Termination of employment is a complex and sensitive matter that demands careful attention. Employers must ensure compliance at every step of the process, especially in the Philippines where specific guidelines and procedures are mandatory.
In this guide, we will explore the key factors you need to know when navigating the end of employment process in the Philippines, such as post-termination restraints, notice periods, transfer of undertakings, waivers, and other relevant considerations. This detailed guide provides you with the clarity and guidance needed to ensure that your approach to employment termination is aligned with local labour laws and regulations.
In the Philippines, the legal notice period for resignation is 30 days, as anchored in Article 300 (formerly Article 285) of the Labour Code of the Philippines. Employees who wish to resign must tender a written resignation letter to their employer and comply with a 30-day notice period prior to their intended last day of work. This is the standard notice period for resignation in the Philippines, giving employers time to find a replacement and ensure a smooth transition of responsibilities.
However, the 30-day notice period can be waived under certain conditions if mutually agreed upon by the employer and the employee. In some cases, especially for technical, difficult-to-fill roles, or senior management positions, the employer and the employee may agree on a longer notice period, which should be honoured by the resigning employee.
The probationary period in the Philippines is six (6) months. Once the employee passes the probationary period, the employment contract becomes permanent.
For probationary employees, the notice period of resignation is generally at least 30 days in advance, unless the employment contract specifies a different period. This standard notice period of resignation is consistent with the provisions for regular employment, ensuring both employers and employees can prepare for the transition.
Probationary employment cannot exceed 180 calendar days, and the standards or criteria for achieving regular employment status should be made known to the employee at the start of their probationary period. During this time, employers are expected to evaluate a probationary employee’s performance and decide whether or not they meet the standards for regular employment. These criteria or standards for achieving regular employment must be communicated to the employee at the beginning of their probationary period, specifically on or before the first day of work. This policy ensures that employees are given fair opportunity and treatment and are clearly aware of the objectives they need to meet to secure regular employment status.
In the Philippines, severance pay is also known as separation pay. This is given to employees if the resignation falls under authorised causes under specific situations such as retrenchment, closure or cessation of operation, disease/illness of the employee not curable within six months and with a certification by a competent public health authority, and in cases where an employee is unable to meet the standards of employment due to causes other than those related to performance.
The calculation of separation pay depends on the cause of termination. The general formula used is:
In cases where employment is terminated due to authorised causes, employees are entitled to receive separation pay as specified under the law and their individual employment contract.
In the Philippines, the termination of employment is strictly regulated to protect the rights of workers. The Labour Code of the Philippines specifies valid grounds for termination of employment to ensure that both the employer and the employee follow a legal process.
There are two general categories under which termination of employment can happen: just causes and authorised causes.
If the employee feels they have been unjustly dismissed, they may file a complaint for illegal dismissal with the Department of Labour and Employment (DOLE). If the employer finds the termination to be without a valid or authorised cause, they may be required to reinstate the employee or, if reinstatement is no longer viable, pay separation pay in addition to back wages.
The process of termination of employment in the Philippines is governed by the Labour Code and is designed to ensure fairness and due process for both the employer and the employee. The process varies slightly depending on whether the termination is for a just cause, related to the employee’s conduct or performance, or an authorised cause, related to operational requirements or health reasons.
When the grounds of termination are based on just causes, the process entails serving a written notice to the employee specifying the grounds for termination and giving the employee the opportunity to explain or defend themselves. This is followed by a hearing or conference where the employee can present their defence. Lastly, a written notice of termination is given to the employee, indicating the grounds for their dismissal based on the results of the hearing or investigation.
When it comes to terminations for authorised causes, the employer is required to provide a written notice to both the employee and the Department of Labour and Employment (DOLE) at least 30 days prior to the intended date of termination. This notice should detail the reasons for the termination. Additionally, depending on the reason for the authorised termination, severance pay may be required.
Employers in the Philippines must strictly follow these due process requirements when terminating employees to avoid potential legal consequences. It’s crucial for both employers and employees to be aware of these rights and procedures to ensure that the termination process is conducted lawfully and fairly.
In the Philippines, an employment termination agreement, often referred to as a Mutual Separation Agreement (MSA), represents a legally binding document through which the employer and the employee agree upon the terms for ending the employment relationship. This type of agreement is typically used to ensure a clear, mutually agreed-upon conclusion of employment, avoiding potential disputes related to the termination process.
By opting for an employment termination agreement, both parties transfer the termination process under the specific terms of the agreement rather than strictly following the unilateral termination procedures outlined in the Philippine Labour Code. This means that the MSA is governed by mutual consent, and its terms should respect the minimum standards set by labour laws, particularly regarding severance pay and other entitlements.
Such agreements are particularly relevant in scenarios where the employer and employee wish to settle the terms of the separation amicably, which might include compensation exceeding statutory minimums, the continuation of certain benefits for a defined period, or a non-disparagement clause. It’s essential for both parties to carefully review the terms and ensure that they understand their rights and obligations under the agreement.
Consulting a legal professional is advisable to ensure that the agreement complies with local laws and fully protects the interests of both the employer and the employee.
Back pay refers to the wages owed to an employee from the last day of employment until the date of actual termination. This sum includes the net unpaid salary, including allowances and other forms of compensation due up to the final day of work. The calculation of back pay is an essential process following termination, ensuring that employees receive all earnings rightfully owed to them.
The computation of back pay generally involves several components, such as:
Here’s a sample computation, assuming an employee is semi-monthly paid with an unpaid salary of 15,000 PHP for the final half-month, has worked for three months towards their 13th-month pay, and has unused leave credits:
Both employees and employers should understand how to compute back pay correctly to ensure fairness and compliance with labour laws in the Philippines.
Post-termination restraints, including contractual prohibitions against competing with the employer or working in a similar business that might compete with the employer, are recognised in the Philippines. These restraints can be stipulated in the employment contract, with limitations concerning time, place, and trade being essential for their enforceability. Contractual post-termination covenants, particularly those relating to confidentiality obligations, can result from statutory provisions or separate agreements between employee and employer. They are relatively common in employment contexts, especially for employees who during their tenure had access to sensitive or proprietary information
Employers and employees can mutually agree to include a clause in their employment contracts that restricts the employee from initiating a similar business, engaging in comparable professional activities, or working for a competing entity for a specified time frame following their departure from the company. It is essential to establish reasonable boundaries regarding the duration, geographical scope, and specific industry to ensure enforceability. Judicial precedents have deemed a restriction lasting up to two years acceptable.
In the Philippines, post-termination customer non-solicit clauses or agreements are generally not enforceable by law. However, they are often included in employment agreements because they can deter former employees from soliciting business from past clients and may instil a moral obligation to refrain from such action.
In the Philippines, the enforceability of employee non-solicitation clauses post-termination is not explicitly detailed in statutory laws but is often subject to interpretation by courts based on fairness and reasonableness criteria.
Companies can include non-solicitation provisions in employment contracts, but these must be reasonable, not excessively restrictive, and justifiable in terms of business protection in order to be enforceable in a court of law. Employers should thus be cautious and consult legal advice when drafting such clauses to ensure they comply with local practices and judicial interpretations.
Waivers, particularly in the form of quitclaims, waivers, and releases, are legal documents signed by employees in the Philippines. These documents typically absolve employers of liabilities, including monetary claims or illegal dismissals, especially if they are signed in connection with a formal labour case before officers of the Department of Labour and Employment (DOLE) or mediators and Labour Arbiters.
For these waivers to be considered valid, they must be executed voluntarily and with a full understanding of their implications. Employers are advised to ensure that employees understand what they are signing, ideally in a language or dialect they fully comprehend, to ensure the waiver’s enforceability.
In a transaction involving a share deal, employees maintain their current employment status without interruption. When it comes to an asset deal, there’s a possibility for the acquiring party to take over existing employment contracts, contingent upon the agreement of the employees involved. Should an alternative route be chosen, where employees are let go and then brought back on board, it is the responsibility of the seller to provide severance compensation. The amount of this compensation hinges on the specific rationale for termination, whether it’s due to redundancy, downsizing, or business closure.
Moreover, employee transfer between companies, including relocation, is considered legal provided it is with the consent of the employees, aligns with the terms of employment contracts, and adheres to the prevailing labour laws. Employers are encouraged to provide support, such as relocation assistance or career counselling, to ease the transition for employees.
Employment contracts can end for various reasons and avenues. However, you need to thoroughly understand the rules and regulations governing the end of employment to avoid potential financial and legal risks.
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