Prescription Periods for Employee Dismissal Due to Misconduct in the Philippines

I. Legal Framework Governing Dismissal for Misconduct

In the Philippines, termination of employment due to employee misconduct is classified as dismissal for just cause under Article 297 (formerly Article 282) of the Labor Code, as amended. The specific ground relevant here is paragraph (a): serious misconduct or willful disobedience by the employee of the lawful orders of the employer in connection with his work.

Serious misconduct, to justify termination, must satisfy the following requisites established in dozens of Supreme Court decisions (e.g., G.R. No. 214062, November 27, 2019, Nagkakaisang Lakas ng Manggagawa sa Keihin v. Keihin Philippines Corporation):

1. It must be serious;
2. It must relate to the performance of the employee’s duties;
3. It must show that the employee has become unfit to continue working for the employer.

Loss of trust and confidence (Article 297[c]) is a separate but often related ground when the misconduct involves breach of trust by rank-and-file employees in positions of trust or by managerial employees.

All just-cause terminations require strict compliance with procedural due process (twin-notice rule and opportunity to be heard) under Department Order No. 147-15 and prevailing jurisprudence. Failure to observe due process renders the dismissal illegal even if the misconduct is proven.

II. Does the Employer’s Right to Dismiss for Misconduct Prescribe?

There is no statutory prescription period under the Labor Code or any special law that extinguishes an employer’s right to terminate an employee for serious misconduct.

Unlike money claims (3 years – Article 306), unfair labor practice cases (1 year – Article 305), or penal offenses under the Labor Code (3 years – Article 303), serious misconduct as a ground for termination is not subject to any prescriptive period provided by law.

The Supreme Court has repeatedly ruled that the employer’s right to discipline an employee for just or authorized causes and to impose appropriate penalties is a managerial prerogative that does not prescribe by mere lapse of time, provided the misconduct was either recently committed or recently discovered.

Key cases:

• Reno Foods, Inc. v. Nagkakaisang Lakas ng Manggagawa (NLU)-Katipunan (G.R. No. 164016, March 15, 2010)
  The Court upheld dismissal for fraud committed 12 years earlier because the employer discovered the falsification only recently. The right to dismiss does not prescribe when the misconduct is recently discovered.

• Philippine Span Asia Carriers Corporation v. Pelayo (G.R. No. 212003, February 28, 2018)
  Dismissal for infidelity committed in 2003 but discovered only in 2013 was upheld.

• Merck, Inc. v. Velarde (G.R. No. 148172, August 15, 2007)
  Falsification of time records committed years earlier but discovered later justified termination.

Conclusion from jurisprudence: The right to dismiss for serious misconduct does not prescribe as long as the employer acted within a reasonable time after discovery of the misconduct.

III. The Doctrine of Condonation and the “Reasonable Time” Requirement

While there is no statutory prescription, the employer’s right to dismiss may be lost through condonation or waiver.

Condonation occurs when the employer, with full knowledge of the misconduct, allows the employee to continue working without imposing any penalty, or worse, promotes, regularizes, or increases the salary of the employee.

Landmark cases on condonation:

• Manila Electric Company v. NLRC (G.R. No. 78763, July 12, 1989)
  Offense committed in 1978; employee was promoted several times thereafter. Dismissal in 1986 was declared illegal due to condonation.

• Philippine Japan Active Carbon Corp. v. NLRC (G.R. No. 83239, March 8, 1989)
  Misconduct known to management for five years; continued employment amounted to condonation.

• Challenge Socks Corporation v. Court of Appeals (G.R. No. 165268, November 8, 2005)
  Dismissal after two years from knowledge of the offense was invalidated for condonation.

• Asian Transmission Corporation v. Canlubang (G.R. No. 172250, November 25, 2009)
  Dismissal three years after discovery of the infraction, during which the employee was allowed to continue working and was even given salary increases, was declared illegal.

The Supreme Court has not fixed an exact number of months or years that constitutes condonation. Instead, it applies a reasonableness test:

• A delay of a few weeks or months while conducting a thorough investigation is generally acceptable.
• A delay of one year or more after discovery, without justifiable reason, almost always results in a finding of condonation, especially if accompanied by positive acts (salary increase, promotion, renewal of contract, good performance rating).

IV. When Is Delay Considered Reasonable?

The employer is allowed a reasonable period to investigate and decide on the appropriate penalty. What is reasonable depends on the circumstances:

• Complex fraud cases requiring forensic audit or gathering of voluminous documents → delay of 6–12 months may be justified.
• Simple infractions (e.g., fighting, insubordination) → action expected within 30–90 days from discovery.

In practice, most Labor Arbiters and the NLRC consider six (6) months from discovery as the outer limit of reasonableness in ordinary cases, absent extraordinary circumstances.

V. Effect of Criminal Prescription on the Right to Dismiss

Even if the criminal action for the same act (e.g., estafa, qualified theft, falsification) has already prescribed under the Revised Penal Code, the employer may still validly dismiss the employee.

Administrative proceedings (which include labor termination cases) are independent of criminal proceedings.

Cases:

• Nicol v. Footjoy Industrial Corporation (G.R. No. 159372, July 27, 2007)
  Even if the criminal case for qualified theft was dismissed on the ground of prescription, the dismissal from employment for loss of trust and confidence was upheld.

• Villarey Transit v. Ferrer (G.R. No. 226553, April 17, 2019, Third Division)
  Explicitly ruled that prescription of the criminal action does not bar administrative dismissal.

VI. Prescription Period for the Employee to Challenge the Dismissal

If the employee believes the dismissal for alleged misconduct was illegal, the action must be filed within the prescriptive period:

Four (4) years from the date of dismissal.

This is the uniform ruling of the Supreme Court since Callanta v. Carnation Philippines, Inc. (G.R. No. L-70615, October 28, 1986), applying Article 1146 of the Civil Code (actions upon an injury to the rights of the plaintiff).

Important clarifications:

• The 4-year period applies to the illegal dismissal complaint itself (reinstatement + backwages).
• Money claims incidental to the illegal dismissal (backwages, 13th-month pay differential, etc.) are subject to the 3-year prescription under Article 306 of the Labor Code, counted from dismissal, but only up to the date of filing or finality of the illegal dismissal decision, whichever comes earlier (G.R. No. 197522, September 14, 2016, Santos v. Integrated Pharmaceutical, Inc.).

VII. Practical Guidelines for Employers

1. Upon discovery of serious misconduct, immediately place the employee under preventive suspension (maximum 30 days) and commence formal investigation.
2. Complete the investigation and issue the termination notice, if warranted, within six (6) months from discovery, unless there are compelling reasons for delay.
3. Document every step. Delays must be justified in writing.
4. Never promote, regularize, or give salary increases to an employee under investigation for serious misconduct if termination is being seriously considered — such acts will almost certainly be construed as condonation.
5. For long-past acts, ensure there is clear proof of recent discovery (e.g., whistle-blower report, audit findings, newly recovered documents).

VIII. Conclusion

Philippine law does not impose a fixed prescriptive period on an employer’s right to dismiss an employee for serious misconduct. The right subsists indefinitely if the misconduct is recently discovered and the employer acts within a reasonable time thereafter. However, prolonged inaction after acquiring knowledge of the misconduct, especially when coupled with affirmative acts recognizing continued employment, results in condonation, rendering subsequent dismissal illegal.

The controlling principle is not statutory prescription but the equitable doctrines of condonation, waiver, and staleness of disciplinary action — doctrines that have been consistently applied by the Supreme Court for over three decades to prevent abuse of managerial prerogative.