Termination for “underperformance” is one of the most commonly litigated dismissals in Philippine labor law because poor performance is often subjective unless the employer can show clear standards, fair measurement, and genuine opportunities to improve. In practice, underperformance cases succeed when the employer treats performance as a managed process (standards → coaching → warnings → improvement plan → objective evaluation) and then complies strictly with the statutory substantive and procedural requirements for dismissal.

This article focuses on regular employees (i.e., those who have already attained security of tenure) and the correct due process in performance-related dismissals.

1) Security of tenure and the “two requirements” for a valid dismissal

A regular employee may be dismissed only if both are present:

Substantive due process – there is a lawful ground for termination, supported by substantial evidence.
Procedural due process – the employer followed the legally required notice-and-hearing steps.

Failing either can make the employer liable (reinstatement/backwages if the ground is not proven; or nominal damages if the ground exists but procedure was defective).

2) Where “underperformance” fits in Philippine grounds for termination

Underperformance is not always labeled exactly as “poor performance” in the Labor Code list. It typically falls under Just Causes (employee-related causes), commonly through:

A. Just causes most commonly used for underperformance

Gross and habitual neglect of duties Poor performance that is serious (“gross”) and repeated (“habitual”) can be treated as neglect of duties.
Other causes analogous to the foregoing Courts have recognized that serious inefficiency or persistent failure to meet reasonable standards, when properly established, can be analogous to the listed just causes.

Practical point: If the issue is failure to meet reasonable performance standards despite coaching and warnings, employers usually proceed under just cause (not authorized cause).

B. Why “authorized causes” usually don’t apply

Authorized causes (business-related) include retrenchment, redundancy, closure, etc. These are not performance-based. They have a different procedure and typically require separation pay. Underperformance is generally not an authorized cause.

3) Substantive due process: What employers must prove in underperformance cases

To validly dismiss a regular employee for poor performance, employers should be able to show:

A. The employee knew the standards

Clear job description and performance metrics (KPIs/targets/quality standards).
Standards were communicated (signed acknowledgment, onboarding docs, email issuance, handbook, performance scorecard).

B. The standards are reasonable and job-related

Metrics must be relevant to the role, attainable, and applied consistently.
Avoid “moving goalposts” or changing targets without notice.

C. Performance was measured fairly and documented

Use a consistent evaluation system (monthly scorecards, quarterly reviews).
Document the basis: numbers, error rates, turnaround times, customer feedback, audit results—not just impressions.

D. Underperformance is significant (gross) and repeated (habitual)

One weak month rarely justifies dismissal of a regular employee.
“Habitual” generally implies repeated failure over time and/or repeated documented infractions connected to work output.

E. The employee was given genuine chances to improve

Courts look favorably on employers who show:

Coaching/mentoring, training, resource support.
A Performance Improvement Plan (PIP) with clear targets and timelines.
Periodic check-ins with documented feedback.
Warnings after continued failure.

F. Good faith and non-discrimination

Standards must be applied even-handedly.
No retaliation, union-busting, or disguised motive.
Comparators (similarly situated employees) should be treated similarly.

Bottom line: Underperformance must be demonstrated as a continuing failure to meet reasonable, communicated standards, not a one-off or purely subjective dissatisfaction.

4) Procedural due process for underperformance (Just Cause): The Twin-Notice Rule + Opportunity to be heard

For just cause termination (where underperformance is treated as gross/habitual neglect or analogous cause), procedural due process generally requires:

Step 1: First written notice (Notice to Explain / Charge Sheet)

This must:

State the specific acts/omissions constituting poor performance (with dates/periods and concrete examples).
Cite the rule/standard violated (e.g., KPI threshold, quality standard, agreed targets).
Inform the employee that termination is being considered.
Give the employee a reasonable period to submit a written explanation (commonly at least 5 calendar days is the accepted benchmark in practice and implementing rules).

Best practice attachments: performance scorecards, PIP results, written coaching notes, prior memos.

Step 2: Opportunity to be heard (Administrative hearing or conference)

The law does not always require a full trial-type hearing, but the employee must be given a real chance to respond. This is usually satisfied by:

An administrative conference where the employee can explain, present evidence, and respond to management’s documents.
Allowing the employee to be assisted by counsel or a representative if they choose (as a matter of fairness and risk management).

Best practice: issue a hearing notice, prepare minutes, have attendees sign, and mark exhibits.

Step 3: Second written notice (Notice of Decision / Termination Notice)

This must:

State that management considered all circumstances and the employee’s explanation.
Explain the grounds and factual basis for termination.
Specify the effective date of termination.
Provide final pay/clearance process information and any company benefits due.

5) A compliant “performance dismissal” sequence (recommended workflow)

To reduce legal risk, many employers use a layered approach:

Set expectations (JD + KPIs + standards acknowledged)
Document coaching (emails, one-on-ones, feedback notes)
Written warning (if metrics fall below minimum)
PIP (clear targets, duration, support, consequences)
PIP evaluation (document pass/fail and why)
Final warning / show cause (if still failing)
First notice (NTE)
Administrative hearing/conference
Second notice (decision to terminate)

This sequence strengthens the argument that the employee’s poor performance is habitual and that dismissal is a last resort.

6) Drafting guidance: What your notices should contain (practical checklist)

A. Notice to Explain (NTE) checklist

Include:

The performance standards/targets and where they were communicated.
The measurement period (e.g., “Q3 2025”).
конкретe metrics (e.g., “average productivity 62% vs required 85%”).
prior interventions (coaching dates, PIP dates, warnings).
instruction to submit a written explanation by a specific deadline.
hearing schedule (or advise that a hearing will be scheduled).

Avoid:

Generic lines like “unsatisfactory performance” with no data.
Surprise standards never previously communicated.

B. Hearing/conference checklist

Provide employee a copy of evidence in advance when possible.
Ask clarifying questions, allow employee to speak.
Record minutes (issues discussed, employee defenses, management responses).
Close with next steps (decision issuance timeline).

C. Decision notice checklist

Summarize facts and documents relied on.
Address the employee’s key defenses (even briefly).
Cite the company rule/policy and the legal ground (just cause).
State effectivity date, clearance, final pay timeline.

7) Common defenses employees raise—and how employers should prepare

“The standards were never communicated.”

Employer response: signed KPIs/JD, emails, handbook acknowledgment, performance review forms.

“The metrics are unrealistic / discriminatory.”

Employer response: show role-based benchmarking, same thresholds applied to peers, historical attainability, resources provided.

“I wasn’t given a chance to improve.”

Employer response: PIP, training records, coaching memos, check-ins, warnings.

“My manager is biased / retaliation.”

Employer response: consistent application, HR involvement, independent review panel, objective documents.

“This is constructive dismissal (forced resignation).”

Employer response: ensure no coercion, no humiliating tactics, no demotion/pay cut without basis; keep process professional and documented.

8) Separation pay, final pay, and benefits

A. Separation pay

For just cause termination (including performance-based just cause), separation pay is generally not required by law, unless:

Company policy, CBA, or employment contract provides it; or
A settlement agreement provides it; or
Termination is recharacterized as an authorized cause or illegal dismissal.

B. Final pay

Even if terminated for just cause, the employee is generally entitled to:

Unpaid wages up to last day worked
Pro-rated 13th month pay (subject to rules)
Accrued unused leave conversions if the company policy provides conversion
Other earned benefits due under policy/contract

Employers should also issue required employment documents consistent with law and policy (e.g., certificate of employment, subject to usual conditions).

9) What happens if the employer proves the cause but messes up the procedure?

Philippine doctrine generally treats this as:

Dismissal remains valid (if the just cause is proven),
but employer may be ordered to pay nominal damages for violation of procedural due process (amounts vary by case; jurisprudence has commonly used standardized figures depending on the situation).

This is why employers should never treat procedure as optional—even strong performance evidence can still result in monetary awards if the process is defective.

10) Special notes by role and setting

A. Rank-and-file vs managerial

Managers/supervisors may be held to higher standards, but the employer still needs objective criteria and fair process.
“Loss of trust and confidence” is often misused; it generally fits positions of trust and requires an act that justifies loss of trust—not mere failure to hit targets unless connected to willful breach, fraud, or serious misconduct.

B. Sales roles

Sales underperformance is especially common. Strong cases usually show:

Clear quotas, territories, lead assignments,
Market conditions considered,
Support given,
Repeated failure despite PIP.

C. Remote/hybrid work

Ensure performance measurement accounts for:

Tool access, workload allocation, system downtimes,
Documented deliverables and timestamps.

11) Red flags that often lead to an illegal dismissal finding

No written standards/KPIs.
No prior feedback or PIP; sudden termination after one bad review.
Evaluations appear retaliatory or inconsistent with past ratings.
Vague NTE (“poor performance”) without data.
No real chance to respond; decision pre-written; no hearing offered.
Comparing the employee to an unusually high performer rather than a reasonable standard.
“Papering” documents all at once right before termination with no earlier trail.

12) Quick compliance template (at-a-glance)

If you’re terminating a regular employee for underperformance, you want to have:

✅ Communicated job standards (signed/acknowledged)
✅ Objective performance records across a reasonable period
✅ Coaching/training documentation
✅ PIP with measurable goals and documented result
✅ Prior warnings tied to metrics
✅ First notice (specific charges + evidence + time to explain)
✅ Hearing/conference (documented minutes)
✅ Second notice (reasoned decision)
✅ Proper release of final pay/benefits per policy and law

13) Practical conclusion

In Philippine practice, “underperformance” becomes a legally defensible ground for terminating a regular employee only when it is shown to be gross, habitual, and objectively established, and when the employer can demonstrate fairness: clear standards, measured performance, meaningful improvement support, and strict compliance with the twin-notice rule plus an opportunity to be heard.

If you want, I can also provide:

a model Notice to Explain tailored to KPI-based roles,
a PIP template structure (sections and clauses),
and a sample Decision Notice that tracks the required elements.