How to Legally Terminate an Employee in the Philippines
Termination in the Philippines Is a Process, Not a Decision
For Australian employers used to the Fair Work Act, ending an employment relationship in the Philippines can feel surprisingly procedural. There’s no at-will employment. There’s no simple resignation acceptance. Philippine labour law requires a specific, documented process — and skipping any step can turn a legitimate termination into an illegal one, regardless of the underlying reason.
Here’s what you need to know before you find yourself in that situation.
Two Types of Termination — Two Different Processes
Philippine law draws a clear distinction between termination initiated by the employer and resignation initiated by the employee. For employer-initiated termination, there are two further categories with different rules: just cause and authorised cause.
Just Cause Termination (Employee Misconduct)
Just cause applies when the employee has done something wrong — serious misconduct, wilful disobedience, gross neglect, fraud, or commission of a crime. The process is strict:
- First written notice (Notice to Explain) — issued to the employee specifying the grounds for termination and giving them at least 5 calendar days to respond in writing.
- Opportunity to be heard — the employee must be given a genuine chance to explain or defend themselves, either in writing or through a formal hearing.
- Second written notice (Notice of Decision) — issued after the investigation, informing the employee of the decision to terminate and the specific reasons.
Failing to follow this two-notice rule — even when the grounds for termination are completely valid — makes the dismissal procedurally defective. The employee may be entitled to nominal damages even if the substantive reason was sound.
Authorised Cause Termination (Business Reasons)
Authorised cause covers redundancy, retrenchment (cost reduction), closure of the business, or the employee’s disease that is incurable within 6 months. The process is different:
- 30-day advance written notice to the employee.
- 30-day advance written notice to the Department of Labor and Employment (DOLE) — this is a step Australian employers frequently miss.
- Separation pay — typically 1 month’s salary per year of service for redundancy and retrenchment, or ½ month per year for closure.
Separation Pay: What You Must Pay
| Ground for Termination | Separation Pay |
|---|---|
| Redundancy | 1 month salary per year of service |
| Retrenchment (cost reduction) | 1 month salary per year of service (or ½ month, whichever is higher) |
| Closure of business (not due to serious losses) | 1 month salary per year of service |
| Disease incurable within 6 months | 1 month salary per year of service |
| Just cause (misconduct, etc.) | None required |
Note: fractions of a year of service of 6 months or more are counted as a full year for separation pay calculation.
Employee Resignation: The 30-Day Rule
When an employee resigns, they are generally required to give 30 days’ written notice. Employers are not obligated to accept early resignation without this notice period. However, if both parties agree, the notice period can be shortened.
There is one important exception: constructive dismissal. If an employee resigns because working conditions were made intolerable by the employer — demotions, harassment, drastic pay cuts — Philippine courts may treat it as illegal dismissal, with the employer bearing the consequences.
Final Pay: What You Owe on the Last Day
Regardless of how the employment ends, the employer must release the employee’s final pay within 30 days of separation. This includes: unpaid salary, pro-rata 13th month pay, unused leave conversion (if your policy allows), and any separation pay owed.
Late final pay is a DOLE violation and can result in complaints.
The Practical Reality for Australian Employers
The most common mistake Australian employers make when terminating a Philippine employee is treating it like an Australian termination — a conversation, a final pay run, and a signed separation agreement. That approach doesn’t work in the Philippines. Without the written notices, the documented process, and (where required) the DOLE notification, even a clearly justified termination can be successfully challenged.
Working through an EOR means these processes are managed by people who handle them routinely. Your EOR issues the notices in the correct form, advises on separation pay, and ensures DOLE notifications are filed correctly — protecting you from the legal exposure that comes from getting the process wrong.
Need to Terminate a Philippine Employee?
Talk to our local HR team before you take any action. Getting the process right from the first step is always easier than fixing it after the fact.
