Overview

“Wrongful termination” (often called illegal dismissal) happens when an employer ends employment without a valid cause and/or without observing due process under the Labor Code of the Philippines and jurisprudence. Disputes about unpaid allowances commonly travel with dismissal cases because separation severs pay and benefits and surfaces long-running payroll gaps.

This article pulls together the core rules, leading doctrines, remedies, computations, and practical steps—so you can assess a case end-to-end.

Legal Framework at a Glance

Labor Code of the Philippines (as amended), Implementing Rules.
Constitution, Art. XIII, Sec. 3 (full protection to labor; security of tenure).
Security of tenure: An employee may be dismissed only for just or authorized cause, and after due process.
Burden of proof: The employer must prove lawful cause and compliance with procedure by substantial evidence.
Prescriptive periods
- Illegal dismissal: 4 years (injury to rights).
- Money claims (wages, allowances, differentials, 13th month, etc.): 3 years from when they fell due.

Dismissal: Causes and Procedures

A. Just Causes (Employee Fault)

Examples: serious misconduct, willful disobedience, gross and habitual neglect, fraud/breach of trust, commission of a crime against the employer, and analogous causes.

Procedural due process (the “twin-notice” rule + hearing):

First written notice (charge sheet)
- Specific acts, facts, and company rules violated.
- Give the employee reasonable time (commonly at least 5 calendar days) to submit a written explanation and prepare a defense.
Opportunity to be heard
- May be a hearing or conference where the employee can explain, present evidence, and rebut.
Second written notice (decision)
- Clear findings of fact and the exact ground(s) for dismissal.

Effect of skipping procedure (just cause exists, but due process violated): Dismissal stands, but the employer may be liable for nominal damages (benchmark amounts set in jurisprudence).

B. Authorized Causes (Business Necessity)

Installation of labor-saving devices
Redundancy
Retrenchment to prevent losses
Closure or cessation of business (whole or part, not due to serious losses)
Disease (when not curable within 6 months and continued work is prohibited by law)

Procedural due process:

30-day prior written notice to the employee and to the DOLE (Regional Office).
Separation pay (see table below).

Separation Pay (Statutory Minimums)

Ground	Separation Pay (minimum)
Labor-saving devices	1 month pay per year of service, or 1 month pay, whichever is higher
Redundancy	1 month pay per year, or 1 month pay, whichever is higher
Retrenchment to prevent losses	½ month pay per year, or 1 month pay, whichever is higher (practice varies; the controlling minimum is ½ month per year, with ≥6 months counted as 1 year)
Closure/cessation not due to serious losses	½ month pay per year, or 1 month pay, whichever is higher
Disease (Art. on termination due to disease)	½ month pay per year, or 1 month pay, whichever is higher

Fraction rule: A fraction of at least 6 months is counted as one whole year.

What Makes a Dismissal “Wrongful”

A dismissal is illegal if any of the following holds:

No valid cause exists; or
A valid cause exists but procedure wasn’t followed (in which case: nominal damages for procedural breach); or
Constructive dismissal: continued employment is made so intolerable (e.g., demotion without cause, steep pay cuts, persistent harassment) that a reasonable person would resign.

Common employer pitfalls

Vague first notice (“for loss of trust” without facts).
Less than 5 days to answer; no real chance to explain.
No DOLE notice for authorized causes.
Using “resignation” or “abandonment” to mask dismissal without proof of clear, voluntary intent.

Remedies and Monetary Consequences

1) Reinstatement without loss of seniority

Immediate and self-executory when ordered by the Labor Arbiter.
If reinstatement is no longer viable (strained relations, position abolished), courts grant separation pay in lieu of reinstatement (usually 1 month pay per year of service as equitable relief in illegal dismissal—not the same as authorized-cause separation pay).

2) Full Backwages

From dismissal date up to actual reinstatement.
If separation pay is granted instead of reinstatement, backwages run up to the finality of the decision (or as directed).
Inclusions: basic salary; fixed or regularly received allowances; guaranteed wage-based supplements; 13th month pay; COLA required by wage orders.
Exclusions: purely discretionary bonuses; contingent or non-regular benefits; per diems that are expense reimbursements.

3) Damages and Attorney’s Fees

Nominal damages for procedural due process breach (benchmarks long used by courts: higher for authorized causes than for just causes).
Moral and exemplary damages require bad faith, malice, or oppressive conduct.
Attorney’s fees (typically 10% of the monetary award) when there’s unlawful withholding or the employee was compelled to litigate.

Unpaid Allowances: What Counts and How to Claim

What is an “Allowance” in labor cases?

Wage (Labor Code definition) is any remuneration capable of being expressed in money for work done—this can include fixed allowances that are part of pay (e.g., regular meal, transportation, rice allowance) and COLA under wage orders.
Not part of wage: Reimbursements (e.g., actual fare, per diems), purely discretionary or conditional allowances not regularly or uniformly granted.

Key doctrines

Integration into wage/backwages: If an allowance is fixed, regular, and uniformly paid as part of compensation, it is typically included in backwages and 13th-month computations.
Non-diminution of benefits: Employers cannot unilaterally reduce or withdraw benefits that have become a company practice—i.e., consistent, deliberate, and over a significant period.
No work, no pay: Generally applies, but not to periods covered by backwages (illegal dismissal suspends its application) and not to paid leaves/holidays mandated by law.
13th Month Pay (PD 851): Due to all rank-and-file employees; computed from basic salary actually earned. Fixed regular allowances treated as part of basic pay by agreement or practice may be included depending on evidence.

Typical unpaid-allowance claims

COLA under wage orders (especially when minimum wage rates were updated but payroll lagged).
Meal/transport/rice allowances promised in contracts or policy manuals.
Night shift differential, premium pay, overtime (strict proof through time records).
Service Incentive Leave (SIL) pay (5 days per year if unused).
Holiday pay and rest day pay differentials.

Evidence matters: Contracts, HR policies, payroll registers, payslips, bank credits, SSS/PhilHealth/Pag-IBIG remittances, time sheets, and witness statements establish entitlement and regularity.

Computations: Practical Guides

A. Backwages (simplified)

Backwages = (Daily Rate × paid days per year × years/period) 
          + 13th Month on the above
          + Fixed Regular Allowances for the period
          + COLA (if applicable)
          – Earnings elsewhere?  (No. Mitigation via earnings elsewhere generally does not reduce backwages in illegal dismissal.)

Paid days per year: Use company/industry formula (e.g., 313, 261) consistent with the wage structure.
Allowances: Add only those fixed/regular and proven by records.

B. Separation Pay in Lieu of Reinstatement (illegal dismissal)

Equitable measure commonly pegged at 1 month pay per year of service (compute using the latest salary rate at dismissal), counting ≥6 months as 1 year.

C. Statutory Separation Pay (authorized causes)

Apply the table above; compute per year of service; round ≥6 months up.

D. Money claims (allowances, differentials)

3-year prescription: Compute period within 3 years before filing.
Include interest at the legal rate as applicable from finality of judgment until full payment, per evolving jurisprudence.

Strategy and Litigation Flow

Initial Assessment
- Identify cause invoked by employer (if any), procedure used, and paper trail.
- Map allowance entitlements and gaps (what, when, how regular).
Conciliation / Mediation
- Engage in voluntary settlement (e.g., DOLE Single-Entry Approach or company-level mediation), especially to front-load payroll records exchange.
File a Complaint (NLRC – Labor Arbiter)
- Causes of action: Illegal Dismissal + Money Claims (unpaid allowances, wage differentials, 13th month, SIL, etc.).
- Reliefs: Reinstatement, Backwages, Separation pay (in lieu), Damages, Attorney’s fees.
Position Papers & Evidence
- Employee: narrate facts; attach contracts, notices, payslips, policy manuals, time records; compute clear claims tables.
- Employer: must submit substantial evidence of cause and due process compliance (detailed notices, hearing minutes, DOLE notice).
Decision; Interim Reinstatement
- Reinstatement orders are immediately executory (actual or payroll reinstatement) even on appeal.
Appeal
- NLRC → Court of Appeals (Rule 65) → Supreme Court (Rule 45) for pure questions of law.

Common Scenarios & How They Play Out

“Abandonment” defense: Employer must prove (a) failure to report for work and (b) clear intent to sever (e.g., overt acts). Filing a complaint for illegal dismissal negates abandonment.
“Resignation” letters: Must be voluntary and unequivocal. Coerced or post-dated resignations are invalid; dismissal becomes illegal.
Redundancy/Retrenchment: Employer must show good faith, fair and reasonable criteria (e.g., efficiency, seniority), financial documents (for retrenchment), and 30-day notices to both DOLE and employees.
Loss of trust: Requires position of trust and clearly established facts; mere allegations aren’t enough.

Evidence Checklist (Employee’s Side)

Employment contract/offer, job description.
Company handbook/policies; memos; evaluation reports.
First and second notices (or lack thereof).
Hearing/conference invitations/minutes (or lack thereof).
Payslips, payroll summaries, bank credits, vouchers.
Proof of regular allowances (HR certifications, policy pages, past payslips showing consistent payment).
Time records to support premium pay claims.
DOLE wage orders (for COLA/minimum wage compliance).
Computation sheets (backwages, allowances, 13th month, SIL, interest).

Employer Compliance Blueprint (to avoid liability)

Documented cause: incident reports, audits, CCTV logs, affidavits.
Twin-notice with specific facts and clear rule citations; give ≥5 calendar days to answer.
Actual opportunity to be heard (conference, counsel allowed).
Reasoned decision notice.
For authorized causes: business case write-up, criteria matrix, DOLE notice, selection criteria, and separation pay computations.
Payroll hygiene: itemize basic pay vs. allowances; keep proof of consistent payments; avoid unilateral withdrawal of long-granted benefits.

Frequently Asked Questions

Q1: I was fired the same day without a hearing. Is that automatically illegal? Not automatically on cause—but it violates procedural due process. If a valid just cause truly exists, the dismissal may stand but the employer risks nominal damages. If cause is also absent or unproven, the dismissal is illegal with full remedies.

Q2: Are all allowances included in backwages? No. Only fixed and regularly received allowances that form part of compensation (and mandatory COLA) are typically included. Discretionary bonuses, productivity incentives contingent on targets, and reimbursements are usually excluded.

Q3: Can my employer stop giving our long-time rice/meal allowance? If it has become a company practice (deliberate, consistent, long-standing), cutting it may violate the non-diminution of benefits rule—unless there’s a lawful basis (e.g., CBA modification) and proper process.

Q4: I prefer money instead of going back. Courts often award separation pay in lieu of reinstatement when reinstatement is impracticable due to strained relations or position abolition—plus full backwages.

Q5: I waited years before filing. Watch prescription: illegal dismissal has 4 years; money claims have 3 years from when each item fell due.

Practical Templates (Short Forms)

A. Employee’s Demand Outline (pre-litigation)

Statement of facts (date of dismissal; notices received or not).
Legal basis (lack of cause; lack of due process).
Demands: reinstatement or separation pay in lieu, backwages, unpaid allowances (itemized), 13th month/SIL/holiday pay; damages; attorney’s fees.
Request for payroll/time record copies within a set period.

B. Employer’s Notice of Charge (content guide)

Specific acts (dates, places, documents).
Policies/contract provisions violated.
5-day window to explain; option to request hearing and to be assisted by counsel.
Schedule of hearing/conference.

Key Takeaways

Cause + Procedure are both essential. Miss one and you risk significant liability.
Allowances matter: if fixed and regular, they ride with backwages and other monetary awards.
Documentation wins or loses the case—keep the paper trail.
Mind deadlines: 4 years (illegal dismissal), 3 years (money claims).
Remedies stack: reinstatement (or separation pay in lieu) + full backwages + applicable damages/fees.

Disclaimer

This article is a general guide for the Philippine context and is not legal advice. Facts drive outcomes. For specific cases, consult counsel who can assess your documents, timeline, and computations in detail.