Just and Authorized Causes of Termination

Termination of employment is a sensitive and highly regulated area of Philippine labor law. The Labor Code, as amended, provides a comprehensive framework for when and how an employer may lawfully end the employment relationship. These grounds are classified into just causes (attributable to the employee’s fault or misconduct) and authorized causes (arising from business exigencies or circumstances beyond the employee’s control). Understanding these grounds, their legal definitions, elements, and how they are applied in real cases is crucial for both employers and employees.

I. Just Causes for Termination

Just causes are reasons for dismissal that arise from the employee’s own acts or omissions. The law enumerates these in Article 297 (formerly Article 282) of the Labor Code, as amended by Batas Pambansa Blg. 130 (1981):

1. Serious Misconduct

Misconduct is the transgression of some established and definite rule of action, a forbidden act, a dereliction of duty, willful in character, and implies wrongful intent, not mere error in judgment.

Elements:

• There must be misconduct;

• The misconduct must be grave and aggravated in character;

• It must relate to the performance of the employee’s duties; and

• It must show that the employee becomes unfit to continue working for the employer.

  
  

Scenario: A teacher, while on maternity leave, altered the grades of students without authority, violating school policy.

The Supreme Court, however, found that her actions, though improper, were not grave enough to constitute serious misconduct justifying dismissal, especially as they were motivated by humanitarian considerations. Dismissal was thus held illegal (National Labor Relations Commission v. Salgarino (2006)).

2. Willful Disobedience of Lawful Orders

Willful disobedience refers to the intentional and deliberate refusal to obey a lawful and reasonable order of the employer in relation to the employee’s work.

Elements:

• The order must be reasonable and lawful;

• It must pertain to the duties the employee has been engaged to discharge; and

• There must be a willful or intentional refusal to obey.

  
  

Scenario: An employee repeatedly ignores company policies on attendance despite warnings. The employer issues a clear directive to comply, but the employee continues to disregard it. This persistent refusal may constitute willful disobedience.

3. Gross and Habitual Neglect of Duties

Gross neglect is the absence of that diligence that an ordinarily prudent man would use in his own affairs. Habitual neglect means repeated failure to perform duties over a period of time.

Elements:

• There must be neglect of duty;

• The neglect must be both gross and habitual.

  
  

Scenario: A security guard fails to report for work on multiple occasions without valid reason, resulting in security lapses. The employer documents these repeated absences and warnings. The Supreme Court has held that abandonment of work requires both failure to report for work and a clear intention to sever the employment relationship (Alert Security and Investigation Agency, Inc. v. Pasawilan (2011)).

4. Fraud or Willful Breach of Trust

Fraud involves any act, omission, or concealment involving a breach of legal duty, trust, or confidence justly reposed, resulting in damage to another. Willful breach of trust refers to intentional acts that betray the employer’s trust.

Elements:

• The employee must occupy a position of trust and confidence;

• There must be an act that justifies the loss of trust and confidence;

• The act must be willful and founded on clearly established facts.

  
  

Scenario: A cashier is discovered to have manipulated sales records to pocket company funds. The employer’s investigation uncovers clear evidence of the fraudulent act, justifying dismissal for loss of trust.

5. Commission of a Crime or Offense Against the Employer or His Family

Definition:This ground covers acts constituting a crime or offense against the person of the employer, his immediate family, or duly authorized representative.

Elements:

• The employee must have committed a crime or offense;

• The crime must be against the employer, his family, or representative.

  
  

Scenario:An employee physically assaults the employer during a heated argument at the workplace. This act is a clear ground for dismissal.

6. Other Causes Analogous to the Foregoing

This catch-all provision covers acts similar in nature to the enumerated just causes.

Elements:

• The cause must be analogous to those specifically listed;

• It must involve wrongful intent or gross negligence.

  
  

Scenario: An employee is found to have repeatedly falsified time records, an act not specifically listed but analogous to fraud and willful breach of trust.

II. Authorized Causes for Termination

Authorized causes are grounds for termination not due to the employee’s fault, but due to business or health reasons. These are found in Articles 298 and 299 (formerly Articles 283 and 284) of the Labor Code, as amended by Batas Pambansa Blg. 130 (1981):

1. Installation of Labor-Saving Devices

The introduction of machinery or equipment that renders some employees redundant.

Elements:

• Introduction of machinery or devices;

• The devices must be intended to save on labor costs;

• The installation must be done in good faith;

• There must be no other option available to the employer.

  
  

Scenario:A manufacturing company automates its assembly line, resulting in the displacement of several workers whose functions are now performed by machines.

2. Redundancy

Redundancy exists when the services of an employee are in excess of what is required by the enterprise.

Elements:

• The position is superfluous or in excess of what is needed;

• The redundancy is done in good faith;

• There is fair and reasonable criteria in selecting employees to be terminated;

• Payment of separation pay.

Scenario: A company merges two departments, resulting in overlapping functions. Employees whose positions are duplicated are declared redundant and terminated with separation pay (Philippine Airlines Inc. v. NLRC (1998)).

3. Retrenchment to Prevent Losses

Retrenchment is the reduction of personnel to prevent business losses.

Elements:

• The retrenchment is necessary and likely to prevent losses;

• The losses are substantial, actual, and not merely de minimis or expected;

• The retrenchment is done in good faith;

• There is fair and reasonable criteria in selecting employees to be retrenched;

• Payment of separation pay.

Scenario: A hotel experiences a drastic drop in occupancy due to a pandemic, resulting in significant financial losses. To prevent closure, it retrenches a portion of its workforce.

4. Closure or Cessation of Business

The complete or partial cessation of business operations.

Elements:

• The closure is bona fide and not intended to circumvent the law;

• Payment of separation pay, except when closure is due to serious business losses.

Scenario: A retail store chain decides to close several branches due to poor sales performance. Affected employees are terminated and paid separation pay.

5. Disease

An employee may be terminated if he is found to be suffering from a disease and his continued employment is prohibited by law or prejudicial to his health or that of his co-employees.

Elements:

• The employee is found to be suffering from a disease;

• Continued employment is prohibited by law or prejudicial to health;

• Certification by a competent public health authority;

• Payment of separation pay.

Scenario:An employee is diagnosed with a contagious disease, and a public health authority certifies that continued employment poses a risk to others. The employer terminates the employee with payment of separation pay (Presidential Decree No. 442 (1974), Art. 323).

III. Procedural Due Process

Regardless of the ground, procedural due process must be observed:

• For just causes: Two written notices and an opportunity to be heard (Agabon v. NLRC (2004); Paz v. Northern Tobacco Redrying Co. (2015)).

• For authorized causes: Written notice to the employee and the Department of Labor and Employment at least 30 days before the effectivity of termination.

The grounds for termination under the Labor Code are strictly construed to protect the employee’s right to security of tenure. Employers must ensure that dismissals are based on valid grounds, substantiated by evidence, and carried out with due process. Failure to comply exposes employers to liability for illegal dismissal, including reinstatement, backwages, and damages.

References:

• Presidential Decree No. 442 (1974)

• Batas Pambansa Blg. 130 (1981)

• Agabon v. NLRC (2004)

• Paz v. Northern Tobacco Redrying Co. (2015)

• National Labor Relations Commission v. Salgarino (2006)

• Philippine Airlines Inc. v. NLRC (1998)

• Alert Security and Investigation Agency, Inc. v. Pasawilan (2011)

Termination of Employee by Employer

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. While we strive to provide accurate and up-to-date information, this article may not reflect the most current legal developments or interpretations. Readers are encouraged to consult with a legal counsel for advice regarding their specific legal issues or concerns. The authors and publishers of this article disclaim any liability for actions taken or not taken based on the content of this article.