Employee termination is a necessary aspect of workforce management, but it is also one of the most legally sensitive processes in any organization. Whether the cause is employee misconduct or a major change in business operations, employers need to handle termination as transparently and fairly as possible.

Failure to follow proper procedures can lead to costly legal disputes, reputational damage, and even penalties for unlawful dismissal. In the Philippines, labor laws provide strict guidelines to ensure that employees are not unfairly removed from their jobs while still allowing businesses to make necessary employment decisions.

It’s in the best interest of any employer to understand the legal framework surrounding termination, as doing so helps them maintain compliance and protect their business interests. A well-structured termination process not only minimizes legal risks but also encourages professionalism and ethical workplace practices. Working with a reputable law firm in the Philippines is another effective way for companies to ensure that all dismissals made are founded on legitimate legal grounds.

This guide provides a comprehensive overview of legal termination and due process in the Philippine workplace. Its objective is to help your business navigate the complexities of employee dismissal while staying within the bounds of the law.

What Are the Grounds for Legally Terminating an Employee?

Termination of employment in the Philippines must be based on valid legal grounds to prevent unlawful dismissal claims. The Labor Code recognizes three primary reasons for termination: just causes, authorized causes, and health-related termination. Each has its own requirements and due process that employers must follow.

Just Causes (Employee-Related Grounds)

Just causes refer to violations or offenses committed by the employee that justify dismissal. These are outlined in Article 297 of the Labor Code and typically involve serious misconduct or neglect of duties. Common just causes include:

  • Serious misconduct – Willful and intentional violations, such as theft, fraud, physical assault, or sexual harassment.
  • Willful disobedience – Refusal to follow lawful and reasonable orders from an employer.
  • Gross and habitual neglect of duties – Continuous failure to perform job responsibilities that results in significant harm to the company.
  • Breach of trust or loss of confidence – Applied to employees in positions of trust (e.g., managers, cashiers) who engage in dishonesty or fraudulent activities.
  • Commission of a crime – Any act that constitutes a criminal offense, such as embezzlement or workplace violence.

Authorized Causes (Business-Related Grounds)

Authorized causes are business-related reasons for termination that do not arise from misconduct on the part of the employee. These include:

  • Retrenchment – The company is suffering financial losses and needs to reduce its workforce to stay operational.
  • Redundancy – The employee’s role has become unnecessary due to changes in business operations, restructuring, or technological advancements.
  • Business closure or cessation of operations – The company is shutting down, whether fully or partially.
  • Installation of labor-saving devices – Automation or technological upgrades that make certain positions obsolete.

Health-Related Termination

Employers may legally terminate an employee if they are diagnosed with a medical condition that prevents them from safely and effectively performing their duties. A competent medical authority must certify the termination and verify that the employer cannot make any reasonable accommodations for the employee.

What Does Due Process Entail When Terminating an Employee?

The Philippine labor law mandates due process in all termination cases to protect employee rights. The required procedure depends on whether the termination is due to just causes or authorized causes.

Due Process for Just Causes (Employee Misconduct or Performance Issues)

If an employer is aiming to dismiss any employee for misconduct, negligence, or any other just cause, they must follow these three key steps:

1. Notice to Explain (NTE)

  • The employer must issue a written notice formally informing the employee of the specific allegations against them.
  • The notice must provide sufficient details of the offense, including dates, times, and relevant policies violated.
  • The employee must be given a reasonable period (typically 5 calendar days) to submit a written explanation.

2. Administrative Hearing

  • The employee must have an opportunity to defend themselves before the employer makes a final decision.
  • They may present evidence, witnesses, or other relevant information to support their case.
  • Employers should conduct this process fairly and without bias.

3. Final Notice of Termination

If the employer decides to proceed with termination, they must issue a final notice stating the decision and reasons for dismissal. This preserves transparency and ensures that the entire process is sufficiently documented.

Due Process for Authorized Causes (Business-Related Reasons)

For terminations due to redundancy, retrenchment, or business closure, the following steps apply:

1. At Least 30 Days’ Notice

  • Affected employees must be informed at least one month in advance about their termination.
  • Employers must also submit a formal notice to the Department of Labor and Employment (DOLE) explaining the reason for termination.

2. Separation Pay (If Applicable)

  • Employers must provide separation pay if required under labor laws (e.g., redundancy, retrenchment, or health-related cases).
  • How separation pay is computed depends on the reason for the employee’s dismissal.
  • In the event of retrenchment, business closure not due to severe financial losses, or health-related termination, the employee must receive at least half a month’s salary for every year of service (or a fraction thereof, if employment lasted less than a full year).
  • If the termination is due to redundancy or installation of labor-saving devices, the employee must receive at least one month’s salary for every year of service (or a fraction thereof, if employment lasted less than a full year).

3. Fair and Transparent Implementation

  • Employers should ensure terminations are based on legitimate business needs and not used as an excuse for unjustified dismissals.
  • Employers should treat employees with dignity and respect throughout the process.

Proper handling of employee termination is a legal requirement for any legitimate business—but beyond that, it reflects an employer’s commitment to fairness and professionalism. Following due process is the best way to protect your business from legal disputes and upholding your employees’ rights even as they exit your company