How to Terminate Employees in the Philippines: A Comprehensive HR Guide
Key Takeaways:
- Grounds for lawful termination in the Philippines
- Notice periods and severance pay requirements
- How to avoid wrongful dismissal claims
Introduction
The Philippines has strict laws regarding employee termination. This guide provides a step-by-step process to ensure compliance with local regulations.
Types of Termination Scenarios
Terminating an employee in the Philippines can occur for various reasons, each requiring a specific set of procedures. The most common scenarios are:
1. Redundancy:
Redundancy occurs when a company no longer requires an employee’s role due to operational changes, business restructuring, or automation. In such cases, it is crucial to provide ample notice and severance pay. Redundancy is a no-fault termination, meaning the employee is not at fault for the dismissal, but their position is being eliminated.
Employers should ensure that they have clear documentation supporting the redundancy decision, including any reorganization plans or evidence of business changes.
2. Misconduct:
In cases of serious misconduct, such as theft, fraud, harassment, or insubordination, immediate dismissal may be warranted. However, even in these situations, employers must follow due process. This includes conducting a thorough investigation, issuing a notice to explain the offense, and allowing the employee to respond to the allegations.
Only after the investigation is completed and the employee has had a chance to defend themselves can termination proceed. Immediate termination without due process can lead to wrongful dismissal claims.
3. Poor Performance:
When an employee consistently fails to meet performance expectations, termination may be considered. However, employers must first provide clear feedback and a chance for the employee to improve. This includes documenting performance reviews, offering additional training, and setting measurable improvement goals.
If the employee continues to underperform despite these efforts, termination may be justified, provided that proper documentation is in place.
Each of these scenarios requires specific documentation and adherence to legal requirements, making it essential for employers to understand their obligations under Philippine labor laws.
Grounds for Lawful Termination in the Philippines
In the Philippines, lawful termination is governed by the Labor Code of the Philippines. Employers must provide a valid reason for termination, and it must fall under one of the recognized grounds for lawful dismissal. These include:
- Redundancy: When the role is no longer necessary for the business.
- Serious Misconduct: Any major violation of company policies or laws that justifies immediate dismissal.
- Willful Disobedience: Failure to follow lawful orders from superiors.
- Gross and Habitual Neglect: Repeated negligence of duties over a prolonged period.
- Poor Performance: Consistently failing to meet job expectations after being given a chance to improve.
Termination for any reason outside of these recognized grounds may be considered wrongful and expose the employer to legal consequences.
We’re here to help you on your journey to hire, manage and pay.
Wrongful Dismissal Avoidance
Wrongful dismissal occurs when an employee is terminated without valid grounds or when the employer fails to follow due process. In the Philippines, wrongful dismissal claims can result in significant legal and financial repercussions, including reinstatement of the employee and payment of back wages.
How to Avoid Wrongful Dismissal:
1. Provide Valid Reasons:
The termination must be based on valid and lawful grounds. Employers must ensure that the reason for termination is consistent with those outlined in the Labor Code, such as redundancy, misconduct, or performance issues.
2. Follow Due Process:
Due process is critical to avoid wrongful dismissal. This includes providing the employee with a notice explaining the reason for termination and giving them an opportunity to respond before finalizing the decision. For misconduct cases, this typically involves a notice to explain and an internal investigation.
3. Document Everything:
Proper documentation is essential for justifying the termination. Employers should keep records of performance reviews, disciplinary actions, and any communication with the employee regarding their conduct or performance. This helps protect the employer if the termination is challenged in court.
Notice Periods and Pay in Lieu
Under Philippine labor laws, a 30-day notice period is required before an employee can be terminated, regardless of the reason. This allows the employee time to transition to a new role or prepare for the termination.
Exceptions to the Notice Period:
- Misconduct: In cases of serious misconduct, employers may dismiss the employee immediately, but only after following due process.
- Pay in Lieu of Notice: If an employer prefers not to have the employee continue working during the notice period, they can provide pay in lieu of notice, which compensates the employee for the notice period they would have otherwise worked. This ensures that the employee is not financially disadvantaged by an immediate termination.
Employers must ensure that the terms of the employment contract regarding notice periods are followed. If the contract specifies a longer notice period, that period must be honored, unless pay in lieu is provided.
Severance Pay and Long Service Payment
In the Philippines, employees who are terminated for reasons such as redundancy, retrenchment, or health-related issues may be entitled to severance pay. The amount of severance pay is determined by the employee’s length of service and the reason for termination.
Severance Pay Calculation:
- Redundancy or Retrenchment: The employee is entitled to at least one month’s salary or one month’s pay per year of service, whichever is higher.
- Health Reasons: If the employee is terminated due to a health condition that prevents them from continuing in their role, they are entitled to half a month’s salary per year of service.
Long service payments are typically offered for employees who have been with the company for a substantial period. Employers must ensure they calculate these payments correctly, as failure to do so could result in disputes.
Steps in the Termination Process
To ensure compliance with the Philippines’ labor laws, employers must follow a structured termination process. This helps avoid wrongful dismissal claims and ensures that all legal obligations are met.
1. Document the Reason for Termination:
Before initiating the termination process, employers must clearly document the reason for dismissal. Whether it’s redundancy, misconduct, or poor performance, the employer must have evidence to support the decision.
2. Issue Formal Notice:
The employer must provide a written notice to the employee, stating the reason for termination and the effective date of dismissal. The notice must comply with the 30-day requirement unless pay in lieu of notice is offered.
3. Conduct an Exit Interview:
While not mandatory, conducting an exit interview can help smooth the transition and address any concerns the employee may have. It also helps reduce the likelihood of disputes or claims of wrongful dismissal.
4. Calculate Severance and Final Compensation:
Employers must calculate any outstanding wages, unused leave, severance pay, and long service payments. These payments should be made promptly to avoid any legal issues.
5. Ensure Compliance with Labor Laws:
Throughout the termination process, employers must ensure that they are in full compliance with Philippine labor laws. This includes providing valid reasons for termination, issuing the correct notice, and making any required severance or long service payments.
How AYP Can Help
Navigating the employee termination process in the Philippines can be complex due to the strict labor regulations. AYP’s Professional Employer Organisation (PEO) and Employer of Record (EOR) services help businesses ensure full compliance with local labor laws. Our experienced HR team can assist with:
- Managing Terminations: From issuing notices to calculating severance, AYP ensures that your termination process is legally compliant and smooth.
- Handling Employment Contracts: We help ensure your employment contracts are up-to-date and aligned with Philippine labor laws.
- Minimizing Legal Risks: By following best practices and ensuring compliance with labor regulations, we help employers avoid wrongful dismissal claims and other legal challenges.
With AYP’s support, businesses can manage employee terminations efficiently and confidently, knowing they are meeting all legal requirements. Contact us today to learn how we can help with your HR and compliance needs in the Philippines.
