Employment termination due to misappropriation—commonly understood as theft, embezzlement, unauthorized use of company funds, or conversion of company property for personal gain—is one of the most serious grounds for dismissal in Philippine labor law. It is classified under loss of trust and confidence or fraud under Article 297 (formerly Article 282) of the Labor Code, as amended. This article comprehensively discusses the legal framework, employee rights, employer obligations, procedural requirements, and available remedies when an employee is terminated on this ground.

1. Misappropriation as a Just Cause for Termination

Under Article 297(c) of the Labor Code, an employer may terminate an employee for:

Fraud or willful breach of trust reposed by the employer
Commission of a crime or offense against the employer, its representatives, or family members
Serious misconduct

Misappropriation squarely falls under willful breach of trust and/or fraud. Supreme Court jurisprudence (e.g., Reno Foods v. Nagkakaisang Lakas ng Manggagawa, G.R. No. 164016, March 15, 2010; Etcuban v. Sulpicio Lines, G.R. No. 148410, February 17, 2006) has consistently held that mere existence of a basis for believing that the employee has breached the trust of the employer is sufficient for dismissal, especially for managerial or fiduciary positions.

There are two categories:

a) Managerial employees / positions of trust – Mere loss of confidence is sufficient; proof beyond reasonable doubt is not required, only substantial evidence. b) Rank-and-file employees – There must be a willful act showing unfitness to continue working; the breach must be work-related and show moral depravity or wrongful intent.

Even small amounts (e.g., ₱500–₱5,000) have been upheld as valid grounds if the act is intentional (see Manila Electric Company v. Gallo, G.R. No. 203081, June 17, 2015).

2. Due Process Requirements (Mandatory)

No termination for just cause is valid without compliance with both substantive and procedural due process (King of Kings Transport v. Mamac, G.R. No. 166208, June 29, 2007).

Procedural due process (DOLE D.O. 147-15 / Article 292-b, Labor Code):

First Written Notice (Notice to Explain or NTE) – Must specify the specific acts or omissions constituting misappropriation, with supporting details and evidence. The employee must be given at least 5 calendar days to submit a written explanation.
Ample Opportunity to be Heard – Formal hearing is not always required if the employee already submitted a written explanation, but if requested or if the explanation is inadequate, a hearing/conference must be conducted.
Second Written Notice (Notice of Termination) – Must state that after considering all circumstances, the employer has decided to terminate, specifying the ground(s) and the effective date.

Failure to comply with procedural due process renders the termination illegal, even if the misappropriation is proven. The employee is then entitled to nominal damages (₱30,000–₱50,000 under current jurisprudence, Agabon v. NLRC doctrine, as modified by later cases).

3. Consequences of Lawful Termination for Misappropriation

If termination is valid (both substantive and procedural due process complied with):

No separation pay
No backwages
No reinstatement
No damages (moral/exemplary)
Forfeiture of retirement benefits is possible if provided by company policy or CBA and the misconduct constitutes disloyalty or dishonesty
Employee is entitled only to:
- Final wages (up to last day of work)
- Pro-rated 13th-month pay
- Unused service incentive leave (SIL) converted to cash
- Other benefits under company policy/CBA (e.g., rice subsidy, etc.)
- Tax refund for over-withheld taxes
- Certificate of Employment (COE)
- SSS, PhilHealth, Pag-IBIG contributions remain credited

The employer may also place the employee under preventive suspension (max 30 days) during investigation.

4. Rights When Termination is Declared Illegal

An employee may file a complaint for illegal dismissal within 4 years from termination (Article 1146, Civil Code; illegal dismissal is an injury to rights).

Grounds for declaring termination illegal:

No misappropriation actually committed (lack of substantial evidence)
Due process not observed
Penalty of dismissal is disproportionate (e.g., first offense, minimal amount, long service – see Philippine Long Distance Telephone Co. v. Teves, G.R. No. 143511, November 15, 2010)

Reliefs available (Article 294, Labor Code; as amended by R.A. 10151):

a) Reinstatement without loss of seniority rights + full backwages (from date of dismissal until actual reinstatement), inclusive of allowances and benefits
b) If reinstatement is no longer viable (strained relations, position abolished, employee already over retirement age), separation pay in lieu of reinstatement = 1 month salary per year of service (minimum ₱½ month) + full backwages
c) Moral and exemplary damages if dismissal was attended by bad faith
d) 10% attorney’s fees on total monetary award

5. Criminal Liability Separate from Labor Case

Misappropriation may constitute:

Qualified Theft (Article 310, Revised Penal Code) – if employee takes company property with grave abuse of confidence
Estafa (Article 315, RPC) – through misappropriation or conversion

The labor case (illegal dismissal) and criminal case are independent.

Acquittal in criminal case (requiring proof beyond reasonable doubt) does not automatically mean illegal dismissal in labor case (only substantial evidence required)
Conviction in criminal case strengthens employer’s defense in labor case but is not required for valid dismissal

Employees convicted may face imprisonment and civil liability (restitution + damages).

6. Special Rules and Jurisprudence Highlights

Small amount doctrine – Dismissal may be too harsh for very minimal amounts and long unblemished service (see Sagales v. Rustan’s Commercial Corporation, G.R. No. 233117, June 17, 2020)
Floating status beyond 6 months = constructive dismissal
Preventive suspension beyond 30 days = constructive dismissal
Company policy requiring restitution as condition for continued employment is illegal
CBA provisions providing lighter penalties (e.g., suspension instead of dismissal for first offense) prevail over Labor Code if more beneficial to employee

7. Practical Remedies and Timelines

File illegal dismissal complaint with NLRC Regional Arbitration Branch within 4 years
Single Entry Approach (SEnA) – 30-day mandatory conciliation before NLRC (highly recommended; many cases settled here)
Small money claims (≤₱1,000,000) may be filed under DOLE’s Small Money Claims procedure (faster, no attorney required)
Appeal: NLRC → Court of Appeals (Rule 65) → Supreme Court

Conclusion

Termination for misappropriation is one of the strongest just causes under Philippine law, but it is heavily regulated by strict due process requirements. Employees facing such accusations must immediately respond in writing to the NTE, gather evidence of their innocence, and consult a labor lawyer. Employers must document everything meticulously to avoid liability for illegal dismissal. While the law leans toward protecting the employer’s property rights when dishonesty is proven, it equally safeguards employees from arbitrary or procedurally flawed dismissals through substantial monetary awards when terminations are found unlawful.

This remains current as of December 2025 under the Labor Code, DOLE issuances, and prevailing Supreme Court jurisprudence.