Understanding Constructive and Illegal Dismissal in the Philippines: What Employers and Employees Need to Know?

In any business, letting go of an employee is never an easy decision—and as an employer in the Philippines, you need to make sure the process follows the law. 

Regardless of the reason, whether it is company restructuring, poor performance, or workplace issues, you must handle dismissals carefully. Not doing so can lead to legal problems, higher employee turnover, and damage to your company’s reputation.

That’s why understanding constructive dismissal in the Philippines is highly vital. Besides avoiding costly disputes, you can build a fair, respectful workplace for everyone. 

Understand your rights and obligations—what the Labor Code of the Philippines says about illegal dismissal for both employers and employees. 

How to Define a Constructive and Illegal Dismissal in the Philippines?

Constructive dismissal and illegal dismissal in the Philippines are two of the most misunderstood forms of employee termination. Both can lead to serious consequences if not handled properly, so you need to know what makes these dismissals unlawful.

What is constructive dismissal?

Constructive dismissal, according to DOLE, happens when an employee is forced to resign for reasons like unfair or unreasonable treatment by the employer. 

In legal terms, it’s not a formal firing, but the working conditions become so difficult or hostile that the employee has no choice but to leave. It’s considered a form of illegal dismissal even if the resignation appears voluntary on paper.

What is illegal dismissal?

An illegal dismissal under DOLE is when an employer fires an employee with no just cause or without following due process. Philippine law protects employees from being dismissed arbitrarily, and employers must follow a two-notice rule and disciplinary policies:

1. A written notice stating the specific grounds for termination, with the employee being given an opportunity to explain their side through a hearing.
2. A second written notice confirming the decision to dismiss.

Legal reasons for dismissal under Article 297 of the Labor Code include circumstances like serious misconduct, gross negligence, or redundancy. However, even with a valid reason, if the employer fails to observe due process, the dismissal or preventive suspension can still be declared illegal.

Employee and Employer Rights and Responsibilities When Faced with Constructive and Illegal Dismissal in the Philippines

When disputes over dismissal arise, both employers and employees have certain rights and responsibilities to exercise. Here’s a breakdown of what each party should know.

• Right to reinstatement

If an employer illegally dismisses an employee, the employee has the right to return to their former position without losing seniority or benefits. Reinstatement ensures that employees resume their original standing before the unfair dismissal.

Employers must comply with this rule unless reinstatement is no longer possible or practical due to strained relations, business closure, or other viable reasons. Failure to comply with a reinstatement order from the National Labor Relations Commission (NLRC) can lead to penalties.

• Right to full back wages

Along with reinstatement, employees have the right to receive full back wages, including all the compensation they would have earned from the time of illegal dismissal to their actual reinstatement. 

The package is not just basic salary; it may include allowances, 13th-month pay, and other benefits. Employers must keep thorough payroll and documentation to justify any exclusions or clarify computations.

• Right to separation pay if reinstatement is not possible

When reinstatement is no longer feasible, perhaps due to the company closing a department or the working relationship breaking down, the employee may receive separation pay instead. 

A typical computation includes one month’s salary for every year of service, although it can vary depending on the circumstances. Employers should be ready to present valid reasons when offering separation in lieu of reinstatement.

• Right to moral and exemplary damages

If the court finds the dismissal to be in bad faith, such as through harassment, threats, or public humiliation, the employee may receive moral damages. In cases where the employer acted in a willfully oppressive or abusive way, exemplary damages may also be awarded to the employee. 

These entitlements are not automatic but are used to penalize particularly unjust behavior. Employers should ensure that all dismissals are respectful and lawful to avoid these costly consequences.

• Right to attorney’s fees

Employees who win their case may also be entitled to attorney’s fees, typically amounting to 10% of the total monetary award. The law bases this on the code that workers should not shoulder the financial cost of legal action when asserting their rights. 

For employers, this serves as a reminder that losing a case might cost more than back pay—it could include the employee’s legal expenses as well.

• Right to due process before dismissal

Before dismissing an employee, it’s necessary to observe due process: the employer issues two written notices. The first notice outlines the charges while allowing the employee to respond in a proper forum; the second confirms the decision. 

Skipping any step can make the dismissal unlawful. There should be proper documentation at every stage to show that the process was fair, timely, and consistent with the Labor Code. Complete paperwork and timely reporting of the case can inform how the court responds to grounds for dismissal of the criminal case in the Philippines.

• Right to file a complaint

Employees have the right to file a labor complaint with the Department of Labor and Employment or the NLRC if they believe their termination was wrongful. The law gives them this channel to seek justice without fear of retaliation. 

Meanwhile, employers must respond to complaints professionally and provide all relevant records and documentation. Ignoring or downplaying these complaints can escalate the issue or weaken the employer’s defense.

Fairness First

Constructive and illegal dismissals can affect employees’ livelihoods and the business reputation or long-term operational stability of employers. 

Employees have clear rights such as reinstatement, back wages, separation pay, and due process. Employers who follow lawful procedures, maintain documentation, and defend decisions made in good faith have similar protections.

Navigating dismissal cases demands precision and compliance. Ideally, you work with a trusted recruitment agency in the Philippines, like Manila Recruitment, to gain strategic hiring solutions and sound guidance in handling employee termination. 

Connect with the experts at Manila Recruitment today.

DISCLAIMER: The information in this webpage/blog/article/infographic we have published and the associated commentary are presented as general information and are not a substitute for obtaining legal advice in this area. Manila Recruitment does not accept liability for any action taken based on the information presented or for any loss suffered as a result of reliance on the information provided.