Understanding Job Performance and Termination Grounds in the Philippine Labor Code

Disclaimer: The information provided in this article is for general educational purposes only and does not constitute legal advice. For specific concerns regarding employment matters, consult a qualified legal professional.

1. Introduction

In the Philippines, the employer-employee relationship is predominantly governed by the Labor Code of the Philippines (Presidential Decree No. 442, as amended) and various labor-related issuances from the Department of Labor and Employment (DOLE). One crucial aspect of this relationship is understanding how an employee’s job performance affects security of tenure, and under what circumstances an employer may validly terminate an employee.

This article provides an overview of the grounds for termination of employment in the Philippine context, with a particular focus on how job performance issues intersect with these legal provisions.

2. Security of Tenure

Security of tenure is a fundamental right of employees in the Philippines. Once an employee becomes a regular employee (under Article 295 [formerly Art. 280] of the Labor Code), they can only be terminated for just causes or authorized causes as specifically provided by law.

Just Causes (Article 297 [formerly Art. 282]) generally refer to reasons directly attributable to the employee’s fault or negligence (e.g., serious misconduct, willful disobedience, gross and habitual neglect of duties, fraud, commission of a crime, and analogous causes).
Authorized Causes (Articles 298 and 299 [formerly Arts. 283 and 284]) are based on valid business or economic reasons (e.g., installation of labor-saving devices, redundancy, retrenchment, closure of business, or disease prejudicial to health).

Termination based on poor job performance or incompetence often falls under just cause—particularly “gross and habitual neglect of duties” or “analogous causes”—depending on the specific facts and circumstances of each case.

3. Grounds for Termination Due to Job Performance Issues

3.1. Poor or Unsatisfactory Performance

An employee can be terminated if their consistent unsatisfactory performance or incompetence persists to the level that it becomes detrimental to the employer’s legitimate business interests. In practice, poor performance alone is not automatically a just cause. Employers must demonstrate the following:

Company Standards and Policies: The employer’s performance standards must be reasonable, clearly communicated, and consistently applied to employees.
Failure to Meet Set Standards: The employee’s performance must be shown to fall below those reasonable standards on multiple occasions or for a significant duration.
Proper Documentation and Evaluation: Regular performance evaluations, written warnings, and improvement plans help establish the factual basis for the termination.

a. Corrective Action and Opportunity to Improve

Under many company policies (and supported by the principle of equity in labor), employees should be given an opportunity to improve, typically through a Performance Improvement Plan (PIP) or corrective action procedure. If, despite these measures, an employee continues to underperform, the employer may proceed with termination following due process.

b. Burden of Proof on the Employer

If the employee challenges the termination, the employer must prove that the dismissal was valid and based on substantial evidence of continued poor performance. This burden of proof is taken seriously in labor tribunals and courts, as the law tends to protect the employee’s security of tenure.

3.2. Gross and Habitual Neglect of Duties

Gross and habitual neglect of duties (Article 297[b]) can include repeated failures to comply with job responsibilities. Poor performance can rise to this level if the negligence:

Is gross (serious in degree); and
Is habitual (repetitive over time), indicating a pattern rather than an isolated incident.

To invoke this ground, employers must show that the employee was fully aware of their duties and responsibilities and was repeatedly reminded or warned about lapses.

3.3. Analogous Causes

The law also recognizes analogous causes as valid grounds for termination, meaning causes similar to the enumerated just causes. Continued failure to meet job requirements, despite repeated reminders and warnings, may be considered analogous if it demonstrates serious disregard of company policy or a willful breach of company trust and confidence.

4. Other Grounds for Termination

While job performance-related dismissals typically fall under just causes, it is important to differentiate them from authorized causes, which relate to business or economic reasons:

Installation of Labor-Saving Devices
Redundancy
Retrenchment to Prevent Losses
Closure or Cessation of Business
Disease (where continued employment is prohibited by law or injurious to the health of the employee or co-employees)

In these cases, poor performance is not the trigger; rather, the employer’s valid economic or operational prerogatives lead to termination.

5. Procedural Due Process in Termination

Regardless of the ground (just or authorized cause), Philippine labor law requires procedural due process. The specific procedures differ slightly between just causes and authorized causes, but the principle is the same: employees must be informed of the reasons for their dismissal and be given an opportunity to respond.

5.1. Two-Notice Rule for Just Causes

For just causes like poor performance, misconduct, or gross neglect of duties, the Supreme Court and labor tribunals follow the “two-notice rule”:

First Notice (Show Cause Notice)
- The employer must provide a written notice specifying the ground(s) and the alleged acts or omissions constituting the basis for termination.
- The employee must be given the opportunity to explain or defend themselves in writing and/or in a hearing.
Second Notice (Decision Notice)
- After evaluating the employee’s explanation and the evidence, the employer must issue a second notice informing the employee of the employer’s decision to terminate (if that is the conclusion).

Failure to comply with this procedural requirement can render the dismissal procedurally infirm, potentially resulting in an award of nominal damages even if the dismissal was substantively valid.

5.2. Authorized Causes Procedure

For authorized causes such as redundancy, retrenchment, or closure, an employer must:

Serve a written notice to both the employee(s) concerned and the DOLE at least 30 days before the intended date of termination.
Pay the required separation pay, if applicable (e.g., one month pay per year of service in cases of redundancy, or half-month pay per year of service for retrenchment).

6. Impact on Separation Pay and Other Benefits

6.1. Separation Pay for Just Causes

As a general rule, if an employee is dismissed for just causes, they are not entitled to separation pay. However, in some instances, courts or labor arbiters may award financial assistance (equitable relief) depending on the circumstances, particularly if the acts do not amount to serious misconduct or there are mitigating factors. This is not an absolute right but rather an exception based on jurisprudential discretion.

6.2. Separation Pay for Authorized Causes

When termination occurs due to authorized causes, the employee is entitled to separation pay, computed as prescribed by law, typically:

Redundancy: At least one month’s pay or one month’s pay per year of service, whichever is higher.
Retrenchment: At least half-month’s pay per year of service.
Closure (Not Due to Serious Losses): Equivalent to redundancy pay.
Closure (Due to Serious Losses): The employer might be exempt from paying separation pay, but the burden to prove actual or imminent losses is stringent.

7. Documenting and Managing Performance

To avoid legal disputes, employers should maintain transparent and consistent performance management systems:

Clear Job Descriptions and Performance Metrics: Clearly define key result areas (KRAs) and key performance indicators (KPIs).
Regular Feedback and Coaching: Conduct routine performance discussions to address issues early on.
Performance Improvement Plans (PIP): Provide employees with formal opportunities to correct underperformance within a set timeframe.
Documentation: Keep records of warnings, coaching sessions, evaluations, and correspondence.

This level of documentation ensures fairness and can be crucial evidence if a dismissal is contested.

8. Legal Remedies and Dispute Resolution

If an employee believes their dismissal is unlawful or procedurally flawed, they may:

File a Complaint at the Regional Arbitration Branch of the National Labor Relations Commission (NLRC).
The NLRC will evaluate if there was just cause and due process. If the termination is found to be illegal, the employee may be entitled to reinstatement without loss of seniority rights and payment of full back wages.
Parties may go through mandatory conciliation and mediation under the Single Entry Approach (SEnA) at DOLE to attempt an amicable settlement before proceeding with formal litigation.

The NLRC’s decision can be appealed to the Court of Appeals and, ultimately, to the Supreme Court on questions of law.

9. Best Practices for Employers

Develop Clear Policies: A well-defined employee handbook with consistent guidelines on performance expectations, progressive discipline, and due process.
Train Supervisors and Managers: Ensure they understand and follow due process in performance management and disciplinary actions.
Prompt and Consistent Action: Address performance issues as soon as they arise to avoid complicity or waiver arguments.
Exercise Compassion: Uphold fairness and consider less punitive actions (e.g., retraining or reassignment) where possible before resorting to termination.

10. Conclusion

The Philippine Labor Code firmly protects employees’ right to security of tenure. Employers can only terminate employees for reasons expressly allowed by law, and poor job performance or gross negligence can constitute a valid basis under just causes—provided that the employer follows proper due process and evidences the underperformance clearly and consistently.

For any specific dispute or scenario, seeking legal counsel is highly recommended to navigate the nuances of labor law, ensure compliance with procedural standards, and uphold both the rights of employees and the interests of employers.

This article is for informational purposes only. If you have particular questions or require legal advice, please consult a lawyer or an accredited labor law practitioner.