Topic Termination Law

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EMPLOYEE TERMINATION

By: Atty Rester John Nonato


An employment may be terminated only if there is a lawful basis for it. The
reason is that employment is considered a property right and therefore, like
any other kind of property, enjoys the protection of the law. This means that it
cannot be taken away without due process of law.

There are two essential requisites for a lawful termination, the (1) substantive
requirements, and (2) procedural requirements.
Substantive requirements refer to the reason for taking the
action. Unlike in the past where readiness to pay
separation pay is all that is needed to do away with the
services of an employee (under the old Termination Pay
Law), today such action must be based on a ground which
the law recognizes as sufficient and valid in order to justify
the termination. This basis may either be what is known as
just causes for termination or the so-called authorized
causes for termination.
On the other hand, even if a termination is based on what
is recognized by law as a valid or substantive ground, it
may still be considered unlawful if the process of
terminating the employee does not comply with the due
process requirements of the law. This is the procedural
aspect of termination. The law prescribes the manner of
putting termination into effect. Even if armed with a
sufficient basis to terminate, an employer may be deemed
to have done it unlawfully if he carries out the termination
without observing the required process.
• SUBSTANTIVE REQUIREMENTS

Under the law, an employment can be terminated only on


the following grounds:

a. if there is a just cause, and b. For authorized causes.

Just causes for termination are those enumerated under


Article 282 of the Labor Code. Specifically, an employee
may be dismissed for (a) serious misconduct or willful
refusal by an employee to comply with a lawful order of the
employer or representative (b) gross and habitual neglect of
duty (c) breach of trust (d) commission of a crime against
the company, and (d) other causes analogous to the above.
• On the other hand, authorized causes refer to those
instances where an employer is permitted to terminate if it is
essential to the efficient running of the business or to the
need to protect it from possible losses. Thus, the following
grounds are valid bases for terminating employment: (a)
redundancy (b) introduction of labor saving device (c)
retrenchment to prevent losses, and (d) closure or
cessation of business not on account of losses. In addition
to these, an employer is also permitted to terminate in
cases where (e) an employee is suffering from an illness
that poses risk to himself and to his co- employees,
provided such illness is not curable within a period of six
months, and (b) if the employee is laid off for valid reasons
and such inactivity goes beyond six months.
• The premise of just cause termination is the personal accountability
of the employee. This means that the principal blame lies on the
employee for breaking the law enforced by the company. On the
other hand, in authorized causes for termination, the employee is
not at fault and does not infringe any rule. It is the company that
initiates the action which the law authorizes on the reasoning that
the employer must be allowed the right to determine how best to run
his business in order to achieve its objectives.
• Who determines what authorized cause or causes
shall be invoked in terminating employees?

Consistent with what is discussed above, it is the company that


determines what ground to use in terminating for authorized cause.
This is known as the business judgment rule. The employer is
assumed to know what is essential to the success or continued
existence of the company and the court normally would not inquire
into the factors that go into determining business decisions. Unless
of course the decision is attended by bad faith, or is intended to
carry out a fraud, or is done to frustrate justice. But while this is true,
the law in cases of authorized terminations requires the company to
comply with certain requirements, and the employees affected by
such decisions can seek recourse from the NLRC if the decision of
the company is questionable.
PROCEDURAL REQUIREMENTS

Under the law, due process is an important part of lawful termination.

The procedures to comply with this requisite differ in just and authorized terminations.
In termination for a just cause, the due process requirements consist of the following:

a. Furnishing the employee with a written notice advising him of the offense he
committed and giving him the opportunity to answer the charges against him. This
notice requires that:

i. The details of the charge are sufficiently clear to provide the employee a complete
idea of the nature of the accusation against him.
ii. The notice must indicate in unmistakable terms the intention of the company to
terminate the employee if the charge is subsequently proven.
• b. Providing the employee an opportunity to be heard, to rebut the
accusation, to confront the witnesses against him and to present his
own, and to have the assistance of a lawyer if he so chooses.

c. Furnishing the employee a second written notice if, and only if, the
inquiry into his case proves that he really committed the offense.

On the other hand, in termination for authorized causes, the due process
requirements consist of the following:

a. Serving a notice to the employee to be terminated of the intended


action at least 30 days prior to the date of dismissal.

b. Serving a similar notice to the Department of Labor and Employment


within the same period of time.

c. Payments of a separation pay in the amount required by law.


• Is it an indispensable part of due process
requirements that an actual investigation be
conducted by the company?

The jurisprudence is not precise as there are decisions to the effect


that if the employee is asked to give a written explanation, the same
is already equivalent to a hearing as the employee is given the
opportunity to explain and rebut the charges. On the other hand,
there are decisions that specify the need to extend to the employee
the need for an actual inquiry and hearing. Since we cannot second
guess what the court may decide in a given case, it is better to err
on the side of discretion and allow the employee a modicum amount
of opportunity to be able to explain in an official inquiry .
• Is it the function of a hearing to actually prove
beyond doubt the guilt or accountability of the
employee?

The hearing is principally designed to afford the


employee ample opportunity to be heard. The company
of course is expected to weigh the evidences,
statements, and allegations of all the parties, and the
idea is to determine what the truth is. But like most
hearings, there will be two sides to an issue, and the
obligation of the company is ferret out which side is
correct.
• Can the notice required in authorized terminations
be dispensed with by paying the employee an
advanced salary of one month?

This has been resolved already by the court in the case of Serrano
v. NLRC. Advance salary payment is not equivalent to notice.
Companies that do this risk being charged with failure to comply
with the due process requirement under the law. The notice of 30
days is meant to give the employee enough time to make the
corresponding adjustments in his drastically altered personal
situation. This is not remedied by giving him an advance pay. While
giving salary in lieu of notice may seem practical to both parties, the
thinking is that the employee must be given the time to make the
appropriate steps to adjust to his situation.
• JUST CAUSES OF TERMINATION

Serious Misconduct or willful disobedience by the employee of a


lawful order by his superior –This particular cause of action actually
contemplates two distinct situations: one is a case where the employee
commits an act which is improper and which transgresses an established
rule of conduct, and the other is what is commonly known as
insubordination.

But what is common in these two kinds of offensive behavior is the fact
that both are characterized by a wrongful intent on the part of the
offender. As opposed to just being a mere mistake or error in judgment,
the acts covered by this provision of the law contemplate a deliberate and
calculated act. The defining term is that the offense is committed willfully.
• The charge of serious misconduct may attach to any kind of offense
provided:

a. the act complained of is grave as opposed to being merely an


ordinary misbehavior, in which case the circumstances under which
the act is done and the danger or potential injury it can cause, must be
properly considered;

b. the employee intended the consequence of his acts, meaning he


did it deliberately; and,

c. The act must be in connection with the employee’s work.


On the other hand, insubordination requires the agreement of key
essential requisites:

a. the order is lawful

b. it is given by one’s superior

c. it is connected with the work being performed d. There is


deliberate refusal to comply.

If the order is not lawful, or even if lawful, is not within the


competence of the employee, or assuming it is within the
competence of the employee, but it is not given by someone to
whom the employee owes a duty to comply, then the charge of
insubordination will not apply
• What would determine whether an act constitutes a serious
misconduct or not?

There is no precise guideline or measure that will give an exact


description of what is a serious misconduct. There are certain requisites
however. First, the act must be in violation of some existing rules of
conduct which, in the context under which the company operates, must be
considered a serious transgression. The nature of the company rule
violated often defines the degree of seriousness of the offense. The
extent of injury or potential damage to the company as well as the impact
of the act committed to the operations of the business also figure out in
determining whether it a serious misconduct or not. For sure, any act that
is immoral as measured against social conventions, or which is depraved,
or which offends rules that customarily are highly regarded, may be
considered as serious misconduct.
• If the order is given by someone besides the immediate head of the
employee, or the task assigned is not part of the work of the employee, is a
refusal to comply chargeable by insubordination?

These are the contentious issues in insubordination, when the requisite elements
of the offense are either absent or operate under different circumstances. First of
all, the law did not say that the order must come from the immediate superior but
from the employer or his representative. If the order is given by someone other
than the immediate superior, he should at least qualify himself as someone
representing the employer. What is material in insubordination is whether or not
the order is related or in connection with the employee’s work. Thus, if the order
is totally alien to the job of the employee, a refusal does not come within the
purview of insubordination. Most jobs have requirements for the incumbent to
assume work that is given or assigned from time to time, or periodically, meaning
a work that is not ordinarily a part of his usual routine. Thus, any refusal may be
considered as insubordination if it’s willful and deliberate.
If the employee was not able to comply because of an
emergency, is the refusal to comply still possible as
insubordination?

If the emergency is established, it may be hard to


consider it under the rule because then, it ceases to be a
malicious refusal to abide by the given order. If the
refusal is dictated by extraneous reasons, and they are
serious enough to warrant the immediate attention of the
employee, then the insubordination case becomes less
compelling.
• Gross and habitual neglect of duties – Negligence
means absence of care and diligence on the part of the
employee in reference to the duties that he is required to
give to the employer. Unlike serious misconduct, this rule
does not require as an element deliberate and malicious
intent. Provided there is negligence, then the employee
may be charged for any offense in which the employer
suffers and incur damages by reason of the inability of the
employee to observe due diligence in the performance of
his duties. As a rule, for this reason to apply, the offense
must be done habitually and at the same time, result to
substantial damage to the company in a way that will
qualify the offense as gross.
• Is it required for this rule to be validly applied that the
employee commits a grossly negligent act more than
once before he can be terminated?

While the law would seem to indicate this, meaning that


the negligence must not only be gross but also habitually
committed, the court has often ignored this absurd
interpretation and has ruled that a gross violation need not
be repeated to be able to terminate the offender. What is
necessary is to show that the injury to the company is
substantial (gross) such that a penalty of dismissal would
be seen as a proportionate punishment against the
employee responsible for the damage.
• Is poor performance punishable as a form of
habitual negligence?

When poor performance results from negligent acts, then


there is a ground for using this rule against the
employee. But poor performance may be caused by
factors other than an employee’s lack of diligence in
doing his work. The employee may not be negligent, in
fact may even be industrious and hard-working, and still
come short of expectations. If that is the case, this rule is
not applicable but the employee just the same may be
taken out but using a different set of rules.
• Is chronic absenteeism punishable under this rule?

Repeated absence without official leave is a form of


dereliction of duty and falls squarely under this rule. So it
is with abandonment of employment, or excessive
tardiness.
• Serious breach by the employee of the trust reposed in
him by the employer – This is a rule that usually finds
application only in cases where the employee concerned is
occupying a position of responsibility, i.e. vested with trust and
confidence. Of course, in a much limited way, it also applies in
cases where the employee (not the position) is given access
to confidential information or custody of important matters
even if he is not assigned to a position involving high
responsibilities. What is punished therefore in this rule is the
breach, or violation, of the explicit need to maintain
confidentiality of information or integrity of the thing held.
• Is failure of a manager/supervisor to deliver on his
tasks sufficient basis for loss of confidence?

Failure to perform as expected, or as represented by the


employee to his employer, is a valid ground for the
company to lose confidence in a way that will justify the
termination of the employee provided the inability to
deliver involves a significant aspect of the work.
Can we charge an ordinary employee with loss of trust
and confidence?

An ordinary employee can only be liable under this rule if


he has been tasked to possess or have custody of things
that are of significant value to the company. This can be
property, money, or intangible things like information, data,
or knowledge of plans. The liability attaches if the
employee breaches the confidentiality of the information by
sharing this to others, or if he appropriates the thing in his
custody, as for instance in the case of a cashier who
pockets the earnings of the business.
• Commission of a crime against the employer, his
immediate relatives or representatives – A crime is an
act or omission punishable under the Revised Penal
Code. You have to distinguish this with other offenses an
employee may commit which is covered by different sets
of laws. The law is specific as to what kind of action this
rule applies. If an employee is civilly liable, that is not a
crime, and the commission of an act that gives rise to a
civil action may not be used to terminate an employee.
So is a violation of an ordinance.
• The crime committed must have been directed against
the employer, relative or representative. The latter
includes people who work in the interest of the employer
like managers or supervisors.

It is not required for the application of this rule that a


conviction is made to prove that the crime was in fact
committed. It is enough that a basis exists to form a
conclusion in the mind of the employer that the
employee committed a crime.
• If an employee accused of having committed a crime against the
employer is acquitted in court, does that mean that the employee
cannot be terminated, or if already terminated, that he cannot be
reinstated anymore?

Acquittal does not necessarily mean that the employee cannot be


terminated because in criminal cases, the requirement is proof beyond
reasonable doubt. Termination from employment is an administrative
matter, and in the latter case, it is not required to have the degree of proof
necessary in a criminal proceeding. Preponderance of evidence is sufficient.
Therefore, if the employer has enough evidence on hand to sup port a belief
as to the culpability of the employee, it is immaterial whether or not the
employee was acquitted in the criminal case. He can proceed to terminate.
It is a different matter, however, if the acquittal in the criminal proceeding is
because of a finding that he did not commit the crime. That finding should
bind the company.
• AUTHORIZED CAUSES OF TERMINATION

Authorized causes permit the employer to terminate


employment even if the employee is not at fault. The
premise is the right of the employer to regulate the
business and to preserve it consistent with its purpose. It
proceeds from the thinking that there are business
decisions which are essential to keep the business
going, and this takes precedence over certain individual
rights including that of continued employment.
• There are of course limitations placed by law to prevent
abuse or misuse of this right to terminate employment.
One, the reason must be legitimate, meaning not contrived
or merely simulated. Second, the employer must be ready
to prove this by competent evidence. If the reason is loss
in operations, then financial records and other similar data
must be available to support the action. Third, notice
should be made to the parties at least a month before the
intended date of termination to afford them not only time to
adjust but also to have the opportunity to question the
action before the proper tribunal. And fourth, payment of
separation pay must be made in every case.
• The authorized causes under the law include the following:
Introduction of labor saving device – improvement of
the business process is a right of the employer and
consistent with the doctrine that the manner of regulating
the operations of the business is an integral part of the so
called management prerogatives. When a device is
adopted and such contraption results to an excess in
manpower requirements, the law will not prevent the
employer from stripping the excess. The alternative,
meaning to force the employer to retain employees made
irrelevant or unnecessary by the device, is unreasonable
and is going to be oppressive to the employer.
• Redundancy – this is a situation where there is an excess of people
over what is required by the business, and following what is discussed
above, it is unfair for the employer to be obliged to retain what the business
does not need. Redundancy occurs as a result of certain situations.
Reorganization, reduction in the volume of business, phasing out of certain
part of the operations, change in marketing plans, obsolescence of
products, or any other kind of situation where the net result is having more
people than what is needed to carry out the functions of the business, are
examples of redundancy. This rule applies when there is an excess of
people without the company being in dire financial condition. What is
contemplated here is not a case where the company has to shed some of its
personnel because it is losing or is about to suffer losses in the business.
The company may not be losing money, in fact, may even be making its
desired profits but is allowed nevertheless to terminate employees if the
latter constitute an excess in the company’s people requirements.
• Retrenchment to prevent losses – here, the situation
appears to be the reverse of that obtaining in a
redundancy case. The company may have just the right
number of people to operate its business under normal
conditions but because of losses, or anticipated losses, it
is allowed by law to terminate employees. Retrenchment
differs from redundancy in terms of the amount of
separation pay required to be extended to affected
individuals. Whereas redundancy termination requires
payment of at least one month salary for every year of
service, retrenchment pay is less, that is, only one half
month salary for every year of service.
• To be sure, it is not easy to justify retrenchment. An
employer has to meet certain requisites in order that his
action (retrenchment of employees) may be justified:
one, the losses must be substantial, and not merely the
kind of losses that occur in the usual course of
operations which sometimes happen depending on the
seasonality of the business; two, the losses anticipated
must be imminent, meaning unless remedied are sure to
come; three, the company must have done all that is
necessary short of terminating people to prevent the
losses but to no avail; and four, the company has the
proof to show the reality of the losses.
• Closure or cessation of business – the closure spoken
of in this cause is not one occasioned by losses because
if it were the case, it is not covered by this provision. For
whatever reason, except perhaps when it is attended by
fraud or when designed to frustrate justice, an employer
may opt to stop his operations and close the business for
good. This is because such action is an exercise of a
right that is rooted in ownership. An owner of a thing has
the right to do whatever he pleases with the thing he
owns provided he does not violate the rights of others
and provided further that it is not in violation of the law.
• Illness – an employee who is suffering from a disease
which poses danger or risk to his own safety as well as
to the welfare of other employees may be separated
from the service provided only that a government
medical officer certifies to the fact that the illness cannot
be cured in a period of six months.
• From an employer’s perspective, is it legally
defensible to use retrenchment as a reason rather
than redundancy when there are reasons that could
support either cause?

From a strictly legal perspective, there are enough


grounds to be able to differentiate redundancy from
retrenchment although it is true that sometimes, there are
reasons equally applicable to the two. If actual losses were
a basis, there would be no problem distinguishing these
two grounds for in this case, retrenchment would apply to
a company losing and redundancy to a company which is
not otherwise suffering a loss.
• Unfortunately and as already mentioned above, it is not
necessary for a company to actually incur losses before
it can invoke the law to effectuate retrenchment. The
thing is, it is the company that determines the basis for
termination and the recourse of the employee affected is
to question such basis before the proper agency of the
government. That is the purpose of notice. In short, there
is no obstacle to filing for retrenchment even if
redundancy is equally applicable, but the company must
be ready to support its action with substantial proof.
• If the company closes part of its facilities, is the rule on closure
applicable?

The law contemplates not just the closure of the entire company but
also of particular parts or sections, assuming that the same can be done
without impairing the entire operations.

If the company closes but due to losses, is it required to pay


separation pay?

This has been decided already by the courts. If the reason for the
closure is because of losses, the company may not anymore be obliged
to pay separation pay. Of course, if the employees are so minded, they
can file claims against the remaining assets of the corporation over
which they enjoy certain preferences over other claims.
Who and what factors determine who will be terminated in case of
retrenchment or redundancy?

In redundancy, if the cause of excess is due to closure or stoppage of


operations, then the employees directly affected by such closure or stoppage
should be the ones to go. For instance, if a particular line of product is shut
down for whatever reason, then the people working in that line are and should
be the object of the redundancy termination. The same thing goes for a
redundancy owing to reorganization. The people rendered redundant by the
reorganization should typically be the people who should be terminated. In all
other cases, especially retrenchment, the termination must be based on well-
defined criteria. There normally include performance and seniority, as well as
other relevant factors. The company should decide based on such criteria
unless it is held by certain requirements under a collective bargaining
agreement to decide in a particular way. Recent decisions of the court,
however, have been instructive. According to these rulings, seniority must
always be included in the criteria otherwise, the selection is questionable.
• Can an employer immediately replace an employee
who is terminated for any of the above causes?

Unless there are extenuating circumstances, any improvident hiring


done immediately after redundancy or retrenchment will certainly
give rise to a suspicion that the terminations were done in bad faith.
It is immaterial that the employees have signed quit claims or
waivers or have received payments of separation pay because none
of these will prevent them from filing a case against the company.
Of course, if terminated employees are given priority in the hiring, it
may be a different case. But rehiring, especially in case of
retrenchment, so soon after the employees are terminated is
evidence of simulating a cause that is not probably true.
• May a company retrench and then hire the
employees terminated as casuals?

Again, it is going to be a question of good faith, the


willingness of the employees to be bound by such action
notwithstanding. If it is evident that the
move was precipitated by a desire to shortchange the
employees, the fact that the
employees accepted payments is immaterial and a
person adversely affected may have reason to file a
case against the employer.
• Can retrenchment pay be given in installments?

There is no jurisprudence to this effect and the law is silent as to the


matter which has in fact led many to do exactly that, meaning pay
separation pay in installments. But the intention of the law is to pay
the employees a separation pay and it should be construed as a
duty that must be done once the operative act (termination) takes
effect. It does seem to be unfair to deprive the employees their
employment and then withhold their separation pay. The law did not
command merely acquiescence of employers to paying, because
insofar as the law is concerned, that is the corresponding obligation
of a company and one that is not subject to modification. Paying in
installments is in fact modifying the terms of the law, and thus, must
be held to be unlawful.
• DUE PROCESS

As already mentioned, due process in termination cases consist of


two things: (1) notice, and (2) hearing. The notice is equivalent to a
charge sheet in a criminal case. It must provide sufficient details
concerning the offense charged to allow the employee concerned
the opportunity to defend himself. A notice that merely indicates
what particular rule of the company was violated, or even what the
particular rule consists of, is not enough. It should indicate the
details of the offense, and more importantly, it must also contain an
advice to the employee that it is the company’s intention to
terminate his services if the charge/s is proved. Without this
admonition, the notice is as good as not having been sent.
• Proof of service of notice is important because without it,
receipt can be denied. Substituted service or service by
giving a copy directly to the employee is good if actually
received. In most cases, employees refuse to receive, or
if they receive, refuse to acknowledge such fact. Of
course, any doubt that the employee has been served
notice can give rise to a question on due process.

Hearing is an opportunity for the employee to controvert


any of the charges against him, to confront the witnesses
and to summon his own, and basically, to prove his
innocence to the company.
• When this process is undertaken, the due process
requirement is served and the company is free to take
action based on its evaluation of the facts presented.

If the company is satisfied that the employee is guilty,


then it can proceed to take action. It must provide the
employee with a written notice containing its decision
and the basis of such action. A termination due to a just
cause can take effect immediately upon the receipt of
the notice by the employee.
• Can the employee be placed under preventive
suspension while the hearing is going on?

Preventive suspension can be instituted against the


employee only if his presence constitutes a threat against
the life and property of the employer or that of any
employee.

How long can a preventive suspension be put into


effect?

For 30 days without pay, and even beyond this, if the


employer is willing to pay his salary after the 30th day.
• Does a show-cause letter sufficient to dispense with
a hearing?

It normally should be sufficient unless the explanation given by the


employee calls for the need to investigate further in which case a
formal hearing may be conducted. The litmus test actually should be
this: was the employee heard enough? Did he have the opportunity
to fully explain his side? Is there no need for further elaboration so
that the company will have the complete facts before it in order to
make an informed judgment? The overriding consideration is
fairness. The employee should be extended all chances to prove the
accusation false and it is only when he comes up short that the
employer should take the necessary action.
• Can the company object to the employee bringing a
lawyer as counsel and in the affirmative, what
should be the role of the counsel in the hearing?

Access to legal assistance is a privilege conferred by law


and cannot be denied if demanded by the employee.
The role of the counsel is to assist the employee in his
defense, and this includes advising him on what to say
or not say. A hearing in the company is an administrative
process and the lawyer cannot demand the application
of the rules of court in the proceedings.
• If conducted, what is the reasonable duration for
holding the hearing?

The hearing should last only when the company is


satisfied that the employee has been given his due or
day in court so to speak. Undue delays, procrastination,
or maneuvers to delay the proceeding are matters that
must be controlled by the company.
• Must the union officers be allowed to intervene in
the hearing?

Only to the extent allowed by the collective bargaining


agreement. Union officers normally would be interested
participants if a member is undergoing an inquiry, but
they will be there merely to assist. Thus, the company
may properly restrict their participation if such is not
defined in the CBA.
• What must be considered by the company in coming up with a
decision?

The company must consider all the evidences presented by both parties,
and make a decision on the basis of what is contained in the records.
There is a tendency on the part of many employers to consider the
hearing aspect of due process as an annoying pro-forma requirement of
the law. That is not the intention for this. It is true that the company is the
one charging (by way of its representatives) and it is somewhat
incongruous to think that the company, in deciding the case, would
decide in a way that will contradict its very own accusation. Be that as it
may, it behooves the employer to ascertain the truth in every case, and
to grant allowances where the same may be due if the purpose is to be
able to grant justice. If the employee is not accountable, or if his
accountability is mitigated in any way, the employer should consider this
meting out its judgment.
• What are the legal procedures required in
implementing termination?

Beside those already discussed, when a letter advising the


employee of his termination is issued, a report of such termination
must be given to the Department of Labor. If it is a case of just
cause termination, it should be included in the monthly report to the
DOLE. If it is a termination for authorized cause, the DOLE is
required to have a notice at least 30 days before the intended date
of termination otherwise it will be as if no notice was given. Notice to
the employee must be served by registered mail to have evidence of
service, regardless of whether or not actual personal service was
done directly to the employee.

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