Computing separation pay of employees

Dear PAO,

I would like to inquire about the computation of an employee’s separation pay. I have a friend who works for a company that is about to change its company name. Is she entitled to a separation pay? Her salary is P10,000.00 a month and she has been with this company for over 10 years.
Evelyn

Dear Evelyn,

The basis for the computation of an employee’s separation pay depends on the provisions of his employment contract. It is a well-settled rule that employment contracts serve as the law between the parties thereof and should be complied with in good faith. Accordingly, if your friend’s employment contract with her company provides the grant of separation pay should she be terminated by the company due to its change of name, then the same must be followed, and such benefit should be computed in accordance with the rules and regulations set by the company.

Assuming that the grant of separation pay is not indicated in their contract, we may take into consideration the provisions of the Labor Code of the Philippines with regard to the grant of separation pay to employees who are terminated due to authorized causes. Articles 283 and 284 of the Labor Code mentions the authorized causes by which an employee may be legally terminated and granting them entitlement to separation pay: (1) automation or the employer’s introduction of machinery in the manufacture of its products, (2) redundancy or when the service of an employee is in excess of what is reasonably demanded, (3) retrenchment or reduction of employees to prevent substantial losses, (4) closure or cessation of business, and (5) disease of the employee.

In the case of your friend, she may have assumed that the change of the company name of her employer is the same as the closure of its corporate business. However, careful scrutiny must first be made in order to establish exactly whether the intended change of the name of her company-employer will result in the cessation of its business or undertaking. We would like to emphasize that change of name alone does not automatically mean closure of business. Taking this into mind, if indeed the reason behind the company’s change of name is the fact that it will no longer continue doing business and will cease its operation, then, she may be entitled to a separation pay.

Article 283 provides: “The employer may also terminate the employment of the employee due to x x x 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 worker and the Department of Labor and Employment at least one month before the intended date thereof . . . x x x in cases of closures or cessation of operation of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one month pay or at least one-half (+) month pay for every year of service, whichever is higher. A fraction of at least six months shall be considered as one whole year.”

However, if the change of name will not affect the existence of the company, then it may not be considered as closure or cessation of business under Article 283 and your friend may not be validly terminated on that ground

We hope that we were able to answer your queries. Please be reminded that we based solely on the facts you have narrated and our appreciation of the same may vary when other facts are changed or elaborated. –Persida Acosta, Manila Times

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