I. Introduction

In Philippine labor jurisprudence, “unfair dismissal” is synonymous with illegal dismissal. An employee is illegally dismissed when the employer terminates the employment without just cause or authorized cause, or without observing statutory due process.

The primary policy of the Labor Code is security of tenure (Article 294, Labor Code, as renumbered). Any violation of this right triggers the employee’s entitlement to the most generous remedies in Philippine law: reinstatement plus full backwages, or separation pay in lieu of reinstatement plus full backwages, plus moral and exemplary damages and attorney’s fees when warranted.

The remedies are not punitive against the employer per se; they are restorative — designed to make the illegally dismissed employee whole.

II. Legal Framework

Constitutional Basis
- Article XIII, Section 3, 1987 Constitution (security of tenure, humane conditions of work, living wage)
- Article III, Section 1 (due process)
Statutory Basis
- Book VI, Labor Code (Termination of Employment)
- Republic Act No. 6715 (Herrera-Veloso Law) – introduced full backwages
- Department Order No. 147-15 (2015) and DO 174-17 (2017) – rules on contracting/subcontracting
- Republic Act No. 10151 – removal of night differential cap (relevant for backwages computation)
- Republic Act No. 11360 – service charges now 100% to rank-and-file (relevant for backwages)
Jurisprudential Development
- Wenphil Corporation v. Abierra (1989) → modified by Serrano v. NLRC (2000) → refined by Agabon v. NLRC (2004) → clarified in numerous cases up to 2025

III. When Is Dismissal Illegal?

Dismissal is illegal when:

A. There is no just cause (Art. 297)

Willful disobedience
Gross and habitual neglect
Fraud or willful breach of trust
Commission of crime against employer
Serious misconduct
Analogous causes

B. There is no authorized cause (Art. 298)

Installation of labor-saving devices
Redundancy
Retrenchment to prevent losses
Closures/cessation of business
Disease (Art. 299)

C. Due process was not observed
Even if there is just/authorized cause, failure to comply with the twin-notice and hearing requirement renders the dismissal illegal (King of Kings Transport v. Mamac, 2008; clarified in 2023-2024 cases).

Exception (Agabon doctrine, as refined):
If the dismissal is for a just or authorized cause but due process was not observed, the dismissal remains valid, but the employer is liable for nominal damages (currently ranging from ₱30,000 to ₱100,000 depending on the gravity and jurisprudence in 2024-2025).

IV. Primary Remedies for Illegal Dismissal (Solidary Liability of Corporate Officers)

The employee is entitled to the following, solidarily recoverable from the employer and responsible corporate officers:

Reinstatement (Art. 294)
- Actual reinstatement (return to former position) or
- Payroll reinstatement (payment of salary without requiring work)
Reinstatement is immediate and self-executory even pending appeal (Pioneer Texturizing v. NLRC, 1997; Roquero v. Chancellor, 2019).
Full Backwages
Computed from the date of illegal dismissal until actual reinstatement or finality of decision if separation pay is awarded in lieu of reinstatement.

Components of Full Backwages (as of 2025 jurisprudence):
- Basic salary at the time of dismissal + all subsequent salary increases (COLA, merit increases, across-the-board increases under CBAs or company practice)
- 13th-month pay (pro-rated from January to date of dismissal, then full every year thereafter)
- 14th-month pay or mid-year bonus if company practice
- Service Incentive Leave (5 days/year, monetized)
- Holiday pay, premium pay, overtime pay, night shift differential (if previously enjoyed)
- Service charges (100% under RA 11360)
- Rice subsidy, meal allowance, transportation allowance, housing allowance (if part of regular compensation)
- Unused sick leave/vacation leave monetization if company policy allows
- Retirement benefits accrued during the backwages period (if retirement age was reached)
- Silenced pay, longevity pay, productivity incentives, etc., if proven habitual
Formula (simplified):
Backwages = (Last monthly salary rate inclusive of habitual allowances × number of months from dismissal to reinstatement/final judgment) + 13th-month pay + other benefits

Backwages are computed up to finality of the Supreme Court decision if the employer appeals (Session Delights v. NLRC, G.R. No. 202447, 2022, reiterated in 2024-2025 cases).
Separation Pay in Lieu of Reinstatement
Awarded when reinstatement is no longer feasible due to:
- Strained relations (must be proven by substantial evidence, not mere allegation)
- Position no longer exists
- Employee reached retirement age
- Closure of business
- Antagonism, hostility, or ill feelings
Rate: One (1) month salary for every year of service, with a fraction of at least six (6) months considered as one (1) year (standard since 1997).

Note: This is in addition to full backwages.
Moral Damages
Awarded when dismissal was attended by bad faith, malice, or ill will, or done in a humiliating, insulting, or oppressive manner.

Quantum (2020-2025 range): ₱50,000 to ₱500,000 (higher in cases of public humiliation, blacklisting, or criminal charges filed maliciously).
Exemplary Damages
Awarded to deter similar conduct in the future.
Quantum: Usually equal to or double the moral damages (₱100,000–₱1,000,000 in egregious cases).
Attorney’s Fees (Art. 111, Labor Code)
10% of the total monetary award when the employee was forced to litigate or incur expenses to protect his rights.
Nominal Damages for Procedural Lapse Only
When dismissal is for valid cause but due process was not followed:
- ₱30,000 (original Agabon)
- ₱50,000 (for authorized causes, Jaka Food Processing doctrine)
- Up to ₱100,000 in recent 2023-2025 cases involving high-ranking employees or gross violation
Financial Assistance / Equitable Relief (Rare)
In exceptional cases, even if dismissal is valid, the Supreme Court may award financial assistance on grounds of equity and social justice (e.g., long years of service, illness, age) – ₱50,000 to one-month-per-year rate (Toyota Motor Phils. v. TMPCWA, 2011; Pepsi-Cola v. Molon, 2012; subsequent cases).

V. Computation Illustrations (2025 Rates)

Example 1: Employee dismissed January 1, 2020, last salary ₱25,000/month + ₱3,000 allowances. Decision became final December 1, 2025. Strained relations proven.

Backwages period: Jan 1, 2020 – Dec 1, 2025 = 71 months
Backwages: (₱28,000 × 71) + 13th-month pay (6 × ₱28,000) + other benefits ≈ ₱2,400,000+
Separation pay: 10 years service × ₱28,000 = ₱280,000
Moral damages: ₱200,000
Exemplary: ₱200,000
Attorney’s fees: 10%
Total award ≈ ₱3,300,000+

Example 2: Dismissal for redundancy without 30-day notice and separation pay → illegal.
Same computation as above, but separation pay is credited against the one-month-per-year award.

VI. Taxation of Awards (as of 2025)

Backwages, moral/exemplary damages, attorney’s fees: Taxable (BIR Ruling DA-190-05, reiterated in 2023)
Separation pay in lieu of reinstatement due to illegal dismissal: Taxable (considered indemnity but still income)
Separation pay due to authorized causes (retrenchment, redundancy, installation of devices, disease): Tax-exempt (RA 8424, as amended)

VII. Prescription Periods

Illegal dismissal complaint: 4 years from accrual (jurisprudence since St. Michael Academy v. NLRC, 1999; reiterated in 2023)
Money claims component (backwages): 3 years (Art. 306, Labor Code) – but the declaration of illegality is imprescriptible; only the monetary claim prescribes

VIII. Execution Pending Appeal

The employee may move for execution of reinstatement even pending employer’s appeal (Art. 223, Labor Code; Bucalan v. Hon. Secretary, 2022). The employer may post a cash or surety bond to stay execution of the monetary award.

IX. Conclusion

Philippine law treats illegal dismissal as one of the most serious infractions an employer can commit. The remedy package — reinstatement or separation pay plus full backwages plus damages — is deliberately generous to deter violations of security of tenure. As consistently held by the Supreme Court up to 2025, “social justice does not champion labor at the expense of capital, but it certainly does not condone the oppression of labor by capital.” The scales are deliberately tilted in favor of the illegally dismissed worker to restore, as far as possible, the status quo ante.