The relationship between an employer and employee is formed out of a mutual need—labour in exchange for wages. Typically, the employer initiates this relationship by engaging the employee through a contract of employment. According to Section 2 of the Employment Act, a contract of employment is defined as “an agreement, whether oral or in writing, expressed or implied, whereby one person agrees for a wage or other benefit or both to let his labour to and to perform it under the orders of another person who agrees to hire it.”
This definition highlights that a contract of employment can be either oral or written, but both forms serve the same purpose: to outline the terms and conditions of employment. While the contract covers key details, it often does not delve into specific processes or procedures, which are instead addressed in company policies. For instance, a contract may state that an employee is entitled to severance pay but might not provide detailed guidance on how to claim it.
This article focuses on severance pay, particularly the employee’s role in initiating its payment. Did you know it is the employee’s responsibility to start the process? Read on to learn more!
Understanding the law
The legal framework governing severance pay is found in Section 27 of the Employment Act. Section 27(1) specifies that “without prejudice to section 30, on the termination of a contract of employment, whether by reason of the death or retirement of the employee or for any other reason, the employer shall pay to an employee who has been in continuous employment with him for 60 months or more, a severance benefit at the rate prescribed.”
However, there is an important caveat outlined in Section 27(1)(ii): “where, upon the date of payment of any severance benefit, the employee, or his dependant or beneficiary, is at that date or some future date entitled to the payment of a gratuity or pension or both a gratuity and pension in respect of the period of employment under the contract, no severance benefit which would otherwise be payable in terms of this section to the employee or his dependant or his beneficiary shall be payable.”
The Act also imposes penalties on employers who fail to comply with these provisions. Section 27(6) warns that “any employer who fails to comply with this section shall be guilty of an offence and liable to the penalties prescribed by section 151(c).” Section 151(c) outlines penalties, including a fine not exceeding P1,500, imprisonment for up to 12 months, or both. Essentially, the Employment Act not only affirms an employee’s entitlement to severance but also establishes legal consequences for non-compliance.
The employee’s right to initiate
One of the most crucial aspects of severance pay is the employee’s right to initiate the process. Section 27(1)(i) of the Employment Act states: “Severance benefit shall be payable at the conclusion of each period of 60 months continuous service by the employee, or at the termination of his employment, at the option of the employee.”
The phrase “at the option of the employee” underscores the employee’s pivotal role in the initiation process. This means the employee has the authority to decide when the severance benefit should be paid, whether immediately upon eligibility or at a later date. The employee, therefore, holds the key to activating the severance pay process, making them the primary decision-maker in this regard.
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