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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

Article 302 of the Labor Code of the Philippines, as amended, provides that any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.

Retirement Benefits

Moreover, the Labor Code provides under Article 302 that 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 herein.

From the foregoing, it is clear that the law itself recognizes the right and freedom of employers to establish their own retirement plan.

Exempt from Coverage

However, Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are exempted from the coverage of this provision. (Article 302, Labor Code, as amended)

Violations

Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 302 of the Labor Code, as amended.

Nothing in this Article shall deprive any employee of benefits to which he may be entitled under Section 12-B of Republic Act No. 1161, as amended, otherwise known as the Social Security Act of 1997 and other existing laws or company policies or practices.

But what if there is no retirement plan established by the employer for his employees?

Compulsory Retirement Age

Also provided under Article 302 of the Labor Code, as amended, that 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 (1) whole year.

Unless the parties provide for broader inclusions, the term ‘one-half (1/2) month salary’ shall mean 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.

Voluntary vs. Forced Retirement

Can an employee be forced to retire just because a Letter of Appointment mentions a retirement plan?

No. In Alfredo F. Laya, Jr., vs. Court of Appeals, National Labor Relations Commission, Philippine Veterans Bank and Ricardo A. Balbido, Jr., G.R. 205813, January 10, 2018, the Supreme Court ruled that the mere mention of the retirement plan in the Letter of Appointment did not sufficiently inform the employee of the contents or details of the retirement program.

To construe from the employee’s acceptance of his appointment that he had acquiesced to be retired earlier than the compulsory age of 65 years is not warranted. This is because retirement should be the result of the bilateral act of both the employer and the employee based on their voluntary agreement that the employee agrees to sever his employment upon reaching a certain age.

Furthermore, in this case, the employee’s membership in the retirement plan could not be justifiably attributed to his signing of the appointment that only listed the minimum benefits provided to the employees. Acceptance by the employees of an early retirement age option must be explicit, voluntary, free, and uncompelled.

To emphasize, retirement plans must not only comply with the standards set by the prevailing labor laws but must also be accepted by the employees as commensurate with their faithful services to the employer within the requisite period. Although the employer could be free to impose a retirement age lower than 65 years for as long as its employees consented, the retirement of the employee whose intent to retire was not clearly established, or whose retirement was involuntary is to be treated as discharge. In this case, the forced retirement of the employee was held to be invalid. As a consequence, the employer was held liable for illegal dismissal.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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