Optional Retirement Rights and Labor Tribunals' Limits in Illegal Dismissal Cases

The Supreme Court recently clarified two important principles in labor law: an employee cannot be forced into early retirement without explicit consent, and labor tribunals cannot rule on tax withholding disputes. The case of Ondevilla v. Colegio de San Juan de Letran (Laguna) (G.R. No. 278615, June 29, 2026) also resolved a conflict between two jurisprudential rules on separation pay, providing guidance for both employers and employees on retirement and dismissal cases.

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 becoming Assistant Vice President for Finance and Controller. When new management took over in 2018, he was appointed to a lower position of Controller, which he claimed was a demotion that reduced his rank and benefits.

The school insisted Ondevilla was an independent contractor, not a regular employee. When his contract as Controller ended on August 29, 2019, the school considered him retired. Ondevilla filed an illegal dismissal complaint, arguing he was a regular employee who had been constructively dismissed.

Issue Presented

The case raised three main questions: whether Ondevilla was entitled to Collective Bargaining Agreement (CBA) benefits as a managerial employee; whether labor tribunals could rule on his claim that the school misapplied the TRAIN Law in withholding his taxes; and whether he had voluntarily opted for early retirement on July 31, 2020.

Ruling on CBA Benefits

The Court held that managerial employees are generally not entitled to CBA benefits. Article 255 of the Labor Code bars managerial employees from joining collective bargaining units of rank-and-file employees. An exception exists when the employer extends CBA benefits to managerial employees as a matter of established company practice, but the employee must prove this with substantial evidence.

Ondevilla relied on his Employee Status and Compensation Profiles, which mentioned entitlement to "other benefits as prescribed." However, the Court found no evidence of an established practice, and the CBA itself was not even in the records. Notably, the Court observed that if Ondevilla truly believed he was entitled to these benefits, he should have raised the matter earlier, especially given his position as AVP for Finance.

Ruling on Tax Withholding Jurisdiction

The Court ruled that labor tribunals lack jurisdiction over disputes involving the propriety of tax withholding. 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 explained that withholding taxes is governed by the Tax Code. Such disputes should be brought before the Commissioner of Internal Revenue, not the Labor Arbiter or NLRC.

The Court distinguished this case from Santos v. Servier Philippines, Inc., where the tax issue was intertwined with the main labor dispute. Here, Ondevilla's claim involved a pure question of tax law—whether the TRAIN Law should have reduced his withholding tax—which is beyond the competence of labor tribunals.

Ruling on Optional Retirement

The Court ruled in favor of Ondevilla on the retirement issue. Under Article 302 of the Labor Code, as amended by Republic Act No. 7641, the compulsory retirement age is 65, while optional retirement is available at age 60. However, acceptance of an early retirement option must be explicit, voluntary, free, and uncompelled.

The Court found that Ondevilla's October 2019 letter was merely a response to the school's demand for payment of a cash advance, not an express notice of retirement. There was no retirement offer from the school for him to accept. The Court emphasized that retirement is a bilateral act—a voluntary agreement between employer and employee. Since Ondevilla's "retirement" arose from an illegal dismissal disguised as contract expiration, it could not be considered voluntary.

Separation Pay and Backwages

The Court awarded Ondevilla full backwages from August 29, 2019 until his compulsory retirement age of 65 on August 29, 2024, plus separation pay in lieu of reinstatement. In resolving the conflict between Sampana v. The Maritime Training Center of the Philippines and Laya, Jr. v. Philippine Veterans Bank, the Court applied the en banc ruling in Laya, Jr., which awarded separation pay when reinstatement became impossible due to the employee reaching compulsory retirement age. Under Article VIII of the 1987 Constitution, only the Court en banc can modify or reverse doctrines laid down in en banc decisions.

Practical Takeaways

• Optional retirement requires explicit consent. Employees cannot be deemed to have retired early merely by implication or passive acquiescence. Retirement must be a voluntary, bilateral agreement between employer and employee.

• Managerial employees generally cannot claim CBA benefits. Unless the employer has an established practice of extending such benefits, managerial employees are barred from receiving benefits negotiated by rank-and-file unions under Article 255 of the Labor Code.

• Tax disputes belong to tax authorities. Claims involving the correctness of tax withholding, including TRAIN Law applications, must be filed with the Commissioner of Internal Revenue, not labor tribunals.

• Separation pay may still be awarded after compulsory retirement age. Even if reinstatement becomes impossible because the employee reaches age 65 during litigation, separation pay in lieu of reinstatement may be granted, following the en banc ruling in Laya, Jr.

• New issues cannot be raised on appeal. Parties are bound by the theories they adopt before the lower tribunals. Raising new claims, such as collection of employee loans, for the first time on appeal violates fairness and due process.

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