(Philippine labor law context)

I. Big Picture: Security of Tenure vs. “May Kontrata Naman”

In the Philippines, having an employment contract does not mean:

The employee can never be removed until the contract ends, nor
The employer can freely terminate just because the contract allows it.

Why? Because Philippine labor law is of public interest, and security of tenure is a constitutional and statutory right. In simple terms:

An employee can only be dismissed for just or authorized causes, and with due process, even if there is a written contract.

Any contract term that contradicts this rule is void, even if both parties signed it.

II. The Basic Rule: Law Is Above the Contract

Employment contracts can:

Define job position, salary, benefits, work schedule, etc.
Include performance expectations and company policies.

But they cannot:

Waive the employee’s right to security of tenure
Authorize termination without any legal ground
Allow dismissal “at will” or “for any reason the employer deems sufficient” if this ignores statutory grounds

So the question is: When can an employer terminate an employee despite having an active contract?

Short answer: Only on legally recognized grounds and with proper procedure.

III. “Just Causes” for Termination (Employee’s Fault)

“Just causes” are grounds related to the fault or wrongdoing of the employee. These are generally found in the Labor Code provision on termination by employer for just causes (previously Art. 282, now renumbered).

Even if the contract is for one year, three years, or “permanent,” the employer may lawfully dismiss an employee for any of these, if proven and properly processed:

1. Serious Misconduct

Misconduct = improper or wrongful conduct.
Serious = of such grave character that it shows the employee is unfit to continue working.
Must be related to the performance of the employee’s duties.

Examples (depends on context and evidence):

Assaulting a supervisor inside work premises
Sexual harassment in the workplace
Drunkenness on duty that risks company property or lives
Deliberate violation of safety protocols causing damage or danger

Key elements: wrongful act, grave in nature, related to work, and done with wrongful intent.

2. Willful Disobedience or Insubordination

Refusal to obey lawful and reasonable orders of the employer, in relation to work.

Requirements:

The order must be lawful and reasonable
The order must pertain to the employee’s duties
The disobedience must be intentional and willful

Examples:

Repeated refusal to follow safety procedures
Ignoring clear written instructions on work processes
Refusing to transfer to a new shift or area when such transfer is validly within company policy

3. Gross and Habitual Neglect of Duties

Negligence so serious (gross) and repeated (habitual) that it shows the employee does not care about his/her obligations.

Examples:

Repeated failure of a cashier to balance cash despite reminders, leading to losses
Regular absenteeism or chronic tardiness without valid reason, affecting operations
Ignoring critical maintenance tasks resulting in equipment damage

One isolated mistake is usually not enough unless it is extremely serious and causes grave damage.

4. Fraud or Willful Breach of Trust (Loss of Trust and Confidence)

This often applies to employees in positions of trust, such as:

Cashiers, accountants, treasurers
Supervisors and managers
Anyone handling money, property, or confidential information

Grounds exist where there is:

Fraud, embezzlement, or theft against the company
Tampering of documents, expenses, or sales records
Disclosure of confidential information to competitors

The employer must show:

A basis in fact (substantial evidence) for the loss of trust
That the position held requires a high degree of trust

5. Commission of a Crime Against Employer, Family, or Representative

If the employee commits a crime:

Against the employer
Against a member of the employer’s immediate family
Against a duly authorized representative of the employer

Examples:

Physical assault on the boss
Theft of the employer’s personal property
Defrauding the employer’s authorized agent

The employer is not required to prove criminal conviction first, but there must be substantial evidence that the act was committed.

6. Other Causes Analagous to the Above

The law also recognizes “other causes analogous” to the enumerated just causes.

Examples often considered analogous in jurisprudence:

Gross inefficiency or incompetence
Abandonment of work (unauthorized prolonged absence with intent not to return)
Serious violation of company rules, if the rules are reasonable, known to the employee, and consistently enforced

Companies often list these in their company code of conduct or manual. If consistent with law and fairness, these can be valid grounds.

IV. “Authorized Causes” (No Employee Fault, Business- or Health-Related)

“Authorized causes” are grounds that do not necessarily involve employee fault, but arise from legitimate business or health reasons. These are generally found in provisions on closure, retrenchment, redundancy, installation of labor-saving devices, and disease.

Even if the employee has a valid, unexpired contract, the employer may still terminate:

1. Installation of Labor-Saving Devices

When the company introduces machines, systems, or processes that:

Render certain positions unnecessary or
Substantially reduce the need for manual labor

Conditions:

The measure must be in good faith
The employer must show the necessity for efficiency or economy
Separation pay is required, usually at a higher rate than regular separation

2. Redundancy

A position is redundant when:

The services of an employee are in excess of what is reasonably required by the enterprise, or
The function is duplicated or no longer necessary because of reorganization, overstaffing, or changes in operations.

Requirements:

Good faith in abolishing the position
Fair and reasonable criteria in choosing who is declared redundant (e.g., seniority, performance, efficiency)
Written notice to employee and DOLE at least 30 days before the effectivity date
Separation pay based on law

3. Retrenchment to Prevent Losses

Retrenchment is a reduction of personnel to prevent serious business losses.

Requirements:

Losses must be substantial, serious, and actual or reasonably imminent
Often supported by financial statements and audited records
Retrenchment must be done in good faith and as a last resort
Fair selection criteria (e.g., efficiency, seniority)
30-day written notice to employee and DOLE
Separation pay at rates provided by law

4. Closure or Cessation of Business

The employer may close:

The entire business, or
A department / unit

Reasons may be:

Serious financial losses, or
Reorganization, change of line of business, decision to stop operations

If closure is not due to serious losses, separation pay is usually owed. If closure is due to serious losses, separation pay may not be mandatory (depending on the law and jurisprudence at the time).

Even if employees have active contracts, closure generally ends employment, provided the requirements of good faith and proper notice are met.

5. Disease

Termination may be allowed when an employee:

Suffers from a disease that is not curable within six (6) months, even with proper medical treatment
His or her continued employment is prohibited by law or is prejudicial to health (self or co-employees)

Requirements:

Certification from a competent public health authority
Separation pay at the rate provided by law

The employer cannot simply say “sick ka, you’re fired”; the medical certification and procedure are crucial.

V. Special Employment Setups: How Termination Works “Despite” the Contract Type

1. Probationary Employees

Probationary employment has two key rules:

It must be for a reasonable period (often up to six months, subject to special rules for some sectors); and
The employer must communicate the reasonable standards for regularization at the time of engagement.

A probationary employee may be terminated:

For just cause, or
For failure to meet the communicated standards, or
For authorized cause (redundancy, retrenchment, etc.)

If standards are not made known, or the employee is allowed to work beyond the probationary period, he or she is generally deemed a regular employee.

2. Fixed-Term Employees

Under certain circumstances (e.g., Brent doctrine), fixed-term employment is allowed if:

The term was knowingly and voluntarily agreed upon by both parties, and
Not used to circumvent security of tenure.

However, even with a fixed-term contract (say, 1 year), the employer may still terminate before the term ends only if:

There is a valid just cause, or
There is a valid authorized cause with proper separation pay, etc.

If an employer cuts short a fixed-term contract without just or authorized cause, the employee may claim:

Pay for the unexpired portion of the term, plus
Other money claims as allowed by law.

3. Project and Seasonal Employees

Project employees – hired for a specific project, and employment ends upon completion of the project.
Seasonal employees – hired for specific seasons (e.g., harvest, peak sales).

Termination at project completion or end of season is generally not illegal dismissal if the arrangement is legitimate.

However, early termination (before project end) still needs a just or authorized cause, plus proper procedure.

4. Domestic Workers (Kasambahay)

Domestic workers are governed by a special law, often called the Batas Kasambahay. Grounds for termination are similar (misconduct, neglect, etc.) but the law provides:

Specific causes for termination by the employer
Specific causes for termination by the kasambahay
Rules on notice and benefits

Even here, whimsical removal despite a contract is not allowed.

VI. Termination Clauses in Contracts: What’s Valid and What Isn’t

Employment contracts often contain “termination clauses.” Examples:

“Employer may terminate the contract at any time for violation of company rules.”
“Employer may terminate the contract at will.”
“Employee may be terminated if he fails to meet sales quota.”

Key principles:

Contractual grounds must still fit within “just” or “authorized” causes, or be analogous to them.
A contract cannot overturn security of tenure.
“Termination at will” clauses, where the employer may terminate for any reason and without cause, are generally invalid.
Company rules can be a basis for dismissal if:
- They are reasonable
- They do not violate the law
- They are known to the employee
- They are consistently and fairly enforced

If there is a conflict between the contract and the Labor Code / Constitution, the law prevails.

VII. Procedural Due Process: How Termination Must Be Done

Even if a valid ground exists, termination can still be defective if due process is not observed.

A. Just Causes: “Twin-Notice” and Hearing

For dismissals based on just causes, the standard procedure is:

First Written Notice (Notice to Explain)
- States the specific acts or omissions complained of
- Provides details (dates, events, rules violated)
- Gives the employee a chance to submit a written explanation (commonly a few days).
Opportunity to Be Heard
- This may be a hearing, conference, or meeting where the employee can explain his side, present evidence, or be assisted by a representative.
Second Written Notice (Notice of Decision)
- States the employer’s findings and the reasons for the decision
- Clearly states if employment is terminated and on what legal ground.

Failure to observe this may lead to liability for violation of procedural due process, even if the cause is valid.

B. Authorized Causes: 30-Day Notice and Separation Pay

For authorized causes (redundancy, retrenchment, closure, etc.):

The employer must give written notice to:
- The employee, and
- The Department of Labor and Employment (DOLE)
At least 30 days before the intended date of termination.

Proper separation pay must also be given in accordance with law and jurisprudence.

C. Disease

Must be supported by a medical certificate from a competent public health authority.
Employee should be given appropriate notice and benefits.

VIII. Prohibited Grounds and Illegal Dismissal

Some reasons for termination are inherently invalid, even if written into a contract. Examples:

Termination because of union membership or union activities
Termination because an employee filed a labor complaint
Termination based on gender, religion, race, or marital status
Termination because of pregnancy or filing of maternity leave claims
Termination for exercising statutory rights (like minimum wage, overtime, etc.)

Such dismissals may be:

Illegal dismissal, and/or
Unfair labor practice, with additional consequences

Constructive dismissal also occurs when the employer makes working conditions so unbearable or humiliating that the employee is forced to resign; this can be treated as illegal dismissal.

IX. Consequences of Illegal Termination Despite a Contract

If an employee is removed without just or authorized cause, or without due process, the usual consequences (subject to law and jurisprudence at the time) are:

Reinstatement without loss of seniority rights and
Full backwages from the time of dismissal until actual reinstatement

If reinstatement is no longer feasible (strained relations, business closure, etc.):

Separation pay in lieu of reinstatement may be awarded, plus backwages.

If there was valid cause but defective procedure, courts may award:

Nominal damages (for violation of due process), on top of other lawful entitlements.

The employer may also be liable for:

Attorney’s fees, moral and exemplary damages in certain cases
Administrative liability in severe or repeated infractions

X. Practical Takeaways

For Employers

Do not assume that a written contract gives you unlimited power to terminate.
Always check if the ground fits just or authorized causes.
Document everything: performance, notices, hearings, and decisions.
Follow due process, even if you feel the cause is obvious.

For Employees

A contract period (e.g., “3-year contract”) does not guarantee absolute immunity from dismissal.
You can still be terminated before the end of the contract if:
- There is a legal ground, and
- Proper procedure is followed.
However, you are protected from arbitrary / baseless termination, even if the contract seems to allow it.
If you suspect your dismissal lacks valid cause or due process, you can consult:
- A labor lawyer, or
- The DOLE and appropriate labor agencies.

The core idea in Philippine labor law is balance: employers retain management prerogative and the ability to terminate when justified, but employees enjoy security of tenure that contracts cannot erase. The written contract is important, but it always sits under the Constitution, the Labor Code, and the protective policy of the State toward labor.