RETIREMENT PLAN THAT PROVIDES FOR OPTIONAL RETIREMENT SHOULD COMPLY WITH THE COMPUTATION UNDER ARTICLE 302 OF THE LABOR CODE

Retirement benefits under Article 287 (Art. 302) of the Labor Code, therefore, should be applied in the computation of employee’s retirement pay and not the lower computation provided in the company’s retirement plan. It is more advantageous to her and it is what the law commands.

Thus, the SC held as follows:

Santo vs. University of Cebu
G.R. No. 232522, August 28, 2019

Retirement; Retirement benefit is a reward for services rendered since it enables an employee reap the fruits of her labor – particularly retirement benefits, whether lump-sum or otherwise, at an earlier age, when said employee, in presumably better physical and mental condition, can enjoy them better and longer; Optional Retirement; Doubts arising from the interpretation of agreements and writing; Doubts should be resolved in favor of labor; Retirement plans; Retirement plans are not beyond the ambit of judicial review; A retirement plan, as a labor contract, is not merely contractual in nature but impressed with public interest; If the retirement provisions of the company run contrary to law, public morals, or public policy, such provisions may be reviewed and even voided

Facts:

In May 1997, respondent University of Cebu (UC) hired petitioner Carissa E. Santo (Santo) as a full-time instructor. During her employment, as such, she studied law and pass the 2009 Bar Examinations. She continued working for UC until she got qualified for optional retirement under UC’s Faculty Manual.

UC’s Faculty Manual provides for Optional Retirement. It states that a permanent employee may, upon reaching his fifty-fifth (55^th) birthday or after having completed at least fifteen (15) years of service, opt for an early retirement (which is resignation with separation pay) considering that separation before reaching 15 years of full-time service does not entitle an employee to any separation pay, except that which is contributed by the University to PAG-IBIG), and shall be entitled to the retirement pay equivalent to a total of fifteen (15) days for every year of service based on the average monthly salary to the employee computed for the past three years.

In April 2013, Santo applied for optional retirement. She was only 42 years old but had already completed 16 years of service with UC. The latter approved her application and computed her optional retirement pay at 15 days for every year of service per provisions of the Faculty Manual.

However, Santo asserted that her retirement pay should be equivalent to 22.5 days per year of service in accordance with Article 287 of the Labor Code. UC refused to accept her computation.

Thus, Santo initiated the complaint for payment of retirement benefits under Article 287 of the Labor Code, damages and attorney’s fees against UC. For its part, UC argued that Santo was not covered by the Retirement Pay Law being less than 60 years old at the time of her retirement.

LA Ruling:

The Labor Arbiter (LA) ruled in favor of Santo ordering UC to pay retirement benefits and attorney’s fees.

UC appealed.

NLRC Ruling:

The NLRC reversed the LA.

The NLRC ruled that Article 287 was not intended to benefit Santo who voluntarily resigned not to rest in the twilight years of her life but to actively engage in the practice of the legal profession.

Thus, Santo was bound to accept whatever optional retirement benefits were provided under UC’s Faculty Manual.

Aggrieved, Santo went to the Court of Appeals via Rule 65 of the Rules of Court. (Note: it is not stated in the SC Decision if Santo filed a Motion for Reconsideration after receiving an adverse Decision from the NLRC and prior to the filing of the Petition for Certiorari before the CA)

CA Ruling:

The CA affirmed the Decision of the NLRC.

The CA found that UC’s Faculty Manual referred to the optional retirement benefit as “resignation with separation pay.” It was a form of gratuity which UC granted to its employees who wished to voluntarily terminate their services upon reaching the age of 55 or after rendering at least 15 years of service.

As such, the CA ruled that it was different from the retirement benefits granted under Article 287 of the Labor Code which were intended to help the employee to enjoy the remaining years of his or her life after he or she had completely stopped working.

Santo moved for reconsideration but the CA denied the same. Thus, Santo went to the SC via a Petition for Review.

Issue/s:

Whether or not an employer’s retirement provision termed “optional retirement” which provides a lower retirement age and computation than what is provided in Art. 387 (now Art. 302) of the Labor Code is deficient

Whether or not when there is ambiguity between the retirement provision of the company and that of the Labor Code it shall be construed in favor of labor

Whether or not the employer should pay for the deficiency between its retirement benefit that provides a lower computation than that provided under Art. 287 of the Labor Code

Whether or not a retired employee who was not yet 60 years old at the time of retirement can still engage in livelihood after the grant of retirement application

SC Ruling:

The SC granted Santo’s petition.

The SC held that retirement benefits are a form of reward for an employee’s loyalty and service to an employer and are earned under existing laws, Collective Bargaining Agreements (CBA), employment contracts and company policies. (Citing Abanto vs. Board of Directors of the Development Bank of the Philippines, G.R. Nos. 207281 & 210922, March 5, 2019).

It is the result of a bilateral act of the parties, a voluntary agreement between the employer and the employee whereby the latter, after reaching a certain age or length of service, agrees to sever his or her employment with the former. (Citing Banco de Oro Unibank, Inc. vs. Sagaysay, 769 Phil. 897, 906 [2015]). The SC hled that the optional retirement benefits granted under UC’s Faculty Manual squarely fits the definition.

According to the SC, the Faculty Manual intends to grant retirement benefits to qualified employees. It entitles an employee to retire after 15 years of service or upon reaching the age of 55 and accordingly collect retirement benefits. It even mandates compliance with RA 7641 such that when the computation of its retirement plan is found to be lower than what the law requires, respondent is bound to pay the deficiency.

UC’s claim that its optional retirement benefits is actually a form of separation pay to qualified employees who wish to resign is belied by its own company policy. This benefit clearly falls within the category of “Retirement Pay”, specifically under “Optional Retirement.” UC is precluded from claiming otherwise.

The SC added that in controversies between a laborer and his master, doubts reasonably arising from the interpretation of agreements and writing should be resolved in the former’s favor. The State policy is to extend the doctrine to a greater number of employees who can avail of the benefits under the law to give maximum aid and protection to labor.

The optional retirement under UC’s Faculty Manual, therefore, should not be taken as anything else but a retirement benefit within the ambit of Article 287 of the Labor Code.

UC’s Faculty Manual provides for two types of retirements: 1) Optional Retirement; and 2) Compulsory Retirement. To be entitled to optional retirement benefits, an employee must have rendered service for at least 15 years or must have reached 55 years of age. To be entitled to compulsory retirement benefits, an employee must have rendered at least 20 years of service or must have reached 60 years of age, whichever comes first. The Faculty Manual further provides that the compulsory retirement benefit shall be in an amount equal to that which is required by law or that granted by the PAG-IBIG and the PERAA Retirement Plan, whichever is higher. For optional retirement benefit however, it shall be equivalent to 15 days per year of service.

Comparing the optional retirement benefits under the two retirement schemes, it is apparent that 15 days’ worth of salary for every year of service provided under UC’s Faculty Manual is much less than 22.5 days’ worth of salary for every year of service provided under Article 287 of the Labor Code. Obviously, it is more beneficial for Santo if Article 287’s retirement plan will be applied in the computation of her retirement benefits.

Citing Beltran vs. AMA Computer College-Biñan (G.R. No. 223795, April 3, 2019), the SC held that while the employer is free to grant retirement benefits and impose different age or service requirements, the benefits should not be lesser than those provided in Article 287 of the Labor Code.

Further citing Elegir vs. Philippine Airlines, Inc. (691 Phil. 58, 73 [2012]), the SC held that the determining factor in choosing which retirement scheme to apply is superiority in terms of benefits provided. Thus, even if the employer has an existing retirement scheme but the same does not provide for retirement benefits equal or superior to that which is provided under Art. 287 of the Labor Code, the latter will apply. In this manner, the employee can be assured of a reasonable amount of retirement pay for his or her sustenance.

The retirement benefits under Article 287 of the Labor Code, therefore, should be applied in the computation of Santo’s retirement pay. It is more advantageous to her and it is what the law commands.

Retirement benefits are intended to help the employee enjoy the remaining years of his or her life, releasing the retiree from the burden of worrying for his or her financial support. Santo’s situation, however, is not unusual.

The SC held that the Court has long recognized retirement plans which set the minimum retirement age of employees below sixty (60). In one case, the Court even upheld the compulsory retirement of two employees at the ages of 45 and 38 for being consistent with Article 287 of the Labor Code.

Santo’s age at 42 years coupled with her admission that she intends to practice law after retiring as a college instructor, do not affect, nay, diminish her entitlement to retirement benefits under the law. Sixteen years is more than an ideal length of service an employee can render to his or her employer.

A retirement plan entitling an employee to retire after 15 years of service and accordingly collect retirement benefits is “reward for services rendered since it enables an employee reap the fruits of her labor – particularly retirement benefits, whether lump-sum or otherwise, at an earlier age, when said employee, in presumably better physical and mental condition, can enjoy them better and longer.”

All told, the New Retirement Pay Law intends to give the minimum retirement benefits to employees not otherwise entitled thereto under the collective bargaining and other agreements. Its coverage also applies to establishments with existing collective bargaining or other agreements or voluntary retirement plans whose benefits are less than those prescribed by law, as in this case.

Thus, retirement plans under any employment contract or agreement are not absolutely beyond the ambit of judicial review. A retirement plan, as a labor contract, is not merely contractual in nature but impressed with public interest. If the retirement provisions of the company run contrary to law, public morals, or public policy, such provisions may be reviewed and even voided. Neither will the Court sustain a retirement clause that entitles the retiring employee to benefits less than what is guaranteed under the law.