Employer Liability for Separation Pay in the Philippines: Does the Principal Company Have to Pay if Employees are Transferred to a New Agency?

Simplified Question: Is the principal company liable for separation pay when it changes manpower agencies, and employees are transferred or refuse to be transferred?

In the Philippines, labor laws recognize the widespread practice of outsourcing or contracting labor through manpower agencies. However, disputes often arise regarding which party is liable for benefits like separation pay, especially when a principal company decides to change its manpower agency.

Separation Pay Under Philippine Law

Separation pay is generally required under Philippine law when an employee is terminated due to certain reasons, such as retrenchment, redundancy, or closure of business not due to the employee’s fault. It is also required when an employee is involuntarily separated due to causes beyond their control, as outlined in the Labor Code of the Philippines.

For employees working under a manpower agency, they are considered employees of the agency and not the principal company they are assigned to. Thus, under normal circumstances, the manpower agency is the employer responsible for complying with labor regulations, including the provision of separation pay, should the employment contract be terminated.

Principal Company’s Liability

While the manpower agency is primarily liable for employees' separation pay, this doesn’t absolve the principal company from all liability. Under Department Order No. 174, Series of 2017, issued by the Department of Labor and Employment (DOLE), principal companies may be held jointly liable with the manpower agency in cases where the agency fails to meet its obligations, such as the payment of salaries or benefits, including separation pay.

However, if the principal company simply changes its manpower agency, this change does not automatically mean that employees assigned to the new agency are entitled to separation pay, provided the employees are offered continued employment under the new agency and they agree to transfer. If they accept the transfer, their employment is essentially uninterrupted, and no separation occurs that would warrant the payment of separation pay.

When is Separation Pay Due?

Separation pay becomes an issue when employees are terminated, or if they refuse to transfer to the new manpower agency. In such cases, if the employee opts not to transfer and resigns instead, they may not be entitled to separation pay unless the refusal to transfer is based on valid grounds, such as the non-availability of the same job or work conditions with the new agency. If the refusal is purely voluntary and there is no cause for termination under the law, separation pay might not be required.

In contrast, if the manpower agency terminates the contract with the employee without just cause, the agency must pay separation pay. If the agency cannot meet this obligation, the principal company may be held liable, but only under circumstances where the principal is shown to have shared responsibility or negligence regarding the labor standards owed to the employees.

Conclusion

In conclusion, the principal company is generally not liable for separation pay when transferring employees to another manpower agency, provided the employees are offered continued employment under similar conditions. If employees do not agree to the transfer and resign, separation pay is not typically mandated unless there are specific legal grounds. However, should the manpower agency fail to meet its obligations, the principal company could be held liable under joint and several liability principles as outlined by labor laws in the Philippines.