Dismissed Employees and Separation Pay Entitlement

The common impression is that an employee who has been dismissed from service for cause is not entitled to any separation pay.

This public notion is correct since it is the general rule when it comes to this issue. However, previous decisions allowed certain exceptions making the rule a little bit muddy.In a recent decision by the Supreme Court, the rules on the payment of separation pay to validly dismissed employees were made clearer.

In the case of Bank of the Philippine Islands vs. Honorable NLRC, G.R. No. 179801, June 18, 2010, the doctrine was revisited, and reinforced, so to speak.

This case involves unauthorized withdrawals made against an account with BPI involving the bank’s teller. Surprisingly, the Bank Head’s (boss of the Bank Teller) signature appeared in the transactions. Hence, the Bank Head was implicated in the case and was subsequently terminated for loss of trust and confidence.

The Bank Head challenged her dismissal before the Labor Arbiter with prayer for various claims. The Labor Arbiter however found the dismissal valid. On appeal, the NLRC sustained the dismissal but ordered the payment of separation pay in the interest of justice and equity since BPI failed to prove that the Bank Head affixed her signatures on the deposit slips with malice or bad faith.

The Court of Appeals likewise supported the findings of NLRC and also justified the granting of separation pay. Hence, the appeal by BPI to the Supreme Court on the issue of the grant of separation pay.

The Supreme Court in previous cases held that while as a general rule, an employee who has been dismissed for any of the just causes enumerated under Article 282 of the Labor Code is not entitled to separation pay, the Court has allowed in numerous cases the grant of separation pay or some other financial assistance to an employee dismissed for just causes on the basis of equity.

For instance, in the case of Philippine Long Distance Telephone Co. v. NLRC, G.R. No. L-80609, 23 August 1988, 164 SCRA 671, the Court stated that 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.

In the succeeding case of Toyota Motor Phils. Corp. Workers Association v. NLRC, G.R. Nos. 158786 & 158789, October 19, 2007, 537 SCRA 171, the Court reaffirmed the general rule that 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, willful disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, commission of a crime against the employer or his family, or those reflecting on his moral character. These five grounds are just causes for dismissal as provided in Article 282 of the Labor Code.

In the case of Reno Foods v. NLM, G.R. No. 164016, 15 March 2010, the Court reiterated the Toyota ruling and maintained that labor adjudicatory officials and the Court of Appeals must demur the award of separation pay based on social justice when an employee’s dismissal is based on serious misconduct or willful disobedience; gross and habitual neglect of duty; fraud or willful breach of trust; or commission of a crime against the person of the employer or his immediate family – grounds under Art. 282 of the Labor Code that sanction dismissals of employees.

In resolving further the case of the dismissed Bank Head, the Court found the case of Aromin v. NLRC, G.R. No. 164824, 30 April 2008, 553 SCRA 273, to be in all fours with the instant BPI case. Invoking the pronouncement in Toyota, the Court disallowed the payment of separation pay on the ground that Aromin was found guilty of willful betrayal of trust, a serious offense akin to dishonesty.

Applying the doctrine laid down in Toyota, the Supreme Court denied with finality the claim for separation pay of the Bank Head.

Summary and comments:

General rule: employees who are validly dismissed are not entitled to separation pay.

Exception: On the ground of social justice and equity.

Exception to the exception: Only when the employee’s dismissal is not based on Article 282 of the Labor Code.

Comment: Grounds for dismissal outside the enumeration in Article 282 are hard to find. Remember that Article 282 has a catchall provision known by the phrase “other causes analogous to the foregoing” which practically covers all other offenses including those specified in the company’s Code of Conduct. Nonetheless, the guiding principle should be that analogous causes must arose from employee’s fault, culpability, or commission of a wrongful act.

Thus, in a very old case, illness according to the Supreme Court is not an analogous cause. (Nadura vs. Benguet Consolidated, G.R. No. L-17780, August 24, 1962). True enough, because under the present Labor Code, it is covered by Article 284 and not by Article 282. Separation pay is expressly awarded to those dismissed on the ground of disease and even those under Article 283 or the authorized causes.