Compliance check: Philippines: Just causes for termination

Philippine law sets a high standard in establishing a just cause for termination of employment. There are also due process requirements which must be complied with.

Termination of employment in the Philippines generally

As a rule, employees have security of tenure, and their employment can only be terminated by an employer for just cause or authorised cause.

Authorised cause pertains to factors attributable to the company, such as labour-saving device installation, redundancy, retrenchment to prevent losses, or cessation of operations. Just cause, on the other hand, relates to factors directly attributable to the employee's fault or negligence, such as misconduct or poor performance.

Just causes for termination

An employer may terminate an employee's employment for the following just causes:

• serious misconduct or wilful disobedience;
• gross and habitual neglect of duty;
• fraud or wilful breach of trust;
• commission of a crime against the employer or their representatives; or
• other causes analogous to the above.

To establish just causes, certain criteria must be met. For instance, serious misconduct requires misconduct of grave character related to the employee’s duties, making the employee unfit to continue working for the employer. Gross and habitual neglect of duty involves serious, ongoing absence of care or diligence in duty performance - poor or unsatisfactory performance may not be sufficient. To demonstrate loss of trust and confidence leading to termination, an employer must show that an act, omission, or concealment by the employee, who holds a position of trust, justifies this loss. This loss must be genuine, not used to conceal improper causes, and not an afterthought to justify previous actions taken in bad faith.

Analogous cases require an act or omission by the employee similar to the recognised just causes. An example is gross inefficiency, which requires the employer to show that the employee failed to attain work goals known to them, that the poor performance had been identified and that the employee had been given sufficient opportunity for performance improvement.

Due process

Employers must follow due process when dismissing an employee on the basis of just cause. This involves a first written notice specifying the charges and an investigation into the charges. The employee must be given a reasonable period to submit a written explanation.

After serving the first written notice, the employer should provide the employee an opportunity to be heard and defend themselves. This can be through a hearing, conference, or other fair means.

Finally, after deciding whether termination is justified, the employer must serve the employee a written notice of termination indicating that all circumstances involving the allegations have been considered and grounds have been established to justify the termination.

Key Takeaways

Terminating employment for just cause can be a complex and sensitive process. In case of a finding of unfair dismissal, an employer's potential exposure would be as follows:

• reinstatement without loss of seniority rights and benefits;
• payment of backwages computed from the time the employee was dismissed up to reinstatement;
• payment of moral and/or exemplary damages, where there is also a finding of bad faith;
• payment of the employee's attorney’s fees (usually up to 10% of the award).

If reinstatement is not possible or feasible, the employer will be ordered to pay separation pay in lieu of reinstatement. The separation pay is on top of the backwages, and is calculated at one month's salary per year of service computed from the date of commencement of employment up to the finality of the decision awarding the separation pay.

Where the procedural due process requirements are not complied with, even if the employer is able to prove just cause, the employer may be held liable for nominal damages.

In practice, the likelihood of success of a challenge depends on the robustness of the documented just cause for termination, and maintaining a proper record is key.

Herbert Smith Freehills LLP has extensive experience in advising on complex termination matters. To find out more, contact fatim.jumabhoy@hsf.com.