When is a dismissed employee entitled to separation pay?


A company engaged in the production, manufacture, sale, and distribution of various food, home and personal care products sought the dismissal of its Area Activation Executive in Cotabato City and Davao City, whose primary tasks were the management of sales, distribution and promotional activities in her area, and the supervision of a third party service provider for the company’s activation projects.

The company conducted a random audit and discovered that there were fictitious billings and fabricated receipts supposedly from the third party service provider amounting to P11.2 Million.  Some funds were likewise diverted from their original projects.  Upon further verification, the third party service provider reported that the fund deviations were upon the instruction of the said Area Activation Executive.

The company issued a show-cause notice to the executive, asking her to explain her conversion and misappropriation of resources and breach of company policy.  The executive admitted the fund diversions but explained that they were all utilized for the company’s promotional ventures.  She had resorted to such measure because it was difficult to procure funds from the head office.

The company dismissed her for serious breach of company policy.  The executive asked for a reconsideration and for the company to allow her to receive her retirement benefits, considering that she had worked for them for fourteen (14) years.

Because her request was denied, the executive filed a complaint for illegal dismissal. The Labor Arbiter dismissed her claim for lack of merit. On appeal, the National Labor Relations Commission (NLRC) held that although there was a valid dismissal, she was entitled to retirement benefits because it found the company guilty of violating the twin notice requirement in labor cases.

The company appealed to the Court of Appeals (CA), which deleted the award for retirement benefits. The CA pointed to the company’s retirement plan, which provides that a validly dismissed employee is disqualified from claiming retirement benefits regardless of length of service.  But considering that there was no proof that the executive gained any pecuniary benefit from her breach, which was actually aimed at increasing the sales efficiency of the company, the CA awarded separation pay as a measure of social justice.

Before the Supreme Court, the company challenged the award of separation pay in view of the fact that the executive was validly dismissed.  Deciding in favor of the company, the High Court held:

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 a separation pay

x x x x

In exceptional cases, however, the Court has granted separation pay to a legally dismissed employee as an act of “social justice” or on “equitable grounds.”  In both instances, it is required that the dismissal (1) was not for serious misconduct; and (2) did not reflect on the moral character of the employee
x x x x

In this case, [the executive]was dismissed from work because she intentionally circumvented a strict company policy, manipulated another entity to carry out her instructions without the company’s knowledge and approval, and directed the diversion of funds, which she even admitted doing under the guise of shortening the laborious process of securing funds for promotional activities from the head office.  These transgressions were serious offenses that warranted her dismissal and proved that her termination from work was for a just cause.  Hence, she is not entitled to a separation pay  (Unilever Philippines v. Rivera, G.R. No. 201701, 3 June 2013, J. Mendoza).


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