Separation pay has been defined as the amount that an

employee receives at the time of his severance and is designed to

provide the employee with the wherewithal during the period he
is looking for another employment. However, this broad definition
must not be taken at face value. There are only limited instances
wherein separation pay can be granted. These instances are as
follows:

1. Termination is for any of the authorized causes under

the Labor Code.

Employment may be terminated for the following authorized

causes under the Labor Code:
1.Introduction of labor-saving devices
2.Redundancy
3.Retrenchment
4.Closure or Cessation
5. Disease the employee found to be suffering and whose
continued employment is prohibited by law or is prejudicial to his
health as well as the health of his co-employees.
As such, separation pay must be paid when the termination is
based on the above-mentioned authorized causes except when
the closure of the company is due to financial losses.
For authorized causes, the law requires the employer to give
written notices to both the worker and the Department of Labor
and Employment 30 days ahead of the projected separation.

2. Where there is illegal dismissal and reinstatement is no

longer feasible
An illegally dismissed employee is entitled to two reliefs,
namely backwages and reinstatement. However, where
reinstatement is no longer feasible because of strained relations
between the employee and the employer, separation pay is
granted.

3. As a measure of social justice where the employee is

validly dismissed for causes other than serious misconduct
or those reflecting on his moral character

In this instance, the Supreme Court coined separation pay

as financial assistance and allowed as a measure of social justice
and based on exceptional circumstances. Hence, courts, in their
discretion may grant separation pay based on compassionate
justice taking into consideration the length of service of the
employee, the amount involved, whether the act is the first
offense, the performance of the employee, etc.

However, the Supreme Court sternly warned that separation

pay shall be allowed as a measure of social justice only in those
instances where the employee is validly dismissed for causes
other than serious misconduct or those reflecting on his moral
character. However, where the reason for the valid dismissal is
habitual intoxication or an offense involving moral turpitude, like
theft or illicit sexual relations with a fellow worker, there is no
need to invoke compassionate justice
In view of the foregoing, an employee is not entitled to
separation pay when he is terminated based on just causes.
Pertinently, he is also not entitled to separation pay when he
tenders his resignation. Resignation is defined as the voluntary
act of an employee who finds himself in a situation where he
believes that personal reasons cannot be sacrificed in favor of the
exigency of the service and he has no other choice but to
disassociate himself from his employment.
Thus, the elementary rule is that an employee who
voluntarily resigns from employment is not entitled to separation
pay, except when it is stipulated in the employment contract or
Collective Bargaining Agreement or based on established
employer practice in the company.
The computation of separation pay is based on the ground
on which it is based. In case of termination due to the installation
of labor saving devices or redundancy, the employee affected is
entitled to a separation pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of
service, whichever is higher.
In case of retrenchment to prevent losses and in cases of
closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial
reverses including termination of employment on the ground of
disease, the separation pay shall be equivalent to one (1) month
pay or at least one-half (1/2) month pay for every year of
service, whichever is higher.

In illegal dismissal cases, where reinstatement is no longer

viable as an option, separation pay equivalent to one (1) month
salary for every year of service should be awarded as an
alternative. It must be emphasized that this payment of
separation pay is in addition to payment of backwages.
A fraction of at least six (6) months shall be considered as one
(1) whole year.