I Introduction

Philippine labour law is fundamentally intertwined with the principle of social justice. The Civil Code declares that the relations between capital and labour are not merely contractual but are instead impressed with public interest such that labour contracts must yield to the common good,2 while the Constitution declares that '[t]he State affirms labour as a primary social economic force. It shall protect the rights of workers and promote their welfare.'3 The Labour Code provides similar protections such that in case of doubt, all labour legislation and all labour contracts shall be construed in favour of the safety and decent living of the labourer.4 Philippine case law also provides that '[w]hen the conflicting interest of labour and capital are weighed on the scales of social justice, the heavier influence of the latter must be counterbalanced by the sympathy and compassion the law must accord the underprivileged worker.'5

Nevertheless, the law also recognises the employer's right to exercise management prerogative in the conduct of its business. An employer has free rein and enjoys wide latitude of discretion to regulate all aspects of employment, provided that the policies, rules and regulations on work-related activities of the employees are always fair and reasonable.6 The Supreme Court has often declined to interfere in legitimate business decisions of employers, as long as the company's exercise of the same is in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the law or valid agreements.7

i Legal framework

The Labour Code primarily governs labour standards and labour relations. It is subdivided into sections that regulate (1) pre-employment, including the recruitment and placement of overseas workers, and the employment of non-resident aliens; (2) human resource development, including training for apprentices and learners; (3) labour standards, including hours of work, rest periods, wages and premium pay; (4) health and safety, and social welfare benefits; (5) labour relations, including regulations on union organising and activities, collective bargaining, and strikes and lockouts; and (6) post-employment, including termination and retirement.

There are also special laws regulating certain aspects of employment, including the following.

  1. Laws that require mandatory employer contributions to a state fund, such as:
    • the Social Security Law (the SSS Law),8 which establishes the state pension fund designed to protect its members from hazards of disability, sickness, maternity, old age, death and other contingencies resulting in loss of income or financial burden;
    • the National Health Insurance Act,9 which governs the state fund designed to provide comprehensive healthcare services to all Filipinos through a socialised health insurance programme; and
    • the Home Mutual Development Fund Act,10 which governs the state fund designed to cater to its members housing needs.
  2. Laws that grant certain benefits to specific groups of employees, such as:
    • maternity leave of 60 or 78 days for pregnant mothers under the SSS Law;11
    • paternity leave of seven days under the Paternity Leave Act;12
    • parental leave of seven days for single parents under the Solo Parents Welfare Act;13
    • special leave of two months for women who have undergone surgery caused by gynaecological disorders under the Magna Carta of Women;14 and
    • special leave of up to 10 days, extendible for victims of violence under the Anti-Violence Against Women and their Children Act (the VAWC Law).15
  3. Laws that affect specific aspects of employment, such as:
    • the Occupational Safety and Health Standards Act,16 which strengthens the compliance requirements for safe workplaces;
    • the Sexual Harassment Law,17 which defines and penalises workplace sexual harassment;
    • the Data Privacy Act, which regulates the collection and processing of an employee's personal information;18 and
    • the Comprehensive Dangerous Drugs Act, which regulates policies on legal drug testing in the workplace.19

The Department of Labour and Employment (DOLE) is the regulatory entity primarily charged with the administration and enforcement of the Labour Code, and is empowered to issue rules and regulations on employment matters.

Case law, as decided by the Supreme Court, is the final component of the legal framework of Philippine employment law as it clarifies the law where gaps may have been left by the statute.

ii Courts and tribunals

Proceedings on employment disputes are initiated by referral to a Single-Entry Assistance Desk Officer for conciliation-mediation proceedings to aid parties in reaching an amicable settlement. Should such efforts fail, the issue is referred to the appropriate DOLE office or agency, which includes the office of the regional labour arbiters of the National Labour Relations Commission (NLRC).

The NLRC is a quasi-judicial body created by the Labour Code as the primary tribunal having jurisdiction over employer–employee disputes.

Labour arbiters have the jurisdiction to receive evidence, and to hear and decide cases involving unfair labour practices; termination disputes, including claims for benefits; strike and lockout disputes; financial claims not arising from social security, national health insurance or employee compensation; and damages. Decisions of the labour arbiter may be appealed to a division of the NLRC.

Parties seeking an alternative means for dispute resolution may also mutually agree to bring their employment disputes before a DOLE accredited voluntary arbitrator. Voluntary arbitrators also have exclusive jurisdiction to hear and decide cases arising from the interpretation or implementation of a collective bargaining agreement (CBA) or a company personnel policy.

Decisions of these quasi-judicial entities may be elevated to the Court of Appeals, and decisions by the Court of Appeals may be appealed to the Supreme Court.

iii Enforcement

The enforcement of Philippine labour law primarily rests with the DOLE. The DOLE monitors the enforcement of labour laws daily through its regional offices and through its attached agencies. The Secretary of Labour and Employment, or any of his or her duly authorised representatives, is granted with visitorial and enforcement power to access any employer's premises and records, to conduct inspections to monitor compliance with the required labour standards, and to address any labour relations issues.

II Year In Review

The regularisation of employees (i.e., declaring an employee to be a regular employee under a principal employer) who have been deprived of security of tenure and been subject to illegal contracting or subcontracting arrangements remained a big issue in 2018. On Labour Day, President Rodrigo R Duterte issued Executive Order No. 51, which affirms the government's commitment to prohibit illegal contracting or sub-contracting. In turn, the DOLE renewed its commitment to regularising employees by enforcing the Stricter Regulations on Contracting and Sub-contracting Arrangements released in 2017. In August 2018, the DOLE reported that it had ordered the regularisation of 213,000 employees and doubled its targets to 600,000 employees regularised by the end of the year.20

The DOLE also expressed its support for the Security of Tenure Bill certified as urgent by President Duterte, which intends to introduce into law: (1) stricter definitions and regulations for contracting arrangements; (2) a reclassification of seasonal and project employees as regular employees; (3) a prohibition on other forms of employment; and (4) a requirement for employers to submit to the DOLE proof of the basis of terminations owing to authorised causes and payment of separation pay.

In 2018, various other pieces of labour legislation were either enacted or came close, particularly the Act strengthening the Occupational Safety and Health Standards and imposing penalties for violations of the Standards, which was passed; the Telecommuting Act, which regulates work from home arrangements, was passed; the Bill granting an expanded 105-day maternity leave, which is at an advanced stage of legislation; and the Bill expanding the mandatory service incentive leave days from five to 10, which was passed by the House of Representatives.

III Significant Cases

In American Power Conversion Corporation, et al, v. Lim,21 the Supreme Court declared that where a group of entities are involved in an elaborate scheme whereby they all benefit from an employee's industry, for all purposes beneficial to the employee, all the entities should be considered as his or her employer. In this case, four distinct corporate entities were found by the Philippine Supreme Court as having engaged in a scheme to allow one entity, which is not registered to conduct business in the Philippines, to sell products in the Philippines. In effect, the employee was selected and engaged by the first foreign entity, received his salary and benefits from the second (Filipino) entity, and was supervised and controlled, and supposedly had his contract terminated, through a redundancy scheme implemented by the third and fourth foreign entities. While from the circumstances the Supreme Court found that the first foreign entity was the respondent's true employer, and that for this reason the termination of his employment by the third and fourth foreign entities was ineffective, this did not prevent the employee from recovering damages, including attorneys' fees, from all four entities. The Supreme Court found that for all purposes beneficial to the employee, all four entities were considered as his employer, and all four entities were guilty of violating the Labour Code as a result of their concerted acts of fraud and misrepresentation.

In Digital Telecommunications Phils, Inc v. Ayapana,22 the importance of the principle of social justice in labour cases was again reaffirmed as the Philippine Supreme Court made an exception, allowing an employee who was dismissed for a wilful breach of trust and confidence to receive separation pay because the questioned acts were motivated by zealousness in acquiring and retaining subscribers rather than an intent to misappropriate company funds. While his zealousness manifested itself through acts that warranted his dismissal, the Philippine Supreme Court granted him separation pay amounting to one month for every year of service.

IV Basics of Entering into an Employment Relationship

i Employment relationship

Under Philippine law, employment relationships are contractual in nature, but are impressed with public interest, such that labour contracts must yield to the common good.23 An employment contract may be perfected in oral or written form because, generally, no specific form of contract is required. Despite this, the best practice is to have a written employment contract that is signed at the beginning of the engagement.

One exception to the rule involves the employment contracts of employees hired by independent contractors as these must be executed in writing and must contain the specific description of the job, work or service to be performed by the employee, and the place of work, the conditions of employment, and a statement of the wage rate applicable to an employee.

The Labour Code classifies employees as either regular, seasonal, project or casual. Regular employees are those who are engaged to perform activities that are usually necessary or desirable in the usual business or trade of the employer and those who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they are employed. Seasonal employees are those who are engaged to work or perform services that are seasonal in nature, and the employment is only for the duration of the season. Project employees are those hired for a specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee. Casual employees are those who are not regular, project or seasonal employees and perform work that is usually not necessary or desirable in the usual business or trade of the employer.

Additionally, Philippine jurisprudence recognises the validity of fixed-term employment contracts that meet the following criteria: (1) the fixed period of employment must be knowingly and voluntarily agreed upon by the parties without any force, duress or improper pressure upon the employee and absent any other circumstances vitiating his or her consent; or (2) that it satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms, and that neither exercised moral dominance.24

ii Probationary periods

The law allows an employee to be placed on probation, providing that the employee is informed of his or her status as a probationary employee at the start of employment, and informed of the reasonable standards he or she must meet to qualify for regularisation at the start of employment.25 Failure to satisfy these requirements means that the employee is hired as a regular employee.

The probationary period must not exceed six months from the date the employee started working. An employee who is allowed to work after the probationary period shall be considered a regular employee.

iii Establishing a presence

A foreign company may directly hire employees to carry on its business in the Philippines without being officially registered in the country. In such cases, the foreign company is considered as a foreign corporation doing business in the Philippines without a licence and is subject to the following significant risks: it is not allowed to bring suit or to defend itself in any litigation before any Philippine court or tribunal;26 and its directors, trustees and officers are at risk of being penalised with a fine of not less than 1,000 Philippine pesos but not more than 10,000 Philippine pesos or by imprisonment for not less than 30 days but not more than five years, or both.27 Notably, the direct hiring of Filipinos for work to be performed outside the Philippines must be carried out through licensed recruitment agencies.

An employee is entitled to the following minimum statutory benefits:

  1. the minimum wage (as determined by the regional tripartite wages and productivity in the region where the company operates);
  2. overtime pay for work rendered beyond eight hours a day;
  3. a 24-hour rest day for every six consecutive days of work;
  4. premium pay for work performed at night, on rest days and on holidays;
  5. 13th-month pay equivalent to one-twelfth of an employee's annual pay;
  6. paid leave days for eligible employees: (1) five days of service incentive leave after rendering one year of service, (2) seven days of paternity leave and up to 78 days of maternity leave, (3) seven days of single parent leave, (4) two months of leave for a gynaecological disorder, and (5) up to 10 days of leave for victims under the VAWC Law.
  7. mandatory employer's share in the Social Security System, Philippine Health Insurance Corporation and Home Mutual Development funds; and
  8. retirement pay of at least half-a-month's pay for every year of service, when the employee reaches the age of 65.

Employers are also required to withhold the appropriate amount of the employee's income taxes, and to report and remit the same to the Philippine tax authority, the Bureau of Internal Revenue.

An offshore foreign company may validly hire an independent contractor to perform a specific job or work in the Philippines. A valid contracting arrangement shall not establish an employer–employee relationship between the offshore foreign company and the independent contractor's employees. Similarly, for the purposes of seeking tax treaty relief, hiring an independent contractor will generally not create a permanent establishment in the Philippines, provided that the contract does not exceed the maximum periods under the applicable tax treaties.28

V Restrictive Covenants

Restrictive covenants such as non-compete clauses, non-disclosure agreements, non-solicitation contracts and confidentiality clauses are valid and may be included in employment contracts so long as they are fair, reasonable and not contrary to law, morals, good customs, public order or public policy. The determination of the reasonableness of such provisions is evaluated based on the particular facts and circumstances of each case.

The Supreme Court has used the following factors in determining the reasonableness of non-compete clauses: whether the covenant protects the legitimate business interest of the employer; whether the covenant creates an undue burden on the employee; whether the covenant is injurious to the public welfare; whether the time and territorial limitations contained in the covenant are reasonable; and whether the restraint is reasonable from the standpoint of public policy.29 The courts have also tested the validity of non-compete clauses based on the reasonableness of the limitations imposed as to time, trade and place.

Notably, apart from case law finding that confidentiality and non-compete clauses must be clear and unambiguous,30 there is currently no case law specifically dealing with other restrictive covenants, such as non-disclosure agreements, non-solicitation contracts and confidentiality clauses.

VI Wages

i Working time

An employee's normal hours of work must not exceed eight hours in a day. In addition, a one-hour break for regular meals, not counted as compensable working time, must be provided. DOLE regulations also require periodic short compensable breaks for employees who, owing to the nature of their work, either have to stand31 or have to spend long hours sitting.32 Employees are also entitled to a rest period of not less than 24 consecutive hours after every six consecutive normal work days.

Employees who work from 10pm to 6am are entitled to receive a 'night shift differential' of not less than 10 per cent of his or her regular wage for each hour of work.

DOLE Regulations33 allow employers and employees to agree to flexible work arrangements, including: compressed working weeks where the normal workday is increased to more than eight hours but not more than 12 hours, and the week is reduced to fewer than six days; gliding or flexitime schedules where employees are required to complete core hours in the designated workplace but are free to determine their arrival or departure time; and flexi-holiday schedules where employees agree to take holiday on alternative days (e.g., if the employee provides services for a foreign company, he or she may choose to avail of his or her holiday benefit on a public holiday of the foreign country, as opposed to a Philippine holiday).

ii Overtime

An employee who works more than eight hours a day is entitled to receive overtime pay at a rate of 25 per cent over his or her regular rate. For the purpose of determining entitlement to overtime pay, all time during which an employee is required to be on duty, to be at the employer's premises or to be at a prescribed workplace, and all time during which an employee is suffered or permitted to work, is considered as hours worked, while the one-hour regular meal break is not. An employee may render overtime only if he or she is obliged or permitted by the employer to do so.34 The Labour Code and relevant labour regulations do not expressly provide for any limitations on the maximum number of hours of overtime that can be worked by an employee.

An employer may require an employee to perform overtime work in any of the following cases:35

  1. when the country is at war or when any other national or local emergency has been declared by the National Assembly or the Chief Executive;
  2. when it is necessary to prevent loss of life or property, or in case of imminent danger to public safety owing to an actual or impending emergency in the locality caused by serious accidents, fire, flood, typhoon, earthquake, epidemic, or other disaster or calamity;
  3. when there is urgent work to be performed on machines, installations or equipment, in order to avoid serious loss or damage to the employer or another cause of similar nature;
  4. when the work is necessary to prevent loss or damage to perishable goods; and
  5. where the completion or continuation of the work started before the eighth hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer.

VII Foreign Workers

An employer may hire foreign workers to perform work in the Philippines provided that they have secured the required permit from the DOLE and the appropriate visa from the Bureau of Immigration (BI).

Under the Labour Code an alien employment permit (AEP) may be issued to a non-resident alien or to the applicant employer after a determination of the non-availability of a person in the Philippines who is competent, able and willing at the time of application to perform the services for which the alien is desired. While there is no statutory limit to the number of foreign employees that an employer may hire, the number of foreign workers hired may be considered by the DOLE in determining if the AEP should be granted. The AEP will be co-terminus with the foreign worker's employment so long as he or she is still engaged by the employer. Once issued, an AEP may be used as the basis for the foreign worker to apply for a Section 9(g) working visa from the BI.

The foreign workers engaged and performing work in the Philippines are subject to Philippine tax regulations, and the employer has an obligation to withhold, report and remit the applicable taxes due. Local labour laws and regulations that provide benefits to and protect the rights of Filipino employees are also applicable to the foreign worker.

VIII Global Policies

Philippine law recognises the right of an employer to expect from its workers not only good performance, adequate work and diligence, but also good conduct and loyalty.36 Generally, an employer is free to craft and adopt its own disciplinary rules and policies as an exercise of its management prerogative. Disciplinary rules do not have to be filed with any government authority.

Changes to an employer's disciplinary policy may affect an employee's rights, benefits and welfare,37 requiring the employer to consult with the employees regarding the proposed changes before they can be implemented.38 The consultation process may be effected through the following means:

  1. by having the representative of a labour management council or a similar body (see Section X) consult employees regarding the change in the policy prior to the issuance of a memorandum declaring the change in policy;
  2. by informing the employees by email of a proposed change in policy, giving them a reasonable period to register their comments or objections, prior to sending out a memorandum informing them that the policy has taken effect; or
  3. by discussing the proposed changes through a general meeting in order to allow the employees to register their comments or objections, prior to sending out a memorandum informing them that the change in policy has taken effect.

Certain statutes, such as those involving sexual harassment in the workplace or drug testing, impose specific standards that must be complied with by the employer in crafting its internal policies.

IX Translation

English and Filipino are considered the two official languages in the Philippines for communication and instruction.39 For this reason, generally, all employment documents, including offer letters, employment contracts, confidentiality agreements, restrictive covenant agreements, proprietary information and assignment agreements, bonus or other incentive compensation plans, employee handbooks or other policies may be given in English. However, should an employee who is having difficulty understanding a document request a translation of the same, it is advisable to provide a translation in a local language understood by the employee.

For documents that take the form of a release, waiver and quitclaim, it is advisable that its stipulations be in English and Filipino or in the dialect known to the employee.40

X Employee Representation

Employees and employers are encouraged by the Labour Code to form labour management councils for the purpose of facilitating the exercise of the employees' right to participate in the company's policy and decision-making processes. Employee representatives to labour management are elected by at least the majority of all employees in the establishment.41

Employees also have a constitutionally protected right to self-organisation. Rank-and-file and supervisory employees are free to form, join or assist unions of their own choosing for the purposes of collective bargaining.

In the Philippines, unions are 'locally' formed within a company through specific bargaining units and are only open to employees within that company. To exercise the rights granted by law to unions, a union must be duly registered with the DOLE, and must generally consist of at least 20 per cent of all the employees in the bargaining unit where it seeks to operate.42 A bargaining unit is a group of employees sharing mutual interests within a given employer unit comprised of all or a portion of the entire body of employees in the employer unit, or any specific occupational or geographical grouping within such employer unit.43

A union selected as the sole exclusive bargaining representative shall retain this status: for one year from the last certification election; during the course of negotiations for a CBA; during a bargaining deadlock; and during the five-year validity of a CBA, except within the last 60 days prior to its expiration. Once selected, the bargaining representative and the employer have a duty to bargain collectively.

The following acts are considered unfair labour practices under the Labour Code:

  1. to interfere with, restrain or coerce employees in the exercise of their right to self-organisation;
  2. to require as a condition of employment that a person or an employee shall not join a labour organisation or shall withdraw from one to which he or she belongs;
  3. to contract out services or functions being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organisation;
  4. to initiate, dominate, assist or otherwise interfere with the formation or administration of any labour organisation, including the giving of financial or other support to it or its organisers or supporters;
  5. to discriminate with regard to wages, hours of work and other terms and conditions of employment in order to encourage or discourage membership in any labour organisation;
  6. to dismiss, discharge or otherwise prejudice or discriminate against an employee for giving or preparing to give testimony under the Labour Code;
  7. to violate the duty to bargain collectively;
  8. to pay negotiation or attorneys' fees to the union or its officers or agents as part of the settlement of any issue in collective bargaining or any other dispute; or
  9. to violate a CBA. Consequently, unfair labour practices are not only violations of the civil rights of both labour and management but are also criminal offences.44

XI Data Protection

i Requirements for registration

The collection and processing of personal information, including employee data, is governed by the Data Privacy Act of 2012. Data privacy regulations are implemented by the National Privacy Commission (NPC).

An employer is a personal information controller under the Data Privacy Act when it is involved in controlling the collection, holding, processing and use of the information of its employees. It is required to implement 'reasonable and appropriate organizational, physical, and technical security measures for the protection of personal data'.45 Employers must register with the NPC if any of the following conditions are met: it employs at least 250 employees; the processing includes sensitive personal information (as defined in subsection iii, below) of at least 1,000 individuals; the processing is likely to pose a risk to the rights and freedoms of data subjects; or the processing is not occasional.

As a general rule, a current or prospective employee's consent must be secured prior to the collection of any personal information.46 However, provided that sensitive personal information is not involved, an employee's personal data may be processed even without their consent when it is necessary or desirable in the context of an employer–employee relationship.47 An employee must be informed of the following prior to the processing of his or her personal information:

  1. the description of the personal data to be entered into the system;
  2. the purposes for which they are being or will be processed;
  3. the basis of processing, when processing is not based on the consent of the data subject;
  4. the scope and method of the personal data processing;
  5. the recipients or classes of recipients to whom the personal data are or may be disclosed;
  6. the methods utilised for automated access, if allowed by the data subject, and the extent to which such access is authorised;
  7. the identity and contact details of the personal data controller or its representative;
  8. the period for which the information will be stored; and
  9. the existence of the employee's rights as data subjects, including the right to access, correct and object to the processing, as well as the right to lodge a complaint before the NPC.48

ii Cross-border data transfers

Cross-border data transfers are allowed under Philippine law. A cross-border data transfer is considered data sharing under the Data Privacy Act. The employee's consent is required even when the data is to be shared with an affiliate or mother company, or similar relationships.49 In addition, the employer should execute a data sharing agreement that establishes adequate safeguards for data privacy and security, and upholds the data privacy rights of the employees. The data sharing agreement is subject to review by the NPC on its own initiative or upon the complaint of an employee.

There is no specific requirement to register a cross-border data transfer with the NPC subject to the registration requirements discussed in subsection i.

iii Sensitive data

The implementing rules and regulations of the Data Privacy Act define sensitive personal information as personal information:

  1. about an individual's race, ethnic origin, marital status, age, colour, and religious, philosophical or political affiliations;
  2. about an individual's health, education, genetics or sexual life, or to any proceeding for any offence committed or alleged to have been committed by the individual, the disposal of such proceedings or the sentence of any court in such proceedings;
  3. issued by government agencies peculiar to an individual, which includes, but is not limited to, social security numbers, previous or current health records, licences or their denials, suspension or revocation, and tax returns; and
  4. that is specifically established by an executive order or an act of Congress to be kept classified.50

Generally, the processing of sensitive personal information is prohibited unless the employee has given prior consent to the processing for a declared, specified and legitimate purpose, or under the specific circumstances provided by the Implementing Rules and Regulations of the Data Privacy Act.51 Higher criminal penalties are also imposed for the unlawful processing of or data breaches relating to sensitive personal information.

iv Background checks

Background checks are legally permissible in the Philippines and may be required by an employer prior to hiring an employee as a valid exercise of its management prerogative.52 Employers commonly conduct background checks to determine a potential employee's prior criminal records and credit history. The processing of information gathered through background checks may be considered as necessary or desirable in the context of an employer–employee relationship.53 However, processing the employee's information may require the employee's express prior consent if it involves the processing of sensitive personal information.

However, if an employee who has attained the status of a regular employee fails a background check, he or she may be disciplined by the employer only upon complete compliance with the employee's rights to substantive and procedural due process.

XII Discontinuing Employment

i Dismissal

An employee may only be dismissed if there is a just or authorised cause for the dismissal. This policy is anchored on the principle of the security of tenure of employees, which is not only statutorily provided but is constitutionally enshrined.

Under the Labour Code, the just causes for termination are:

  1. serious misconduct or wilful disobedience;
  2. gross and habitual neglect of duties;
  3. fraud or wilful breach of trust;
  4. loss of confidence;
  5. commission of a crime or offence by the employee against his or her employer, the employer's immediate family or his or her duly authorised representatives; and
  6. other causes analogous to the foregoing.54

The authorised causes for termination are:

  1. installation of labour-saving devices;
  2. redundancy;
  3. retrenchment to prevent losses;
  4. closure or cessation of business;55 and
  5. a disease not curable within six months as certified by a competent public authority, and when the continued employment of the employee is prejudicial to his or her health or to the health of his or her colleagues.56

The cause of dismissal determines which procedure must be followed prior to the dismissal.

For just causes, an employer must:

  1. serve the employee with a written notice containing the specific causes or grounds of termination against him or her, giving him or her an opportunity to explain at least five calendar days from receipt of the notice to clarify his or her defence;
  2. conduct a hearing or conference to allow the employee to explain his or her defences, present evidence and rebut the evidence presented against him or her; and
  3. serve the employee a written notice of termination indicating that all circumstances involving the charge against him or her have been considered as well as the grounds to justify the severance of his or her employment.57

Separation pay is not required for just cause dismissals, but may be granted in exceptional circumstances.

For authorised causes, the employer must send written notices to the employee and to the appropriate DOLE regional office at least one month before the intended date of termination. The employee must also be granted separation pay at the rate prescribed by the Labour Code or by a CBA.

Failure to comply with the procedural requirements for the dismissals shall not invalidate a dismissal where just or authorised causes actually exist. However, an erring employer may be held liable for nominal damages of up to 30,000 Philippine pesos for just causes or up to 50,000 Philippine pesos for authorised causes.

There is no legal requirement for notifying a union prior to a termination, but such a requirement may be provided in the CBA. Further, no employee class may be exempt from termination, subject to regulations on the termination of employees for authorised causes as may be prescribed in a CBA.

An employee may question his or her dismissal by claiming that it was not for cause and filing a case before the NLRC. The parties may freely enter into a settlement agreement while the dispute is pending.

ii Redundancies

An employer may validly dismiss an employee or a group of employees for authorised causes by sending written notices to the employee and to the appropriate DOLE regional office at least one month before the intended date of termination. The employee must also be granted the appropriate amount of separation pay as provided by law or as provided in a CBA.

An employer may implement termination by redundancy when the following are present:

  1. there must be superfluous positions or services of employees;
  2. the positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner;
  3. there must be good faith in abolishing redundant positions;
  4. there must be fair and reasonable criteria in selecting the employees whose contracts are to be terminated; and
  5. there must be an adequate proof of redundancy such as feasibility studies or proposals.58

An employer may also implement termination through a retrenchment programme that complies with the following requirements:

  1. the retrenchment must be reasonably necessary and likely to prevent business losses;
  2. the losses, if already incurred, are substantial, serious, actual and real, or if only expected, are reasonably imminent;
  3. the expected or actual losses must be proved by sufficient and convincing evidence;
  4. the retrenchment must be in good faith and not to defeat or circumvent the employees' right to security of tenure; and
  5. there must be fair and reasonable criteria in ascertaining the retention and dismissal of employees, such as status, efficiency, seniority, physical fitness, age and financial hardship for certain workers.59

Mass termination as a result of closure of business may also be implemented when the following elements are present:

  1. there must be a decision to close or cease operation of the enterprise by the management;
  2. the decision was made in good faith; and
  3. there is no other option available to the employer except to close or cease operations.60

Further, termination as a result of the installation of labour-saving devices is allowed when the following requirements are met:

  1. there must be introduction of machinery, equipment or other devices;
  2. the introduction must be done in good faith;
  3. the purpose for the introduction must be valid, such as to save on cost, enhance efficiency and other justifiable economic reasons;
  4. the introduction of machinery, equipment or devices and the consequent termination of employment of those affected is the only option available to the employer; and
  5. the criteria for selecting employees whose contracts are to be terminated are fair and valid.61

An employee whose contract has been terminated as a result of the above causes is entitled to separation pay of at least one month's pay or half-a-month's pay for every year of service. However, when closure is the result of serious business losses or financial reverses, no separation pay is required.

An employee may question the dismissal and allege that they have been illegally dismissed by filing a case before the NLRC. Failure by the employer to prove the existence of each of the elements of a valid dismissal may lead to a finding that there was an illegal dismissal. The parties may freely enter into a settlement agreement while the dispute is pending.

XIII Transfer of Business

While there is no specific statute that regulates the employment aspect of legitimate transfers of business through mergers, acquisitions or outsourcing transactions, case law provides clarification.

In case of a full merger in which there is no express stipulation in the articles of the merger concerning the employees of the entity that does not survive, the employment contracts of the non-surviving entity are automatically assumed by the surviving corporation.62 Thus, the absorbed employees become regular employees of the surviving corporation on the day the Securities and Exchange Commission approves of the merger.63 In this regard, the surviving company may have a valid good faith basis to establish redundancy for positions where the functions of certain employees will be duplicated.

In transactions involving the acquisition of assets of an ongoing concern, provided that the sale is in good faith, the transferee or buyer has no legal duty to absorb the employees of the seller.64 An innocent transferee that acquires a business in good faith has no liability in regard to the employees of the transferor and does not have to continue employing them. However, in exercising its prerogative to select and hire employees to fill the vacancies in its facilities, the transferee may give preference to the qualified separated employees.65

XIV Outlook

As the DOLE pushes for Congress to pass the Security of Tenure Bill, employers should anticipate possible changes to regulations on contracting arrangements, fixed-term employment, regular employees and dismissals owing to authorised causes. Recent trends also point to possible increases in employee benefits, and a renewed focus on the health and well-being of employees.


1 Alejandro Alfonso E Navarro is a managing partner, Rashel Ann C Pomoy is a senior associate and
Efren II R Resurreccion is a junior associate at Villaraza & Angangco.

2 Article 1700, Civil Code.

3 Section 18, Article II, Const.

4 Article 4, Philippine Labour Code; Article 1702, Civil Code.

5 Philippine Telegraph & Telephone Corporation v. National Labor Relations Commission, 183 SCRA 451 (1990).

6 Gemina v. Bankwise Inc, 708 SCRA 403 (2013).

7 Mariano v. Martinez Memorial Colleges, Inc, 789 SCRA 344 (2016).

8 Rep. Act No. 8282 (1997).

9 Rep. Act No. 10606 (2013).

10 Rep. Act No. 9679 (2008).

11 Rep. Act No. 8282 (1997).

12 Rep. Act No. 8187 (1996).

13 Rep. Act No. 8972 (2000).

14 Rep. Act No. 9710 (2009).

15 Rep. Act No. 9262 (2004).

16 Rep. Act No. 11058 (2018).

17 Rep. Act No. 7877 (1995).

18 Rep. Act No. 10173 (2012).

19 Rep. Act No. 9165 (2002).

20 Samuel Medenilla, DOLE: Regularized Workers to Reach 600k, Business Mirror, 13 August 2018, available at https://businessmirror.com.ph/dole-regularized-workers-to-reach-600k/.

21 G.R. No. 214291; 11 January 2018.

22 G.R. No. 195614; 10 January 2018.

23 Article 1700, Civil Code.

24 Convoy Marketing Corp v. Albia, 772 SCRA 162 (2015), citing Brent School, Inc v. Zamora, 181 SCRA 702 (1990).

25 Article 291, Labour Code.

26 Section 133, Corporation Code.

27 Section 144, Corporation Code.

28 ITAD BIR Ruling No. 241-12.

29 Rivera v. Solidbank Inc, 487 SCRA 512 (2006).

30 Century Properties, Inc v. Babiano, 795 SCRA 671 (2016).

31 DOLE D.O. No. 178-17 (2017).

32 DOLE D.O. No. 184-17 (2017).

33 DOLE Advisory No. 04-2010.

34 San Miguel Corporation v. Layoc, 537 SCRA 77 (2007).

35 Article 89, Philippine Labour Code.

36 Sugue v. Triumph International (Philippines), Inc, 577 SCRA 323 (2009).

37 Article 267, Philippine Labour Code.

38 ibid.

39 See W Land Holding, Inc v. Starwood Hotels and Resorts Worldwide, Inc, G.R. No. 222366, 4 December 2017; see also Section 7, Article 14, 1987 Const.

40 EDI-Staffbuilders International, Inc v. National Labor Relations Commission, 537 SCRA 409 (2007).

41 Article 266, Philippine Labour Code.

42 Article 240, Philippine Labour Code.

43 Section 1(q), Rule I, Book V of the Omnibus Rules Implementing the Philippine Labour Code.

44 Article 258, Philippine Labour Code.

45 Section 25, Implementing Rules and Regulations of the Data Privacy Act.

46 Section 21(a), Implementing Rules and Regulations of the Data Privacy Act.

47 Section 34(b)(2), Implementing Rules and Regulations of the Data Privacy Act.

48 Section 34(a)(2), Implementing Rules and Regulations of the Data Privacy Act.

49 Section 20(b)(1), Implementing Rules and Regulations of the Data Privacy Act.

50 Section 1(t), Implementing Rules and Regulations of the Data Privacy Act.

51 Section 22, Implementing Rules and Regulations of the Data Privacy Act.

52 Pili v. National Labor Relations Commission, 217 SCRA 338 (1993).

53 Section 34(b)(2), Implementing Rules and Regulations of the Data Privacy Act.

54 Article 297, Philippine Labour Code.

55 Article 298, Philippine Labour Code.

56 Article 299, Philippine Labour Code.

57 Unilever Philippines, Inc v. Rivera, 697 SCRA 136 (2013).

58 Section 5.4(b), DOLE D.O. No. 147-15.

59 Section 5.4(c), DOLE D.O. No. 147-15.

60 Section 5.4(d), DOLE D.O. No. 147-15.

61 Section 5.4(a), DOLE D.O. No. 147-15.

62 Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank, 658 SCRA 828 (2011).

63 id.

64 Barayoga v. Asset Privatization Trust, 473 SCRA 690 (2005).

65 id.