Separation pay refers to the amount due to the employee who has been terminated from service for causes authorized by law (not due to employees fault or wrong-doing) such as installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking. An employee illegally terminated from service is entitled to separation pay in lieu of reinstatement.

Separation pay is intended to provide the employee with the wherewithal during the period he is looking for another employment. (See Gabuay v. Oversea Paper Supply, G.R. No. 148837, August 13, 2004.)

Caveat: Subsequent court and administrative rulings, or changes to, or repeal of, laws, rules and regulations may have rendered the whole or part of this article inaccurate or obsolete.