Not every termination is for a fault of the employee; the Labor Code allows termination for authorized causes, which are business or economic reasons, and these generally entitle the affected employees to separation pay. The authorized causes are: installation of labor-saving devices; redundancy (a position is superfluous); retrenchment to prevent losses (a cost-cutting measure to avoid or minimize business losses); the closing or cessation of business operations; and disease, where continued employment is prohibited by law or prejudicial to health. For any of these, the employer must serve a written notice to both the affected employees and the Department of Labor and Employment at least one month before the intended date. The amount of separation pay depends on the cause: for installation of labor-saving devices and redundancy, it is one month pay or at least one month pay per year of service, whichever is higher; for retrenchment, closure not due to serious losses, and disease, it is one month pay or at least one-half month pay per year of service, whichever is higher. A fraction of at least six months is generally counted as one whole year. An important exception: if the closure is due to serious business losses that are duly proven, the employer may not be required to pay separation pay. So authorized-cause terminations are lawful when the requisites are met, but they generally come with separation pay and proper notice.
Authorized Causes
- Installation of labor-saving devices;
- Redundancy (a superfluous position);
- Retrenchment to prevent losses;
- Closure or cessation of business; and
- Disease where continued work is prohibited or harmful.
Notice Requirement
The employer must give written notice to both the employees and DOLE at least one month before the intended date.
How Much Separation Pay
- Labor-saving devices / redundancy — one month per year of service (or one month), whichever is higher;
- Retrenchment, closure (not from serious losses), disease — one-half month per year (or one month), whichever is higher;
- Serious proven losses — separation pay may not be required.
Practical Takeaways
- Authorized-cause terminations are for economic reasons, with separation pay;
- Give one-month notice to employees and DOLE;
- Rate depends on the cause; serious proven losses can excuse pay.
Frequently Asked Questions
What are the authorized causes of termination? Installation of labor-saving devices, redundancy, retrenchment to prevent losses, closure or cessation of business, and disease where continued employment is prohibited by law or harmful to health.
How much separation pay is due? For labor-saving devices and redundancy, one month pay or one month per year of service, whichever is higher. For retrenchment, closure not due to serious losses, and disease, one month pay or one-half month per year of service, whichever is higher.
What notice is required for closure or retrenchment? A written notice to both the affected employees and the Department of Labor and Employment at least one month before the intended date of termination.
Is separation pay always required when a business closes? Not always. If the closure is due to serious business losses that are duly proven, the employer may not be required to pay separation pay.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.