Separation pay validity

Dear Atty. Angela,

I am working as an HR Officer and we have a probationary employee who has worked for two months now. Currently, the company is not in a good financial status and it will implement redundancy next month. Since the employee has only worked for the company in less than six months, will he be entitled to a separation pay?

Xander

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Dear Xander,

Separation pay refers to an additional pay given to employees who are separated from employment due to authorized causes (i.e. installation of labor-saving devices, redundancy, retrenchment, etc.) since their employment was ended due to legitimate business reasons.

Article 298 of the Labor Code provides that an employee terminated due to redundancy shall be entitled to a separation pay equivalent to at least his one month pay or to at least one month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered one whole year.

The phrase “a fraction of at least six months is considered one whole year” is well-stipulated. This means that if an employee has served the company for six months and one day, the employee’s tenure would be rounded up to one full year for purposes of separation pay computation. Conversely, if the employee’s service is less than six months, then that threshold was not reached and is not rounded-up to a full year. Instead, it is treated as less than one year.

Strict interpretation suggests that if the law does not require separation pay for less than six months of service, the probationary employee may end up not receiving any statutory entitlement. However, some employers, as a matter of good corporate practice or company policy, may voluntarily grant a pro-rated separation pay for humanitarian reasons.

While the law sets the minimum standards, employers and employees can agree to more generous terms. An employment contract or a collective bargaining agreement (CBA) could provide for separation pay even for short-term employees who have been employed for less than six months.

Atty. Angela Antonio