In the Philippine labor landscape, there is often a lingering confusion between "final pay" and "separation pay." When a regular employee decides to hand in their resignation letter, the question of whether they are entitled to a "severance" or "separation" package frequently arises.
Under the Labor Code of the Philippines, the short answer is generally no, but there are specific legal nuances and exceptions that every employer and employee should understand.
1. The General Rule: No Separation Pay for Voluntary Resignation
Under Philippine law, separation pay is a statutory requirement intended to provide a financial cushion for employees who lose their jobs through no fault of their own. This typically applies to cases of Authorized Causes under Article 298 (formerly 283) and Article 299 (formerly 284) of the Labor Code, such as:
- Retrenchment to prevent losses
- Redundancy
- Installation of labor-saving devices
- Closure or cessation of operations (not due to serious losses)
- Disease (where continued employment is prohibited by law or prejudicial to health)
Because voluntary resignation is a choice made by the employee to sever the employer-employee relationship, the law does not mandate the employer to pay separation benefits.
2. The Exceptions to the Rule
While the law does not require it, an employee may still be entitled to separation pay upon resignation in the following three scenarios:
A. Provisions in the Employment Contract
If the signed employment contract specifically states that the employee will receive a certain amount or "separation benefit" upon resignation (often based on years of service), the employer is legally bound to honor that contract.
B. Collective Bargaining Agreement (CBA)
In unionized companies, the CBA often contains provisions for "retirement" or "separation" pay for employees who resign after reaching a certain number of years (e.g., a "5-year" or "10-year" vesting period). This is common in large industrial or corporate settings.
C. Company Policy or Established Practice
If the company has a written policy or a long-standing, consistent practice of giving separation pay to resigning employees, this may be considered a "vested right." Under the Principle of Non-Diminution of Benefits, once a benefit has become a company practice, it cannot be unilaterally withdrawn by the employer.
3. Voluntary Resignation vs. Constructive Dismissal
It is vital to distinguish between a truly voluntary resignation and a "forced" resignation.
If an employee resigns because the work environment has become unbearable, or if the employer has made continued employment impossible, unreasonable, or unlikely (e.g., demotion without cause, verbal abuse, or non-payment of wages), the law may treat this as Constructive Dismissal.
In a successful case of constructive dismissal, the resignation is not considered voluntary. Consequently, the employee is entitled to full backwages and separation pay (usually one month's salary for every year of service) as if they were illegally dismissed.
4. Final Pay vs. Separation Pay: The Common Confusion
Many employees use the terms interchangeably, but they are legally distinct:
| Feature | Final Pay (Last Pay) | Separation Pay |
|---|---|---|
| Eligibility | Every resigning/terminated employee. | Only for specific legal causes or agreements. |
| Inclusions | Unpaid salary, pro-rated 13th month, converted leave credits, tax refunds. | Usually calculated as 0.5 or 1 month salary per year of service. |
| Legal Basis | DOLE Labor Advisory No. 06, Series of 2020. | Articles 298 & 299 of the Labor Code. |
Even if a resigning employee is not entitled to separation pay, the employer is legally required to release their Final Pay and a Certificate of Employment within 30 days from the date of separation.
5. Summary
To summarize the Philippine context:
- Voluntary resignation does not automatically trigger a right to separation pay under the Labor Code.
- Entitlement only exists if it is stipulated in a Contract, CBA, or is a proven Company Practice.
- Resigning employees are always entitled to their Final Pay, regardless of the reason for leaving.