For employees and employers in the Philippines, this guide distills the essentials—from valid grounds and due process, to computing final pay and assessing quitclaims—using the Labor Code (as renumbered), key DOLE issuances, and settled jurisprudential principles as of mid-2025.

1) Security of Tenure & the Basic Tests

Security of tenure means you can only be dismissed for a valid cause and after due process. The employer bears the burden of proof to show both.

Two things must BOTH be present
1. Substantive validity — there is a legally recognized ground.
2. Procedural due process — the correct notices and opportunity to be heard were given.

If either element is missing, the dismissal is illegal (if the cause is invalid) or ineffectual/defective (if only procedure is lacking).

2) Substantive Grounds for Dismissal

A. Just Causes (employee fault; Labor Code art. 297 [old 282])

Common examples:

Serious misconduct or willful disobedience
Gross and habitual neglect of duties
Fraud or willful breach of trust (loss of confidence)
Commission of a crime or offense against the employer or representatives
Other analogous causes

Separation pay: generally none for just causes (courts may, in rare equity cases and where the offense is not serious, grant financial assistance—but this is exceptional).

B. Authorized Causes (business or health reasons; arts. 298–299 [old 283–284])

Installation of labor-saving devices or Redundancy → separation pay of at least one (1) month pay per year of service, or one month pay, whichever is higher.
Retrenchment to prevent losses or Closure/cessation not due to serious losses → at least one (1) month pay or one-half (1/2) month pay per year of service, whichever is higher.
Closure due to serious business losses → no separation pay required.
Disease (employee is diseased and unfit for work; no suitable work available; separation is based on a competent public health authority’s certification) → at least one (1) month salary or one-half (1/2) month salary per year of service, whichever is higher.

Rounding rule: A fraction of at least six (6) months of service is generally counted as one whole year when computing “per year of service.”

3) Procedural Due Process

A. For Just Causes: the Twin-Notice and Hearing rule

First Notice (Charge Notice):
- States the specific acts and the rule violated;
- Gives the employee reasonable opportunity to explain in writing (guidance: at least 5 calendar days to prepare).
Opportunity to be Heard:
- A hearing or conference to present evidence, rebut charges, and be assisted by counsel or a representative.
Second Notice (Decision Notice):
- Informs the employee of the decision, findings of fact, and the final sanction.

B. For Authorized Causes

30-day prior written notice to both the employee and the DOLE Regional Office, stating the ground, and
Payment of statutory separation pay (if applicable) on or before effectivity of termination.

Failure to follow procedure—even with a valid cause—can lead to nominal damages for violation of statutory due process.

4) What Counts as Illegal or Constructive Dismissal?

Illegal dismissal occurs when there is no valid cause or due process is fatally defective.
Constructive dismissal: when continued employment becomes unreasonable or impossible due to the employer’s acts (e.g., substantial demotion, significant pay cuts/diminution of benefits, harassment, or a hostile work environment), forcing the employee to resign. The test is whether a reasonable person would feel compelled to leave.

5) Remedies if Dismissal Is Illegal

Reinstatement to the former position without loss of seniority and other rights; OR Separation pay in lieu of reinstatement (typically one (1) month salary per year of service, at the court/arbiter’s discretion when reinstatement is no longer feasible due to strained relations, closure, abolition of the position, etc.).
Full backwages — from the date of dismissal up to actual reinstatement, or up to finality of the decision when separation pay in lieu is awarded. Backwages generally include basic salary plus regular allowances/benefits that are integral and fixed.
Damages — moral/exemplary upon proof of bad faith or oppressive conduct.
Attorney’s fees — typically 10% of the monetary award when unlawful withholding is shown.
Legal interest — monetary awards accrue 6% per annum from the date fixed by jurisprudence (often from finality of judgment, with nuances for backwages and other components).

6) Prescriptive Periods (Deadlines)

Illegal dismissal complaint: generally 4 years from dismissal (treated as an “injury to rights”).
Money claims arising from employer–employee relations (unpaid wages, benefits, differentials, etc.): 3 years from accrual.
Illegal deductions/withholding: generally covered by the 3-year money-claims period.

File with the NLRC or NCMB/SEnA (Single-Entry Approach) for mandatory conciliation-mediation before arbitration. Venue is typically the NLRC Regional Arbitration Branch where the employee worked or where the employer resides.

7) Final Pay: What Must Be Included & When to Release

Final pay is the sum of all amounts due at separation, regardless of the reason for leaving (resignation, termination, retirement, end of contract, etc.). As a practical checklist, final pay commonly includes:

Unpaid wages up to last day worked
Pro-rated 13th-month pay
Cash conversion of unused SIL/vacation leave (if company policy/CBA provides or if SIL is monetized per policy)
Overtime, night shift differential, holiday pay, premium pay, and other earned allowances/differentials
Separation pay (if an authorized cause or disease termination applies; or by agreement)
Tax refund (if withholding exceeded final annual tax due)
Other monetary benefits per CBA, company policy, or employment contract

Release timeline: DOLE guidance expects employers to release final pay within 30 days from separation, or earlier if company policy/contract provides. Clearance processes cannot be used to unduly delay payment; only lawful deductions may be applied (e.g., with written authorization, or those required by law, or proven accountabilities, subject to limits and due process).

Certificate of Employment (COE): Upon request, the employer must issue a COE within a few days (practice standard: within 3 working days of request), stating employment date(s) and position(s); it should not include judgments on performance or cause of separation.

Tax treatment (high level):

Separation benefits due to causes beyond the employee’s control (e.g., redundancy, retrenchment, closure, disease) are generally income tax-exempt under the NIRC, if statutory conditions are met.
Retirement pay under RA 7641 (or a tax-qualified plan) may be tax-exempt if statutory age/tenure and plan rules are satisfied.

8) Quitclaims, Releases, and Waivers

A quitclaim (often titled “Release, Waiver, and Quitclaim”) is a document where an employee acknowledges receipt of amounts and waives further claims. Philippine courts do not automatically invalidate quitclaims; they are generally respected if the following are present:

Hallmarks of a valid quitclaim

Voluntary execution; no fraud, coercion, or undue pressure
Informed consent — employee understood the terms (language, clarity, and context)
Reasonable consideration — the amount is not unconscionably low compared with the employee’s lawful entitlements (e.g., separation pay, backwages, accrued benefits)
No waiver of non-waivable rights (statutory minimums cannot be validly waived)

When courts set aside a quitclaim

Unconscionable or grossly inadequate consideration
Vitiated consent (threats, deception, abuse of circumstances; lack of time to study; language barrier)
Public policy violations (e.g., attempting to waive statutory minimums)

Effect even when valid

A valid quitclaim typically bars further claims covered by it.
Amounts already received under a defective quitclaim are usually credited against any later monetary awards (to avoid unjust enrichment).
Employers should ensure itemization of payments and clarity on the cause of termination to avoid ambiguity.

Practical tips

For employees: Don’t sign on the spot. Ask for a computation breakdown, compare against statutory/contractual entitlements, and seek advice if unsure.
For employers: Provide the computation sheet, allow time to review, state the grounds and due process steps taken, and avoid any pressure tactics.

9) Computing Backwages, Separation Pay, and Final Pay (Worked Examples)

Assumptions: “Basic salary” excludes discretionary bonuses and purely contingent allowances. Fractions ≥ 6 months count as 1 year for “per year of service.”

Example 1 – Illegal dismissal; separation pay in lieu of reinstatement

Monthly basic: ₱30,000
Tenure: 5 years, 8 months → 6 years for separation pay
Dismissal to finality of judgment: 18 months (backwages period)

Backwages: ₱30,000 × 18 = ₱540,000 Separation pay in lieu: ₱30,000 × 6 = ₱180,000 Other earned amounts (e.g., 13th-month pro-rated, leave credits): add as applicable Less: amounts already paid under any quitclaim (if any) Plus: legal interest 6% p.a. on monetary awards as judicially fixed.

Example 2 – Redundancy (authorized cause)

Monthly basic: ₱25,000
Tenure: 3 years, 4 months → 3 years
Separation pay rate (redundancy): 1 month per year of service

Separation pay: ₱25,000 × 3 = ₱75,000 (or ₱25,000 if that were higher; here the per-year rule yields more) Final pay also includes earned wage, pro-rated 13th-month, monetized SIL, etc. Tax: separation pay for redundancy typically tax-exempt if requirements are met.

10) Special Topics and Edge Cases

Probationary employees: Still protected. Termination requires: (i) valid ground (e.g., failure to meet communicated standards) and (ii) due process (notice and chance to explain). Failure to communicate standards at hiring often makes dismissal invalid.
Fixed-term employees: May be separated upon expiry of the term if the fixed term is validly agreed and not used to circumvent security of tenure.
Project employees: Separation upon project completion is valid if the project nature and duration/scope were communicated at engagement.
Payroll reinstatement: If physical reinstatement is not feasible pending appeal, courts may order payroll reinstatement (pay without actual return to work).
Deductions/Accountabilities: Charges for losses or property accountabilities must follow lawful deduction rules and due process; employers should avoid netting unproven amounts against final pay.
Clearance policy: Permissible to verify accountabilities, but cannot be used to indefinitely withhold final pay.
Confidential/managerial employees: Loss of trust and confidence has a distinct, stricter standard (must be based on clearly established facts and relate to the employee’s duties).

11) Practical Checklists

For Employees (before filing a case or signing a quitclaim)

Gather: employment contract, handbook/CBA, pay slips, notices, emails/memos, time records, incident reports, and any computation sheets.
Ask for: COE, final pay breakdown, and the DOLE 30-day notice (for authorized causes).
Compare the separation pay or final pay offered vs. statutory minima and your accruals.
If pressured, request time to review; note any coercive circumstances.

For Employers (to reduce legal risk)

Document the ground (audits, incident reports, witness statements).
Observe the 5-day reply window and hearing/conference.
Issue clear, dated notices; keep proof of service.
For authorized causes: 30-day DOLE+employee notice, bona fide business reason, and objective criteria (for redundancy).
Compute and tender final pay and separation pay on time; provide a detailed breakdown.
If using a quitclaim, ensure voluntariness, adequate consideration, and plain language.

12) Where and How to Enforce Rights

Conciliation first (SEnA/NCMB) → if unresolved, file at the NLRC Regional Arbitration Branch.
Keep an eye on prescriptive periods (3 years for money claims; 4 years for illegal dismissal).
Prepare for position papers with affidavits and documentary evidence; hearings are generally paper-based at the arbitration level.

13) Quick FAQ

Q: The company gave me one month’s pay and a quitclaim for redundancy, but I worked 7 years. Is that enough? A: Likely not. Redundancy usually requires 1 month per year of service (7 months of pay here), or one month, whichever is higher. A one-month lump sum may be unconscionably low for 7 years; be cautious about signing.

Q: My dismissal had a valid ground, but HR skipped the hearing. What can I get? A: Courts often award nominal damages for procedural lapses even if the cause is valid. Amounts vary based on circumstances.

Q: Can my employer withhold my final pay until I return a laptop? A: Employers may verify accountabilities and deduct lawfully established obligations, but they cannot use clearance to indefinitely delay final pay. The release should still be within a reasonable period (commonly 30 days), less authorized deductions.

Q: I resigned. Am I entitled to separation pay? A: Resignation alone does not entitle you to separation pay, unless provided by CBA, company policy, or a special agreement. Separation pay is statutory mainly for authorized causes and disease.

14) Bottom Line

Employers must align grounds, procedure, and timely payments—and treat quitclaims as the end of a fair process, not a shortcut.
Employees should verify entitlements against statutory baselines and ensure that any quitclaim is truly voluntary and adequately compensated.
When in doubt, compare any offer to the per-year separation pay rules, check backwages/separation-in-lieu exposure for illegal dismissal scenarios, and consider seeking professional advice before signing anything.