The Supreme Court has affirmed that an employee who voluntarily resigns is not entitled to separation pay unless it is stipulated in their employment contract, a Collective Bargaining Agreement (CBA), or sanctioned by an established employer practice or policy. This ruling clarifies that separation pay is not a standard entitlement for voluntary resignations but depends on specific agreements or consistent company practices.

Resigning with Expectations: When is Separation Pay a Right?

Jude Darry del Rio, formerly Assistant Country Manager at DPO Philippines, Inc., resigned and sought separation pay, which DPO denied. Del Rio argued that DPO had a practice of granting separation pay to resigned employees. The case reached the Supreme Court, which had to determine whether a voluntary resigning employee is entitled to separation pay based on company practice. The critical question was whether DPO’s actions constituted an established practice that would legally obligate them to provide separation pay to Del Rio upon his resignation.

The Court examined Del Rio’s claim that DPO had a company practice of providing separation pay to employees who resigned voluntarily. Del Rio presented the payslips of two former employees, Martinez and Legaspi, as evidence. The Court emphasized that to establish a company practice, benefits must be given consistently and deliberately over a long period. Isolated instances, such as the payments to Martinez and Legaspi, are insufficient to create a binding company practice.

The Supreme Court referred to its previous ruling in “J” Marketing Corp. v. Taran, where it reiterated the general rule regarding separation pay:

an employee who voluntarily resigns from employment is not entitled to separation pay, except when it is stipulated in the employment contract or the CBA, or it is sanctioned by established employer practice or policy.

Building on this principle, the Court clarified that the payments to Martinez and Legaspi were unique. These payments were made to facilitate their exit from the company, given concerns about their loyalty, rather than as a standard benefit for all resigning employees. The Court noted that DPO’s decision to offer Legaspi and Martinez a graceful exit was within its prerogative, and there was no legal obligation to extend the same benefit to Del Rio, who resigned without any such agreement.

The Court also considered whether the arguments raised by DPO were raised on time. Del Rio contended that DPO raised new arguments on appeal. However, the Court found that DPO had consistently argued that the separation pay given to Legaspi and Martinez was not a company practice but a unique arrangement. The CA was within its bounds to consider these arguments.

The Court contrasted the situation of Del Rio with those of Legaspi and Martinez. Unlike Del Rio, Legaspi and Martinez were given a promise of separation pay to encourage them to resign. The Court cited Alfaro v. Court of Appeals:

an employer who agrees to expend such benefit as an incident of the resignation should not be allowed to renege in the performance of such commitment.

The ruling underscores the importance of clearly defined employment contracts, CBAs, and consistently applied company policies in determining employee entitlements upon resignation. Employers must ensure that their practices are uniform and transparent to avoid potential disputes. Employees, on the other hand, should be aware of their rights and entitlements as stipulated in their employment agreements or established company policies. This case emphasizes that mere resignation does not automatically entitle an employee to separation pay; such entitlement must be grounded in specific agreements or consistently applied company practices.

FAQs

What was the main issue in this case?	The central issue was whether an employee who voluntarily resigns is entitled to separation pay based on an alleged company practice.
What did the Supreme Court decide?	The Supreme Court ruled that the employee was not entitled to separation pay because there was no established company practice or contractual agreement providing for it.
Under what conditions is an employee entitled to separation pay when they resign?	An employee is entitled to separation pay upon voluntary resignation only if it is stipulated in their employment contract, a Collective Bargaining Agreement (CBA), or sanctioned by an established employer practice or policy.
What constitutes a company practice?	A company practice requires consistent and deliberate granting of benefits over a long period, not isolated instances.
Why were the payments to Legaspi and Martinez not considered a company practice?	The payments to Legaspi and Martinez were not considered a company practice because they were isolated incidents made to facilitate their exit from the company, rather than a standard benefit.
Did the employer raise new arguments on appeal?	No, the employer consistently argued that the separation pay given to Legaspi and Martinez was not a company practice, making the CA decision valid.
What is the significance of having an employment contract or CBA in relation to separation pay?	An employment contract or CBA can stipulate the conditions under which an employee is entitled to separation pay, providing a clear legal basis for such entitlement.
What should employers do to avoid disputes over separation pay?	Employers should ensure that their practices are uniform and transparent, with clearly defined employment contracts, CBAs, and consistently applied company policies.

This case reinforces the principle that voluntary resignation does not automatically trigger entitlement to separation pay. It underscores the importance of clear contractual agreements and consistent company practices in determining employee benefits.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: JUDE DARRY A. DEL RIO vs. DPO PHILIPPINES, INC., G.R. No. 211525, December 10, 2018