significant legal repercussions for employers. This includes:
- Claims for Reinstatement: Wrongfully terminated employees can file for reinstatement to their previous positions without loss of seniority.
- Payment of Back Wages: Employers may be required to pay back wages from the time of dismissal to the time of reinstatement.
- Moral and Exemplary Damages: If bad faith is proven, employers may also be liable for damages to compensate for the emotional distress and punitive damages.
- Attorney’s Fees: Up to 10% of the award if the dismissal is successfully challenged in court.
Ensuring that terminations are handled legally and ethically is crucial for maintaining a fair and compliant workplace environment. Employers can avoid disputes and potential liabilities by following the Labour Code’s guidelines on permissible grounds for termination.
Source: Herbert Smith Freehills
Severance Pay and Compensation in the Philippines
Understanding severance pay and compensation is crucial for employers and employees in the Philippines. The Labour Code mandates specific entitlements for employees terminated for authorised causes, ensuring financial stability and compliance with legal standards.
Severance Pay
Severance pay is a critical component of the financial package given to employees when their employment is terminated due to authorised causes. The amount varies depending on the reason for termination and is designed to provide financial support as the employee transitions out of the company.
Redundancy or Installation of Labour-Saving Devices
Redundancy and the installation of labour-saving devices are common reasons for termination. In these cases, employees are entitled to:
- One month’s pay or at least one month’s pay for every year of service, whichever is higher. This compensation acknowledges the employee’s contributions and provides a buffer period for finding new employment.
Retrenchment or Closure of Business
When a company faces financial difficulties or decides to close operations, employees terminated under these conditions are entitled to:
- One month’s pay or at least half a month’s pay for every year of service, whichever is higher. This ensures that employees receive fair compensation despite the company’s financial status.
Calculation of Severance Pay
The calculation of severance pay involves several factors:
- Basic Salary: The employee’s basic monthly salary is the starting point for calculating severance pay.
- Years of Service: The total number of years (and fractions thereof) the employee has worked for the company is multiplied by the severance rate (either one month’s pay or half a month’s pay per year of service).
- Higher of the Two: For redundancy or labour-saving devices, a higher pay of one month or one month per year of service is given. Retrenchment or closure is the higher of one month’s pay or half a month’s pay per year of service.
Employers must ensure accurate and fair calculations to comply with legal requirements and maintain good employee relations.
Compensation Pay
Beyond severance pay, terminated employees may be entitled to various other forms of compensation. These additional compensations ensure that employees receive all due benefits and payments, promoting fairness and legal compliance.
Unpaid Salaries
Employees should receive any unpaid salaries up to the date of termination. This includes:
- Regular Wages: Payment for the last period worked, ensuring that the employee is compensated for all hours and days worked prior to termination.
- Overtime Pay: Any overtime worked but not yet compensated should be included in the final pay.
Unused Leave Credits
In the Philippines, employees accrue leave credits annually, which may include vacation and sick leaves. Upon termination, employees are entitled to:
- Payment for Unused Leaves: Any accrued but unused leave credits should be converted to cash and included in the final pay.
Other Benefits
Additional benefits accrued during employment should also be compensated, such as:
- Pro-Rated 13th Month Pay: Employees are entitled to a proportionate amount of the 13th month pay based on the number of months worked in the calendar year.
- Bonuses and Incentives: Any earned but unpaid bonuses or incentives should be included in the final pay.
Legal Compliance and Good Employee Relations
Ensuring that all severance and compensation payments are made promptly and accurately is essential for legal compliance and maintaining good employee relations. Delayed or incorrect payments can lead to legal disputes and damage the company’s reputation. Employers should:
- Conduct Thorough Audits: Conduct thorough audits of the employee’s entitlements before finalising payments.
- Clear Communication: Communicate the breakdown of final pay to the employee, including how each component was calculated.
- Timely Payments: Ensure all payments are made within the legal timeframe to avoid potential legal issues.
Source: Labour Code of the Philippines
Terminating Foreign Employees in the Philippines
Terminating foreign employees in the Philippines involves navigating both labour regulations and immigration laws. While foreign employees are subject to the same labour laws as local employees, their visa and work permit status introduces additional considerations that employers must address to ensure a compliant termination process.
Rights of Terminated Foreign Workers
Foreign workers enjoy specific rights under Philippine law, including due process and fair treatment during termination. Employers must provide valid reasons for termination and adhere to the appropriate procedures to avoid legal complications. These rights ensure that foreign employees are not unfairly dismissed and that any termination is conducted transparently and legally.
Just and Authorised Causes for Termination
Foreign workers can be terminated for the same just and authorised causes as local employees. Just causes pertain to the employee’s conduct and performance, such as:
- Serious Misconduct
- Wilful Disobedience
- Gross and Habitual Neglect of Duties
- Fraud or Breach of Trust
- Commission of a Crime
- Analogous Causes
Authorised causes relate to the employer’s operational needs and include:
- Installation of Labour-Saving Devices
- Redundancy
- Retrenchment to Prevent Losses
- Closure or Cessation of Business Operations
Additionally, termination can occur due to changes in the employee’s visa status or if the employer loses the necessary permits to employ foreign nationals.
Due Process for Termination
Employers must follow due process when terminating foreign employees, which involves:
- Providing a Notice of Explanation: Informing the employee of the reasons for termination and giving them an opportunity to respond.
- Conducting a Formal Hearing: Allowing the employee to present their side and defend against the allegations.
- Issuing a Notice of Decision: Communicating the final decision and the basis for termination.
These steps ensure fairness and transparency, protecting the rights of the foreign worker.
Legal Obligations for Terminating Foreign Employees
Employers have specific legal obligations when terminating foreign employees. These include notifying the Bureau of Immigration and other relevant agencies to ensure compliance with immigration laws.
Steps for Compliance
- Cancellation of Visa and Work Permits: Employers must cancel the foreign worker’s visa and work permits or transfer them appropriately if the employee is moving to a different employer. This step is crucial to avoid legal penalties and ensure that the foreign employee’s immigration status is correctly updated.
- Notification to Bureau of Immigration: Employers must notify the Bureau of Immigration about the termination, providing details about the employee’s departure and the reason for termination. Failure to comply with this requirement can result in fines and other penalties.
- Final Settlement: Employers must settle all due compensation, including unpaid salaries, severance pay, and other entitlements, as per the Labour Code and relevant employment contracts.
Penalties for Non-Compliance
Non-compliance with these legal obligations can lead to significant penalties for employers, including:
- Fines: Monetary penalties imposed by the Bureau of Immigration and the Department of Labour and Employment (DOLE) for failing to adhere to termination and immigration regulations.
- Legal Disputes: Potential lawsuits from terminated employees for wrongful dismissal or breach of contract.
- Reputational Damage: Harm to the company’s reputation, affecting future business operations and the ability to hire foreign talent.
Source: Bureau of Immigration
Relevant Legal Basis
The primary legal frameworks governing termination in the Philippines include:
- Labour Code of the Philippines: This code outlines the grounds for termination, due process requirements, and employee entitlements.
- Department of Labour and Employment (DOLE) Regulations: DOLE provides additional guidelines and regulations to ensure the fair treatment of employees.
- Bureau of Immigration: Governs the employment and termination of foreign workers in the country.
Conclusion
Navigating the complexities of employment termination in the Philippines requires a thorough understanding of the Labour Code and other relevant regulations. Ensuring compliance with these laws is crucial for maintaining a fair and legally sound workplace environment. Employers must be diligent in handling terminations to avoid legal disputes, protect employee rights, and sustain good employee relations.
For companies seeking to streamline this process, partnering with an Employer of Record (EOR) like Eos Global Expansion can provide invaluable support. Eos Global Expansion offers expert guidance on local labour laws, ensuring that all termination procedures are conducted legally and ethically. By leveraging our expertise, businesses can focus on their growth and success while maintaining compliance with the intricate legal landscape of the Philippines.
For more details on how Eos Global Expansion can assist your business with compliant employee termination practices, contact us.
