As an entrepreneur expanding your business and recruiting people, you will eventually be tasked to let go of employees that are not performing well or don\\\'t fit with the culture of the start-up.
When dismissing an employee, the law not only requires a valid or an authorized cause but enjoins the employer to give him procedural due process.
An employee may be dismissed based on a just cause for serious misconduct or disobedience, gross negligence, breach of trust or commitment of a crime. On the other hand, he may be dismissed for an authorized cause if his employer has installed labor-saving devices to cut labor costs, his services are redundant, his employer must retrench people to prevent further losses, the business has closed or ceased operations, or the worker is suffering from a disease that puts other employers at risk.
If the employee’s dismissal is based on a just cause, the employer must serve him notice specifying the grounds for it, give him an opportunity to be heard, and after the hearing notify him of the decision to dismiss after considering all matters relevant to his case. If the employee’s dismissal is based on an authorized cause, the employer must give the employee and the Department of Labor and Employment written notices 30 days before the employee’s separation from service takes effect, and then give him his separation pay.
Four possible situations may arise when an employee is dismissed for a just cause or an authorized cause: the dismissal is for a just cause or an authorized cause and due process was observed; the dismissal is without just or authorized cause but due process was observed; the dismissal is without just or authorized cause and there was no due process; the dismissal is for a just or authorized cause but due process was not observed.
In the first situation, the dismissal is valid, hence the employer is free from liability. In the second and third situations, the dismissals are clearly illegal: the employee must be reinstated without loss of seniority rights and other privileges and with full back wages, allowances and other benefits. If reinstatement is no longer possible, the employee may be granted separation pay as an alternative.
In the fourth situation, the courts have upheld various rulings. Before 1989, an employee’s termination was regarded as illegal if his employer had failed to notify him about it. But this long-standing rule was reversed in the 1989 case of Wenphil Corp. versus the National Labor Relations Commission, where the court declared that the dismissed employee was not entitled to reinstatement and back wages because he had been separated for grave misconduct and insubordination. (The court nevertheless held the employer accountable for failing to give the employee his right to an investigation before dismissing him, and ordered him to pay the employee P1,000 as compensation. This case became known as the Wenphil or Belated Due Process Rule.)
On January 27, 2000, in the case of Serrano versus the National Labor Relations Commission, a court held that while an employer’s violation of the notice requirement before terminating an employee for a just or an authorized cause does not nullify the termination, the dismissal is still ineffective. The Serrano ruling confronted employers’ predilection for dismissing now and paying later by imposing full payment of back wages, but critics slammed it allegedly for inviting situations where even the most notorious violators of company policy were rewarded by simply invoking due process. As a result, in November 2004, in the case of Agabon versus the National Labor Relations Commission, the Supreme Court abandoned the Serrano doctrine and embraced Wenphil in cases involving dismissals for just cause but without notice or hearing, imposing on the employer sanctions heavier than those imposed in the Wenphil case.
Thus it is clear that when an employee is dismissed for a just or an authorized cause, the lack of procedural due process does not nullify his dismissal, but the employer must indemnify him in the form of nominal damages for violating his statutory rights. This indemnity is intended not to penalize the employer but to recognize the employee’s right to statutory due process that his employer had violated.
This article was originally published in the April 2005 issue of Entrepreneur Philippines.