Illegal Dismissal and Retirement Age: When Expiring Contracts Mask Unlawful Termination

The Supreme Court recently reminded employers that an employment contract's expiration date does not automatically permit termination, especially when the employee never agreed to retire. In Ondevilla v. Colegio de San Juan de Letran (Laguna), G.R. No. 278615 (June 29, 2026), the Court ruled that a school illegally dismissed its long-serving finance officer when it treated his contract's end date as a retirement date without his explicit consent. The case clarifies the boundaries between lawful contract expiration, constructive dismissal, and the protected right to security of tenure.

The Facts of the Case

Rodolfo Ondevilla worked for Colegio de San Juan de Letran in Calamba, Laguna for over 14 years, starting as Comptroller in 2004 and later serving as Assistant Vice President for Finance and Controller. His appointments were renewed every three years until his contract expired on June 30, 2018.

When new management took over in June 2018, Ondevilla was appointed as Controller for a fixed term ending August 29, 2019—his 60th birthday. He protested, claiming this was a demotion that reduced his rank, salary, and benefits. The school insisted he was merely a consultant, not a regular employee.

When the Controller appointment ended, the school considered Ondevilla retired. He filed an illegal dismissal complaint.

The Issue

The central question was whether Ondevilla was illegally dismissed when his fixed-term contract expired, or whether he validly retired upon reaching age 60. A related issue was whether the school could treat his October 2019 letter—responding to a demand for repayment of a cash advance—as an election to retire on July 31, 2020.

The Ruling

The Supreme Court held that Ondevilla was illegally dismissed on August 29, 2019. The Court emphasized that retirement is a bilateral act—a voluntary agreement between employer and employee. An employee who has not expressly agreed to early retirement cannot be retired before reaching age 65, the compulsory retirement age under Article 302 of the Labor Code.

The Court found that Ondevilla's letter was merely a response to the school's demand for payment, not an express election to retire. There was no retirement proposal from the school for him to accept or decline. His objections to being retired early and his filing of an illegal dismissal complaint negated any alleged intention to retire voluntarily.

The Court also ruled that Ondevilla was entitled to separation pay in lieu of reinstatement, since he had reached the compulsory retirement age of 65 during the pendency of the case. Citing Laya, Jr. v. Philippine Veterans Bank, an en banc case that prevails over the later divisional ruling in Sampana v. The Maritime Training Center of the Philippines, the Court held that separation pay must be awarded when reinstatement is no longer feasible.

Additionally, the Court clarified two other points:

• Managerial employees and CBA benefits: As a managerial employee, Ondevilla was barred from receiving Collective Bargaining Agreement benefits under Article 255 of the Labor Code, absent proof of an established company practice extending such benefits.
• Tax withholding disputes: Claims about incorrect tax withholding under the TRAIN Law fall under the jurisdiction of the Commissioner of Internal Revenue, not labor tribunals.

Practical Takeaways

• Contract expiration is not automatic termination. If an employee has regular status, a fixed-term contract's end date does not justify dismissal unless the termination is for a valid cause and with due process.
• Retirement requires explicit consent. An employee cannot be retired before age 65 unless they voluntarily, freely, and expressly agree to an early retirement option. Passive acceptance or ambiguous statements do not suffice.
• Document retirement agreements clearly. Employers should have written, signed retirement agreements that clearly show the employee's voluntary choice, especially for employees aged 60 to 65.
• Separation pay may still be due after illegal dismissal. Even if reinstatement becomes impossible because the employee reaches retirement age, separation pay in lieu of reinstatement may still be awarded.
• Know which forum handles which dispute. Labor tribunals handle labor disputes; tax refund and withholding issues belong before the Commissioner of Internal Revenue.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.