Category Archives: Termination of Employment Rules

New Book and Ebook on Employee Transfer and Demotion (Philippines)

Now available! A Guide book on How to Demote Employees Legally in the Philippines. This book is now available at your favorite bookstores and online at ManilaBookSales.com as an ebook, perfect for your IPAD, tablet, Kindle and other handheld ebook reader. Contact inquiries@demotionsphilippines.com for electronic and hard copies.

Can a Company Retire Employees Below Legal Age Limit?

As a rule, the compulsory age of retirement is 65 while optional retirement starts at 60.  Employers, however, are allowed to enter into agreements for early retirement below these age limits but they must be able to show, if questioned later, that their retirement plans or agreements were voluntarily accepted by the employees.

Without proof of voluntary consent, a retirement made on the basis of this early retirement plan may be considered invalid as a “deprivation of property without due process of law.”

This was the Supreme Court’s decision in a case where a company retired its former clerk-typist at the age of 47 on the basis of a non-contributory retirement plan which gave the company the option to retire employees who have rendered at least 20 years of service.

After finding that the retirement plan was not embodied in a CBA or in any employment contract or agreement freely consented by the employee, the Supreme Court ruled that  the early retirement was invalid and constituted illegal dismissal.  (Cercado vs. UNIPROM, Inc. GR No. 188154, Oct. 13, 2010)

Neglect of Duty as Ground for Termination

The Labor Code allows an employer to terminate an employee for gross and habitual neglect of duties.  But for neglect of duty to be a valid ground for dismissal, the act complained of must be both GROSS and HABITUAL.

‘Gross negligence’ refers to the lack of care in the performance of an employee’s duties while ‘habitual neglect’ implies a repeated failure to perform one’s duties for a period of time, depending on the circumstances.

A single or isolated act of negligence does not constitute a just cause for the dismissal of the employee.

The Supreme Court maintained this view in a case where the security personnel of a hospital failed to rotate the security cameras at various portions of the hospital when a theft occurred.  The centralized videos failed to capture any footage of the incident because of this security lapse.  The employee in charge of monitoring the hospital videos was terminated but eventually ordered reinstated after filing suit against the employer.  (St. Luke’s Medical Center vs. Estrelito Notario, GR No. 152166, October 20, 2010)

Loss of Confidence as Ground for Termination

Loss of confidence is one of the just causes for termination of employment and may be used in the situation of an employee who occupies trust and confidence.

A position is said to be one of trust and confidence when the employee is entrusted with confidence in delicate matters such as the custody, handling, or care and protection of the employer’s property, such as a Bank Branch Manager.

A basic requirement for loss of confidence terminations is that the act complained of is “work-related” such as one that would show the employee’s unfitness to continue working for the employer.

In a case, the firing of a branch manager who issued 2 Certificates of Time Deposit (CTDs) knowing that these were unfunded was considered valid by the Supreme Court, even if the same branch manager later canceled the CTDs.

 (Leandro M. Alcantara vs. PCIB, Oct. 20, 2010, GR No. 151349)

When Transfer Does Not Amount to Demotion

Not all transfers or re-assignment of work from one office or area of operations to another are demotions. 

There is a demotion when there is a downward change in the rank, salary, benefits and other privileges of the employee.

The mere title or position held by an employee in a company does not of itself determine whether a transfer constitutes a demotion.  It is the totality of circumstances in each case such as:

  • the economic significance of the work
  • the duties and responsibilities conferred
  • the rank and salary of the employee
  • and other circumstances

In one case, an employee claimed that the abolition of his position as planning and marketing officer and his appointment as bookkeeper I and assistant branch head of one of the company’s branches is a demotion. 

The Supreme Court viewed the functions of his new position vis-a-vis the previous one and eventually came out with a decision stating that the new position entailed great responsibility with supervisory and administrative tasks.  Coupled with the observation that there was no decrease in pay, the Supreme Court did not consider the change in position as a demotion. (Rural Bank of Cantilan v. Julve, Feb 27, 2007).

Computation of Termination Pay

A requirement for valid dismissal of employment is the payment of the correct value of termination pay. The Labor Code prescribes minimum standards for the computation of termination pay.

The minimum amount of a terminated or dismissed employee’s termination pay depends on the reason or ground for his dismissal, either a half month’s pay or one month’s pay for every year of service, but in no case will an employee get the equivalent of less than one month’s pay.

Cases where employee is entitled to a half month’s pay for every year of service:

  1. Retrenchment to prevent losses, i.e. reduction of personnel affected by management to prevent losses
  2. Closure or cessation of operation of an establishment not due to serious losses or financial reverses; and
  3. When the employee is suffering from a disease not curable within a period of six (6) months and his continued employment is prejudicial to his health or to the health of his co-employees.

Situations when an employee is entitled to one month’s pay for every year of service:

  1. Installation of labor-saving device, such as replacement of employees by machineries or computerization;
  2. Redundancy, as when the position of the employee has been found to be surplusage or unnecessary in the operation of the enterprise;
  3. Impossible reinstatement of the employee to his former position or to a substantially equivalent position for reasons not attributable to the fault of the employer, as when the reinstatement ordered by a competent authority cannot be implemented due to closure or cessation of operations of the establishment or employer, or when the position to which he is to be reinstated no longer exists and there is not substantially equivalent position in the establishment to which he can be assigned.

Read more about the proper computation of termination pay and other legal requirements for dismissing employees from Guide to Valid Dismissal of Employees by Atty. Elvin Villanueva.

Legal Requirements for Demotion of Employee

Demotion is said to exist when there is a reduction in:

  •  salary
  •  rank
  •  position

Generally, demotion is allowed as a valid exercise of management prerogative, often as a consequence of an employee’s failure to comply with company productivity standards.  (Leonardo vs. NLRC, June 16, 2000 and Fuerte vs. Aquino, June 16, 2000)

Due Process Requirement.

While an employer may demote an employee for valid reasons, it must first comply with the twin requirements of notice and hearing.  This is because a demotion affects the employment of an employee, whose right to continued employment under the same terms and conditions, is likewise protected by law.  (Floren Hotel vs. NLRC, May 6, 2005)  Demotion, like dismissal or termination from employment, is in the nature of a punitive action, which an employee should be given a chance to contest.