Are Contractual Employees Entitled to Separation Pay?

contractual separation

A fixed-term employee or contractual employee is a type of employee whose employment is fixed for a certain period of period of time. When the contract expires and is not renewed by his or her employer, the employment of the contractual employee is deemed to have automatically terminated.

It is of common knowledge that the termination of an employee involves the payment by the employer 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 grant of separation pay to an employee as an incidence of termination of his or her employment.

Considering that contractual employees are considered employees only for a fixed period of time, are they also entitled to payment of separation pay?

As a general rule, contractual employees not entitled to separation pay. The reason for this is simple. If they are terminated as a result of expiration of their contract, they are not entitled to termination pay or separation pay because there is no dismissal or termination to speak of. Separation pay is granted only to employees who are dismissed. With regard to contractual employees, when the contract with their employer ends, what actually takes place is an expiration of term and not a dismissal in legal contemplation. In the absence of an actual dismissal, there can be no claim for separation pay.

So when is an employee entitled to a separation pay? Learn more about it here.

The only exception to the above rule is where the contractual employee is dismissed prior to the end of his contract. If this happens, what takes place is an actual dismissal for which separation pay may be claimed by the contractual employee. In fact, a contractual employee is considered, for the duration 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, and cannot be removed by the employer without just cause and without following the procedure outlined under the Labor Code for the termination of a regular employee. Thus, if the contractual employee is removed without just cause and without following the procedure outlined under the law, the employer not only commits breach of contract but also illegal dismissal.

Related Post: Philippine Labor Law: Different Types of Employees

Thus, in cases of pre-termination of a contractual employee, it becomes the obligation of the employer 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, this should also hold true with regard to contractual employees.

However, there must be sufficient proof that the pre-mature termination of the contractual employee was actually due to serious business losses or financial reverses. If the employer is unable to adduce such proof, he is mandated by the Labor Code to pay the contractual employee separation pay.

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