Policy and guiding labor standards
- The employee’s right to security of tenure is guaranteed under the Philippine Constitution and other laws and regulations, and termination is allowed only for just or authorized cause with due process (Section 1).
- Termination from work is prohibited unless just or authorized cause exists and the employer observes due process (Section 1).
- Due process standards follow the standards under Article 299 (b) of the Labor Code, as amended, and settled jurisprudence (Section 5).
Scope: employment and legitimate contracting
- The Rules apply to all parties of work arrangements where an employer-employee relationship exists (Section 2).
- The Rules apply to all parties of legitimate contracting/subcontracting arrangements where an existing employer-employee relationship exists (Section 2).
- The existence of an employer-employee relationship is determined using the four-fold test: (1) selection and engagement, (2) payment of wages, (3) power of dismissal, and (4) power to control the manner and means (Section 3).
- The control test is the most crucial indicator: an employer-employee relationship exists where the person for whom services are performed reserves the right to control not only the end achieved but also the manner and means (Section 3).
Definitions and term meanings
- Authorized Causes refer to those enumerated under Articles 298 (Closure of Establishment and Reduction of Personnel) and 299 (Disease as a Ground for Termination) of the Labor Code, covering causes brought by business necessity, changing economic conditions, and illness of the employee (Section 4(a)).
- Just Causes refer to those enumerated under Article 297 (Termination by Employer), covering causes attributable to the fault or negligence of the employee (Section 4(b)).
- Closure or Cessation of Business means complete or partial cessation of operations and/or shut-down of the employer’s establishment (Section 4(c)).
- Commission of a Crime or Offense means an offense by the employee against the employer, any member of the employee’s family, or the employer’s duly authorized representative (Section 4(d)).
- Contractor is any person or entity (including cooperatives) engaged in legitimate contracting/subcontracting that provides services, skilled workers, temporary workers, or a combination of services to a principal under a Service Agreement (Section 4(e)).
- Contractor’s Employee refers to an employee employed by a contractor to perform or complete a job, work, or service pursuant to a Service Agreement with a principal, including regular contractor employees whose functions are not dependent on the performance or completion of a specific job/work/service (e.g., administrative staff) (Section 4(f)).
- Employee is any person in the employ of an employer, including one whose work has ceased due to a current labor dispute or due to an unfair labor practice (Section 4(g)).
- Employer refers to any person acting in the interest of an employer, directly or indirectly, including corporations, partnerships, sole proprietorships, and cooperatives (Section 4(h)).
- Fraud means an act, omission, or concealment involving breach of legal duty, trust, or confidence justly reposed, injurious to another (Section 4(i)).
- Gross Neglect means absence of the diligence an ordinary prudent man would use in his/her own affairs (Section 4(j)).
- Habitual Neglect means repeated failure to perform duties over a period of time, depending on the circumstances (Section 4(k)).
- Insubordination means willful or intentional disregard of lawful and reasonable instructions through refusal to obey an order a superior is entitled to give and have obeyed (Section 4(l)).
- Installation of Labor-saving Devices means reduction of the number of workers made necessary by introduction of labor-saving machinery or devices (Section 4(m)).
- Loss of Confidence is a condition from fraud or willful breach of trust by an employee of trust reposed in him/her by the employer; it includes two classes: (1) managerial employees or those vested with power to lay down management policies, and (2) cashiers, auditors, property custodians, or those who regularly handle significant amounts of money or property in routine functions (Section 4(n)).
- Misconduct means transgression of an established and definite rule of action, forbidden act, or dereliction of duty, willful in character, implying wrongful intent and not mere error in judgment (Section 4(o)).
- Principal is any employer (including government agencies and government-owned or controlled corporations) who puts out or farms out a job, service, or work to a contractor (Section 4(p)).
- Redundancy means services of an employee are in excess of what is reasonably demanded by actual requirements of the enterprise or superfluous (Section 4(q)).
- Retrenchment means an economic ground for dismissing employees to avoid or minimize business losses (Section 4(r)).
Due process for just and authorized causes
- Termination due to just causes requires two written notices to the employee, consistent with Article 297 and due process under Article 299 (b) (Section 5.1).
- For just causes, the first written notice must include:
- the specific causes/grounds for termination under Article 297 and company policies (if any);
- detailed narration of facts and circumstances supporting the charge (general description is insufficient);
- a directive giving the employee opportunity to submit a written explanation within a reasonable period (Section 5.1(a)).
- A reasonable period is construed as at least five (5) calendar days from receipt of the notice to study the accusation, consult or be represented by a lawyer or union officer, gather evidence, and decide on defenses (Section 5.1(a)).
- After serving the first notice for just causes, the employer must afford an employee ample opportunity to be heard, meaning a meaningful opportunity (verbal or written) to answer charges and submit evidence, whether in a hearing, conference, or other fair, just, reasonable way (Section 5.1(b)).
- A formal hearing or conference becomes mandatory only when requested by the employee in writing, when substantial evidentiary disputes exist or when a company rule/practice requires it, or when similar circumstances justify it (Section 5.1(b)).
- After determining termination is justified for just causes, the employer must serve a written notice of termination stating that all circumstances have been considered and the grounds are established to justify severance (Section 5.1(c)).
- The notices must be served personally to the employee or to the employee’s last known address (Section 5.1(c)).
- For authorized causes, due process is deemed complied with upon service of a written notice to the employee and the appropriate Regional Office of DOLE at least thirty days (30) before termination effectivity, specifying the ground(s) (Section 5.3).
Standards for just causes
- An employer may terminate for just causes only on grounds that satisfy specific standards under Section 5.2, requiring the stated elements be present.
- Serious Misconduct requires: (1) misconduct; (2) misconduct of grave and aggravated character; (3) relation to performance of employee’s duties; and (4) showing the employee becomes unfit to continue working (Section 5.2(a)).
- Willful Disobedience or Insubordination requires: (1) disobedience or insubordination; (2) willful/intentional with wrongful and perverse attitude; (3) the violated order is reasonable, lawful, and made known to the employee; and (4) the order pertains to duties the employee was engaged to discharge (Section 5.2(b)).
- Gross and Habitual Neglect of Duties requires neglect of duty and that the negligence is both gross and habitual (Section 5.2(c)).
- Fraud or Willful Breach of Trust requires: (1) an act/omission/concealment; (2) breach of legal duty, trust, or confidence justly reposed; (3) committed against the employer or the employer’s representative; and (4) committed in connection with the employee’s work (Section 5.2(d)).
- Loss of Confidence requires: (1) an act/omission/concealment; (2) an act that justifies loss of trust and confidence; (3) the employee holds a position of trust and confidence; (4) loss of trust is not simulated; (5) it is not used as a subterfuge for improper/illegal/unjustified causes; and (6) it is genuine and not a mere afterthought to justify earlier bad-faith action (Section 5.2(e)).
- Commission of a Crime or Offense requires: (1) an act or omission punishable/prohibited by law; and (2) commission against the person of the employer, a member of the employee’s immediate family, or the employer’s duly authorized representative (Section 5.2(f)).
- Analogous Causes require: (1) an act or omission similar to specified just causes; and (2) the act/omission is voluntary and/or willful; no act/omission qualifies as an analogous cause unless expressly specified in the company rules and regulations or policies (Section 5.2(g)).
Standards for authorized causes
An employer may terminate based on authorized causes only if the stated conditions in Section 5.4 are met for the specific authorized ground.
Installation of Labor-saving Devices requires:
- introduction of machinery, equipment, or other devices;
- introduction in good faith;
- a valid purpose such as saving cost, enhancing efficiency, and other justifiable economic reasons;
- no other option available to the employer than the introduction and resulting termination of affected employees; and
- fair and reasonable criteria in selecting employees to be terminated (Section 5.4(a)).
Redundancy requires:
- superfluous positions or services;
- positions/services in excess of reasonably demanded actual requirements for economical and efficient operation;
- good faith in abolishing redundant positions;
- fair and reasonable criteria in selecting employees for termination; and
- adequate proof of redundancy, including but not limited to: new staffing pattern; feasibility studies/proposal on viability of newly created positions; job description; and management approval of the restructuring (Section 5.4(b)).
Retrenchment or Downsizing requires:
- retrenchment is reasonably necessary and likely to prevent business losses;
- losses are not merely de minimis but substantial, serious, actual and real, or if expected, are reasonably imminent;
- expected/actual losses are proved by sufficient and convincing evidence;
- retrenchment is in good faith for the advancement of the employer’s interest and not to defeat or circumvent employees’ security of tenure; and
- fair and reasonable criteria in deciding who is dismissed/retained, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers (Section 5.4(c)).
Closure or Cessation of Operation requires:
- a management decision to close or cease enterprise operations;
- the decision is made in good faith; and
- there is no other option available to the employer except to close or cease operations (Section 5.4(d)).
Disease requires:
- the employee is suffering from any disease;
- continued employment is prohibited by law or prejudicial to health of the employee and co-employees; and
- certification by a competent public health authority that the disease is incurable within a period of six (6) months even with proper medical treatment (Section 5.4(e)).
For installation of labor-saving devices, redundancy, and retrenchment, the Last-In, First-Out Rule applies except when an employee volunteers to be separated (Section 5.4(e)).
Separation pay and payment rules
Separation pay is required for employees terminated due to:
- installation of labor-saving devices;
- redundancy;
- retrenchment;
- closure or cessation of operations not due to serious business losses or financial reverses; and
- disease (Section 5.5).
Separation pay for termination due to:
- installation of labor-saving devices or redundancy is at least one (1) month pay or at least one (1) month pay for every year of service, whichever is higher; a fraction of six (6) months service is considered as one (1) whole year (Section 5.5).
- retrenchment is at least one (1) month pay or at least one-half (A12) month pay for every year of service, whichever is higher; a fraction of six (6) months service is considered as one (1) whole year (Section 5.5).
- closure or cessation of business operation not due to serious business losses is at least one (1) month pay or at least one-half (A12) month pay for every year of service, whichever is higher; a fraction of six (6) months service is considered as one (1) whole year (Section 5.5).
- serious business losses or financial reverses due to closure requires no separation pay (Section 5.5).
- disease is at least one (1) month salary or at least one-half (A12) month salary for every year of service, whichever is higher; a fraction of six (6) months service is considered as one (1) whole year (Section 5.5).
Additional termination grounds and protections
- Employers may terminate employees based on reasonable and lawful grounds specified under company policies, in addition to the termination causes under Section 4 (Section 6).
- An employee positive for use of dangerous drugs is dealt with administratively, and such positivity is a ground for suspension or termination (Section 6).
- An employee shall not be terminated from work based on actual, perceived, or suspected HIV status (Section 6).
- An employee shall not be terminated based on actual, perceived, or suspected Hepatitis B status (Section 6).
- An employee who has or had Tuberculosis must not be discriminated against; the employee must be allowed to work as long as certified by the company’s accredited health provider as medically fit and must be restored to work as soon as illness is controlled (Section 6).
- Sexual harassment is treated as a serious misconduct and is considered reprehensible, especially when inflicted by those with moral ascendancy over the victim (Section 6).
- An employee may also be terminated based on grounds provided under the Collective Bargaining Agreement (CBA) (Section 7).
Mandatory conciliation-mediation and arbitration steps
- All disputes arising out of termination of employment are subject to mandatory conciliation-mediation under Republic Act No. 10396 and its Implementing Rules and Regulations (Section 8).
- Requests for assistance involving issues arising from termination based on just or authorized cause must be lodged before the Single Entry Assistance Desk Officers (SEADOs) at the Regional/Provincial/Field Offices of DOLE or its attached agencies, following the implementing rules of Republic Act No. 10396 (Section 8).
- In case of settlement, the Desk Officer must reduce the agreement into writing, ensure the parties understand the contents, have the parties sign in the Desk Officer’s presence, and attest the document as the parties’ true and voluntary act (Section 8).
- For organized establishments, disputes must undergo grievance machinery under the CBA; if no agreement results, parties may refer the matter to conciliation-mediation under the Single Entry Approach (SEnA) or agree to voluntary arbitration consistent with Articles 274 and 275 of the Labor Code, as amended (Section 8).
- Any settlement agreement reached before the Desk Officer is final and binding (Section 9).
- If no agreement is reached during conciliation-mediation, the request is referred to compulsory arbitration, or to voluntary arbitration if both parties agree (Section 9).
- No Labor Arbiter takes cognizance of a complaint for illegal dismissal unless there is a referral from the Desk Officer under the implementing rules of Republic Act No. 10396 (Section 10).
- If a settlement agreement is not complied with by the employer or employee, its terms may be enforced by requesting the Desk Officer to refer the agreement to the proper Regional Arbitration Branch (RAB) of the NLRC for enforcement pursuant to Rule V, Section 1 (i) of the 2005 Revised NLRC Rules, as amended; the RAB dockets it as an arbitration case for enforcement (Section 11).
- The employee or employer may disregard the settlement agreement and file an appropriate case before the proper forum (Section 11).
Repeal, separability, and continuing effects
- Section 2 repeals Section 2(4), Section 7, Section 8, Section 9, Section 10, and Section 11 of Rule I, Book VI of the Implementing Rules and Regulations of the Labor Code, as amended (Section 2).
- All other rules and regulations issued by the Secretary of Labor and Employment inconsistent with the Rules are superseded (Section 2).
- Section 3 provides separability: if any provision or portion is declared void or unconstitutional, the remaining provisions remain valid and effective (Section 3).