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.)

9 responses to “Separation Pay”

  1. It is a good venue to express your queries. Hope any competent person can reply to the questions raised to shed light on the foregoing.

    1. Hi Jovito,

      Your comment is making me rethink my policy of not answering queries by commenters to this blog.


  2. Hi! I was terminated effective last April 30 because of Redundancy. My clearance was completed on May 11 and until now ( June 22 ) I still haven’t received my backpay plus the separation pay or what they call “Financial Assistance” that was promised! I worked in a BPO company. Is it mandatory that we need to receive the severance pay right after the termination date for us to look and transition to a new job? Is it stated in the Labor Code to when an employee receive his severance/termination pay? Thanks a lot!

    1. Hi Mark, I’m sorry but I usually don’t give direct legal advice on my blog. I can however once in a while post jurisprudence which might be related to your concern. Regards,

  3. Hi! Am I entitled to a separation pay even if I worked for less than 3 months? I’m a Filipino, working for a local company who is undergoing retrenchment. I entered as a regular employee (i.e. not probationary);. Pls help me on this one. Thanks!!

    1. Sorry. I usually don’t give legal advice on my blog. Hope you understand.

  4. i worked in a company for 1 year & 9 mons. now our company will no longer operate next year, i just wanna know will i get my separation pay? my salary is is just 382/day i work for 22 days a month. how much will be my separation pay if ever?

    1. Sorry, I usually don’t give legal advice on my blog. Hope you understand.

  5. very informative. 🙂

    would you know if we have laws on when should an employee receive his separation pay? i’m asking because i know someone who has been lawfully dismissed and the company he worked for would give him a separation pay. but the problem now is that the separation pay is taking too long before it is granted. it has been more than a month since he was able to accomplish his clearance but the separation pay is still not yet given to him.

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