Overview

In the Philippines, dismissal for just cause is a form of termination initiated by the employer due to the employee’s wrongful act or omission, as provided under Article 297 [282] of the Labor Code. While employees dismissed for just cause lose entitlement to certain benefits, they are not entirely stripped of all monetary claims. This article comprehensively discusses the rules, rights, and limitations concerning the final pay and benefits of an employee dismissed for just cause under Philippine law.

Legal Basis for Dismissal for Just Cause

Under Article 297 [282] of the Labor Code, the following are recognized as just causes for termination:

Serious misconduct or willful disobedience of lawful orders.
Gross and habitual neglect of duties.
Fraud or willful breach of trust.
Commission of a crime or offense against the employer, his family, or authorized representatives.
Other analogous causes.

Dismissal for just cause requires both substantive and procedural due process:

Substantive due process: The ground for dismissal must be valid and supported by substantial evidence.
Procedural due process: The “twin notice” rule must be followed—notice to explain and notice of decision after giving the employee an opportunity to be heard.

Failure to comply with these due process requirements may render the dismissal defective, even if the cause is valid, potentially entitling the employee to indemnity or nominal damages.

Final Pay: What the Employee is Entitled To

An employee dismissed for just cause is still entitled to receive earned wages and benefits up to the date of termination. The Department of Labor and Employment (DOLE) defines final pay (or last pay) as the total amount due to an employee upon separation from employment, regardless of cause.

Components of Final Pay

Even after a dismissal for just cause, the following must be paid:

Unpaid salary or wages – All earned wages up to the last day of work, including overtime pay, night shift differential, and holiday pay, if any.
Pro-rated 13th month pay – Employees are entitled to the proportionate amount of the 13th month pay for the portion of the year they have worked.
Cash conversion of unused leave credits – If the company’s policy or the employee’s contract allows monetization of unused leave credits, these must be paid.
Other earned benefits – Any commission, incentive, or allowance already earned before termination must be paid.
Deductions and liabilities – Employers may deduct from the final pay any debts, unliquidated cash advances, or the cost of unreturned company property.

Benefits That May Be Forfeited

While employees dismissed for just cause retain their earned pay, certain benefits are not due to them because of the nature of their dismissal.

1. Separation Pay

Under Article 298 [283] of the Labor Code, separation pay is granted only in cases of authorized causes (e.g., redundancy, retrenchment, disease). For dismissal due to just cause, the employee is not entitled to separation pay, unless:

A company policy, collective bargaining agreement (CBA), or past practice grants such pay even in just cause cases; or
The dismissal was due to causes not involving serious misconduct or moral turpitude, in which the Supreme Court may, as a measure of social justice, award limited separation pay (e.g., Philippine Long Distance Telephone Co. v. NLRC, G.R. No. L-80609, August 23, 1988).

2. Retirement Benefits

Retirement pay is generally forfeited when dismissal is for just cause, especially if the ground involves dishonesty, fraud, or misconduct, unless a retirement plan or CBA provides otherwise.

3. Other Bonuses and Profit Shares

Performance bonuses or profit-sharing benefits that are discretionary and not yet vested may be withheld. Only those already earned or contractually guaranteed are payable.

Clearance and Release of Final Pay

Under DOLE Labor Advisory No. 6, Series of 2020, employers must release an employee’s final pay within thirty (30) days from the date of separation, unless a different period is stipulated in the company policy or CBA.

A Certificate of Employment (COE) must also be issued upon request, regardless of the reason for termination, as per Article 4, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code.

It is common practice for employers to require a clearance process to ensure all accountabilities (e.g., return of company property, settlement of cash advances) are addressed before releasing the final pay.

Tax Treatment

The Bureau of Internal Revenue (BIR) considers wages, 13th month pay, and other earned compensation subject to withholding tax, except those specifically exempted under law (e.g., de minimis benefits, 13th month pay within the ₱90,000 exemption limit).

Separation pay due to just cause is taxable, as it does not fall under the exemption provided for involuntary or authorized separations.

Jurisprudence Highlights

PLDT v. NLRC (G.R. No. L-80609, 1988): Employees dismissed for causes not involving moral turpitude may, on grounds of social justice, be awarded separation pay.
Toyota Motor Phils. Corp. v. NLRC (G.R. No. 158786, 2007): No separation pay is due to employees dismissed for serious misconduct, willful disobedience, or fraud.
Serrano v. NLRC (G.R. No. 117040, 2000): Even when dismissed for just cause, failure to observe due process entitles the employee to nominal damages (₱30,000 in this case).
Gaco v. NLRC (G.R. No. 104690, 1993): Dismissed employees are entitled to salary and benefits already earned, but not to separation or retirement pay.

Practical Considerations for Employers and Employees

For Employers:

Ensure substantive and procedural due process are both met.
Compute final pay accurately and release it within the 30-day period.
Provide a clear and itemized computation to avoid disputes.
Issue a Certificate of Employment upon request.

For Employees:

Verify the basis of dismissal and ensure due process was observed.
Check if earned benefits (13th month pay, unused leaves, commissions) were properly computed.
If procedural defects occurred, the employee may file a complaint for illegal dismissal or damages before the National Labor Relations Commission (NLRC).

Conclusion

Dismissal for just cause in the Philippines removes the employee’s entitlement to separation or retirement pay but does not extinguish the right to receive earned wages and accrued benefits. Both employers and employees must understand that while just cause protects management’s right to discipline, it must always be exercised within the bounds of law and due process. The fair and timely settlement of final pay ensures compliance with labor standards and helps prevent unnecessary disputes before labor authorities.