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What the Labor Code says about dismissing employees

It must be done in good faith
By Entrepreneur Staff |

Planning to fire an employee? Letting go of someone is never easy and can be a nerve-wracking experience but is a necessary part of running a business. Apart from five ‘just causes’ that the employer may invoke, the Labor Code also allows four other valid reasons

Security of tenure is an advantage any employee has over a full-time entrepreneur, and any entrepreneur who was once an employee knows that losing one’s regular job is the biggest risk in being self-employed. Indeed, it’s hard to give up that regular income that comes every 15 days or so.

This idea is clear in the Labor Code of the Philippines, which provides in strong terms that in all cases of regular employment, the employer cannot terminate the services of an employee except for a just cause or when authorized under the said law. An employee who is dismissed in violation of this law is entitled to reinstatement without loss of seniority rights and other privileges and is also entitled to payment of his full back wages, inclusive of allowances and benefits or their monetary equivalent. This applies even to managerial or higher-ranking employees.

The law considers tenure as somewhat of a guarantee of permanent employment, for which the employee is entitled to a regular pay essential for subsistence. But the law also provides that hiring employees can be made on a probationary basis for a period not exceeding six months from the date the employee starts working, during which time the employer can decide whether the employee is fit for regular employment. Thus, a probationary employee may be terminated if he or she fails to meet the employer’s standards of work performance. The law provides, however, that a probationary employee must be informed clearly of the probationary nature of the employment and the fixed standards required for attaining regular status.

Any employee who is allowed to work after a probationary period is presumed to have attained regular status, and as such is entitled to all the rights of a regular employee. Such employee may then be dismissed only for a just or authorized cause.

The Labor Code specifically lists the following as just causes for termination:

1. Serious misconduct or willful disobedience by the employee of the lawful orders of his or her employer or the employer’s representative in connection with the employee’s work;

2. Gross and habitual neglect by the employee of his or her duties;

3. Fraud or willful breach by the employee of the trust reposed in him or her by the employer or the employer’s duly authorized representative;

4. Commission of a crime or offense by the employee against the person of his or her employer, any immediate member of his or her employer’s family, or his or her employer’s duly authorized representative; and

5. Other causes analogous to the foregoing.

All of the foregoing causes that stem from the employee’s questionable conduct and the circumstances around it are considered just or justifiable grounds for dismissal. It is important to remember, however, that the right of management to terminate an employee based on these grounds is not absolute. That right should be exercised in good faith. Employee rights will prevail if it is shown that the purpose of a dismissal is not legitimate but is simply meant to defeat the employee’s security of tenure. And in all cases, the penalty of termination must be shown to be commensurate to the acts committed.

This article was originally published in the July 2007 issue of Entrepreneur Philippines

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