Termination for Poor Performance in the Philippines

A Comprehensive Guide to the Substantive and Procedural Law

“While the law recognizes the right of an employer to dismiss an inefficient employee, it just as jealously protects the worker against arbitrary deprivation of his livelihood.” — Univac Development, Inc. v. Soriano, G.R. No. 182072, January 20 , 2016

1. Concept and Legal Bases

Source	Key Provision	Relevance
Labor Code, Art. 297(c) (former Art. 282)	“Gross and habitual neglect by the employee of his duties”	Primary statutory basis for dismissal due to persistent poor performance.
Labor Code, Art. 297(e)	“Other causes analogous to the foregoing”	When “inefficiency” does not rise to gross & habitual neglect but is of comparable gravity and effect.
Constitution, Art. XIII, Sec. 3	State affirms labor’s right to security of tenure	Dismissal for poor performance must strictly comply with due process.
Omnibus Rules Implementing the Labor Code, Book VI, Rule I, §2	Reiterates just-cause grounds and due-process steps	Practically guides employers on procedure.

Important distinction:
“Poor performance” is not itself a separately enumerated just cause; it is litigated either as (a) gross & habitual neglect or (b) an analogous cause. The choice matters because the employer must prove all the elements of the specific ground invoked (e.g., “habituality” in neglect).

2. Substantive Requirements

Reasonable Performance Standards
- Must be clearly communicated to the employee (e.g., job description, KPIs, sales quota).
- Standards must be fair, attainable, and uniformly applied.
- Jurisprudence disallows after-the-fact standards ( Aliling v. Feliciano, G.R. No. 185829, April 25 , 2012).
Proof of Inefficiency
- Objective evidence: appraisal scores, error logs, audit variances, customer complaints.
- Comparative data may show peer performance.
- Employer bears the burden of proof; “self-serving allegations” are insufficient ( Encarnacion v. BF Corp., G.R. No. 240240, July 5 , 2022).
Gross and Habitual
- “Gross” = serious, not mere lapses; “Habitual” = repeated despite warnings or assistance.
- A single egregious error can be gross enough but only if it causes substantial loss or risk (e.g., pilot endangering aircraft).
Analogous Cause Route
- If lapses are recurring yet not “gross,” employer may invoke Art. 297(e) provided the infraction:
  - is voluntary and work-related,
  - is comparable in gravity to the enumerated causes, and
  - is listed in company rules or explained to the employee (Perez v. Phil. Telecoms, G.R. No. 152048, Apr 7 , 2009).
Good-Faith Evaluation
- Courts examine whether employer first attempted performance improvement (PIP).
- Lack of coaching or training is often fatal to the defense (Nestlé Phils. v. Puedan, G.R. No. 220617, Nov 17 , 2021).

3. Procedural Due Process: the “Twin-Notice” Rule

Step	Timing & Content	Practical Tips
1st Notice (Charge Notice)	Serve when employer decides dismissal may be warranted. Must specify:* • acts/omissions complained of; • the rule or KPI breached; • directive to submit a written explanation within a “reasonable period” (≥5 calendar days).	Attach appraisal forms, memo trail; avoid vague language like “poor attitude.”
Opportunity to Be Heard	Written explanation and/or formal hearing/consultation at employee’s option.	Document attendance; if employee waives, execute minutes.
2nd Notice (Decision Notice)	Issued after evaluating the defense; states findings of fact, ground, and the effective date of termination.	Deliver personally or by registered mail; keep proof of receipt.

Failure to observe the twin-notice and hearing requirements does not void the dismissal if the cause is proven, but it entitles the employee to nominal damages (typically ₱30,000; Jaka Food Processing v. Pacot, G.R. No. 151378, Mar 10 , 2005).

4. Best-Practice Flowchart

Document KPI Shortfalls →
Issue Coaching Memo / PIP (30-90 days) →
Evaluate Improvement →
If satisfactory: keep records, end process.
If unsatisfactory: proceed to 1st Notice → hearing → 2nd Notice → final pay & COE.

A Performance Improvement Plan (PIP) should outline: goals, timeline, specific support (training, tools), and consequences. Failure to give a PIP is not illegal per se, but tribunals treat it as evidence of bad faith.

5. Illustrative Cases

Case	G.R. No. / Date	Doctrine
Univac Development v. Soriano	182072 / Jan 20 , 2016	Sales agent’s failure to meet quota despite repeated warnings was gross & habitual neglect; dismissal upheld.
Aliling v. Feliciano	185829 / Apr 25 , 2012	PHP developer dismissed for “low productivity” without pre-set metrics; dismissal illegal.
Sy v. Neat, Inc.	213748 / Apr 23 , 2018	Isolated error in audit not habitual; dismissal illegal, reinstatement ordered.
St. Luke’s Medical v. Notario	195737 / Jan 14 , 2015	Nurse’s persistent medication errors after trainings; dismissal valid, but ₱30k nominal damages for flawed notices.

6. Interaction With Related Doctrines

Loss of Trust & Confidence (LOTC).
- Inefficiency alone is not LOTC; must involve willful breach of an employer’s trust in fiduciary or managerial positions.
Totality of Infractions.
- Prior memos can corroborate “habituality.” Courts weigh age of previous offenses; stale infractions (>2 years) often ignored.
Separation Pay as Equity.
- Even for just-cause dismissal, Art. 299 allows separation pay as a measure of social justice if the ground is not serious misconduct nor reflective of moral depravity (e.g., mere incompetence). Courts grant ½-month pay per year of service in exceptional circumstances.

7. Employer Evidentiary Checklist

✅ Written job description / KPI matrix signed by employee
✅ Performance appraisals (at least two rating periods)
✅ PIP documents & coaching session minutes
✅ Memos showing warnings and employee acknowledgment
✅ Proof of delivery and receipt of both notices
✅ Minutes or transcript of administrative hearing
✅ Board/HR resolution approving termination

Preserving these records up to 5 years aligns with the Labor Code’s prescriptive period for illegal-dismissal claims.

8. Employee Defense Strategies

Challenging the Standards – Are they arbitrary or suddenly elevated?
Disputing the Metrics – Provide counter-evidence of targets met.
Procedural Lapses – Attack notice defects; claim nominal damages.
Mitigating Circumstances – Health issues, lack of training, managerial sabotage.
Discrimination – Show selective enforcement (e.g., only union officers penalized).

9. Consequences of Illegal Dismissal for Poor Performance

Remedy	Formula
Reinstatement	Without loss of seniority plus back wages.
Back Wages	From dismissal up to reinstatement / finality, including allowances & 13th-month pay.
Separation Pay in Lieu	One-month pay per year of service (if reinstatement not viable).
Moral & Exemplary Damages	Awarded if employer acted fraudulently or in bad faith.
Attorney’s Fees	10% of monetary award when employee compelled to litigate.

10. Compliance Tips for HR & Management

Embed KPIs in employment contracts for key positions.
Adopt a graded discipline system (verbal→written→PIP→termination).
Train supervisors on documentation; sloppy memos kill cases.
Keep a dedicated due-process checklist per employee.
Conduct periodic legal audits to catch gaps early.
Engage an independent panel for the administrative hearing to avoid bias.

Conclusion

Termination for poor performance is legally permissible only when the employer:

Clearly defines and communicates reasonable standards;
Proves the employee repeatedly or gravely failed to meet them; and
Strictly observes the constitutionally-mandated twin-notice and hearing requirements.

Failure in any of these three pillars almost invariably results in a finding of illegal dismissal, reinstatement, and hefty monetary awards. Conversely, a disciplined approach—rooted in documentation, coaching, and procedural fidelity—protects both enterprise productivity and employee security of tenure, true to the spirit of Philippine labor policy.

This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a qualified labor-law practitioner.