Just Cause vs. Authorized Cause for Employee Termination in the Philippines
(A comprehensive 2025-ready guide for HR practitioners, lawyers, employers, and workers)
1. Why the Distinction Matters
The Philippine Labor Code recognizes two very different clusters of grounds for dismissing a regular employee:
| Purpose | Concept | Statutory Basis | Separation Pay? | Notice Requirements | Typical Proof |
|---|---|---|---|---|---|
| Disciplinary | Just Causes – blameworthy acts or omissions of the employee | Art. 297 (old 282) | None (unless CBA/company policy grants) | Twin Notice + Hearing | Incident reports, CCTV, affidavits, audit findings |
| Management/Business | Authorized Causes – legitimate business reasons or health grounds not based on the employee’s fault | Arts. 298–299 (old 283–284) | Required (½-month to 1-month per year of service, depending on cause) | 30-day written notice to employee and DOLE | Financial statements, feasibility studies, medical certificate |
2. Statutory Framework at a Glance
| Article (Labor Code, renumbered) | Title |
|---|---|
| 297 | Termination by Employer for Just Causes |
| 298 | Termination by Employer for Authorized Causes (economic) |
| 299 | Termination due to Disease |
| 300 | Closure not due to serious losses |
| 301 | Employment not deemed terminated in suspension of business operations |
Department Order (DOLE)
- DO 147-15 – Detailed due-process guidelines for just-cause dismissals
- DO 174-17 – Special rules on contracting but often referenced for redundancy/closure audits
3. JUST CAUSES – Art. 297
Serious Misconduct Must be grave, work-related, and done with wrongful intent.
Philippine Airlines v. NLRC (G.R. No. 123438, 1998): Flight attendant who assaulted a co-worker onboard – valid dismissal.
Willful Disobedience of Lawful Orders There must be (a) a clear, reasonable order and (b) the employee’s intentional defiance.
Gross & Habitual Neglect of Duties
- “Gross” = flagrant or wanton;
- “Habitual” ≠ single act unless it causes substantial harm (e.g., leaving a cash vault unlocked).
Fraud or Willful Breach of Trust Reserved for managerial/confidential employees or those routinely handling property/money.
Commission of a Crime or Offense Against the employer, his family, or duly authorized representative.
- Actual conviction not required; substantial evidence that the act occurred suffices.
Other Analogous Causes
- Determined case-by-case; eg. Loss of license for drivers/pilots, positive drug test (if policy exists).
- Must be: (a) similar to the first five grounds, (b) voluntary or blameworthy, and (c) specified in company rules.
Procedural Due Process (Just Cause)
- First Notice (Charge Sheet): specific acts, rule violated, evidence summary.
- Ample Opportunity to Explain: 5-calendar-day rule is best practice.
- Formal Hearing (optional but prudent): especially if requested or dismissal hinges on credibility issues.
- Second Notice (Decision): facts, rule applied, reasons for penalty.
Preventive Suspension
- Max 30 days; beyond that, employee must be paid wages or reinstated to post.
4. AUTHORIZED CAUSES – Arts. 298 & 299
4.1 Economic or Business-Driven (Art. 298)
| Cause | Separation Pay Formula | Essential Elements | Sample Evidence |
|---|---|---|---|
| Installation of Labor-Saving Devices | 1 month pay per year of service (min 1 month) | Good-faith introduction of tech/machinery; real saving; fair criteria | Feasibility study, automation plan |
| Redundancy | Same as above | Services are in excess; fair & reasonable selection criteria (LIFO, performance) | Organizational chart before & after, redundancy matrix |
| Retrenchment to Prevent Losses | ½ month pay per year (min 1 month) | Imminent/actual serious losses proved by audited financials; last resort | SEC-filed FS, independent CPA certification |
| Closure/Cessation not due to losses | ½ month pay per year (min 1 month) | Decision in good faith; not device to defeat labor rights | Board resolution, permits cancellation |
4.2 Health-Driven (Art. 299 – Disease)
- Employee’s continued employment is prohibited by DOH regulations or prejudicial to health of self/others.
- Requires a competent public health authority certificate.
- Separation pay: ½ month per year (min 1 month). Reinstatement if later declared fit.
Procedural Due Process (Authorized Cause)
30-Day Prior Written Notice
- To the affected employee and the DOLE Regional Office.
- Must state the ground, effective date, and how separation pay was computed.
No hearing requirement (unless CBA/company rules provide).
5. Burden and Standard of Proof
| Aspect | Just Cause | Authorized Cause |
|---|---|---|
| Who Proves? | Employer (acts constituting just cause) | Employer (business/economic basis) |
| Quantum | Substantial evidence (relevant, reasonable mind might accept) | Same, but SC demands probative financial data for redundancy/retrenchment |
| Consequence of Failure | Illegal dismissal ⇒ reinstatement + full backwages + damages | Same + separation pay in lieu of reinstatement if strained relations |
6. Separation, Retirement, and Final Pay Matrix
| Scenario | Separation Pay | Pro-Rated 13th-Month | Unused Leave | Retirement Pay* |
|---|---|---|---|---|
| Just Cause | Not required (unless policy) | Yes | Yes | If qualified (RA 7641) |
| Authorized Cause – Redundancy/ILSD | 1 month/yr | Yes | Yes | If retirement triggered, choose higher |
| Authorized Cause – Retrench/Closure | ½ month/yr | Yes | Yes | Same |
| Disease | ½ month/yr | Yes | Yes | Same |
*Retirement and separation cannot be collected for the same year of service; whichever is higher applies.
7. Recent Jurisprudence Snapshots (2019-2024)
| Case | G.R. No. | Date | Take-Away |
|---|---|---|---|
| BDO Unibank v. Flores | 248364 | Jan 10 2024 | Redundancy valid despite hiring, because new roles required fintech skills absent in old position. |
| SM Prime v. Cabusas | 254112 | Sept 27 2023 | CCTV theft incident: serious misconduct upheld; bank & damages awarded. |
| Synerchem v. Dizon | 252346 | Feb 15 2022 | Retrenchment struck down; FS unaudited and losses not “serious.” |
| Sky Cable v. Cariño | 249963 | Oct 6 2021 | Disease dismissal void; no DOH certificate. |
| Petron v. Labata | 245860 | Dec 5 2019 | Willful disobedience requires lawful order; ambiguous memo fatal to employer. |
Always verify new decisions; the Supreme Court releases en banc & division rulings weekly.
8. Common Pitfalls & Best-Practice Checklist
| Pitfall | Prevention Tip |
|---|---|
| “One-Notice” dismissal letters | Always issue separate charge & decision notices. |
| Immediate effectivity in redundancy | Serve 30-day notice or pay salary in lieu thereof. |
| No matrix for selection criteria | Document why certain employees stay/go (performance, seniority). |
| Unauthorized medical opinion in disease cases | Secure certification from a competent public health authority (usually a DOH-accredited physician). |
| Preventive suspension beyond 30 days | Extend with pay and justify in writing to employee. |
9. Frequently-Asked Questions
Can an employee be paid separation pay even if dismissed for just cause? Yes, if the company CBA, handbook, or long-standing practice grants it, or parties agree as part of settlement.
Is financial downturn due to COVID-19 automatically “serious loss”? No. Employer must still present audited statements or proof of actual/expected losses; government lockdown orders alone do not suffice.
Does resignation with coercion convert to illegal dismissal? Possibly. The employer then bears the burden to prove resignation was voluntary and not a disguised redundancy/retrenchment.
What if the chosen employee for redundancy is pregnant? Redundancy and retrenchment may still apply; Art. 137 (protection of women) prohibits termination due to pregnancy, not incidental to a valid authorized cause. Be extra ready to prove objective selection criteria.
10. Key Take-Aways
- Just Cause = employee fault; Authorized Cause = business or health necessity.
- Process is as crucial as the ground; even a meritorious reason loses in court if procedure is flawed.
- Documentation wins cases – internal policies, notices, minutes, financials, and health certificates are your first line of defense.
- Stay updated with DOLE issuances and Supreme Court rulings; standards evolve (e.g., the 5-day reply period, audited FS, preventive suspension limits).
Bottom Line: Properly distinguish and invoke the correct statutory ground, observe the right due-process pathway, and keep meticulous records. Doing so minimizes costly illegal-dismissal verdicts and upholds the constitutional mandate to balance management prerogative with labor security.
(Prepared June 17 2025, Manila – reflects Labor Code as amended, DOLE D.O. 147-15 & 174-17, and Supreme Court jurisprudence through 2024.)