Why Some Owners Avoid Firing Underperforming Staff for Too Long

The Philippine Constitution enshrines security of tenure for workers — a protection that means employees can’t be let go without a legally recognized cause and proper procedure. For business owners dealing with chronic underperformance, this constitutional safeguard creates a real tension. The legal process for dismissal is demanding, the burden of proof rests entirely on the employer, and the penalties for mistakes are steep. The result is a pattern familiar to many Filipino business owners: holding onto underperforming staff far longer than they should, hoping the problem resolves itself.

The hesitation isn’t about softness or a lack of management will. It’s rooted in three structural realities that make termination for poor performance genuinely difficult under Philippine labor law. Understanding these forces is the first step toward making a clear-eyed decision — one that doesn’t leave you exposed or stuck with a situation that isn’t improving.

How the Stakes Change Depending on the Employee

Not every underperformance case carries the same risk. The employee’s length of service, employment status, and personal circumstances all shift the legal calculus in ways that owners often underestimate.

Long-tenured employees receive notably more leniency from Philippine courts. Supreme Court decisions have repeatedly held that years of service merit progressive discipline — meaning employers must exhaust coaching, suspension, and demotion before considering termination. Dismissing a 15-year employee for the same performance issue that would justify letting go of a new hire is far harder to defend. Courts scrutinize these cases closely for potential discrimination or retaliation, especially when the alleged underperformance emerged only after a long record of satisfactory ratings.

Unionized employees add another layer. Collective Bargaining Agreements typically contain their own disciplinary procedures, and failing to follow them can create a separate labor grievance even if the legal dismissal requirements are met. Employers must check both the Labor Code and the CBA before proceeding.

Workers nearing retirement age — 60 for optional retirement, 65 for compulsory under Republic Act No. 7641 — receive extra judicial scrutiny. The Supreme Court has flagged dismissals that appear timed to avoid retirement benefits, and the burden falls heavily on the employer to prove the termination was unrelated to the employee’s approaching retirement.

Health-related performance decline also complicates things. The Magna Carta for Disabled Persons and the Senior Citizens Act may apply, and the Mental Health Act (R.A. 11036) suggests employers should offer counseling before initiating a PIP. A performance issue rooted in an untreated medical condition or age-related decline may not qualify as “gross and habitual neglect” at all.

What Catches Owners Off Guard

Even employers who understand the basic legal framework often stumble on the details. These are the specific traps that turn a defensible termination into a costly lesson.

Procedural lapses void the process. The twin-notice rule isn’t a suggestion. Skipping the hearing, issuing same-day notices, or using vague language like “failure to meet expectations” without citing specific metrics can all trigger procedural infirmity. The Supreme Court in Amor v. Constant Packaging Corporation (G.R. No. 259988, May 19, 2025) held that dismissal without following due process constitutes illegal dismissal, even with a valid cause. The remedy? Nominal damages of ₱30,000–₱50,000, but the broader consequence is that the dismissal itself is overturned.

Moving performance targets mid-cycle. In Fuji Television v. Espiritu (G.R. No. 204944, 2021), the Supreme Court ruled that standards must be known before the appraisal period begins. Changing expectations after the fact — or applying metrics the employee was never informed about — invalidates the entire performance evaluation. Any performance standard used in a termination case must have been communicated in writing at the start of the review period, ideally in the job offer, employee handbook, or annual KPI document.

Failing to offer a genuine improvement opportunity. Courts consistently ask whether the employer gave the employee a fair chance to fix the problem. This means a structured PIP with measurable milestones, regular coaching, and documented feedback. In Aero Equipment v. Court of Appeals (G.R. No. 233104, 2022), the dismissal was voided because the PIP was not followed in practice. A PIP that exists only on paper is worse than no PIP at all — it shows the employer went through the motions without genuine intent to rehabilitate.

Underestimating the documentation burden. The employer bears the burden of proof, and the standard is substantial evidence — not mere preponderance. This means contemporaneous records: signed performance appraisals, KPI dashboards, error logs, customer complaints, PIP documents with the employee’s signature, coaching logs, and meeting minutes. Missing or after-the-fact documentation is a red flag for labor arbiters. Employers should maintain annual appraisals, records of coaching and improvement plans, witness statements, and data metrics.

What Owners Should Actually Do

Delaying action on an underperforming employee rarely makes the problem go away — it usually worsens team morale, productivity, and the employer’s legal position if the situation eventually escalates. The alternative isn’t risky termination; it’s disciplined performance management that builds the case step by step.

Build clear standards from day one. Embed measurable KPIs in job offers, orientation materials, and employee handbooks. Every employee should know what “good performance” looks like in concrete terms — closing ratios, error rates, sales targets, response times — and have signed documentation acknowledging those standards. Courts look for this written record as the starting point of any valid performance-based dismissal.

Document in real time, not in retrospect. Quarterly or monthly appraisal cycles are far more defensible than annual reviews. Each cycle should include a written evaluation, the employee’s acknowledgment, and a clear statement of any deficiencies. When performance slips, the documentation should note the specific standard, the gap, and any coaching or support provided. Use email, forms, and e-signatures to create an audit trail.

Use structured PIPs consistently. A Performance Improvement Plan should span 30 to 90 days, include specific milestones, regular check-ins, and clear consequences for failing to meet targets. The employee should sign the PIP, and the employer should document each coaching session. If the employee improves, the PIP closes. If not, the PIP becomes the core evidence in the termination process.

Follow the twin-notice rule to the letter. The first notice must detail the specific acts or omissions, the standards violated, and the evidence — and give the employee at least five calendar days to submit a written explanation. The hearing must be a genuine opportunity to be heard, with the employee allowed to present evidence and question witnesses. The second notice must state the decision, summarize the evidence and the employee’s response, and specify the effective date. Both notices should be served personally or by registered mail, and minutes of the hearing should be kept.

Consult a labor lawyer before issuing any termination notice. The cost of legal review is a fraction of the cost of an illegal dismissal case. A lawyer can review the evidence, assess whether the standard of “gross and habitual neglect” is met, and ensure the notices and hearing comply with D.O. 147-15. This is especially important for long-tenured employees, unionized workers, and cases involving health or retirement-age considerations.

Frequently Asked Questions

Terminating an underperforming employee in the Philippines is legally possible, but it requires a level of process discipline that many business owners don’t anticipate. The path forward isn’t to avoid the decision — it’s to build the systems that make the decision defensible. Clear standards, consistent documentation, genuine improvement opportunities, and strict adherence to the twin-notice rule are the four pillars that protect both the employer’s position and the employee’s rights. The cost of getting it wrong is high, but so is the cost of doing nothing while team performance and morale suffer.

If this was useful, you might also want to read how regulatory changes are keeping Filipino businesses on their toes.

Sources

Red tape and its impact on Filipino companies — A closer look at how bureaucratic processes add cost and delay for businesses operating in the Philippines.

Wage law challenges for Filipino businesses — Understanding the compliance burden that labor regulations place on employers across industries.

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Terminating employees for poor performance in the Philippines. Respicio.ph, 2025.

Termination for poor performance under Philippine law. Lawyer-Philippines.com, 2025.

Lawful employee termination and due process in the Philippines. Tamayo Law Office, 2025.