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Primer on Employee Discipline and Termination

Primer on Employee Discipline and Termination

A. SUBSTANTIVE DUE PROCESS

The two most commonly used grounds for termination of employee are the Authorized Causes under Article 283 and 284 of the Labor Code, and the Just Causes under Article 282. Below are the authorized causes for termination of employment.

Just causes, on one hand, for dismissal of employee may be defined as those lawful or valid grounds for termination of employment which arise from causes directly attributable to the fault or negligence of the erring employee. Just causes are usually serious or grave in nature and attended by willful or wrongful intent or they reflected adversely on the moral character of the employees. Authorized causes, on the other, refer to those lawful grounds for termination which in general do not arise from fault or negligence of the employee.

“Authorized causes” under Article 283 are distinguished from “just causes” under Article 282 in that the latter are always based on acts attributable to the employee’s own fault or negligence.

Just Causes

Just causes for termination under the Labor Code is found in Article 282 and enumerated here as follows:

1. Serious misconduct – serious misconduct is an improper conduct willful in character and of such grave nature that transgressed some established and definite rule of action in relation to the employee’s work.

2. Willful disobedience to lawful orders – the employees are bound to follow reasonable and lawful orders of the employer which are in connection with their work. Failure to do so may be a ground for dismissal or other disciplinary action.

3. Gross and habitual neglect of duties – gross negligence has been defined as the want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them.

4. Fraud or willful breach of trust / Loss of confidence – fraud is any act, omission, or concealment which involves a breach of legal duty, trust, or confidence justly reposed and is injurious to another.

5. Commission of a crime or offense – commission of a crime or offense by the employee against his employer or any immediate member of his family or his duly authorized representative, is a just cause for termination of employment.

6. Analogous causes – other causes analogous to the above grounds may also be a just cause for termination of employment.

Analogous Causes

1. Abandonment – abandonment of job is a form of neglect of duty. There is abandonment when the employee leaves his job or position with a clear and deliberate intent to discontinue his employment without any intention of returning back.

2. Gross inefficiency – gross inefficiency is analogous to and closely related to gross neglect for both involve acts or omissions on the part of the employee resulting in damage to the employer or to his business.

3. Disloyalty/conflict of interest – disloyalty exists when one asserts an interest, or performs acts adverse to one’s employer, such as secretly engaging in a business which renders him a competitor and rival of his employer. It constitutes a breach of an implied condition of the contract of employment.

4. Dishonesty – acts of dishonesty deemed to be patently inimical to the employer is analogous to breach of trust and is a valid cause for termination of employment.

No Separation Pay

An employee who is terminated from employment for a just cause is not entitled to payment of separation benefits. Section 7, Rule I, Book VI, of the Omnibus Rules Implementing the Labor Code provides:

“Sec. 7. Termination of employment by employer. – The just causes for terminating the services of an employee shall be those provided in Article 282 of the Code. The separation from work of an employee for a just cause does not entitle him to the termination pay provided in Code, without prejudice, however, to whatever rights, benefits and privileges he may have under the applicable individual or collective bargaining agreement with the employer or voluntary employer policy or practice.”

Authorized Causes

The authorized causes for termination of employee are enumerated under Article 283 and 284 of the Labor Code, as follows:

1. Installation of Labor-Saving Devices;
2. Redundancy
3. Retrenchment to Prevent Losses
4. Closure or Cessation of Operation
5. Disease

The above enumeration is not an exhaustive list of authorized causes of termination of employment. Valid application of union security clause, relocation of business, among others, may also considered authorized causes of termination.

1. Installation of Labor-Saving Devices

The installation of labor-saving devices contemplates the installation of machinery to effect economy and efficiency in the method of production.

The law authorizes an employer to terminate the employment of any employee due to the installation of labor saving devices. The installation of these devices is a management prerogative, and the courts will not interfere with its exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of management. The installation of labor-saving devices contemplates the installation of machinery to effect economy and efficiency in the method of production.

Separation Pay

Under Article 283 of the Labor Code, in case of termination due to the installation of labor saving devices, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one month pay or to at least one month pay for every year of service, whichever is higher.

2. Redundancy

Redundancy is one of the authorized causes for termination of employment under Article 283 of the Labor Code of the Philippines. Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. A position is redundant where it superfluous, and superfluity of a position or positions may be the outcome of a number of factors, such as over hiring of workers, decreased of volume business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise.
In Wiltshire File Co., v. NLRC, the Court held that an employer has no legal obligation to keep on the payroll employees more than the number needed for the operation of the business.

Requirements of a Valid Redundancy Program
The employer must comply with the following requisites to ensure the validity of the implementation of a redundancy program:
1. A written notice served on both the employees and the Department of Labor and Employment (DOLE) at least one month prior to the intended date of retrenchment as required by the Labor Code;

2. Payment of separation pay equivalent to at least one month pay or at least one month pay for every year of service, whichever is higher;

3. Good faith in abolishing the redundant positions; and

4. Fair and reasonable criteria in ascertaining what positions are to be declared redundant and accordingly abolished.

Separation Pay
Under the Labor Code, in case of termination due to redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher.

Duplication of Work Not Necessary
Redundancy does not necessarily refer to duplication of work. That no other person was holding the same position prior to the termination of the employee’s services does not mean that his position had not become redundant. Indeed, in any well-organized business enterprise, it would be surprising to find duplication of work and two or more people doing the work of one person. In redundancy, what is looked into is the position itself, the nature of the services performed by the employee and the necessity of such position.

3. Retrenchment to Prevent Losses

Retrenchment is an economic ground to reduce the number of employees. Retrenchment is the reduction of personnel for the purpose of cutting down on costs of operations in terms of salaries and wages resorted to by an employer because of losses in operation of a business occasioned by lack of work and considerable reduction in the volume of business. It is sometimes also referred to as downsizing. It is aimed at saving a financially ailing business establishment from eventually collapsing.

Retrenchment is sometimes also referred to as downsizing. It is aimed at saving a financially ailing business establishment from eventually collapsing.

Basic Requisites of Valid Retrenchment
To justify retrenchment, the following requisites must be complied with:
1. The retrenchment must be necessary to prevent business losses; and
2. The business losses sought to be prevented are serious, actual and real.

The following are the general standards to determine whether the business losses sought to be prevented are serious, actual and real, and sufficient to justify retrenchment of employees:
1. The losses expected should be substantial and not merely de minimis in extent;
2. The losses apprehended must be reasonably imminent;
3. The alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proven by sufficient and convincing evidence.

Separation Pay
Under the Labor Code, in case of retrenchment to prevent losses, the separation pay shall be equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered one whole year.

4. Closure or Cessation of Operation

The closure of a business establishment is a ground for the termination of the services of an employee unless the closing is for the purpose of circumventing pertinent provisions of the Labor Code.

Closure of business is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses. Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped.

Total or Partial Closure of Business
Closure or cessation of business may mean either total closure or partial closure, as in the case of abolition of only a department or section of the establishment or of only a part of company activities. In either case, the right of the employer to terminate employee affected by the closure has been recognized.

Cessation Strictly Management Prerogative
Cessation of business is strictly management prerogative. No law can compel a company to continue operation. The management may decide to cease operation for whatever reason it deems proper, as long as it is done in good faith.
In Mac Adams Metal case, the court reiterated to wit:
“Just as no law forces anyone to go into business, no law can compel anybody to continue in it. It would indeed be stretching the intent and spirit of the law if we were to unjustly interfere with the management’s prerogative to close or cease its business operations just because said business operation or undertaking is not suffering from any loss or simply to provide the workers continued employment.”
The reason for cessation need not be financial losses or drain, as long as it is done in good faith and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement. Article 283 of the Labor Code does not require that the cessation be due to serious business reverses.
The cause of cessation, whether it is due to financial losses or not, is material only in the determination of entitlement to separation pay.
In Maya Farms Employees Organization vs. NLRC, the Court held that even if the employer is not suffering from business losses, it can still resort to closure of business as long as the company’s exercise of the same is done in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement such exercise will be upheld.

Separation Pay
Under the Labor Code, in case of retrenchment and closures not due to serious financial reverses, the employee shall be entitled to separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher.
If the closure is due to business losses, there is no obligation on the part of the employer to pay separation benefits to employees.

5. Disease

An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees.

Under Article 284 of the Labor Code, an employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees.

Requisites for termination on the ground of disease.

1. The employee suffers from a disease;
2. His continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees; and
3. The disease is of such nature and at such a stage that it cannot be cured within a period of six months even with proper medical treatment.

Certification from public health authority required

Certification by competent public health authority that the disease is of such nature and of at such a stage that it cannot be cured within a period of six months even with proper medical treatment.

Right to reinstatement if disease is curable with six months

If the disease or ailment can be cured within six months, the employer shall not terminate the employee but shall ask the employee to take a leave of absence.
The employee is entitled to be reinstated to his former position immediately upon the restoration of his normal health.

B. PROCEDURAL DUE PROCESS

For termination of employment based on just causes, under Art. 277[b] and Sec 2, Rule I, Book VI, IRR, procedural due process requires that the employee be given the benefit of the so-called twin-notice and hearing, as follows:

1. First notice: Notice to Explain (NTE) or order to show cause. A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to explain his side.

2. Hearing or formal investigation A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him.

3. Second notice: Notice of decision. A written notice of termination served on the employee indicating that upon due consideration of all the circumstances, grounds have been established to justify his termination.

Service of Notices

In case of termination, the employee must be personally served with notices (notice to show cause and notice of termination). Ideally, this should be done by personally handing a copy of the notice to the employee concerned. However, if this is not possible, the notices may be served on the employee’s last known address either by ordinary or registered mail (from legal viewpoint, registered mail is preferred).

The mere posting of the notice on the bulletin board is not sufficient compliance.
If the employee refused to receive notice, the employer must serve the same by registered mail at his last known address.

Opportunity to Respond

The very purpose of requiring the employer to observe proper termination process is to give the employee ample opportunity to respond to the charges against him or to defend himself. What the law require is ample opportunity. It means every kind of assistance that management must accord the employee to enable him to prepare adequately for his defense including legal representation.

The Supreme Court has construed this period to mean five (5) days from receipt of the show cause notice. The procedural requirements, as summarized by the Supreme Court in the case of King of Kings Transport v. Mamac, are:

“(1) The first written notice to be served on the employees should contain the specific causes or grounds for termination against them, and a directive that the employees are given the opportunity to submit their written explanation within a reasonable period. Reasonable opportunity under the Omnibus Rules means every kind of assistance that management must accord to the employees to enable them to prepare adequately for their defense. This should be construed as a period of at least five (5) calendar days from receipt of the notice to give the employees an opportunity to study the accusation against them, consult a union official or lawyer, gather data and evidence, and decide on the defenses they will raise against the complaint. Moreover, in order to enable the employees to intelligently prepare their explanation and defenses, the notice should contain a detailed narration of the facts and circumstances that will serve as basis for the charge against the employees. A general description of the charge will not suffice. Lastly, the notice should specifically mention which company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged against the employees.

(2) After serving the first notice, the employers should schedule and conduct a hearing or conference wherein the employees will be given the opportunity to: (1) explain and clarify their defenses to the charge against them; (2) present evidence in support of their defenses; and (3) rebut the evidence presented against them by the management. During the hearing or conference, the employees are given the chance to defend themselves personally, with the assistance of a representative or counsel of their choice. Moreover, this conference or hearing could be used by the parties as an opportunity to come to an amicable settlement.

(3) After determining that termination of employment is justified, the employers shall serve the employees a written notice of termination indicating that: (1) all circumstances involving the charge against the employees have been considered; and (2) grounds have been established to justify the severance of their employment.”

Requirements for First Notice (NTE)

The first notice informing the employee of the charges against him should set out clearly what he is being held liable for. It should neither be pro-forma nor vague. This is consistent with the requirement that the employee should be afforded ample opportunity to be heard and not mere opportunity.

Moreover, the dismissal, if necessary, must be based on the same grounds cited in the NTE. If the dismissal is based on grounds other than those specified in the notice, he is deemed to have been deprived of due process.

Effect of Refusal of Employee to Participate in Investigation

By the refusal of employee to participate in the investigation, he is deemed to have waived his right to defend himself.

Effects or Consequences of Termination

1. If dismissal is for just cause and with prior notice and hearing, the dismissal is valid;
2. If the dismissal is for just cause but without prior notice and hearing, the dismissal is valid but the employer may be required to pay nominal damages to the dismissed employee; and
3. If there is no just cause for dismissal, whether or not there is prior notice and hearing, the dismissal is illegal. The employee is entitled to reinstatement, back

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