Illegal Dismissal and Retirement Pay: Ondevilla v. Colegio de San Juan de Letran

When does an employee's contract end, and when is it actually an illegal dismissal? In Ondevilla v. Colegio de San Juan de Letran (Laguna), G.R. No. 278615 (June 29, 2026), the Supreme Court resolved a long-running labor dispute that touched on regular employment, collective bargaining agreement benefits, tax withholding, and the right to choose when to retire. The ruling matters to employers and employees alike because it clarifies that a fixed-term contract cannot be used to circumvent an employee's security of tenure, and that retirement must be a voluntary, bilateral act.

What Happened in the Case

Rodolfo Ondevilla worked for Colegio de San Juan de Letran (CSJL) starting June 16, 2004, first as Comptroller and later as Assistant Vice President for Finance and Controller. His appointments were renewed repeatedly over 14 years. In 2018, a new management took over and appointed him as Controller from July 1, 2018 to August 29, 2019. Ondevilla objected, saying the new post was a demotion that cut his salary and benefits.

CSJL argued that Ondevilla was an independent contractor, not a regular employee. It pointed out that he did not log in and out, reported only a few times a week, and earned more than regular staff.

The Rulings Below

The Labor Arbiter found Ondevilla a regular employee and declared him illegally dismissed. The National Labor Relations Commission (NLRC) affirmed the illegal dismissal but modified the awards. It later ruled that Ondevilla had retired on August 29, 2019 when his contract as Controller ended, and ordered separation pay and retirement pay instead of reinstatement.

The Court of Appeals partly reversed. It held that the demotion in 2018 was not constructive dismissal because Ondevilla kept the same pay and benefits. However, it found him illegally dismissed on August 29, 2019, and said he had optionally retired on July 31, 2020 based on a letter he sent.

The Supreme Court's Ruling

The Supreme Court partly granted Ondevilla's petition.

No CBA benefits for managerial employees. Ondevilla was a managerial employee. Under Article 255 of the Labor Code, managerial employees cannot join the bargaining unit of rank-and-file employees, and they cannot share in the concessions won by the union. An exception exists if the employer has a consistent, deliberate company practice of extending CBA benefits to managers. Ondevilla failed to prove such a practice, and the CBA itself was not even in the records. His Employee Status and Compensation Profiles were not enough.

Tax issues belong to the tax authorities, not labor tribunals. Ondevilla claimed CSJL misapplied the TRAIN Law and withheld too much tax. The Court held that disputes over the propriety of tax withholding fall under the jurisdiction of the Commissioner of Internal Revenue, not the Labor Arbiter or the NLRC. Citing Victoria Manufacturing Corporation Employees Union v. Victoria Manufacturing Corporation and Honda Cars Philippines, Inc. v. Honda Cars Technical Specialist and Supervisors Union, the Court stressed that labor tribunals only have jurisdiction over labor disputes.

No valid optional retirement. The Court rejected the finding that Ondevilla retired on July 31, 2020. His letter of October 29, 2019 was merely a response to CSJL's demand for payment of a cash advance, not an express notice of retirement. Under Article 302 of the Labor Code, as amended by Republic Act No. 7641, an employee may optionally retire at 60 but cannot be compelled to retire before 65. Retirement requires the employee's explicit, voluntary, free, and uncompelled consent. Ondevilla's objections and his illegal dismissal complaint showed he never agreed to retire early. His dismissal was therefore illegal.

Backwages, separation pay, and retirement pay. The Court awarded full backwages from August 29, 2019 until Ondevilla reached the compulsory retirement age of 65 on August 29, 2024. Since reinstatement was no longer feasible, it awarded separation pay equivalent to one month pay for every year of service, plus retirement pay under Article 302. It also affirmed attorney's fees equivalent to 10% of the total monetary award, and imposed legal interest of 6% per annum from August 29, 2019 until full satisfaction.

Practical Takeaways

• Fixed-term contracts do not automatically prevent regular employment. Repeated renewals over many years, and functions necessary to the employer's business, can show that an employee is regular and entitled to security of tenure.
• Managerial employees are generally not entitled to CBA benefits. The exception requires proof of a long-standing, consistent, and deliberate company practice — not just a clause in an appointment paper.
• Tax withholding disputes go to the Bureau of Internal Revenue, not the NLRC. Labor tribunals cannot rule on the correct application of tax laws like the TRAIN Law.
• Retirement before 65 must be voluntary. An employee cannot be deemed retired based on an implied or inferred intent; consent must be explicit and free.
• Illegal dismissal entitles the employee to backwages and, if reinstatement is no longer possible, separation pay in addition to retirement benefits.

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