2.1 Statutory requirements
The employment of a ‘regular’ employee may not be terminated under Philippines law unless the employer has a ‘just cause’ or an ‘authorised cause’ for the termination. The Labour Code provides that employment is ‘regular’ where the employee has been engaged to perform activities that are necessary or desirable in the usual business or trade of the employer, excluding where the employment is only for a specific fixed project or for a definite season.
The law recognises the following ‘just causes’:
Serious misconduct or wilful disobedience by the employee of the lawful orders of the employer in connection with the employee’s work.
Gross and habitual neglect by the employee of their duties.
Fraud or wilful breach by the employee of the trust reposed in the employee by the employer.
Commission of a crime or offence by the employee against the employer or a representative of the employer.
Other causes analogous to those listed above.
Before an employer may terminate employment for a ‘just cause’, the employer must give written notice to the employee of the proposed termination and provide the employee with a reasonable opportunity to explain his/her side and to present evidence to the employer, with the assistance of legal counsel if desired by the employee.
An employer may also terminate employment for ‘authorised causes’, which include termination due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment, subject to certain conditions.
An employer may also terminate employment upon the employee reaching the compulsory retirement age (which is 65, unless otherwise agreed).
2.2 Notice periods
Provided that the employee has been given the opportunity to explain, as described above, an employer may terminate employment for a ‘just cause’ by written notice with immediate effect.
The notice period for termination for an ‘authorised cause’ is discussed under 2.5 below.
An employee may resign from their employment by serving written notice on the employer at least one month in advance.
2.3 Remedies
A Labor Arbiter has power to order the immediate reinstatement of a wrongfully dismissed employee, including the payment of backpay. The Labor Arbiter may also award damages, including actual or compensatory damages (which must be proved with a reasonable degree of certainty), as well as an additional discretionary sum of damages, for which no proof of pecuniary loss is necessary.
2.4 Severance payments
Severance is payable upon termination of employment for an ‘authorised cause’:
For a termination due to the installation of labor-saving devices or due to redundancy, severance pay is one month’s pay for every year of service. The minimum severance payment is one month’s pay.
For a retrenchment to prevent losses, or a termination due to closure or cessation of operations, severance pay is a half month of pay for every year of service. The minimum severance payment is one month’s pay. (However, the employer may be able to avoid paying severance pay in the event of closure on account of serious financial losses or business reverses.)
Generally, no severance pay is payable upon termination for a ‘just cause’. However, labor tribunals have awarded severance pay in some instances of termination for a ‘just cause’, usually on account of the employee’s lengthy period of service.
In general, an employee who voluntarily resigns from employment will not be entitled to severance pay, unless otherwise provided for in the applicable employment contract, collective bargaining agreement or employer policy.
2.5 Specific requirements applicable to redundancy
For termination of employment based on ‘authorised causes’, both the employee and DOLE must be notified in writing at least 30 days before the termination. This prior notification is indispensible and pay in lieu thereof may not be made (though the employer may require the employee to take leave with pay for the 30 day period).
The Labor Code distinguishes between ‘redundancy’ and ‘retrenchment’, and the severance payments differ for each.
A ‘redundancy’ exists where the services of an employee are in excess of what is reasonably required by the enterprise. This may be due to over-hiring, a decreased volume of business or the installation of labor-saving machinery.
In contrast, a ‘retrenchment’ is linked with losses and is a cost-cutting measure. The losses incurred or expected must be substantial and reasonably imminent, such that the retrenchment is reasonably necessary and likely to prevent the expected losses. Hence, the employer will be expected to examine other options for preventing losses, and the hiring of replacements or outsourcing of work performed by retrenched employees will be considered inconsistent with retrenchment.
In both redundancy and retrenchment situations, the employer must apply fair and reasonable criteria (such as preferred status, efficiency and seniority of the employees) in ascertaining the positions to be made redundant/retrenched.
3. Discrimination and harassment
Philippine law prohibits discrimination against women on the grounds of sex or pregnancy, as well as discrimination against disabled persons.
The Anti-Sexual Harassment Law prohibits sexual harassment in any work or training environment. Employers have a duty under the law to prevent and deter the commission of acts of sexual harassment, and to provide procedures for resolution or the prosecution of acts of sexual harassment.
4. Occupational Health and Safety
The Secretary of Labor is responsible for setting and enforcing mandatory occupational health and safety standards by appropriate orders, and for instituting and updating programs to ensure safe and healthy working conditions in all places of employment. To this end, a number of agencies attached to DOLE implement and issue relevant guidelines and processes.
5. Regulation of outsourcing and contracting
5.1 Prohibition on Labor-Only Contracting
In the Philippines, so-called ‘Labor-Only Contracting’ is prohibited. Labor-Only Contracting refers to the situation where the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and the following elements are present:
the contractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility and the employees recruited, supplied, or placed by the contractor are performing activities directly related to the main business of the principal; or
the contractor does not exercise the right to control the performance of the work of the contractual employee.
That is, a principal may only engage a third party to provide services, where those services go beyond the mere provision of labor. In summary, the following conditions must be satisfied:
the contracting company must carry on a distinct and independent business and undertake to perform the particular job, work or service on its own account and under its own responsibility, according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof; and
the contracting company must have substantial capital or investment.
5.2 Engagement of independent contractors
Companies may be deemed to be the legal employer of an individual who has been described as an ‘independent contractor’. Regardless of the name given by the parties to the relationship, the key factor that determines an employer-employee relationship at law is the existence of control over the manner and means of doing the work. In general, if the principal wields such control over the so-called ‘independent contractor’, then the principal will be liable as the employer of that individual.
6. Industrial relations
6.1 Legislation in brief
The right to form unions is recognised in the Philippine Constitution, and reinforced by the Labor Code and implementing regulations.
Managerial employees are not eligible to join, assist or form any labor organisation. Supervisory employees who are not ‘managerial’ may join labor organisations of their own, but they may not join those of the rank and file employees. Supervisory employees are those who, in the interests of the employer, recommend managerial actions with the use of independent judgment, provided that the exercise of such authority is not merely routine or clerical in nature.
6.2 Role of trade unions and collective agreements
Trade unions play a significant role in many companies in the Philippines. Their basic role is to foster collective bargaining and mutual protection. Unions often assist workers in the enforcement of their rights and in obtaining improved terms and conditions of employment.
6.3 Industrial action and disputes
The Constitution and the Labor Code guarantee both workers and employers the right to engage in certain activities in order to achieve legitimate activities. For employees, such activities may include strikes, picketing and boycotts, and for employers this means lockouts. Certain mandatory requirements apply in order to lawfully engage in such activities.
Disputes, including impending or existing strikes or lockouts, may be resolved through mediation by the National Conciliation and Mediation Board (NCMB) or by intervention by the Secretary of Labor, which may result in compulsory or voluntary arbitration. An assumption or certification by the Secretary of Labor of a dispute has the effect of automatically enjoining the intended or impending strike or lockout.