Terminating Employees for Poor Performance in the Philippines
A comprehensive legal and practical guide for employers, HR practitioners, and workers (updated 2025)
1. Statutory Foundations
| Source | Key Provision |
|---|---|
| Labor Code, Art. 297 (formerly Art. 282) |
Lists “just causes” for dismissal. Poor performance is most often treated as “gross and habitual neglect of duties” (297-[b]) or as an analogous cause (297-[e]). |
| Labor Code, Art. 299 | Requires due process for dismissal on any ground. |
| Department Order (D.O.) 147-15, s. 2015 | DOLE’s uniform rules on administrative due process: twin-notice, hearing/conference, reasonable opportunity to defend. |
| Civil Code, Art. 1701 & 1702 | Embed the principles of social justice and security of tenure. |
Take-away: The Code does not mention “poor performance” verbatim, but jurisprudence squarely recognizes it as a just cause when it reaches the level of gross and habitual inefficiency or neglect and the employer observes due process.
2. When Does “Poor Performance” Become a Just Cause?
Reasonable Standards Exist
- Standards must be objective, measurable, and communicated to the employee before evaluation (e.g., sales quotas, quality error rates, turnaround times).
Chronic or Gross Deficiency
- Mere isolated mistakes ≠ just cause. The deficiency must be habitual (e.g., several appraisal cycles) or gross (a single, glaring failure causing serious loss).
Causation & Fault
- Inefficiency must be attributable to the employee’s willful or negligent acts, not to factors outside his control (e.g., outdated equipment, impossible targets).
Opportunity to Improve
- Courts expect a Performance Improvement Plan (PIP) or similar assistance. Denying this may taint the dismissal with bad faith.
Leading Cases
| Case | G.R. No. | Doctrine |
|---|---|---|
| Malaya Shipping v. NLRC | 110291 (1994) | Repeated failure to meet sailing-time deadlines justified dismissal under “analogous causes.” |
| Pfizer v. Velasco | 170389 (2013) | Salesman’s target shortfall for three straight cycles + served with PIP but no improvement ⇒ legal dismissal. |
| IBM Philippines v. NLRC & Buitizon | 164006 (2008) | Inefficiency without prior notice of standards invalidates dismissal. |
| Pepsi-Cola Distributors v. NLRC | 118602-03 (1998) | “Habitual neglect” requires more than three months of sub-par ratings; reinstated with backwages. |
3. The Twin-Notice Procedural Due Process
| Step | Purpose | Minimum Content | Timeline* |
|---|---|---|---|
| 1st Notice (Notice to Explain/Charge Memo) |
Inform employee of acts/omissions constituting poor performance | (a) Specific acts; (b) Rule/standard violated; (c) Directive to submit written explanation | Give ≥ 5 calendar days to reply (D.O. 147-15) |
| Hearing/Conference | Genuine chance to be heard | May be written position paper or face-to-face meeting; legal counsel optional | Within a reasonable period after reply |
| 2nd Notice (Notice of Termination) |
Communicate employer’s decision & legal/factual basis | (a) Findings of fact; (b) Law/jurisprudence invoked; (c) Effective date of separation | Serve after considering defenses |
*No fixed statutory intervals beyond the 5-day reply window; reasonableness prevails.
Pitfalls to Avoid
- “One-day notice” rule (1st & 2nd notices issued together) is illegal.
- Using generic phrases (“failure to meet expectations”) without attaching appraisal records is fatal.
- Skipping a hearing because “employee’s written explanation is enough” can still violate due process if the employee requests a conference.
4. Substantive Proof Requirements
- Performance Records – appraisals, KPI dashboards, error logs, customer complaints.
- Communication Proof – memos showing standards were relayed, signed acknowledgments, PIP documentation.
- Comparison Data – peer performance to rebut claims of unreasonable targets or discrimination.
- Loss or Risk Evidence – where inefficiency caused financial or reputational damage.
Burden of Proof: Always lies on the employer (Labor Code, Art. 303). Doubts resolved in favor of labor.
5. Separation Pay & Final Pay
| Scenario | Separation Pay? | Reason |
|---|---|---|
| Dismissal for gross & habitual neglect | None (Art. 298-[b]) | Intentional or reckless fault bars equity. |
| Dismissal for inefficiency as an analogous cause (not gross negligence) | Yes, as equity – commonly ½-month salary per year of service | Toyota v. NLRC (158786, 2008) recognizes compassionate award for analogous causes. |
| Illegal dismissal finding | Reinstatement + full backwages; or separation pay in lieu of reinstatement (1-month per year) |
Final pay (accrued wages, unused leave, pro-rated 13th-month) must be released within 30 days (DOLE Labor Advisory 06-20).
6. Remedies & Liability Exposure
| If Employer Errs | Potential Consequences |
|---|---|
| Improper ground | Reinstatement, backwages, moral & exemplary damages, attorney’s fees (10 %). |
| Due-process lapse but valid cause | Nominal damages (₱30,000 is jurisprudential norm; Jaka Food v. Pacot, 132538, 2005). |
| Non-payment of final pay | Money claims, 10 % simple interest per annum. |
| Non-issuance of Certificate of Employment | ₱5,000 administrative fine under DO 18-A and civil damages. |
7. Practical Guidelines for Employers
- Embed Standards Early – include KPIs in job offers & handbooks.
- Document Quarterly – shorter appraisal cycles strengthen proof of “habitual” inefficiency.
- Use PIPs Wisely – spell out objectives, coaching sessions, consequences.
- Mind the Calendar – respect the 5-day reply period; keep transcripts of hearings.
- Stay Consistent – apply standards uniformly to avoid discriminatory claims.
- Secure Legal Review – draft notices with statutory and jurisprudential citations.
8. Practical Tips for Employees
- Request Metrics – ask for clear, written KPIs at the start.
- Engage PIPs – sign but annotate concerns; propose support.
- Keep Records – retain emails, memos, proof of target changes.
- Assert Your Right to a Hearing – demand a conference if notice is vague.
- File Timely Complaints – you have 4 years from dismissal to sue for illegal dismissal (Civil Code Art. 1146).
9. Frequently Asked Questions
| Question | Quick Answer |
|---|---|
| Can I fire after one failed evaluation? | Rarely. Needs gross inefficiency or prior appraisals showing a pattern. |
| Must the PIP be 30 days? | No statutory length, but 30-90 days is preferred and often upheld if reasonable. |
| Is resignation preferable to dismissal? | Voluntary resignation avoids a dismissal record but forfeits reinstatement/backwages remedies. |
| Can we pay separation pay to avoid litigation even for gross neglect? | Yes, as a settlement, but label it ex-gratia; it does not cure procedural defects. |
10. Conclusion
Terminating an employee for poor performance in the Philippines is legally viable but procedurally exacting. Employers must (1) ground the dismissal on gross and habitual neglect or an analogous cause, (2) prove clear, pre-set standards and chronic failure, and (3) observe the twin-notice and hearing requirements under D.O. 147-15. Missteps can transform a justified separation into an illegal dismissal carrying stiff financial liabilities. Meanwhile, employees should remain vigilant about performance metrics and assert due-process rights at every stage.
By aligning with statutory rules, Supreme Court doctrines, and best HR practices, both employers and workers can navigate performance-based separations in a manner that is fair, transparent, and defensible.