CONSEQUENCES OF TERMINATION

I.

SEPARATION PAY
BACKGROUND
RA 1052 (OLD LAW)
GENERAL RULE: The employer may dismiss an employee with or without just cause
Condition: If dismissal was without just cause employer should:
(1.) Serve the 1-month advance notice on the employee, OR
(2.) Pay month salary for every year of service, whichever is longer.

AMOUNT OF SEPARATION PAY

1. Due to INTRODUCTION OF LABOR-SAVING DEVICE or of
REDUNDANCY, the separation pay is the higher amount of:
(a.) 1-month pay or
(b.) 1-month pay for every yr of service (a fraction of at
least 6 months considered as 1 yr)
2. Due to RETRENCHMENT or CLOSURE/CESSATION OF OPERATIONS
NOT DUE TO SERIOUS BUSINESS LOSSES or DISEASE, whichever is
higher of:
(a.) 1-month pay, or
(b.) month pay for every yr of service (a fraction of at
least 6 months considered as 1 yr)
3. If the closure/CESSATION of business is due to SERIOUS BUSINESS
LOSSES OR FINANCIAL REVERSESNO separation pay need be paid.

NOTE:
- It was only the FAILURE to serve such notice that would render the
employer for separation pay (not the fact that the employment was severed
w/o just cause).
- Employer may only be liable for separation pay & moral damages, but the
dismissed employee could NOT demand REINSTATEMENT.

COMPUTATION

LABOR CODE (PRESENT LAW)

GENERAL RULE: Continuance on the job
Exception: Payment of separation pay in lieu of the job
- Requires a VALID REASON to terminate an employment
- No valid reason = No termination

The salary base used in computing the separation pay should include:
1. Basic salary
2. Regular allowances
3. Transportation and Emergency allowance
but commissions may not be included or travels equivalent

FOUR WAYS/ CONTEXTS OF SEPARATION PAY

(1.) As employers statutory obligation in cases of legal termination due to
authorized causes
(2.) As financial assistance, as an act of social justice, even in case of legal
dismissal, at courts discretion
(3.) In lieu of reinstatement in illegal dismissal cases where the employee is
ordered reinstatement but not feasible
(4.) As an employment benefit granted in a CBA or company policy
(1.) AS EMPLOYERS STATUTORY OBLIGATION IN CASES OF LEGAL
TERMINATION DUE TO AUTHORIZED CAUSES
-

Causes are not faults of the employees but exigencies of the

business disease, it is only fair in the context of social justice

(2.) AS FINANCIAL ASSISTANCE, AS AN ACT OF SOCIAL JUSTICE, EVEN IN

CASE OF LEGAL DISMISSAL, AT COURTS DISCRETION UNDER 282;
-

This serves as an exception, when an EE who commits any of the

acts enumerated in Art 282 (just causes), making his termination
legal (ordinarily the ER need not pay him separation pay). This is
paid if the act committed by the EE does not amount to serious
misconduct or does not reflect of the EEs moral character.
It is NOT statutory requirement, but rather one out of compassion.
PLDT v NLRC & Abucay: Ms. Abucay, a traffic operator of PLDT,
was accused by 2 complainants of having received money from
them in exchange of her promise to facilitate approval of their
applications for telephone installation. Investigated & heard, she
was found guilty and was dismissed. The LA found her dismissal as

valid but nevertheless required PLDT to give her 1-months pay for
every year of her 10years of service as financial assistance.
Affirmed by the NLRC, it further said that the EE is sufficiently
punished for her dismissal. The grant of financial assistance is not
intended as a reward for her offense, but merely to help her for the
loss of ENT after working faithfully for PLDT for 10yrs.
Financial assistance based on compassionate justice was granted
even to an EE who was not dismissed but who had to RETIRE w/o
being covered by the company retirement plan.

Exceptions to Financial Assistance

1) Serious misconduct
2) Offense reflecting on his moral character
3) Fraud or willful breach of trust
4) Willful disobedience
5) Gross & habitual neglect of duties
6) Commission of a crime/offense against the person of the ER or any
immediate member of his family or his authorized rep
Labor court may grant separation pay for analogous causes
anchored on social justice
Separation pay is denied an admin mgr who was
dismissed after almost 3 yrs of service for arrogant,
uncompromising and hostile behavior toward the ER
(Tirazona v PET)
BUT when there is doubt that dishonesty was committed,
financial assistance may still be awarded to an EE who has rendered
long yrs of service based on the liberal construction of labor laws in
favor of the worker.
The court, in the interest of substantial justice, may revoke an award of
financial assistance by the LA/NLRC, even if the ER did not question such
grant.
Amount of Financial Assistance is by judicial determination based on the
circumstances of each case.
(3.) IN LIEU OF REINSTATEMENT IN ILLEGAL DISMISSAL CASES WHERE THE
EMPLOYEE IS ORDERED REINSTATEMENT BUT NOT FEASIBLE
(4.) AS AN EMPLOYMENT BENEFIT GRANTED IN A CBA OR COMPANY POLICY
-

Does not arise from legal or illegal dismissal but from nonadversarial
mode of leaving ones ENT, such as RESIGNATION. The benefits
demandability depends on the terms of the
a. CBA

b. Voluntary company policy

c. Established practice
BUT even if not granted by a company policy or practice,
resignation pay may still be awarded for equitable reason.
BACKWAGES
An illegally dismissed EE is entitled to either:
a. Reinstatement + Backwages; or
b. Separation pay + Backwages (if reinstatement is no longer possible).
[computed from the time of dismissal up to retirement age of 60].
Backwages presupposes illegal termination. It is restitution of earnings unduly
withheld from the EE because of illegal termination.
While generally an order of reinstatement carries w/ it an award of backwages,
the court may not only mitigate, but also absolve the ER from liability for
backwages where GF is evident.
SEPARATION PAY
Granted where reinstatement is no longer advisable
because of strained relations bet EE & ER
Basis of Computation:
Usually, the length of EEs service (separation pay in lieu
of reinstatement)
Designed to provide the EE w/ the wherewithal during the
period that he is looking for another job.

BACKWAGES
Represent compensation th
collected because of the unj

The actual period when he w

working
Designed to redress the inju
have accrued to the dismiss
dismissal & reinstatement.
It is a form of relief that resto
by reason of unlawful dismis

Oriented towards the immediate future, the transitional

period the dismissed EE must undergo before locating a
replacement job.
They are DISTINCT & SEPARATE, and one cannot be deducted from the other.
UNPAID SALARY
Refer to those earned PRIOR to dismissal
Ordered if there are still salaries collectible by the EE
form the ER by reason of services already rendered

BACKWAGES
Refer to those earnings lost A
dismissal.
Usually ordered w/ reinstatem

GR: As a substantive and statutory R, backwages may be granted by the court to an

illegally dismissed EE even if he fails to claim it.

: Except where the lower courts erroneous omission of the grant of backwages w/ a
finding of illegal dismissal has become final & executory on the failure of the
complainant to appeal the said decision. BUT in
St. Michaels Institute v Santos: The fact that the NLRC did not award backwages
to the EEs, or that they themselves did not appeal the NLRC decision does not
bar the CA from awarding backwages. The award of backwages is a mere logical
consequence of the finding that the EEs were illegally dismissed.

Basis of Computation of Backwages

An UNQUALIFIED award of backwages means that the EE is paid at a WAGE
RATE at the TIME of his dismissal.
The base figure to be used in the computation of backwages shld include not
just the basic salary, but also the regular allowances that the EE had been
receiving such as the ECOLA and the 13th MP mandated under the law.
Backwages shld be computed from the time of the illegal dismissal w/c is also
the time the EEs salary started to be withheld, up to the time of his actual
reinstatement.
OLD RULE: The award of backwages to an EE could be reduced by subtracting the
wages actually earned by him from ENT during the period of his separation, or
the wages w/c he could have earned had he been diligent enough to find a job.
The ER would be allowed to adduce evidence on these matters
and consequently cause suspension of execution of judgment. This not only
reduced the awarded backwages but also delayed its payment.
MERCURY DRUG RULE: Mercury Drug v CIR: The SC, in the interest of justice &
expediency, adopted the policy of granting backwages for a maximum period or
3 years w/o qualification & deduction.
RA 6715: (March 21, 1989): entitled an illegally dismissed EE to FULL backwages for
illegal dismissals that occurred after March 21, 1989.
Bustamante v NLRC & Evergreen. Backwages to be awarded to an illegally
dismissed EE shld NOT as a GR, be diminished or reduced by the earnings
derived by him elsewhere during the period of his illegal dismissal.
Inflation
2 Requisites for the effects of extraordinary inflation to apply:
1. Agreement bet the parties; and

2. Official declaration thereof by competent authorities.

If there is a legal & valid dismissal (for a valid reason), but ER does not observe
procedural due process ER must pay indemnity (penalty), the amount of w/c
depends on the facts of each case and the gravity of the omission committed by
the ER.The Wenphil Doctrine.
Damage w/c an ER shld pay if he violates an EEs R to procedural due process
prior to his dismissal for cause is in the nature of nominal damages (the purpose
is not to penalize the ER but to vindicate or recognize the R of the Ee.

Termination Legal but due process is not followed:

Wenphil Doctrine: Termination is still valid, but ER must pay INDEMNITY.
Serrano Ruling: Termination is still valid, but the Court raised the sanction from
indemnity to FULL BACKWAGES.
Viernes Ruling: Not only INDEMNITY + FULL BACKWAGES (The termination here
is invalid)
Agabon (present) : Termination is still valid, the EE remains dismissed, but the ER
must pay an indemnity HEAVIER than that imposed in Wenphil but LIGHTER
than full backwages.
JAKA ruling:refined Agabon. Whereas Agabons award of nominal damages does
not distinguish whether an EEs dismissal is based either on just or on
authorized causes, JAKA makes a distinction.
1. Dismissal based on JUST causes w/o due process the sanction to
be imposed upon him shld be tempered. Because the dismissal
process was, in effect, initiated by an act imputable to the EE;
2. Dismissal based on AUTHORIZED causes w/o due process the
sanction must be stiffer, because the dismissal was initiated by the
ERs exercise of his mgt prerogative.
Industrial Timber Ruling: refines further JAKA: subdivided the authorized causes:
1. Due to losses penalty to the ER who disregarded due process is
lighter
2. Not due to losses. penalty is stiffer.

Agabon v NLRC, Reviera Home Improvements: Complaining EEs were cornice

installers of a company whose business was selling & installing of ornamental
construction materials. The were dismissed because they refused to work on
pakyaw basis. In their complaint they asserted having been dismissed w/o
notice & hearing. The ER, on the other hand, maintained that they were not
dismissed, but that they abandoned their work. They refused to work on a new
assignment of cornice installation, and instead they sub-contracted installation
work for another company.
CA: There was abandonment because they were already working for another
ER.
SC: There are 4 possible situations of dismissal:
1. Dismissal for a just cause (282), or authorized cause (283), or for
health reasons (284), AND due process was observed
- Dismissal is valid and ER will not suffer any liability
2. Dismissal without just or authorized cause BUT due process was
observed
- Dismissal is illegal; EE entitled to reinstatement w/o loss of
seniority Rs and other privileges and full backwages inclusive of
allowances & other benefits or their monetary equivalent
computed from the time the compensation was not paid up tho
the time of actual reinstatement.
3. Dismissal without just/authorized cause AND no due process.
- Same as #2
4. Dismissal is for just/authorized cause BUT no due process.

Dismissal shld be upheld, but the ER is liable for noncompliance w/ the procedural requirements of due process.
In the present case, the dismissal should be upheld because there was
abandonment on the part of the EEs. The ER however, did not follow the
notice requirements. Where the dismissal is for a just cause, the lack of due
process should not nullify the dismissal, or render it illegal, or ineffectual.
However, ER should indemnify the EE for the violation of his statutory Rs.
The indemnity to be imposed shld be stiffer to discourage the abhorrent
practice of dismiss now, pay later. The sanction should be in the nature of
indemnification or penalty & shld depend on the facts of each case, taking
into special consideration the gravity of the due process violation. It should
be in the form of nominal damages. In this case, it is P30k.
Industrial Timber v Ababan: mentioned some other factors to consider in assessing
the penalty to the ER:
1. The authorized cause invoked, whether it was retrenchment, or a
closure/cessation of operation due to losses or otherwise;
2. The number of EEs to be awarded;
3. The capacity of the ERs to satisfy the awards, taking into account
their prevailing financial status as borne by the records;
4. The ERs grant of other termination benefits in favor of the EEs
Whether there was a bona fide attempt to comply w/ the notice requirements as
opposed to giving no notice at all.