The Philippine Labor Code only recognizes two modes of involuntary separating an employee from employment, namely: through just causes and authorized causes. In each of these modes of dismissal, there are stringent requirements under the law, not only on the threshold to qualify as either a just or authorized cause for dismissal, but also in the procedural requirements in effecting these dismissals.
There is an unexplored mode by which employment can be terminated, not through the rigors of just or authorized cause dismissals, but by mutual consent of the parties. Termed as Mutual Separation Agreements (MSAs) in other jurisdictions, this mode termination is not expressly provided under the Philippine Labor Code.
Like any other contractual agreement, at the heart of every MSA are the fundamental principles of consensually and mutuality of contracts. As early as 1972, the Philippine Supreme Court in the case of Saura Import and Export Co., Inc., vs. Development Bank of the Philippines articulated the principle of mutuo desenso or otherwise known as mutual desistance as a valid mode of extinguishing contracts. In the words of the Honorable Justice Makalintal, as mutuo desenso is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. As such, an MSA for all intents and purposes is recognized as a valid approach in terminating employer-employee relations by mutuo desenso. When parties to a contract thereby agree to sever ties through a contractual agreement, rigors of substantive and procedural due process under the labor code may be effectively dispensed with.
Given that the MSA is a creation of contract, it must have the essential requisites for a valid and binding contract namely: (1) consent of the contracting parties; (2) object of the contract; and (3) cause of consideration for the parties, are indispensable for its validity. These notwithstanding, parties are free to stipulate on all matters deemed convenient, the only limitation being that it must not contravene laws, morals, good customs, public order or public policy.
Generally, since parties to the contract are free to stipulate on all its four corners, one can expect that the employee's bargaining field too, becomes wider. Ordinarily, to make the MSA more attractive, a stipulation to the effect of paying the employee amounts over and above those which he/she would be legally entitled to are incorporated into the agreement. In practice, this added amount usually coined as "Ex-gratia", not only serves as the consideration of the contract but also incentivizes the employee to enter into the agreement.
Another common misconception is that an MSA is tantamount to a "voluntary resignation". While these terms have been used interchangeably, some actualities make these concepts distinct. As stated earlier, the MSA is a contractual agreement consent by both employer and employee. On the other hand, an employee who voluntarily tenders his/her resignation must do so on his own accord without employer participation. As such, the employer is afforded a 30-day notice period in case of a voluntary resignation. Also, Philippine labor laws do not sanction the grant of separation pay to one who voluntarily resigns.
After the MSA has been signed by both parties and all clearance procedures preparatory to the employee's departure have been concluded, common practice would be to have the employee sign a Release, Waiver and Quitclaim agreement in favor of the employer. Ordinarily, this is done simultaneous with the release of final pay when the Company has determined that no outstanding payments are thus due from the employee. This document is also meant to signify that employee confirms payment and waives all future claims and liabilities he/she may have against the employee.
While the execution of the Mutual Separation Agreement and the Release, Waiver and Quitclaim do not guarantee that the employee will not challenge the validity of the separation, it gives the employer more protection from baseless illegal termination suits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.