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AreContractualEmployeesEntitledtoSeparationPay?
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By:ndvlaw|Category:PhilippineLegalAdvice|NoComments

16thApr2013

Afixedtermemployeeorcontractualemployeeisatypeofemployeewhoseemploymentisfixedfor
a certain period of period of time. When the contract expires and is not renewed by his or her
employer,theemploymentofthecontractualemployeeisdeemedtohaveautomaticallyterminated.

Itisofcommonknowledgethattheterminationofanemployeeinvolvesthepaymentbytheemployer
of separation pay. The grant of separation pay is in fact a statutory obligation on the part of the
employer and a demandable right on the part of the employee. Thus, the Labor Code mandates the
grantofseparationpaytoanemployeeasanincidenceofterminationofhisorheremployment.

Consideringthatcontractualemployeesareconsideredemployeesonlyforafixedperiodoftime,are
theyalsoentitledtopaymentofseparationpay?

Asageneralrule,contractualemployeesnotentitledtoseparationpay.Thereasonforthisissimple.
Iftheyareterminatedasaresultofexpirationoftheircontract,theyarenotentitledtoterminationpay
orseparationpaybecausethereisnodismissalorterminationtospeakof.Separationpayisgranted
onlytoemployeeswhoaredismissed.Withregardtocontractualemployees,whenthecontractwith
their employer ends, what actually takes place is an expiration of term and not a dismissal in legal
contemplation.Intheabsenceofanactualdismissal,therecanbenoclaimforseparationpay.

Theonlyexceptiontotheaboveruleiswherethecontractualemployeeisdismissedpriortotheend
ofhiscontract.Ifthishappens,whattakesplaceisanactualdismissalforwhichseparationpaymay
beclaimedbythecontractualemployee.Infact,acontractualemployeeisconsidered,fortheduration
of his or her contract, as a regular employee. He or she enjoys a security of tenure for the limited
period provided under the contract, andcannotberemoved by theemployerwithoutjust causeand
without following the procedure outlined under the Labor Code for the termination of a regular
employee.Thus,ifthecontractualemployeeisremovedwithoutjustcauseandwithoutfollowingthe
procedureoutlinedunderthelaw,theemployernotonlycommitsbreachofcontractbutalsoillegal
dismissal.

Thus,incasesofpreterminationofacontractualemployee,itbecomestheobligationoftheemployer
to grant separation pay. As in all cases of termination of employment involving other types of
employees, where the termination is due to serious business losses or financial reverses, there are
Supreme Court cases to the effect that the employer is exempt from payment of separation pay.
Therefore,thisshouldalsoholdtruewithregardtocontractualemployees.

However,theremustbesufficientproofthattheprematureterminationofthecontractualemployee
wasactuallyduetoseriousbusinesslossesorfinancialreverses.Iftheemployerisunabletoadduce
suchproof,heismandatedbytheLaborCodetopaythecontractualemployeeseparationpay.

Let us help you. For further inquiries, you may seek legal assistance by emailing us
atinfo@ndvlaw.com.

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