Final pay and separation pay are not the same thing

Final pay is everything an employer owes when employment ends, and it is due regardless of the cause. Separation pay is only one of the nine items the Department lists. It is owed for authorized causes such as redundancy and retrenchment, and as a general rule not owed when the dismissal was for a just cause.

Separation pay is one part of final pay

People leaving a job often ask whether they will receive final pay or separation pay, as though the employer chooses one. Separation pay is one of the items that make up final pay, and whether it is owed at all turns on why the employment ended.

The distinction matters most to an employee who has been told they are entitled to nothing. Someone dismissed for cause is often owed no separation pay and is still owed everything else, which can be the larger sum.

What final pay is, in the words of the issuance

The Department of Labor and Employment defines it in Labor Advisory No. 06-20, signed by Secretary Silvestre H. Bello III on 31 January 2020:¹

“Final Pay”, “Last Pay”, or “Back Pay” refers to the sum or totality of all the wages or monetary benefits due the employee regardless of the cause of the termination of employment, including but not limited to:

(a) Unpaid earned salary of the employee;

(b) Cash conversion of unused Service Incentive Leave (SIL) pursuant to Article 95 of the Labor Code;

(c) Cash conversions of remaining unused vacation, sick or other leaves pursuant to a company policy, or individual or collective agreement, if applicable;

(d) Pro-rated 13th month pay pursuant to Presidential Decree No. 851 (PD 851);

(e) Separation pay pursuant to Articles 298-299 of the Labor Code, as renumbered, company policy, or individual or collective agreement, if applicable;

(f) Retirement pay pursuant to Article 302 of the Labor Code, as renumbered, if applicable;

(g) Income tax claim for the excess of taxes withheld, if applicable;

(h) Other types of compensation stipulated in an individual or collective agreement, if any; and

(i) Cash Bond/s or any kind of deposit/s due for return to the employee, if any.

Final pay is owed “regardless of the cause of the termination of employment.” Separation pay is item (e) on that list, qualified by “if applicable,” as are three other items. Unpaid earned salary, the first item, carries no qualifier.

Thirty days for the money, three days for the certificate

The advisory sets both periods:²

To effectively harmonize the management prerogative of the employer and the right of the employee, the Final Pay shall be released within thirty (30) days from the date of separation or termination of employment, unless there is a more favorable company policy, individual or collective agreement thereto.

And separately:³

The employer shall issue a certificate of employment within three (3) days from the time of the request by the employee.

The three days run from the request, not from the last day of work, so the period does not start until the employee asks. The advisory also says an employee whose employment is not yet terminated may ask for one.⁴

When separation pay is owed, and when it is not

The Labor Code divides the causes for ending employment into just causes and authorized causes, and that division decides whether separation pay is owed.

Termination for a just cause carries no separation pay as a general rule. Article 297 [282] lists them: serious misconduct or willful disobedience, gross and habitual neglect of duties, fraud or willful breach of trust, commission of a crime against the employer, the employer’s family, or an authorized representative, and causes analogous to those.⁵ These are attributable to the employee, and as the Supreme Court put it in 2016, “an erring employee should not benefit from their wrongful acts.”⁶

Termination for an authorized cause usually does carry it, and the amount depends on which cause. Article 298 [283] covers the installation of labor-saving devices, redundancy, retrenchment to prevent losses, and closure:⁷

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 his 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.

The words “whichever is higher” set a floor. Neither formula is a rate per year alone. For labor-saving devices and redundancy it is one month pay, or one month pay for every year of service, whichever is higher. For retrenchment and for closures not due to serious business losses it is one month pay, or half a month per year, whichever is higher.

The floor matters most to someone with short service. An employee retrenched after one year is not owed half a month. One month pay is higher, so one month pay is what the article provides. The per-year rate only overtakes the floor once service reaches three countable years, which, because a fraction of at least six months counts as a whole year, means two years and six months on the job. Below that the floor governs: at two years and three months the rate produces one month pay, which is the floor, not more.

The same article also requires written notice on the worker and on the Department at least one month before the intended date. Article 299 [284] provides the same separation pay for termination on the ground of disease: one month salary, or half a month per year of service, whichever is greater. It carries its own conditions.⁸

The closure clause provides separation pay for closures not due to serious business losses or financial reverses. A closure that is due to serious business losses carries no separation pay under it.

The social justice exception, and how far it now reaches

Courts have allowed separation pay to an employee validly dismissed for cause, as a measure of social justice. The Supreme Court has narrowed that exception over time.

In Philippine Long Distance Telephone Co. v. NLRC, decided in 1988, the Court set the original limit:⁹

We hold that henceforth 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.

Serious misconduct is only the first of the just causes, and the ruling left open whether the others were treated the same way. In Toyota Motor Philippines Corporation Workers Association v. NLRC in 2007, the Court noted that “[w]hat is unclear is whether the ruling likewise precludes the grant of separation pay when the employee is validly terminated from work on grounds laid down in Art. 282 of the Labor Code other than serious misconduct,” reviewed its own recent decisions, and held:¹⁰

We therefore find that in addition to serious misconduct, in dismissals based on other grounds under Art. 282 like willful disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, and commission of a crime against the employer or his family, separation pay should not be conceded to the dismissed employee. In analogous causes for termination like inefficiency, drug use, and others, the NLRC or the courts may opt to grant separation pay anchored on social justice in consideration of the length of service of the employee, the amount involved, whether the act is the first offense, the performance of the employee and the like, using the guideposts enunciated in PLDT on the propriety of the award of separation pay.

After Toyota, the exception survives for the analogous causes, on the PLDT guideposts, and not for the named just causes.

And in Security Bank Savings Corporation v. Singson in 2016, the Court deleted an award to a bank officer with more than twenty years of service, holding that his infractions were “serious in nature when one considers the employee’s functions.”¹¹ On length of service it repeated a line from an earlier case: “Length of service is not a bargaining chip that can simply be stacked against the employer.”¹²

An employee dismissed for a just cause should not plan on the social justice exception. It survives, but it reaches a narrow band of cases.

What is still owed when there is no separation pay

An employee dismissed for a just cause does not thereby lose everything. The Court in Singson pointed to Section 7, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code. Dismissal for a just cause is without prejudice to whatever rights, benefits, and privileges the employee may have under an applicable individual or collective agreement, or under a voluntary employer policy or practice.¹³

Taken with the advisory’s own words, that final pay is due regardless of the cause of the termination, the position is that unpaid salary, the cash conversion of unused service incentive leave, and pro-rated 13th month pay are owed, and a cash bond is returned. Item (e), separation pay, falls away. Items (c), (f), and (h) depend on a company policy, an agreement, or a retirement, so they may or may not arise.

The Labor Code was renumbered in 2015

The Labor Code was renumbered by the Department in July 2015, by Department Advisory No. 01, Series of 2015, so material published before then uses the old numbers, and decisions written since sometimes use both. The just causes are Article 297, formerly Article 282. Some decisions render the new number as 296. Singson does it twice in its own text, in the same decision in which it also writes Article 297.¹⁴ In the Department’s own 2022 edition of the renumbered Code, Article 296 [281] is probationary employment and Article 297 [282] is termination by employer.¹⁵

If a source gives a number that does not match, check it against the renumbered Code before relying on it.

What to gather before speaking to a lawyer

This is practical information about how the process runs, not legal advice, and requirements change. The office handling a particular case may ask for more.

• Your payslips for the last few months, which establish the rate the computations run on
• Your last day of work, and whether you resigned or were dismissed
• Any notice you received, and the ground it gave
• Your contract, and the employee handbook or company policy on leave conversion and separation benefits, since several items on the list turn on “company policy, or individual or collective agreement”
• Any collective bargaining agreement, if the workplace has one
• The date you asked for your certificate of employment, if you have asked

A claim about final pay or the certificate of employment, the advisory provides, “shall be filed before the nearest DOLE Regional/Provincial/Field Office which has jurisdiction over the workplace, for conciliation and subject to DOLE’s existing enforcement mechanism.”¹⁶

Which items apply

This is employment work, and the answer turns on which of the nine items applies.

An employer that ends an employment almost always owes something. The question is which of the items the Department lists apply, and whether item (e) is one of them turns on why the employment ended. An employee told they get nothing because they were dismissed for cause has been told something the issuance does not say.