Short answer. A diagnosis alone is not enough. The law allows termination for disease only where continued employment is prohibited by law, or is prejudicial to your health as well as to your co-employees' health. Simply having a condition, without one of those, does not satisfy the ground as written.
What the law says
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 to the health of his co-employees
Labor Code, Article 284 — Disease As A Ground. Read the full provision →
What the ground actually requires
The provision does not authorize termination simply because an employee has been found to be suffering from any disease. That finding is only the first part. It must also be true that continued employment is prohibited by law, or is prejudicial to his health as well as to the health of his co-employees. A diagnosis on its own, without either of those additional conditions, does not by itself satisfy what the provision sets out.
Being able to work is not addressed directly
The statute does not frame the ground in terms of whether the employee can still perform the job; it frames it in terms of whether continued employment is legally prohibited or prejudicial to health. In practice, someone who is still capable of doing their work may nonetheless have continued employment be prejudicial to their health in ways that are not obvious day to day, or may not. That is a factual and medical question the bare wording of the law does not resolve on its own.
The separation pay condition attaches regardless
Where this ground is validly used, the law requires that the employee be paid separation pay equivalent to at least one month's salary or one-half month's salary for every year of service, whichever is greater, with a fraction of at least six months counting as a whole year. This is a condition written directly into the same sentence establishing the ground, not a separate benefit that has to be pursued independently.
What matters if this happens to you
If you are dismissed and the stated reason is a diagnosis, it is worth asking specifically what your employer is relying on beyond the diagnosis itself, whether it is a claimed legal prohibition or a claimed health prejudice, since the diagnosis by itself is not what the statute names as the ground. Whether you were still performing your duties without difficulty is relevant context, even though the statute's own language centers on prohibition or prejudice rather than on capacity to work.