Separation Pay

Summary

  • What is separation pay?
  • What are the instances in which payment of separation pay is sanctioned?
  • Distinguished separation pay from retirement pay?

Separation Pay Meaning

Separation pay, as generally understood, refers to the amount due to the employee who has been terminated from service for causes authorized by law (not due to employees fault or wrong-doing) such as installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking.

Separation pay is intended to provide the employee with the wherewithal during the period he is looking for another employment. (See Gabuay v. Oversea Paper Supply, G.R. No. 148837, August 13, 2004.)

Five Instances when Separation Pay is due to Employee

There are at least five instances in which an employee is entitled to payment of separation pay upon severance of employment:

  1. When the termination of employment is due to causes authorized by law, such as installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking. This is provided under Art. 283, Labor Code of the Philippines. The provision states, viz.:

    Article 283. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

  2. When the severance of employment is cause by a disease, particularly when the employee is found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees. This is found in Art. 284, ibid., the full text states, viz.:

    Article 284. Disease as ground for termination. An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees: Provided, That he is paid separation pay equivalent to at least one month salary or to one-half month salary for every year of service, whichever is greater, a fraction of at least six months being considered as one whole year.

  3. When the termination from service of the employee has been declared illegal, but his reinstatement to his former position is no longer feasible for some valid reason, e.g., when reinstatement is rendered impossible due to subsequent closure of business, or when the relationship between employer and employee has become strained (doctrine of strained relations). (See Gabuay v. Oversea Paper Supply, G.R. No. 148837, August 13, 2004.)
  4. In case of pre-termination of employment contract in job-contracting arrangement. (SeeDepartment Order 18-02, Rules Implementing Article 106 to 109 of the Labor Code.)
  5. In exceptional cases, where separation pay is awarded as a measure of social or compassionate justice. Here, payment of separation pay may be ordered by the court even if the dismissal from service is found to have been for valid or just cause, i.e., even if the employee is found to have been at fault. (See PLDT vs. NLRC, No. L-80609, August 23, 1988.)

Distinguished from Retirement Pay

Separation pay should not be confused with retirement pay. Separation pay is the amount due to the employee where the cessation of employment is due to causes authorized by law (or for any of the other causes stated above). Retirement pay, on the other hand, is the amount to be paid to the employee who has reached the compulsory retirement age or who availed of voluntary retirement.

source: http://www.laborlaw.usc-law.org/2009/10/01/separation-pay/

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