Separation pay is given to employees whenever the cause of termination of employment is attributable to authorized causes,[1] as well as in cases where employment of an employee who initiated a labor complaint is no longer feasible due to strained relations.[2]

Bank of Lubao, Inc. v. Manabat
G.R. No. 188722, 01 February 2012

Complainant Rommel J. Manabat was holding the position of data encoder when defendant Bank of Lubao, Inc. terminated his employment due to serious misconduct tantamount to willful breach of trust. Previously, after due investigation, the Bank found complainant guilty in conspiring with another employee to misappropriate P3M by way of making fraudulent entries disguised as error corrections in the bank’s computer. Subsequently, the bank initiated criminal complaints for qualified theft against complainant after terminating the latter. In response, complainant instituted a labor complaint for illegal dismissal. On the labor case, the Labor Arbiter and subsequently affirmed by the NLRC ordered the reinstatement of the employee. The Court of Appeals reversed the order of reinstatement and directed the employer to pay separation pay applying the doctrine of strained relations.

HELD: The employee is entitled to separation pay in lieu of reinstatement due to the strained relations between him and his employer. “Under the law and prevailing jurisprudence, an illegally dismissed employee is entitled to reinstatement as a matter of right. However, if reinstatement would only exacerbate the tension and strained relations between the parties, or where the relationship between the employer and the employee has been unduly strained by reason of their irreconcilable differences, particularly where the illegally dismissed employee held a managerial or key position in the company, it would be more prudent to order payment of separation pay instead of reinstatement.”

Consequently, the doctrine of strained relations allows the payment of separation pay as “an acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On one hand, such payment liberates the employee from what could be a highly oppressive work environment. On the other hand, it releases the employer from the grossly unpalatable obligation of maintaining in its employ a worker it could no longer trust.” For the doctrine of strained relations to be applied, “it should be proved that the employee concerned occupies a position where he enjoys the trust and confidence of his employer; and that it is likely that if reinstated, an atmosphere of antipathy and antagonism may be generated as to adversely affect the efficiency and productivity of the employee concerned.”

In this case, the employment relations between the employer and the employee have already been strained after the two initiated cases against each other (qualified theft and illegal dismissal) and the same have lasted for over six years. There is no denying that reinstatement will only “serve to intensify the atmosphere of antipathy and antagonism between the parties.” Moreover, the reinstatement of the employee as bank encoder who is engaged in handling the accounts of the depositors of the bank may only “inspire vindictiveness” on the employee. Lastly, the employee has also manifested his refusal to be re-admitted which is constitutive of strained relations.

The employee’s latest salary rate is the basis.[3] In computing the separation pay, allowance should be integrated with the basic salary.[4]“The salary base properly used in computing the separation pay should include not just the basic salary but also the regular allowances that an employee has been receiving.”[5] Depending on the applicable authorized cause, the separation pay is computed as follows:

Table 1
Separation Pay

Authorized Causes Separation Pay
1.       Installation of labor-saving devices[6] 1 month pay or at least 1 month for every year of service, whichever is higher (For: Nos. 1 to 3)
2.       Redundancy[7]
3.       Impossibility of reinstatement of the employee to his/her former position or to a substantially equivalent position for reasons not attributable to the fault of the employer (e.g. when reinstatement cannot be implemented due to closure or cessation of operations of the establishment/employer, or the position to which he/she is to be reinstated no longer exists and there is no substantially equivalent position in the establishment to which he/she can be assigned, or when there is strained relations between the employer and the employee)[8]
4.       Retrenchment to prevent losses[9] 1 month pay or at least ½ month pay for every year[10] of service, whichever is higher (For: Nos. 4 to 6)
5.       Closure or cessation of operations of or undertaking not due to serious business losses or financial reverses[11]
6.       When the employee suffers from a disease not curable within 6 months and his/her continued employment is prejudicial to his/her health, as well as to the health of his/her co-employees[12]


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[1] Ibid.

[2] Bank of Lubao, Inc. v. Manabat, G.R. No. 188722, 01 February 2012.

[3] Id at 121.

[4] Ibid.

[5] Ibid., citing Planters’ Products, Inc. v. NLRC, G.R. No. 78524, 20 January 1989.

[6] LABOR CODE. Article 297.

[7] Ibid.

[8] Bank of Lubao, Inc. v. Rommel J. Manabat, et al., G.R. No. 188722, 01 February 2012; See also DUP Sound Phils. et al., v. Court of Appeals, G.R. No. 168317, 21 November 2011.

[9] LABOR CODE. Article 297.

[10] A fraction of 6 months is considered a year (Article 283, Labor Code).

[11] LABOR CODE. Article 297.

[12] Ibid. Article 298.