Employee Termination for Poor Performance: Compensation Requirements in the Philippines

Do I need to give any compensation if I terminate an employee for poor performance?

In the Philippines, terminating an employee for poor performance is a sensitive issue that must be handled carefully to ensure compliance with labor laws. The legal framework governing this process is primarily found in the Labor Code of the Philippines, which outlines the rights and obligations of both employers and employees.

Grounds for Termination

Poor performance can be a valid ground for termination under Philippine law. However, it is categorized under "just causes" for termination as specified in Article 297 (formerly Article 282) of the Labor Code. The law enumerates specific just causes for termination, including gross and habitual neglect of duties, which can encompass consistently poor performance.

Due Process Requirements

Before terminating an employee for poor performance, an employer must observe due process. This involves two key components: substantive due process and procedural due process.

1. Substantive Due Process: The reason for termination must be legitimate and lawful. The employer must have clear, reasonable, and documented performance standards that the employee failed to meet.

2. Procedural Due Process: This includes the following steps:

   • Notice to Explain (NTE): The employer must provide the employee with a written notice specifying the acts or omissions for which dismissal is sought.
   • Opportunity to be Heard: The employee must be given a chance to respond to the allegations, either in writing or through a hearing.
   • Notice of Decision: After considering the employee's explanation, the employer must issue a written notice of termination if the decision is to proceed with dismissal.

Failure to observe these procedural steps can render the termination illegal, regardless of the employee's performance issues.

Compensation and Benefits

When an employee is terminated for just causes, including poor performance, they are generally not entitled to separation pay. According to the Department of Labor and Employment (DOLE), separation pay is typically granted when termination is due to authorized causes (such as redundancy or retrenchment) rather than just causes.

However, the employee is still entitled to receive the following:

• Final Pay: This includes any unpaid salary, prorated 13th-month pay, unused service incentive leaves, and other benefits stipulated in the employment contract or company policies.
• Certificate of Employment: Upon request, the employer must provide a certificate indicating the dates of employment and the type of work performed by the employee.

Common Issues and Considerations

• Performance Evaluation System: Employers should have a fair and consistent performance evaluation system in place. This helps document poor performance and supports the legitimacy of the termination.
• Documentation: Maintaining detailed records of performance issues and corrective actions taken (such as coaching sessions, performance improvement plans, and warnings) is crucial.
• Legal Assistance: Given the complexities of labor laws, employers may seek legal advice to ensure compliance and mitigate risks of potential disputes or claims of illegal dismissal.

Conclusion

Terminating an employee for poor performance in the Philippines involves adhering to strict legal procedures to ensure fairness and compliance with labor laws. While compensation like separation pay may not be required in such cases, employers must ensure that due process is followed and that the employee receives all due final pay and benefits. This approach helps protect the rights of both parties and fosters a fair and transparent working environment.