The Supreme Court ruled that the retirement benefits stipulated in the Labor Code must prevail over less favorable retirement plans offered by companies. This decision ensures that employees receive at least the minimum retirement benefits mandated by law, safeguarding their financial security during retirement. The ruling emphasizes the state’s commitment to protecting labor rights and ensuring fair treatment for retiring employees.

Optional vs. Compulsory: Deciphering Retirement Rights at the University of Cebu

Carissa E. Santo, a full-time instructor at the University of Cebu, applied for optional retirement after sixteen years of service. Though only forty-two years old, she met the service requirement stipulated in the university’s Faculty Manual. However, a dispute arose regarding the computation of her retirement pay. The Faculty Manual provided for fifteen days’ pay for every year of service, while Santo argued she was entitled to 22.5 days under Article 287 of the Labor Code. The university denied her claim, asserting that the Faculty Manual’s optional retirement benefit was a form of resignation with separation pay, not subject to the Labor Code’s provisions. The central legal question was whether the university’s retirement scheme could offer benefits inferior to those mandated by law.

The Labor Arbiter initially sided with Santo, finding the university’s retirement package deficient compared to Article 287, now Article 302, of the Labor Code. The National Labor Relations Commission (NLRC), however, reversed this decision. The NLRC reasoned that Article 287 was not intended for individuals like Santo, who were voluntarily retiring to pursue other professional endeavors, specifically the practice of law. The Court of Appeals affirmed the NLRC’s ruling, characterizing the Faculty Manual’s optional retirement benefit as a form of gratuity, distinct from the retirement benefits envisioned by the Labor Code. Undeterred, Santo elevated the case to the Supreme Court, arguing that Article 287 should apply because it offered more favorable terms than the university’s Faculty Manual.

At the heart of the Supreme Court’s analysis was the interpretation of retirement benefits and the interplay between company policies and the Labor Code. The Court emphasized that retirement benefits are a reward for an employee’s long service and loyalty. These benefits are typically earned under existing laws, collective bargaining agreements, employment contracts, or company policies. The university’s Faculty Manual clearly provided for retirement benefits, outlining both compulsory and optional retirement options. The optional retirement plan allowed employees with at least fifteen years of service or those aged fifty-five to retire early and receive retirement pay.

The university argued that its optional retirement benefit was merely a form of separation pay for employees who wished to resign. However, the Court rejected this argument, pointing out that the Faculty Manual explicitly categorized this benefit as “Retirement Pay” under the section on “Optional Retirement.” The Court invoked the principle that ambiguities in a contract should be interpreted against the party that caused the ambiguity, in this case, the University of Cebu. Furthermore, the Court reiterated the policy of resolving doubts in labor agreements in favor of the employee to provide maximum aid and protection to labor.

The Supreme Court then turned to the critical question of which retirement scheme should apply: the university’s Faculty Manual or Article 287 of the Labor Code. Article 287, as amended by Republic Act No. 7641, provides for two types of retirement: optional retirement at age sixty and compulsory retirement at age sixty-five. In both cases, the retirement benefit is equivalent to one-half month’s salary for every year of service, calculated at 22.5 days, provided the employee has served for at least five years.

Art. 302 [287]. Retirement. – Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.

In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided therein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

Comparing the optional retirement benefits under the Faculty Manual (15 days per year of service) and Article 287 (22.5 days per year of service), it was evident that Article 287 offered a more favorable package. The Supreme Court cited its previous rulings in Beltran v. AMA Computer College-Biñan and Elegir v. Philippine Airlines, Inc., emphasizing that while employers can grant retirement benefits and impose different requirements, these benefits must not be less than those provided in Article 287. The determining factor is the superiority of benefits, ensuring employees receive a reasonable amount of retirement pay for their sustenance.

The Court also addressed the NLRC and Court of Appeals’ argument that Article 287 was not intended for employees like Santo, who were retiring to pursue other professions. The Supreme Court disagreed, noting that retirement plans often set minimum retirement ages below sixty. The Court acknowledged that retirement benefits aim to help employees enjoy their remaining years. However, this does not preclude retirees from pursuing other opportunities. Santo’s sixteen years of service were considered more than sufficient to qualify for retirement benefits, allowing her to reap the fruits of her labor at an earlier age and in better condition to enjoy them.

Ultimately, the Supreme Court held that the New Retirement Pay Law intends to provide minimum retirement benefits to employees not otherwise entitled to them under collective bargaining agreements or other agreements. Even establishments with existing retirement plans must ensure their benefits are at least equal to those prescribed by law. Retirement plans, as labor contracts, are impressed with public interest and are subject to judicial review to ensure they comply with the law and public policy. The Court will not uphold retirement clauses that offer retiring employees less than what is guaranteed under the law.

FAQs

What was the key issue in this case?	The central issue was whether the retirement benefits under the University of Cebu’s Faculty Manual, which were less favorable, should prevail over the retirement benefits mandated by Article 287 (now Article 302) of the Labor Code.
What did the Supreme Court decide?	The Supreme Court ruled that the retirement benefits under Article 287 of the Labor Code should apply because they were more advantageous to the employee, Carissa Santo, than the benefits provided by the university’s Faculty Manual.
What is the significance of Article 287 of the Labor Code in this case?	Article 287, as amended by RA 7641, sets the minimum retirement benefits that employees are entitled to, ensuring that company retirement plans do not fall below these standards. It provides a safety net for employees, guaranteeing a certain level of financial security upon retirement.
Why did the NLRC and Court of Appeals initially rule against the employee?	They argued that Article 287 was not intended for individuals retiring to pursue other professions and that the university’s optional retirement benefit was a form of separation pay, not subject to the Labor Code’s provisions. However, the Supreme Court rejected this interpretation.
Can an employee retire before the age of 60 and still receive retirement benefits?	Yes, the Supreme Court acknowledged that retirement plans often set minimum retirement ages below 60, and employees can still be entitled to retirement benefits even if they plan to pursue other opportunities after retiring.
What does “one-half (1/2) month salary” mean under Article 287?	Unless the parties provide for broader inclusions, the term “one-half (1/2) month salary” means fifteen (15) days plus one-twelfth (1/12) of the 13th-month pay and the cash equivalent of not more than five (5) days of service incentive leaves.
What is the impact of this ruling on other companies in the Philippines?	Companies must ensure that their retirement plans offer benefits equal to or greater than those provided under Article 287 of the Labor Code. If their plans offer less, they must comply with the Labor Code’s requirements.
What is the principle of construing ambiguities in favor of labor?	This principle means that in disputes between an employer and an employee, any doubts arising from the interpretation of agreements should be resolved in favor of the employee to provide maximum aid and protection to labor.

In conclusion, the Supreme Court’s decision in Santo v. University of Cebu reinforces the primacy of the Labor Code in safeguarding employees’ retirement rights. It clarifies that company retirement plans cannot offer benefits inferior to those mandated by law, ensuring that employees receive a fair and reasonable retirement package, regardless of their post-retirement plans.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Carissa E. Santo v. University of Cebu, G.R. No. 232522, August 28, 2019