Separation Pay

July of this year saw a slew of Supreme Court decisions on labor law, some of which are quite significant. Take for example CENTRAL PHILIPPINES BANDAG RETREADERS, INC. vs. PRUDENCIO J. DIASNES (G.R. No. 163607, July 14, 2008) which deals with Separation Pay.

The issue in this case was WHETHER OR NOT A VALIDLY AND LEGALLY SEPARATED EMPLOYEE MAY BE ENTITLED TO SEPARATION PAY. In resolving said issue the Supreme Court gave a very helpful discussion of the topic, the main points of which I shall try to outline below:

1. Definition of separation pay. Separation pay is defined as “the amount that an employee receives at the time of his severance and is designed to provide an employee with the wherewithal during the period he is looking for another employment.”

2. When is separation pay authorized?

a) In situations dealt with in Art. 283 (Closure of Establishment and Reduction of Personnel) and 284 (Disease as Ground for Termination) of the Labor Code, but not in terminations of employment based on instances enumerated in Art. 282 (Just Causes for Termination by Employer). As held by the Court in Eastern Paper Mills, Inc. v. NLRC (February 24, 1989) –
“The only cases when separation pay shall be paid, although the employee was lawfully dismissed, are when the cause of termination was not attributable to the employee’s fault but due to:

(1) the installation of labor saving devices,
(2) redundancy,
(3) retrenchment,
(4) cessation of employer’s business, or
(5) when the employee is suffering from a disease and his continued employment is prohibited by law or is prejudicial to his health and to the health of his co-employees (Articles 283 and 284, Labor Code.) Other than these cases, an employee who is dismissed for a just and lawful cause is not entitled to separation pay even if the award were to be called by another name.”

b) In lieu of reinstatement if reinstatement is no longer possible, as when the relationship between the employer and employee has become strained.

c) In some cases, as a measure of social justice. As held by the Court in PLDT vs. NLRC (August 23, 1988) –
“We hold that henceforth separation pay shall be allowed as a measure of social justice only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a fellow worker, the employer may not be required to give the dismissed employee separation pay, or financial assistance, or whatever other name it is called, on the ground of social justice.”

In the above-mentioned CENTRAL PHILIPPINES BANDAG RETREADERS, INC. case the Supreme Court concluded its discussion of separation pay with these strong words: “It is unthinkable to award separation pay or financial assistance to any unworthy employee who exploited and took advantage of his employer’s past generosity and accomodation.” Thus, it denied Diasnes separation pay “since the cause for the termination of his employment amounts to gross and habitual neglect of his duties.”*

(This article was published in the Sept. 8-9, 2008 issue of the Negros Times. Click here.)