Termination Based on KPI Performance Standards in the Philippines (A comprehensive legal guide as of July 2025)
Abstract
This article explains, in Philippine context, how and when an employer may legally dismiss an employee for failing to meet Key Performance Indicator (KPI) standards. It consolidates statutory provisions, Department of Labor and Employment (DOLE) issuances, and leading Supreme Court decisions, and offers practical guidance for both employers and employees.
1. Constitutional & Statutory Foundation
| Source | Key Principle |
|---|---|
| 1987 Constitution, Art. XIII §3 | Security of tenure—dismissal only for a just or authorized cause and with due process |
| Labor Code of the Philippines (Pres. Decree No. 442, as amended) | Art. 297 [282] lists just causes; Art. 297(e) allows causes “analogous” to those enumerated, covering persistent poor performance |
| DOLE Department Order No. 147-15, s. 2015 | Codifies twin-notice rule, hearing standards, and burden of proof for all dismissals |
| DO 174-17 & Labor Advisory 06-20 | Require written employment contracts containing clear performance standards for project- and fixed-term workers |
2. Where KPI-Based Dismissal Fits in the Law
Nature of the cause: “Failure to meet reasonable, known, and consistently applied KPI targets” is treated as an analogous just cause (Art. 297[e]).
Effect on separation pay:
- Unlike authorized-cause dismissals (redundancy, retrenchment, etc.), a just-cause dismissal generally carries no separation pay, unless a CBA, employment contract, or company policy grants one.
Burden of proof:
- The employer must present substantial evidence showing (a) existence of KPIs, (b) employee’s knowledge, (c) repeated or gross failure despite coaching, and (d) fairness and consistency in measuring performance.
3. Essential Elements for a Valid KPI-Based Dismissal
| Element | Practical Breakdown |
|---|---|
| Reasonable Standards | KPIs must relate to legitimate business goals, be measurable, and not conflict with labor standards (e.g., quotas that endanger safety) |
| Communication & Acceptance | Standards should appear in contracts, job descriptions, or signed performance plans; informal verbal targets rarely suffice |
| Fair Evaluation Period | Courts expect a Performance Improvement Plan (PIP) or grace period—typically 30-90 days—before dismissal |
| Consistent Application | Similar employees who meet the KPIs must be treated the same; selective enforcement signals bad faith |
4. Procedural Due Process (Twin-Notice Rule)
| Stage | Minimum Requirements (DO 147-15) |
|---|---|
| First Notice (“Notice to Explain”) | • States facts and KPI breaches • Gives at least 5 calendar days to respond in writing |
| Opportunity to be Heard | • Formal hearing or conference or written submissions • Must be meaningful, not perfunctory |
| Second Notice (“Notice of Decision”) | • Clearly finds the employee guilty of KPI non-attainment • Explains evidence and legal basis • Effective date of dismissal |
Tip: While not mandatory, providing a written PIP and coaching records greatly strengthens the employer’s case.
5. Key Supreme Court Rulings
| Case | G.R. No. / Date | Doctrinal Value |
|---|---|---|
| Perez v. PT&T | 152048 / 7 Apr 2009 | Inefficiency is an analogous just cause; employer must show (1) reasonable standard, (2) communication, (3) non-compliance, and (4) due process |
| Gonzales v. NLRC (Times Transportation) | 174208 / 26 Jan 2011 | Failure to reach sales quota is valid cause if quota is realistic and employee was warned |
| Phil. Long Distance Telephone Co. v. NLRC | 102427 / 19 May 1998 | Substantial evidence needed; mere poor appraisal without pattern is insufficient |
| Jaka Food Processing v. Pacot | 151378 / 10 Mar 2005 | Awards nominal damages (₱30k) when substantive cause exists but procedure is defective |
| Mitsubishi Motors Phils. Corp. v. Chrysler Phils. Labor Union | 148738 / 10 Aug 2007 | Reiterates that dismissal must be a last resort; transfer or demotion may be considered first |
6. Evidence Employers Should Keep
- Signed job descriptions and KPI matrices
- Periodic performance appraisal forms
- Email or memo trail showing coaching/mentoring sessions
- PIP documents with targets, timelines, and outcomes
- Minutes or audio of administrative hearings
- Comparative data showing KPI benchmarks across similarly situated employees
7. Common Pitfalls Leading to Illegal Dismissal Findings
| Pitfall | Illustration |
|---|---|
| Ambiguous KPIs | “Be more proactive” is too subjective; must be quantifiable (e.g., “Close 5 accounts/month”). |
| Shifting Benchmarks Mid-cycle | Changing targets without notice violates fair play. |
| Rushing Procedure | Issuing both notices on the same day or giving <5 data-preserve-html-node="true" days to explain is fatal. |
| Selective Enforcement | Terminating one employee for 90 % quota while excusing another undermines good faith. |
| Using KPIs to Mask Discrimination | NLRC looks beyond form; evidence of retaliation or union-busting will invalidate dismissal. |
8. Consequences of Invalid KPI-Based Termination
- Reinstatement without loss of seniority, or separation pay in lieu thereof (one month pay per year of service, not capped).
- Full backwages from dismissal to actual reinstatement/separation.
- Moral and exemplary damages if dismissal was in bad faith.
- Attorney’s fees (10 % of monetary award) if employee was compelled to litigate.
- Nominal damages (₱30k–₱50k) when only procedural due process is violated but cause is valid (per Jaka).
9. Best-Practice Checklist for Employers
- Embed clear KPIs in the employment contract or an annually signed performance plan.
- Use SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound).
- Conduct quarterly appraisals; flag issues early and issue a written PIP.
- Follow DO 147-15’s timeline strictly—no shortcuts.
- Preserve documentation; electronic evidence is admissible under the e-Commerce Act (RA 8792).
- Offer training, transfer, or demotion before dismissal to show good faith.
10. Guidance for Employees
- Request a copy of your KPI framework upon hiring.
- Document coaching sessions and your own efforts to improve.
- Respond in writing to the first notice; silence is deemed waiver.
- Attend the hearing or submit a detailed written defense if you can’t appear.
- File a complaint within four (4) years (Art. 306) before the NLRC or a DOLE RAB if you believe dismissal is illegal.
11. Special Notes
| Scenario | Additional Rule |
|---|---|
| Unionized workplaces | Check the CBA; some CBAs require a series of consultations or a Joint Labor-Management Council hearing. |
| Fixed-term/Project employees | Poor performance may justify early termination if expressly allowed in the contract and standards are met. |
| Data-driven BPO metrics | Reliance on analytics is accepted, but raw data and audit trail must be produced in administrative and NLRC proceedings. |
12. Conclusion
Dismissal for failure to meet KPI performance standards is legally permissible in the Philippines only when the standards are reasonable, clearly communicated, fairly applied, and enforced with strict observance of both substantive and procedural due process. Employers who treat KPI-based termination casually risk multi-million-peso liabilities; employees who understand their rights are better positioned to protect their tenure or negotiate equitable separation.
This article is for educational purposes and does not constitute legal advice. For case-specific concerns, consult a Philippine labor-law practitioner.