When Resigning Employees Can Claim Separation Pay: Understanding Established Company Practice

HINATUAN MINING CORPORATION AND/OR THE MANAGER, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION AND MARGOT BATISTER RESPONDENTS. G.R. No. 117394, February 21, 1997

Imagine dedicating years of service to a company, only to resign voluntarily and receive nothing in return. While the general rule is that resigning employees aren’t entitled to separation pay, exceptions exist. This case explores one such exception: when a company has an established practice of granting separation pay even to those who voluntarily leave.

In Hinatuan Mining Corporation vs. NLRC and Margot Batister, the Supreme Court tackled the issue of whether an employee who voluntarily resigned was entitled to separation pay based on the company’s past practices. The employee, Margot Batister, argued that because other resigning employees had received separation pay, she was also entitled to it. This case highlights the importance of consistent company practices in determining employee rights, even in voluntary resignations.

The Legal Framework: Separation Pay and Resignation

The Labor Code of the Philippines outlines the conditions under which separation pay is typically granted. These include situations like redundancy, retrenchment, or the closure of a business. Article 283 of the Labor Code, for example, addresses termination due to the installation of labor-saving devices or redundancy, stating that the employee is entitled to separation pay equivalent to at least one month’s pay for every year of service.

However, the Labor Code is silent on separation pay for voluntary resignations. Generally, an employee who voluntarily resigns is not legally entitled to separation pay. The exception arises when it is stipulated in the employment contract, collective bargaining agreement (CBA), or when there’s an established company practice or policy of granting such pay.

To illustrate, consider a hypothetical scenario: A company handbook explicitly states that all employees, regardless of the reason for separation, will receive separation pay equivalent to one-half month’s salary for every year of service. In this case, even if an employee voluntarily resigns, they would be entitled to separation pay because it’s part of the company’s official policy. However, if the handbook makes no mention of separation pay, a voluntarily resigning employee has no legal claim to it, unless they can prove an established company practice.

Case Details: Hinatuan Mining and Margot Batister

Margot Batister worked for Hinatuan Mining Corporation for over a decade, eventually becoming the chief chemist. After receiving training in Japan funded by the company, she resigned, citing family reasons. The company reminded her of an expectation to stay for three more years to offset the training expenses. When she requested separation pay, it was denied, though the company offered financial assistance.

Batister filed a complaint, arguing that the company’s CBA allowed for optional retirement, and she cited instances where voluntarily resigning employees received separation pay. The company countered that the CBA didn’t apply to managerial officers like Batister, and that she hadn’t complied with the 30-day notice period. The Labor Arbiter initially dismissed her claim, but Batister appealed to the National Labor Relations Commission (NLRC), referencing a previous case, Rizalino Alcantara v. Hinatuan Mining Corporation, where a resigning managerial employee was awarded separation pay due to company practice.

Here’s a breakdown of the case’s journey:

• Initial Resignation: Margot Batister voluntarily resigned from Hinatuan Mining.
• Labor Arbiter: The Labor Arbiter dismissed Batister’s claim for separation pay.
• NLRC Appeal: Batister appealed to the NLRC, citing a prior case with similar circumstances.
• NLRC Decision: The NLRC reversed the Labor Arbiter’s decision, awarding Batister separation pay, attorney’s fees, and damages.
• Supreme Court: Hinatuan Mining appealed to the Supreme Court.

The NLRC, in reversing the Labor Arbiter, stated:

“[T]o hold that private respondent is not entitled to separation pay would unduly discriminate against her.”

The Supreme Court ultimately affirmed the NLRC’s decision with a modification on the computation of separation pay. The Court emphasized the established company practice of granting separation pay to resigning employees in similar positions, even though there was no explicit contractual obligation to do so.

Practical Implications: What This Means for Employers and Employees

This case underscores the importance of consistency in implementing company policies and practices. If a company has a history of granting benefits, like separation pay, to certain employees under specific circumstances, it may be obligated to provide the same benefits to other employees in similar situations. Employers should carefully document their policies and practices to avoid creating unintended obligations.

For employees, this case highlights the importance of knowing their rights and understanding company practices. If you believe you are entitled to certain benefits based on past precedents within the company, it’s crucial to gather evidence to support your claim. This evidence can include testimonies from former employees, company memos, or records of past payouts.

Key Lessons:

• Consistency is Key: Employers must be consistent in applying their policies and practices.
• Document Everything: Maintain clear records of company policies and past practices.
• Know Your Rights: Employees should understand their rights and gather evidence to support their claims.

For example, imagine a company that has consistently provided a Christmas bonus to all employees for the past 10 years, even though it’s not written in any contract. Based on the Hinatuan Mining ruling, employees could argue that this bonus has become an established company practice, and the company cannot unilaterally discontinue it without valid justification.

Frequently Asked Questions

Q: Is separation pay mandatory for all resigning employees?

A: No, separation pay is generally not mandatory for voluntarily resigning employees unless it’s stipulated in the employment contract, CBA, or established company practice.

Q: What constitutes an ‘established company practice’?

A: An established company practice is a consistent and repeated pattern of granting certain benefits or privileges to employees over a considerable period.

Q: What evidence can I use to prove an established company practice?

A: Evidence can include testimonies from current and former employees, company memos, records of past payouts, and any other documentation that demonstrates a consistent pattern.

Q: Can a company change its policy on separation pay?

A: Yes, a company can change its policy, but it should provide reasonable notice to employees, especially if the change affects established practices. Unilateral changes that negatively impact employees may be challenged.

Q: What should I do if my employer refuses to grant me separation pay despite an established company practice?

A: Consult with a labor lawyer to assess your options. You may need to file a complaint with the National Labor Relations Commission (NLRC) to assert your rights.

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.