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.

Valid Dismissal of Employees: Recommended reading for HR practitioners

Every business owner, employer and HR officer in the Philippines should know the rules on valid dismissal of employees. In the world of Human Resources, hiring and firing can make or break the company.

Most of the problems Human Resources personnel face involve discipline and dismissal of errant employees.  Human resources specialists typically come from behavioral sciences courses and are unfamiliar with legal procedures that have to be observed in meting out suspension and termination

Illegal dismissal cases are easily filed in the labor courts.  They are a source of headaches for the employer who has to go through the hassle of attending time-consuming hearings and be sanctioned for not following correct procedures in firing. 

An ounce of prevention is always better than a pound of cure.

Don’t make the mistake of firing someone on the spot just because you’ve had enough of your employee’s behavior.  While you may have every right to terminate your employee, lack of compliance with legal requirements for dismissal may cost you money in the form of damages and backwages. If you follow the rules of valid dismissal of employees, your employee won’t even think of running to the labor arbiter. Be prepared and show your employees that you mean business by observing the proper procedures of valid dismissal.

You need not be a lawyer or hire one just to fire people the legal way.  If you can read and follow simple rules, you’ll do just fine.

What every practitioner must have

 The author, Atty. Elvin Villanueva,  is a legal professional and HR practitioner. He combines legal knowledge and valuable experience in this book which can greatly help unsure HR specialists. An e-book is also in the works with suggested forms for notices of dismissal and other important documents to guide the HR specialist.  Available NOW at Php697.00. Buy your copy here.

Labor Law: Retrenchment

After many years of battling it out in the Supreme Court, the association of flight attendants of the Philippine Airlines finally obtained a decision declaring their retrenchment illegal. In its decision, the Supreme Court restates the requirements of retrenchment for it to be considered as a valid exercise of management prerogative.

“In order for a retrenchment scheme to be valid, all of the following elements under Article 283 of the Labor Code must concur or be present, to wit:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees’ right to security of tenure; and,

(5) That the employer uses fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.”

Retrenchment must be exercised by the employer as a last resort to prevent serious business losses or avoid closure of business.

In the case at bar, the Court viewed the retrenchment as a “knee jerk response” to a “temporary” situation, i.e. the pilots’ strike in 1998, without first exhausting other cost cutting measures such as work rotation and hotel-sharing.

FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES (FASAP) vs. PHILIPPINE AIRLINES (G.R. 178083, Oct. 02, 2009)

Termination of Employment

A weak economy sees the emergence of more small and medium enterprises and the closure or re-engineering of large companies. To stay afloat, a business establishment usually resorts to cutting costs, including that of manpower.
 
Termination of employment by retrenchment is usually to prevent serious business losses. Existing labor laws require the employer to give a 30-day notice to the employee regarding management’s decision to terminate the employment and to submit an Employment Retrenchment Report to the Department of Labor and Employment at least 30 days prior to the intended date of termination.  Click here for a template of this report.
 
Upon the expiry of the 30-day notice, the employer then becomes liable to pay the terminated employee his separation pay, computed at a minimum of a half-month’s salary for every year of service. Those employed for less than a year with the company shall be entitled to the equivalent of one month’s salary.