In the Philippine corporate landscape, business reorganizations—such as mergers, acquisitions, or asset sales—often lead to a situation where employees are "transferred" to a new entity. A common point of confusion arises when the new employer asks you to sign a new contract: Are you entitled to separation pay from your old employer?
The answer depends heavily on the nature of the transfer and whether your "tenure" is being preserved or severed.
1. The General Rule: Continuity vs. Termination
Under the Labor Code of the Philippines, separation pay is generally due when an employment relationship is terminated for authorized causes (e.g., redundancy, retrenchment, or closure of business).
- If the transfer is a "Package Deal": If the new employer agrees to absorb you and recognize your full years of service from the previous company, this is considered a continuation of employment. In this case, you are generally not entitled to separation pay because you haven't "lost" your job; you’ve simply changed desks.
- If the transfer is a "Fresh Start": If the new employer requires you to sign a contract that treats you as a new hire (resetting your tenure to zero), your original employment is effectively terminated. In this scenario, the old employer is typically obligated to pay you separation pay.
2. When is Separation Pay Mandatory?
You are legally entitled to separation pay during a transfer if any of the following apply:
- Redundancy or Retrenchment: The old company is phasing out your position or downsizing, and the "transfer" is actually a way to help you find a new job.
- Asset Sale (Successor Employer Doctrine): Unless there is a written agreement stating the new owner will absorb the employees and their seniority, the old employer must "close" its books with you, which includes paying out separation benefits.
- Change in Terms: If the new contract offers significantly lower pay or diminished benefits, you may argue Constructive Dismissal, entitling you to separation pay and potentially damages.
3. The "New Contract" Trap
When asked to sign a new contract, pay close attention to the Seniority/Tenure Clause.
| Scenario | Tenure Status | Separation Pay Due? |
|---|---|---|
| Succession | Carried over to new company. | No (usually). |
| Novation | Reset to zero (New Hire). | Yes, from the old employer. |
| Tripartite Agreement | Negotiated terms. | Depends on the agreement. |
Important Note: If you voluntarily resign from the old company to join the new one, you generally forfeit your right to separation pay unless your employment contract or company policy states otherwise. Be careful not to sign a "Letter of Resignation" if the move is being forced by the company.
4. How Much Should You Get?
If the transfer triggers separation pay, the amount is usually calculated based on the cause:
- Retrenchment/Closure: 1/2 month pay for every year of service.
- Redundancy: 1 month pay for every year of service.
- A fraction of at least six (6) months is considered as one (1) whole year.
5. Summary of Rights
Before signing a new contract with a successor employer, ensure you have clarity on:
- Recognition of Service: Does the new contract state your start date is your original hire date from the old company?
- Accrued Benefits: What happens to your unused VL/SL and 13th-month pay?
- Nature of the Move: Is this a voluntary transfer or a management-directed reorganization?
Would you like me to draft a checklist of specific clauses you should look for in that new employment contract?