Illegal Dismissal in the Philippines: Grounds, Remedies, and the NLRC Process

1) Big Picture

In the Philippines, an employee enjoys security of tenure under the 1987 Constitution and the Labor Code. A dismissal is legal only if the employer proves (a) a lawful cause and (b) due process. Absence of either generally results in illegal dismissal, with consequences that typically include reinstatement and full backwages, or separation pay in lieu if reinstatement is no longer viable.

2) Sources of Law (at a glance)

Constitution: Security of tenure; no dismissal except for just/authorized cause and with due process.
Labor Code (as amended; renumbered):
- Just causes (Art. 297; formerly 282)
- Authorized causes (Art. 298; formerly 283) and Disease (Art. 299; formerly 284)
- Security of tenure & reliefs (Art. 294; formerly 279)
- Money-claims prescription (Art. 306; formerly 291)
NLRC Rules of Procedure and controlling Supreme Court jurisprudence on notice, hearings, remedies, interest, damages, and special worker categories (probationary, project, fixed-term, OFWs, etc.).

3) What Counts as Illegal Dismissal

A dismissal is illegal if:

No lawful cause exists or the cause is not proven by substantial evidence, and/or
The employer failed to observe due process (the “twin-notice + hearing” rule for just causes; 30-day notices for authorized causes).

Burden of proof: Always on the employer. Mere allegations (e.g., “poor performance”) do not suffice.

4) Lawful Grounds for Termination

A. Just Causes (Employee fault; Art. 297)

Serious misconduct (must be grave, work-related, and with wrongful intent).
Willful disobedience of lawful orders (order must be reasonable, made known, and related to work).
Gross and habitual neglect of duties (both grossness and habituality ordinarily required).
Fraud or willful breach of trust (especially for fiduciary or managerial roles; must rest on clearly established facts).
Commission of a crime or offense against the employer, any immediate family member, or authorized representatives.
Other analogous causes (e.g., gross inefficiency with clear standards and proof).

Procedural due process (just causes)

First notice: Specific acts/omissions charged, rule violated, and directive to explain; give a reasonable period (at least 5 calendar days) to respond.
Opportunity to be heard: Hearing or conference (oral or written submissions) where the employee can defend, present evidence, and rebut allegations.
Second notice: Decision notice that clearly states the findings and the exact cause.

B. Authorized Causes (Business exigencies; Art. 298)

Installation of labor-saving devices
Redundancy (excess of positions; requires fair, reasonable criteria for selection)
Retrenchment to prevent losses (proof of serious/actual or imminent losses, usually via audited financial statements)
Closure/cessation of business (if due to serious business losses, separation pay may not be due)

Separation pay (minimums)

Installation of labor-saving devices / Redundancy: 1 month pay or 1 month per year of service, whichever is higher.
Retrenchment / Closure not due to serious losses: 1 month pay or 1/2 month per year of service, whichever is higher.

Procedural due process (authorized causes)

Thirty (30) days’ prior written notice to both the employee and the DOLE Regional Office, stating the ground(s) and effective date.

C. Disease (Art. 299)

Termination is allowed if a competent public health authority certifies that the employee suffers from a disease not curable within six months and continued employment is prohibited by law or prejudicial to health.
Separation pay: 1 month salary or 1/2 month salary per year of service, whichever is higher.
Must also observe 30-day prior notice to the employee and DOLE.

5) Nuanced Scenarios

Probationary employees: May be dismissed for just cause or failure to meet reasonable standards made known at hiring; due process still applies.
Project/seasonal employees: Employment ends at project completion or end of season. Premature termination still needs lawful cause and due process.
Fixed-term employees: Allowed if a bona fide fixed term (not a device to defeat tenure). Early termination requires a lawful cause and due process.
OFWs: NLRC has jurisdiction over illegal dismissal claims; if illegally dismissed, wages for the unexpired portion of the contract (plus authorized reliefs) generally apply.
Constructive dismissal: When the employer makes working conditions so unreasonable or humiliating that a reasonable person would feel compelled to resign (e.g., baseless demotion, pay cut, harassment, punitive transfer in bad faith).
Abandonment: A just cause only if the employer proves (1) failure to report for work without valid reason and (2) a clear intention to sever employment. Mere absence is insufficient; employers typically send return-to-work directives to the last known address.
Management prerogative: Transfers and reassignments are valid if made in good faith, without demotion or pay cut, and not to circumvent security of tenure.
Quitclaims: Not automatically valid. They are recognized only if voluntary, free from duress, and for a reasonable consideration. Employees may still claim deficiencies.

6) Remedies When Dismissal Is Illegal

Reinstatement to the former position (or equivalent) without loss of seniority rights.
- Immediate reinstatement pending appeal: If the Labor Arbiter (LA) orders reinstatement, it is immediately executory, either by actual reinstatement or payroll reinstatement (at the employer’s option), even while the case is on appeal. Amounts paid are generally not refundable if the employer later wins.
Full backwages
- Generally computed from the date of illegal dismissal up to actual reinstatement.
- If reinstatement is no longer feasible and separation pay in lieu is awarded, backwages run until finality of the decision.
- No deduction for earnings elsewhere (the statute’s “full backwages” policy).
Separation pay in lieu of reinstatement
- Granted when reinstatement is impracticable (e.g., strained relations, cessation of business, position genuinely abolished).
- Typical measure: 1 month pay per year of service (jurisprudential, discretionary; may vary based on equities).
Nominal damages for due-process lapses (even if the cause exists)
- Just cause but no due process: ₱30,000 nominal damages (benchmark in jurisprudence).
- Authorized cause but no due process: ₱50,000 nominal damages (benchmark).
- These do not convert a valid dismissal into illegal dismissal.
Moral and exemplary damages
- Awarded only upon proof of bad faith, malice, or oppression in the manner of dismissal.
Attorney’s fees
- Commonly 10% of the monetary award when the employee is compelled to litigate to recover wages/benefits.
Legal interest
- Monetary awards generally earn 6% per annum legal interest (application and reckoning dates follow prevailing jurisprudence; often from finality of judgment until full satisfaction, with nuances depending on the component).
Tax treatment (general guide)
- Backwages are typically taxable income subject to withholding.
- Separation pay due to involuntary separation (e.g., retrenchment, redundancy, disease, closure) may be tax-exempt under the NIRC if statutory requisites are met.

Note on “equitable separation pay” for just causes: Courts have, in narrow circumstances, awarded separation pay on equity for some just-cause dismissals not involving serious misconduct or moral turpitude. The modern trend is restrictive and highly fact-specific.

7) Prescriptive Periods

Illegal dismissal (reinstatement/backwages): treated as an injury to rights, generally 4 years from the date of dismissal.
Money claims (e.g., unpaid benefits not merely incidental to illegal dismissal): generally 3 years from accrual.
File early to avoid close-call prescription disputes.

8) The NLRC Process (Step-by-Step)

A. Before Filing: Conciliation-Mediation (SEnA)

Most labor disputes first pass through Single-Entry Approach (SEnA) for up to 30 days of conciliation-mediation.
If settlement fails, a referral is issued to the proper forum (here, the NLRC—Regional Arbitration Branch).

B. Filing the Complaint (NLRC–RAB)

File a complaint (often via the RAB where the employer or employee resides or where the workplace is located).
The case is raffled to a Labor Arbiter.

C. Mandatory Conferences

The LA conducts mandatory conciliation/conferences to explore settlement and identify issues. Parties are then directed to submit position papers with documentary evidence and witness affidavits.

D. Submission and Resolution

After submissions (and any clarificatory hearing), the case is deemed submitted for decision.
The LA issues a Decision (reinstatement/backwages, separation pay, damages, etc.).

E. Appeal to the NLRC Commission

Who may appeal: Any aggrieved party.
Period: 10 calendar days from receipt of the LA Decision.
Employer’s appeal bond: If the employer appeals a monetary award, a cash or surety bond equivalent to the award (excluding damages/fees in some instances) must be posted to perfect the appeal.
Effect on reinstatement: The reinstatement order is immediately executory notwithstanding the appeal.

F. NLRC Decision; Motion for Reconsideration; Judicial Review

The NLRC resolves the appeal.
A motion for reconsideration is generally available once within the prescribed period under the NLRC Rules.
No ordinary appeal to the Court of Appeals; the remedy is a Rule 65 Petition for Certiorari (CA) within 60 days from receipt of the NLRC’s denial of the MR (or decision, per rules/jurisprudence).
From the CA, a Rule 45 Petition for Review to the Supreme Court may follow on pure questions of law.
Execution: Once a decision becomes final and executory, a writ of execution may issue to satisfy the monetary and other awards.

9) Computing Reliefs (Practical Guides)

Backwages (typical formula)

Backwages = (Monthly salary + fixed regular allowances) × number of months
            from illegal dismissal up to actual reinstatement
            (or up to finality if separation pay in lieu)

Include only fixed, regular allowances/benefits; purely discretionary bonuses are usually excluded unless proven as regular and demandable.

Separation Pay (statutory minima)

Redundancy / Installation of labor-saving devices: Separation Pay = max(1 month salary, 1 month salary × years of service)
Retrenchment / Closure (no serious losses): Separation Pay = max(1 month salary, 0.5 month salary × years of service)
Disease: Separation Pay = max(1 month salary, 0.5 month salary × years of service)
A fraction of at least 6 months is typically considered one whole year.

10) Employer Compliance Checklist

Select the correct ground and gather substantial evidence.
For just causes: Serve a detailed first notice, allow at least 5 days to explain, conduct a hearing/meeting, then issue a reasoned decision notice.
For authorized causes/disease: Serve 30-day prior notices to the employee and DOLE; ensure separation pay and (for redundancy/retrenchment) fair and reasonable selection criteria; for disease, secure public health authority certification.
Preserve proof of service and attendance (registry receipts, email acknowledgments, minutes).
Avoid blanket accusations; tailor charges to specific acts with dates, policies violated, and evidence.
Consider lesser penalties where appropriate and consistent with company rules and proportionality.

11) Employee Action Guide

Document everything: notices received, emails, text messages, timecards, pay slips, performance appraisals.
If constructively dismissed: record transfers, demotions, pay cuts, hostile acts, and their impact.
File within time: illegal dismissal (generally 4 years); stand-alone money claims (3 years).
At SEnA/NLRC: state the facts, claims, and reliefs (reinstatement/backwages, damages, attorney’s fees, interest).
During conferences: bring IDs, witnesses/affidavits, and original documents or certified copies.
Taxes/withholding: expect backwages to be taxed; verify if separation pay qualifies for tax exemption.

12) Special Notes and Common Pitfalls

“Poor performance” requires clear, pre-communicated standards, actual metrics, and proof of failure.
Loss of trust and confidence: Higher tolerance for managerial or fiduciary positions, yet still needs substantial evidence; not a catch-all.
Redundancy: Show good-faith business rationalization, organizational charts before/after, board/management resolutions, and selection criteria.
Retrenchment: Prove losses with audited financials; internal spreadsheets rarely suffice.
Abandonment: Always weak without a return-to-work directive and proof of animus deserendi (intent to quit).
Quitclaims: Small “consideration” plus hurried signatures often lead to invalidation.

13) Quick Reference Table

Topic	Rule of Thumb
Standard of proof	Substantial evidence (more than a mere scintilla)
Just causes – procedure	Two notices + hearing; at least 5 days to explain
Authorized causes – procedure	30-day prior notice to employee & DOLE + pay statutory separation
Reinstatement pending appeal	Immediately executory; payroll or actual reinstatement
Employer appeal bond	Amount of the monetary award (cash/surety)
Illegal dismissal prescription	4 years from dismissal
Stand-alone money claims	3 years from accrual
Nominal damages (no due process)	₱30k (just cause) / ₱50k (authorized cause)
Legal interest	Generally 6% p.a. on monetary awards (prevailing doctrine)

14) Final Takeaway

An employer must get both the reason and the procedure right. Employees who are terminated should promptly evaluate cause and process, preserve evidence, and pursue the SEnA → NLRC track within the prescriptive periods. Remedies are robust (reinstatement, full backwages, separation pay in lieu, damages, interest), but they hinge on timely, well-documented action.