Terminating an employee in the Philippines is more complicated than simply ending an employment contract. The country’s labor laws prioritize worker protections, and there’s a specific process employers must follow. Companies must also demonstrate that they’re dismissing the employee for a legally recognized reason.
If an employer fails to follow the proper legal termination process, the employee may challenge the dismissal. Even if the underlying reason is valid, failure to complete all of the necessary steps can lead to an illegal dismissal claim.
Key takeaways:
- Termination in the Philippines is only lawful when both the reasons for dismissal and procedural requirements are met.
- Employers must understand the distinction between just causes (employee-related) and authorized causes (business-related), as each has different requirements.
- If the employer makes an error in the notice period, evidence, or separation pay calculation, it can render the dismissal invalid.
Overview of Termination Laws in the Philippines
Termination of employment in the Philippines is governed by the Labor Code of the Philippines and enforced by the Department of Labor and Employment (DOLE).
A major provision of Filipino labor law is the employee’s security of tenure. In other words, workers cannot be dismissed unless the employer can prove a legally valid reason and comply with the mandated procedures.
The Labor Code outlines two types of terminations:
- Just causes: Reasons related to the employee’s wrongful conduct or negligence
- Authorized causes: Legitimate business or health-related reasons that are not the employee’s fault, such as cessation of operations
Each type has different documentation requirements, notice periods, and timelines. For instance, authorized cause terminations always require a 30-day written notice to both the employee and DOLE. Just cause terminations follow a different process, including giving the employee the right to defend themselves.
Because employee protections are so strong, workers may file claims for illegal dismissal if the employer fails to follow any of the requirements.
Even if the employer can prove the cause, the termination may still be deemed unlawful if procedural steps were not followed. If that happens, the employer may owe the employee back wages, damages, or be forced to reinstate them.
When an employee resigns voluntarily, termination laws don’t apply. However, if they are pushed or coerced into resigning, it's viewed as "constructive dismissal," which is considered an unlawful termination.
Attorney Anna Camille Crisostomo told publication HRD Asia, “It is best to practice proper documentation of resigned employees” to avoid claims of constructive dismissal.
Just Causes for Termination (Employee-driven Reasons)
Just cause terminations stem from an employee’s own misconduct or performance issues. Any such reason cited for terminating employment must be backed up by clear, well-documented proof.
In general, Philippine courts interpret just cause terminations very narrowly. Employers must demonstrate both the severity of the offense and that termination of employment was the appropriate course of action.
Legally recognized just causes include:
- Serious misconduct: Harassment, physical assault, or inappropriate remarks
- Willful disobedience: Refusal to follow lawful and reasonable company orders
- Gross and habitual neglect of duty: Repeated failures to perform essential job functions or responsibilities
- Fraud or breach of trust: Theft, forgery, falsified documents, or mishandling of funds
- Commission of a crime: Criminal acts committed against the employer, representatives, or colleagues
- Analogous causes: Misuse of company property, violation of confidentiality, or other serious acts
Something to keep in mind: one-off incidents may not meet the legal standard for just cause unless they're particularly severe. Whatever the reason, employers must demonstrate that they have properly investigated, maintained accurate records, and treated the employee fairly.
Even with solid evidence, employers must still follow the procedural requirements. Simply having just cause to terminate an employee isn’t enough to make a termination valid.
Authorized Causes for Termination (Business-driven Reasons)
Authorized causes involve legitimate business or health-related reasons outside the employee’s control. Because the employee isn’t at fault, the law requires separation pay, and the employer must provide proper notice.
Legally acceptable authorized causes include:
- Redundancy: A role is no longer necessary due to restructuring, automation, or organizational changes
- Retrenchment: A cost-cutting measure to prevent financial losses (Companies must show proof of losses)
- Closure or cessation of business: Full or partial shutdown of operations, whether voluntary or involuntary
- Installation of labor-saving devices: Implementation of technology that reduces the need for certain roles
Employee disease is a lesser-used authorized cause. Under this cause, a medical condition prevents an employee from safely performing their job. A medical certificate must state that continued employment is unsafe or prohibited. However, it’s illegal to discriminate against employees with certain medical conditions, such as HIV.
For all authorized cause terminations, employers must provide:
- A 30-day written notice to the employee, and
- A 30-day written notice to DOLE, delivered simultaneously.
If the employer fails to follow these requirements, it can render the termination invalid, regardless of whether the business reason is legitimate.
Mandatory Procedural Requirements (Due Process)
Filipino law requires employers to follow specific procedural steps when terminating an employee. These requirements differ depending on whether the termination is for just cause or authorized cause.
Due process in the Philippines consists of two parts:
- Substantive due process: Having a legally valid reason for termination
- Procedural due process: Following the correct steps and timelines
Employers must meet both. Falling short in either area creates risk.
Just Cause Termination (Twin-Notice Rule)
For just cause terminations, companies must follow the "twin-notice rule." This involves providing two written notices, plus an opportunity for the employee to respond.
First Notice
The first notice (often called a "notice to explain") must clearly state the specific acts or reasons that the employee is being terminated. The notice should include facts of the case, the company policies the employee is accused of violating, and any supporting evidence. If the notice is vague or generic, it may not be enough to satisfy the legal requirement.
Employee Right to Respond
After receiving the first notice, the employee is entitled to a reasonable opportunity to respond, which is a minimum of five calendar days. The employee can explain their side, submit a written explanation, and present evidence in their defense.
An administrative hearing isn't legally required, but it's strongly recommended. If the company holds a hearing, it should document the attendees, the discussion, and any evidence presented.
Second Notice
The second notice (the "decision notice") comes after the company has considered the employee's explanation and evidence. This notice should state the company’s decision, the legal basis for the termination of employment, and the effective termination date.
Failure to follow the twin-notice rule can result in a finding of illegal dismissal, even if the employer had a valid just cause.
Authorized Cause Termination
For authorized cause terminations, the process is different. Companies must provide a written notice to both the employee and the regional DOLE office. The notice must be sent at least 30 days before the effective termination date.
In the notice, the company should explain the grounds for termination. For some authorized causes, companies may also be required to provide supporting evidence (such as proof of financial losses resulting from retrenchment). The notice also must contain the separation pay calculation.
If the correct process isn’t followed, the employee(s) might be reinstated. In the court case Jaka Food Processing Corp. v. Pacot, the company had valid grounds for retrenchment due to serious business losses, but failed to provide employees with the required 30-day notice.
The termination was technically legal, but the company still faced a penalty for not following the proper procedures, and the Supreme Court ordered the company to pay PHP 50,000 in damages per employee.
Separation Pay Rules and Calculations
Not all terminations require separation pay. The general rule is:
- Just cause terminations don’t require separation pay, unless company policy or a collective bargaining agreement says otherwise.
- Authorized causes require separation pay, calculated in accordance with Filipino law.
The amount of separation pay for authorized causes depends on the reason for termination:
For redundancy or installation of labor-saving devices, employees are entitled to one month's salary or one month's salary for every year of service, whichever is higher.
For retrenchment or business closure, employees receive one month's salary or half a month's salary for every year of service, whichever is higher.
For employees with a disease, the separation pay is half a month's salary for every year of service.
When calculating years of service, any period of at least six months is typically rounded up to one year. The calculation should be based on the employee's most recent salary rate.
When a termination is deemed illegal, the employee must receive separation pay in place of reinstatement. This is calculated at one month's salary for every year of service.
They may also receive full back wages from the time of dismissal until the decision is final. In the case of Jaka, the company also had to pay damages due to the “gravity of the procedural violation.”
Reporting Obligations and Documentation Requirements
Proper documentation is critical for defending employee termination in the Philippines. Companies should maintain comprehensive records of all notices, written explanations, meeting minutes, evidence, and contract and employment history.
For authorized cause terminations, companies must file the required notices with the regional DOLE office at least 30 days before the termination date. The company may also need to submit proof of the authorized cause, such as financial statements proving the need to terminate the employee.
Employment contracts should include clear termination clauses that spell out notice periods and any separation pay provisions (that comply with statutory minimums).
The documentation process must begin well in advance of an employee termination. The company should document any performance issues, disciplinary actions, or policy violations that occur. Companies should also maintain records of notices given to the employee and DOLE, in the event of termination.
Consistent documentation over time strengthens the company’s position if the employee challenges the termination.
Common Termination Mistakes Employers Should Avoid
Some illegal terminations happen as a result of preventable errors. Common mistakes include:
- Terminating without clear documentation of the cause
- Treating probationary employees like “at-will” hires
- Failing to issue the proper written notice
- Miscalculating separation pay
- Failure to notify DOLE of authorized terminations
- Poor documentation
These mistakes can turn into costly disputes, reputational risk, and reinstatement orders. Employers should proactively review their internal termination procedures to make sure they comply with local labor laws.
How EORs Like RemoFirst Support Compliant Termination in the Philippines
If you're hiring international employees in the Philippines, consider partnering with an Employer of Record (EOR) like RemoFirst so you don't have to navigate these complex labor laws alone.
EORs act as the legal employer for employees in countries where your business doesn’t have an entity, handling all legal and HR issues, including termination.
RemoFirst ensures your company remains fully compliant with local labor laws, covering everything from employment contracts and payroll to benefits and terminations. We handle the documentation, procedural steps, and legal requirements, so you can focus on running your business.
RemoFirst helps companies hire employees compliantly (and, when necessary, terminate them) in more than 185 countries. To learn more about how we can support your global workforce, schedule a demo today.
