Employee Discipline and Termination in the Philippines: A Guide for Employers

Philippine labor laws provide strong protections for employees, recognizing that employment is not merely a human activity but a property right that cannot be taken away without due process. Employers must navigate these requirements carefully to avoid costly illegal dismissal claims.

The Two Aspects of Due Process

Every disciplinary action and termination of employment must satisfy two aspects of due process:

1. Substantive Due Process - There must be a valid ground for dismissal
2. Procedural Due Process - The required process for termination must be followed

Both aspects must be complied with for a valid disciplinary action or termination. Failure to comply with either can result in illegal dismissal findings and significant liability for employers.

Just Causes for Termination

Just causes are those directly attributable to the fault or negligence of the employee. Under the Labor Code, these include:

1. Serious Misconduct

This refers to misconduct of such grave and aggravated character relating to the performance of the employee's duties that renders the employee unfit to continue working. Examples include sexual harassment, fighting within company premises, forging customer signatures, fabrication of time records, and using employer's property for personal business.

2. Willful Disobedience or Insubordination

The willful or intentional disregard of lawful and reasonable instructions from the employer. Examples include intentional refusal to submit required reports despite repeated directives, or refusal to transfer or report to new work assignments.

3. Gross and Habitual Neglect of Duties

"Gross neglect" refers to the absence of diligence that an ordinary prudent person would use in their own affairs. "Habitual neglect" refers to repeated failure to perform duties over time. Important: The negligence must be both gross AND habitual. An isolated incident of gross negligence is generally insufficient for dismissal.

4. Fraud or Willful Breach of Trust

Fraud comprises anything calculated to deceive, including acts, omissions, and concealment involving a breach of legal or equitable duty. Examples include falsifying time records, covering up pilferage, stealing company property, or using fictitious requisition slips.

5. Loss of Confidence

This applies only to: (i) employees occupying positions of trust and confidence (managerial and confidential employees); and (ii) employees routinely charged with the care and custody of the employer's money or property. The employer must have reasonable grounds to believe the employee is responsible for misconduct.

6. Commission of a Crime

A crime or offense committed against the employer, any immediate family member, or their authorized representative. A court conviction is not necessary - the commission of acts constituting the crime is sufficient.

7. Analogous Causes

Causes similar to the above, provided the employee's act was voluntary and/or willful. Examples include gross inefficiency and moral depravity.

Authorized Causes for Termination

Authorized causes are brought about by business necessity, changing economic conditions, or illness:

• Installation of labor-saving devices or automation
• Redundancy - When services are superfluous or in excess of actual requirements
• Retrenchment - Reduction of personnel due to poor financial returns
• Closure or cessation of operations
• Disease - When certified by a competent public health authority as incurable within six months

Key Differences: Just Cause vs. Authorized Cause

Separation Pay for Authorized Causes

• Installation of Labor-Saving Device or Redundancy: At least one (1) month pay per year of service
• Retrenchment or Closure (not due to serious losses): At least one-half (1/2) month pay per year of service
• Closure due to serious losses: No separation pay required

Note: A fraction of six (6) months is considered as one whole year. Separation pay shall not be less than one month's pay.

The Twin Notice Rule

For terminations based on just causes, employers must comply with the Twin Notice Rule:

First Notice (Notice to Explain)

A written notice must be served to the employee containing:

• The specific causes or grounds for termination, including company policy violated
• A detailed narration of facts and circumstances (general descriptions are insufficient)
• A directive to submit a written explanation within at least five (5) calendar days

Opportunity to be Heard

The employee must be afforded an ample opportunity to be heard and defend themselves. This need not be a formal hearing - any meaningful opportunity to answer charges suffices. A formal hearing is mandatory only when:

• Requested by the employee in writing
• Substantial evidentiary disputes exist
• Company rule or practice requires it
• Similar circumstances justify it

Second Notice (Notice of Decision)

After determining just cause exists, serve a second written notice containing:

• A statement that all circumstances have been considered
• The grounds established to justify dismissal

Preventive Suspension

Employers may place an employee under preventive suspension during an investigation only if continued employment poses a serious and imminent threat to the life or property of the employer or co-employees. Key rules:

• Maximum period: 30 days
• After 30 days, the employee must be reinstated or placed on payroll
• Extensions require payment of wages during the extension period
• Failure to recall after 30 days may constitute constructive dismissal

Consequences of Non-Compliance

Illegal Dismissal

When substantive due process is not met (no valid cause), the employer becomes liable for:

• Reinstatement without loss of seniority rights, or separation pay if reinstatement is no longer viable
• Full backwages, inclusive of allowances and benefits, from the time compensation was withheld until actual reinstatement

Procedural Violations

When there is a just cause but procedural due process is not followed:

• For just causes: Nominal damages of approximately PhP30,000
• For authorized causes: Nominal damages of approximately PhP50,000

Constructive Dismissal

Even without outright termination, employers may be liable for constructive dismissal when:

• Continued employment becomes impossible, unreasonable, or unlikely
• There is demotion in rank and/or diminution in pay
• Clear discrimination or disdain makes the working environment unbearable
• Preventive suspension exceeds 30 days without proper action

Not every inconvenience constitutes constructive dismissal - the harsh conditions must go far beyond occasional discomfort from employer-employee misunderstandings.

Best Practices for Employers

1. Document everything - Maintain detailed records of incidents, notices, and responses
2. Follow the timeline - Give employees the required five calendar days to respond
3. Be specific - General descriptions in notices are insufficient; provide detailed facts
4. Apply proportionality - Ensure penalties are proportional to the offense
5. Serve notices properly - Personally or to the employee's last known address
6. Consult legal counsel - Before implementing termination, especially for complex cases

Proper compliance with due process requirements protects both employers and employees, ensuring fair treatment while allowing businesses to maintain discipline and productivity in the workplace.