Separation Pay by Cause (Labor Code)
Separation pay depends on why the job ended: one month per year for redundancy, half a month per year for retrenchment or closure, none for just cause.
| Why the employment ended | Separation pay (minimum) | Where the rule comes from | Source |
|---|---|---|---|
| Installation of labor-saving devices | At least one month pay, or at least one month pay for every year of service, whichever is higher | Article 298 [283]. The employer must also serve a written notice on the workers and on DOLE at least one month before the intended date | Keng Hua Paper Products Co., Inc. v. Ainza (2023), quoting Labor Code Article 298 (formerly Article 283), Supreme Court E-Library |
| Redundancy (the position is more than what the business needs) | At least one month pay, or at least one month pay for every year of service, whichever is higher | Article 298 [283], with the same one-month written notice to the workers and to DOLE | Keng Hua Paper Products Co., Inc. v. Ainza (2023), quoting Labor Code Article 298 (formerly Article 283), Supreme Court E-Library |
| Retrenchment to prevent losses | One month pay, or at least one-half month pay for every year of service, whichever is higher | Article 298 [283], with the one-month written notice. In Keng Hua Paper Products v. Ainza (2023), retrenchment without proof of losses was held to be illegal dismissal | Keng Hua Paper Products Co., Inc. v. Ainza (2023), quoting Labor Code Article 298 (formerly Article 283), Supreme Court E-Library |
| Closure or cessation of the business, not due to serious business losses or financial reverses | One month pay, or at least one-half month pay for every year of service, whichever is higher | Article 298 [283], with the one-month written notice. The closure must not be "for the purpose of circumventing" the rules on termination | Keng Hua Paper Products Co., Inc. v. Ainza (2023), quoting Labor Code Article 298 (formerly Article 283), Supreme Court E-Library |
| Closure due to serious business losses or financial reverses, duly proved | None | Jaka Food Processing v. Pacot (2005), quoting an earlier ruling: when the closure is due to serious business losses or financial reverses, "duly proved", the right of affected employees to separation pay is lost | Jaka Food Processing Corp. v. Pacot (2005), Supreme Court E-Library |
| Disease: the employee has a disease and continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees | At least one month salary, or one-half month salary for every year of service, whichever is greater | Article 299 [284] | John Kriska Logistics, Inc. v. Mendoza (2023), quoting Labor Code Article 299 [284], Supreme Court E-Library |
| Just cause: serious misconduct, willful disobedience, gross and habitual neglect, fraud or breach of trust, a crime against the employer or his family, or an analogous cause | None, as a rule | Article 297 [282] lists the just causes and provides no separation pay. In Jaka Food Processing v. Pacot (2005), the Supreme Court said that for a just cause "payment of separation pay, as a rule, is not required" | Jaka Food Processing Corp. v. Pacot (2005), Supreme Court E-Library |
| Illegal dismissal, when the court orders separation pay instead of reinstatement | One month salary for every year of service, on top of backwages | Keng Hua Paper Products v. Ainza (2023): separation pay in lieu of reinstatement "shall be equivalent to one month salary for every year of service", and backwages run until the decision ordering it becomes final. Reinstatement and backwages are the remedies of Article 294 [279] | Keng Hua Paper Products Co., Inc. v. Ainza (2023), Supreme Court E-Library |
Notes
- In every row based on Articles 298 and 299, a fraction of at least six months counts as one whole year of service. The amounts are minimums: a contract, a company policy or a collective bargaining agreement may give more.
- The table shows the rules, not a computation for any worker. To estimate an amount, use the separation pay calculator and see the final pay and separation pay guide.
- Authorized causes need notice. In Keng Hua Paper Products v. Ainza (2023), the Supreme Court said that for authorized causes there are two requirements: written notice to the employees and to DOLE at least one month before, and payment of the separation pay; "The Labor Code does not provide for exemptions from these two procedural requirements." If the cause is valid but the notice was not given, the dismissal stands and the employer pays nominal damages: ₱50,000 in Jaka Food Processing v. Pacot, an amount set by the court in that case.
- For dismissal because of a disease, the Omnibus Rules Implementing the Labor Code (1989 copy on the Supreme Court E-Library, Book VI, Section 8) say the employer shall not terminate the employee unless a competent public health authority certifies that the disease cannot be cured within six months even with proper medical treatment. See Can you be fired for being sick? and the Omnibus Rules.
- Separation pay is not the same as retirement pay under Article 302 [287], which is due when an employee retires: see Separation pay vs retirement pay. Resignation under [Article 300 [285]](/law/labor-code/article-300) is not in this table because that article does not provide for separation pay.
- Made-up example: Carlo earns ₱20,000 a month and has worked 7 years and 7 months when his bank declares his position redundant. Seven years and seven months counts as 8 years, so the minimum is 8 months pay (₱160,000).
- Made-up example: Weng earns ₱18,000 a month and has worked 4 years and 3 months when her store closes, not because of serious losses. Three months is less than six, so she has 4 years: 4 × one-half month = 2 months pay (₱36,000), which is higher than one month pay.
- Made-up example: Edwin earns ₱15,000 a month and is retrenched after 1 year and 2 months. One-half month for 1 year is ₱7,500, which is lower than one month pay, so the minimum is one month pay (₱15,000).
- A claim for unpaid separation pay is a money claim: it must be filed within three years from the time the cause of action accrued ([Article 306 [291]](/law/labor-code/article-306)). See Labor claim deadlines, Retrenchment and closure: when is it legal?, Illegal dismissal remedies and Free legal help.
General information, not legal advice. For your case, ask a lawyer, the Public Attorney's Office (PAO) or the agency.
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