Employment Law: Unlawful Termination and Wage Benefits Dispute

Employment Law in the Philippines: Unlawful Termination and Wage Benefits Dispute
All there is to know on the topic (General Legal Article)

1. Introduction

Employment law in the Philippines is governed primarily by the Labor Code of the Philippines (Presidential Decree No. 442, as amended), various Department Orders and issuances by the Department of Labor and Employment (DOLE), and decisions of the Philippine Supreme Court. One of the most frequently encountered issues under Philippine employment law is unlawful (illegal) termination and wage benefits disputes.

In the Philippine labor context, a worker enjoys security of tenure, which means an employee cannot be terminated from employment except for just or authorized causes, and upon compliance with due process. Similarly, employees are entitled to certain wage benefits mandated by law. Employers failing to comply face potential monetary liabilities and possible administrative sanctions. This article provides an overview of the legal principles, processes, and remedies related to unlawful termination and wage benefits disputes.

2. The Principle of Security of Tenure

Security of tenure is enshrined in the Philippine Constitution (Article XIII on Social Justice and Human Rights) and the Labor Code. This principle protects employees from being removed arbitrarily or without valid cause and due process. The key idea is that an employee who is hired on a regular basis cannot be terminated unless there is a valid and legal cause recognized by law.

3. Just Causes of Termination

Under the Labor Code (traditionally under Article 297, formerly Article 282), the following are the recognized just causes for termination, which are directly attributable to the employee:

  1. Serious Misconduct or Willful Disobedience

    • The employee must have willfully and intentionally violated a lawful company rule or regulation, or disobeyed a lawful order of the employer.
    • The misconduct must be of a grave and aggravated character.

  2. Gross and Habitual Neglect of Duties

    • This involves repeated negligence or carelessness in the performance of duties that indicates an indifference or lack of concern for the employer’s interests.

  3. Fraud or Willful Breach of Trust

    • Fraud relates to deceit or a deliberate act of dishonesty that undermines the trust essential to the employment relationship.
    • Breach of trust commonly applies to employees occupying positions of responsibility (e.g., cashiers, accountants).

  4. Commission of a Crime or Offense Against the Employer, His Family, or Authorized Representatives

    • This cause applies when the offense committed is such that it reflects adversely on the employee’s fitness to continue working.

  5. Other Analogous Causes

    • Causes not explicitly enumerated but are akin in seriousness to the above grounds. Courts often determine whether a cause is “analogous” on a case-by-case basis.

When terminating an employee for a just cause, procedural due process must be observed (see Section 6 below).

4. Authorized Causes of Termination

Authorized causes are those arising from business or economic reasons, or health-related reasons. They are usually not due to the fault of the employee. Under Article 298 (formerly 283) and Article 299 (formerly 284) of the Labor Code, the recognized authorized causes are:

  1. Installation of Labor-Saving Devices

    • E.g., introduction of new technology or automation that renders positions redundant.

  2. Redundancy

    • There is duplication of work or positions, or there has been a shift in the employer’s business model making certain roles unnecessary.

  3. Retrenchment

    • Implemented by an employer to prevent losses—when the firm is facing financial difficulties and must reduce its workforce to cut costs.

  4. Closure or Cessation of Business

    • The employer can permanently shut down the business or a department/unit of it. However, if closure is done to circumvent labor laws, it can be declared invalid.

  5. Disease or Illness

    • An employee’s continued employment is prohibited by law or is prejudicial to his or her health or the health of co-workers, and no reasonable accommodation is possible.

Unlike just causes (where no separation pay is generally mandated unless there is a company policy or agreement), authorized causes obligate the employer to pay separation pay. Additionally, for authorized causes, notice must be furnished to both the employee(s) concerned and the DOLE at least 30 days prior to the intended date of termination.

5. Constructive Dismissal

Constructive dismissal exists when an employer’s acts amount to a coerced or forced resignation or leave the employee with no real choice but to sever employment. Examples include:

  • Demotion or transfer without valid reason or that is tantamount to punishment;
  • Non-payment or unjust reduction of wages/benefits;
  • Harassment or discrimination in the workplace that forces the employee to quit.

In constructive dismissal, the law treats the employee’s separation as an illegal dismissal, entitling the employee to the full range of remedies under labor law.

6. Procedural Due Process in Termination

Due process in labor termination involves two aspects: substantive due process (valid cause) and procedural due process (observance of the correct procedure).

  1. For Just Causes (“Two-Notice Rule”)

    • The employer must serve a first written notice specifying the ground for termination and directing the employee to explain (often called the “charge sheet”).
    • The employee must be given a reasonable period to respond in writing and, if requested, a hearing or conference.
    • After consideration, if the employer decides to dismiss, a second written notice (“notice of termination”) must be issued stating that all circumstances and defenses were considered and the decision to terminate has been made.

  2. For Authorized Causes

    • 30-day notice to both the employee and DOLE (the Notice of Termination to Employee and the Notice of Termination to DOLE).
    • Payment of separation pay if applicable (e.g., one month’s pay or half month’s pay for every year of service, depending on the specific cause).

Failure to comply with both the substantive and procedural requirements may render a dismissal illegal and may expose the employer to reinstatement and back wages claims.

7. Unlawful (Illegal) Termination: Consequences and Employee Remedies

A dismissal is deemed unlawful (or illegal dismissal) if:

  • There is no valid or legal cause (no just or authorized cause as recognized by the Labor Code); OR
  • The employer fails to comply with procedural due process.

7.1. Remedies for Employees in Illegal Dismissal Cases

If the National Labor Relations Commission (NLRC) or Labor Arbiter finds the dismissal illegal, the following remedies typically apply:

  1. Reinstatement

    • The illegally dismissed employee is entitled to be reinstated to the position previously held (or a substantially equivalent position if the former is no longer available).
    • If reinstatement is no longer possible (e.g., strained relations, cessation of operations), the labor tribunal may award separation pay in lieu of reinstatement.

  2. Payment of Full Back Wages

    • Covers the period from the time of dismissal until finality of the decision reinstating the employee or, in case of separation pay, until actual payment of separation pay.
    • This is to restore the employee to the financial position he or she would have enjoyed had there been no illegal dismissal.

  3. Damages (in limited circumstances)

    • Moral and exemplary damages may be awarded if the employer acted in bad faith or in an oppressive manner.

  4. Attorneys’ Fees

    • Generally awarded if the dismissal is deemed unjust and the employee hired a lawyer to pursue the claim.

8. Wage and Benefits Disputes

Besides issues of termination, employees commonly raise disputes regarding unpaid or underpaid wages and benefits.

8.1. Basic Wage and Labor Standards

Under labor standards laws and regulations, the employer must comply with:

  1. Minimum Wage (varies by region; rates are set by the Regional Tripartite Wages and Productivity Boards).
  2. Overtime Pay (at least 25% additional compensation for work beyond 8 hours on ordinary days, and 30% additional compensation for work on rest days, special days, or holidays).
  3. Holiday Pay (100% or 200% of the daily rate depending on whether it is a regular holiday, and additional 30% for special non-working holidays if the employee works on these days).
  4. Night Shift Differential (an additional 10% for each hour worked between 10 p.m. and 6 a.m.).
  5. 13th Month Pay (mandatory under Presidential Decree No. 851; given not later than December 24 of each year).
  6. Service Incentive Leave (at least 5 days of paid leave annually if the employee has at least one year of service and is not already enjoying a similar or higher benefit under another policy).

8.2. Wage-Related Benefits

Filipino workers are also entitled to coverage under:

  • SSS (Social Security System) for private sector employees;
  • PhilHealth (Philippine Health Insurance Corporation);
  • Pag-IBIG Fund (Home Development Mutual Fund).

Employers must remit the required contributions and ensure that the corresponding employee’s share is deducted correctly. Failure to remit or under-remittance exposes the employer to administrative, civil, and even criminal liabilities.

9. Filing and Resolution of Labor Disputes

When a dispute arises regarding termination or wages/benefits, employees may seek redress through the following channels:

  1. Labor Arbiter (NLRC)

    • Illegal dismissal and monetary claims are generally filed through a complaint with the Regional Arbitration Branch of the National Labor Relations Commission (NLRC).
    • Parties undergo mandatory conciliation-mediation at the Single Entry Approach (SENA) before docketing the case for arbitration.

  2. DOLE Regional Office

    • For labor standards violations (e.g., unpaid wages, underpayment of wages, or lack of compliance with social benefits remittances), employees may seek assistance through the DOLE’s Regional Offices.
    • Labor inspectors have the authority to inspect and order compliance, particularly for smaller claims or direct violations of labor standards.

  3. Alternative Dispute Resolution

    • The Labor Code encourages conciliation and mediation. In many instances, disputes are settled amicably before the DOLE or the NCMB (National Conciliation and Mediation Board).

10. Prescriptive Periods

Claims for illegal dismissal, underpayment of wages, and other labor money claims are subject to prescriptive periods, meaning they must be filed within a certain time to avoid dismissal of the case for being time-barred. Generally:

  • Unfair Labor Practice and Illegal Dismissal: Four (4) years (based on jurisprudence)
  • Money Claims under the Labor Code: Three (3) years from the time the cause of action accrued

It is crucial that employees file their claims in a timely manner.

11. Common Defenses for Employers

When faced with complaints of illegal dismissal or wage disputes, employers often raise the following defenses:

  1. Valid Just or Authorized Cause

    • Presenting documented evidence (e.g., progressive discipline records, financial statements for retrenchment, etc.).
    • Proving compliance with both substantive and procedural due process.

  2. Payment or Release and Waiver

    • If the employee signed a valid quitclaim or release document upon resignation or settlement of claims, the employer may raise this as a defense.
    • However, courts and labor tribunals scrutinize the voluntariness and fairness of such agreements.

  3. Good Faith and Lack of Malice

    • Employers may argue they relied in good faith on certain rules, business circumstances, or prior legal interpretations.
    • While good faith does not necessarily remove liability, it may mitigate damages.

12. Best Practices for Employers

  1. Establish Clear Company Policies

    • Written policies and procedures consistent with labor laws help in ensuring valid discipline and avoiding illegal dismissal claims.

  2. Maintain Proper Documentation

    • Keep records of employee performance, attendance, notices, and disciplinary actions.

  3. Observe Due Process

    • Apply the two-notice rule diligently for just causes; give ample notice and correct separation pay for authorized causes.

  4. Wage Compliance and Remittances

    • Audit payroll systems, keep current on wage orders, and ensure timely remittance of mandatory contributions.

  5. Engage in Dialogue and Early Resolution

    • Encourage open communication and alternative dispute resolution methods to address issues before they escalate into formal complaints.

13. Best Practices for Employees

  1. Know Your Rights

    • Familiarize yourself with basic rights under the Labor Code: minimum wage, overtime, 13th month pay, leave benefits, and due process in discipline/termination.

  2. Document Everything

    • Keep your own records of hours worked, payslips, memos received, and any relevant communications.

  3. Communicate Concerns Promptly

    • Where possible, discuss wage or termination issues with employers or HR to seek an amicable solution.

  4. Seek Legal Advice Early

    • If informal resolution fails, consult with a labor lawyer or the DOLE to know your options and file claims promptly to avoid prescription.

14. Conclusion

Unlawful termination and wage benefits disputes remain a significant aspect of Philippine labor relations. The legal framework seeks a balance: protecting employees from arbitrary dismissal while allowing employers to organize and manage their businesses lawfully. Observing both the substantive and procedural requirements for termination, ensuring compliance with wage and labor standards, and providing timely redress through the NLRC, DOLE, and other dispute resolution mechanisms underscore the Philippine government’s commitment to fair and equitable employment practices.

For both employers and employees, awareness of the relevant provisions in the Labor Code, related issuances, and Supreme Court rulings is critical. Proper documentation, transparency, and mutual respect in the workplace go a long way toward preventing and resolving disputes about termination and wages.

Disclaimer: This article is intended for general informational purposes and does not constitute legal advice. Specific cases may vary depending on the facts and applicable law. For any particular issues or concerns, it is best to consult a qualified labor lawyer or approach the appropriate government agencies (DOLE, NLRC).

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

Privacy Policy

Terms of Use

Lawyer Login

 
 
Privacy Policy         Terms of Use         Lawyer Login