Under Philippine labor law, the termination of employment is generally classified into "Just Causes" (fault-based) and "Authorized Causes" (business or health-based). When an employee is terminated due to a disease, it falls under an Authorized Cause, specifically governed by Article 299 (formerly 284) of the Labor Code of the Philippines.

1. Legal Basis: Article 299 of the Labor Code

The law provides that an employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is:

Prohibited by law; or
Prejudicial to their own health or to the health of their co-employees.

The Requisite Medical Certificate

Termination under this ground is not automatic. To be valid, there must be a certification by a competent public health authority stating that the disease is of such a nature or at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment.

Note: If the disease can be cured within six months, the employer cannot terminate the employee; instead, the employee should be allowed to take a leave of absence or use their sick leave benefits.

2. Conditions for Eligibility

For an employee to be eligible for separation pay due to a health condition, the following elements must concur:

Medical Necessity: The disease must render the employee incapable of performing their duties or pose a danger to the workplace.
The "Six-Month Rule": As mentioned, the illness must be non-curable within six months based on a medical certificate.
Employer Initiative: The termination must be initiated by the employer based on the disease. If the employee resigns voluntarily due to health reasons (without the employer terminating them), the law generally does not mandate separation pay unless provided for in the employment contract or a Collective Bargaining Agreement (CBA).

3. Computation of Separation Pay

The Labor Code is specific about the amount of compensation the employee is entitled to receive. The rate for termination due to disease is:

One-half (1/2) month pay for every year of service.
A fraction of at least six (6) months shall be considered as one (1) whole year.
Minimum Amount: In no case shall the separation pay be less than one (1) month’s pay.

Example Computation

If an employee earning ₱30,000 per month is terminated after 4 years and 7 months of service:

Years of service: 5 years (rounding up the 7 months).
Formula: .

4. Due Process Requirements

The "Two-Notice Rule" typically applied to just causes is modified for authorized causes. For a termination due to disease to be legal and to avoid claims of "illegal dismissal," the employer must:

Serve a Written Notice: The employer must provide a written notice of termination to the employee at least 30 days before the effective date of termination.
Notice to DOLE: A copy of the notice must also be submitted to the Department of Labor and Employment (DOLE) Regional Office having jurisdiction over the workplace, also 30 days prior to the effectivity date.
Basis of Disease: The notice must clearly state the medical grounds and the existence of the required medical certificate.

5. Jurisprudence and Common Issues

Burden of Proof

The burden of proof rests on the employer to show that the disease is indeed a valid ground and that the medical certificate was issued by a "competent public health authority." Usually, this refers to government physicians or health officers, though private certifications are sometimes scrutinized or required to be validated by public authorities in contested cases.

Permanent Total Disability

If an employee is found to be permanently and totally disabled (as defined by the SSS or GSIS), they are often eligible for both the separation pay from the employer and disability benefits from the state insurance fund. One does not preclude the other.

When Separation Pay is NOT Required

Just Causes: If an employee is fired for serious misconduct or neglect, no separation pay is required, even if they happen to be ill.
Voluntary Resignation: Unless the company has a policy or CBA stating otherwise, an employee who resigns because they "feel sick" is not legally entitled to separation pay under Article 299.