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Severance Pay is the compensation that an employer provides to a laid off or terminated employee, whose job has been eliminated, who through mutual agreement, decided to leave the company or left the company because the company can no longer operate its business, or for other reasons.
What is the rate of Severance Pay an employer must pay upon termination of an employee without cause?
When there is termination without cause, it is compulsory that the employer give a written notice. The employer shall then make severance payment to the employee according to the length of uninterrupted service, as follows:
Period of Employment Rate of Severance Pay
120 days or more but less than 1 year 30 days
1 year but less than 3 years 90 days
3 years but less than 6 years 180 days
6 years but less than 10 years 240 days
10 years up 300 days
This shall not apply to an employment that is contractual or for a definite period and terminated at the end of that period. The law allows employment for a definite period in specific projects which are not the normal business or trade and requires a definite work duration, or for seasonal or occasional work with a definite ending or completion. Such work must complete within a period not exceeding 2 years. The employer must make a written contract with the employee at the beginning of the employment.
What are the conditions wherein an employee cannot receive severance pay?
According to the Labour Protection Act, an employer may not pay severance pay to an employee when employment termination is due to employee’s commission of the following acts:
- Performing his/her duties dishonestly and/or intentionally committing a criminal offense against the employer;
- Willfully causing damage to the employer;
- Committing negligent acts causing serious damage to the employer;
- Violating work rule, regulations, or lawful and just order of the employer after employer’s issuance of a written warning. This excludes serious cases with no requirement for the employer to give warning;
- Has not reported for work for 3 consecutive working days without justifiable reason regardless of whether there is a holiday in between;
- Sentenced to imprisonment by a final court judgment.
Will an employee get Severance Pay upon refusal to move with the employer to its new location?
The employer is bound to inform its employees at least 30 days in advance to the relocation date. When the employer’s establishment relocation shall have a vast effect on the employee and its family’s way of living, the employee can refuse and terminate the employment contract within 30 days after receiving the notice. Hence, the employee has the right to severance pay of not less than the rate for which he/she is eligible.
An employer who fails to inform an employee in advance is liable to pay the employee a special severance pay in lieu of advance notice in an amount equivalent to 30 days pay at the latest wage rate.
What are the employee’s rights in case of unfair or wrongful termination?
If the employer requires the employee to leave his/her job immediately, the employer must pay compensation in lieu of an advance notice equivalent to the employee’s wage until the effective date of the notice. However, this shall not apply to employees terminated with cause.
If an employee feels a wrongful dismissal and thinks that the employer violates the employee’s compensation entitlement; the employee has the right to file a complaint to the Labour Office.