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02. Employment Contracts
Employment Law Overview Philippines

02. Employment Contracts

Minimum requirements

An employment contract is consensual and voluntary. It only requires mutuality of consent between the parties. Generally, employment contracts do not need to be in writing, except when the law or rules require. For instance, an employment contract between a contactor/subcontractor and its employees must be in writing pursuant to an administrative rule currently in force.

In the Philippines, an employer may unilaterally prepare an employment contract, stating the terms and conditions required of a potential employee, and that a potential employee had only to adhere to it by signing it. Such contract is known as a contract of adhesion, which is allowed by law albeit construed in favor of the employee in case of ambiguity.

Although the employer and the employee are given the widest latitude possible in the crafting of their contract, such right is not absolute. Their stipulations, clauses, terms, and conditions should not be contrary to law, morals, good customs, public order, or public policy. Parenthetically, labor laws are considered written in every contract, thus, stipulations in violation thereof are considered null.

Fixed-term/Open-ended Contracts

Fixed-term contracts are legally permitted in the Philippines, provided the fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever being exercised by the former over the latter. However, in cases where periods are imposed to prevent an employee from acquiring security of tenure, such contracts are disregarded for being contrary to public policy and morals.

Trial Period

Under Philippine law, probationary periods are allowed for the employer to determine if the employee is qualified for possible inclusion in the regular force. Within such period, the employer tests and observes the conduct of the employee before permanent hiring. Probationary employment generally does not exceed six (6) months from the date the employee started working. The services of an employee who has been engaged on a probationary basis may be terminated for just or authorized causes or when he fails to qualify as a regular employee in accordance with reasonable standards made known by the employer to the employee at the time of his engagement. Employers must be aware that under the Labor Code, an employee who is allowed to work after a probationary period shall be considered a regular employee and shall be entitled to all the standards and protections granted to such status by law.

Notice Period

Notice requirements depend on which party initiates the termination of the employment contract.

In case the termination is initiated by the employee, the Labor Code requires employees to give their employers a notice at least one (1) month before the effective date of their resignation. If no such notice was given, the employer may hold the employee liable for damages. Philippine jurisprudence recognizes that this rule is for the benefit of the employer, (i.e. to give the employer time to look for a replacement). Thus, the employer has the discretion to (i) mandate compliance with the full notice period, (ii) allow a shorter notice, or (iii) completely waive such notice period with regard to an employee’s resignation.

Meanwhile, dismissal of regular employees by the employer requires the observance of procedural due process which varies depending on whether the ground for termination is a just or an authorized cause.

For just causes, the law mandates the observance of the twin-notice rule and the employee’s opportunity to be heard and to defend himself. To explain further:

  • The first written noticeto be served on the employees should contain the specific causes or grounds for termination against them, and a directive that the employees are given the opportunity to submit their written explanation within a reasonable period (at least 5 days);
  • A hearing or conferencewherein the employees will be given the opportunity to: (1) explain and clarify their defenses to the charge against them; (2) present evidence in support of their defenses; and (3) rebut the evidence presented against them by the management; and
  • A written notice of terminationindicating that: (1) all circumstances involving the charge against the employees have been considered; and (2) grounds have been established to justify the severance of their employment.

For authorized causes, the employer should serve a written notice to the affected employees and to the Department of Labor and Employment (DOLE) at least one (1) month before the intended date of termination. The said notice gives DOLE the opportunity to ascertain the veracity of the alleged authorized cause.

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