What are the reasons for the termination of an employment contract in the company?

There are two types of employment termination in the Philippines: termination by the
employer and voluntary resignation or termination by the employee. Employers can dismiss
an employee based on just and authorized causes. Just causes are based on acts attributable
to an employee’s own wrongful actions or negligence while authorized causes refer to lawful
grounds for termination which do not arise from fault or negligence of the employee.

Voluntary resignation is defined as a voluntary act committed by employees who knowingly

dissociate themselves from their employment for personal reasons. It does not cover instances
where employees are forced to resign with the use of threats, intimidation, coercion,
manipulation, or where dismissal is imposed as a penalty for an offense. Forced or coerced
resignation is illegal and considered “constructive” dismissal – a dismissal in disguise.

Termination by Employer

According to Article 282 of the Labor Code, an employer can terminate an employee for just
causes, which could be any of the following:

● serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
● gross and habitual neglect by the employee of his duties;
● fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representatives;
● commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representatives;
● and other similar causes.

Employers can also terminate an employee based on authorized causes like business and
health reasons. Art. 283 of the Labor Code states that an employee can be terminated due to
business reasons such as:

● installation of labor-saving devices;

● redundancy;
● retrenchment (reduction of costs) to prevent losses; or
● the closing or cessation of operation.

For termination of employment based on health reasons, employers are allowed to terminate
employees found suffering from any disease and whose continued employment is prohibited by
law or is prejudicial to his health as well as to the health of his co-workers (Art. 284, Labor
Code). The employer must obtain from a competent public health authority a certification that
the employee’s disease is of such a nature and at such a stage that it can no longer be cured
within a period of six (6) months even with medical attention.

Voluntary Resignation

This type of termination is strengthened by the provisions of Art. 285 of the Labor Code which
recognizes two kinds of termination an employee can initiate – without just cause and with just
cause. If the resignation is without just cause, the employee must give a one (1) month advance
written notice for resignation (commonly referred to as a “resignation letter”) to the employer to
enable them to look for a replacement and prevent work disruption. If the employee fails to
provide a resignation letter, he or she runs the risk of incurring liability for damages.

If the resignation is with just cause, however, the employee need not serve a resignation notice.
Art. 285 indicates the just causes for resignation as follows:

● serious insult to the honor and person of the employee;

● the inhuman and unbearable treatment accorded the employee by the employer or his
representative;
● crime committed against the person of the employee or any immediate members of the
employee’s family; and
● other similar causes.

It should be noted that employees who voluntarily resign from work are not entitled to separation
pay. Philippine laws only grant separation pay to those who were dismissed from service not
due to their own fault or negligence but for reasons that are beyond their control, i.e. business
closure, cessation of operation, retrenchment (reduction of costs) to prevent losses, etc.
However, there are at least two cases where employees who resign voluntarily may be entitled
to separation pay, and they are as follows:

● when payment of separation pay is provided in the employment contract or Collective

Bargaining Agreement (CBA, for companies with existing bargaining agent or labor
union); and
● when it is authorized by established company practice or policy.