Optional Retirement and Illegal Dismissal: The Ondevilla Case on Security of Tenure

The Supreme Court recently clarified the line between voluntary early retirement and illegal dismissal in Ondevilla v. Colegio de San Juan de Letran (Laguna) (G.R. No. 278615, June 29, 2026). The case is a reminder that an employee's right to security of tenure cannot be taken away by an employer's assumption that a worker has agreed to retire early. The Court also settled which rule applies when an illegally dismissed employee reaches compulsory retirement age during the case.

The Facts of the Case

Rodolfo Ondevilla worked for Colegio de San Juan de Letran in Calamba, Laguna for over 14 years, rising to Assistant Vice President for Finance. When a new management took over in 2018, he was appointed to a lower position—Controller—which he considered a demotion. The school insisted he was merely a consultant, not a regular employee.

When his contract as Controller expired on August 29, 2019, the school treated him as retired. Ondevilla filed a complaint for illegal dismissal. The Labor Arbiter and the National Labor Relations Commission (NLRC) ruled in his favor, but disagreed on the reckoning date of his dismissal. The Court of Appeals (CA) then ruled that Ondevilla had "optionally retired" on July 31, 2020, based on a letter he wrote to the school.

The Issue: Was There a Voluntary Early Retirement?

The central question was whether Ondevilla's letter constituted an express, voluntary choice to retire early. The Supreme Court said no.

Under Article 302 of the Labor Code, as amended by Republic Act No. 7641, an employee may retire at age 60 but compulsory retirement is at age 65. An employee who has not expressly agreed to an early retirement cannot be retired before 65. The Court stressed that acceptance of an early retirement option must be explicit, voluntary, free, and uncompelled.

Ondevilla's letter was a response to the school's demand for payment of a cash advance—not a retirement notice. There was no retirement offer from the school for him to accept. The Court found that he merely invoked the school's practice of retiring employees at the end of the school year to prolong his tenure, which is not the same as consenting to retire. Because the "retirement" was really a dismissal disguised as an expired contract, the Court ruled he was illegally dismissed on August 29, 2019.

The Remedy: Backwages and Separation Pay

A key point of disagreement between the CA and the Supreme Court was whether Ondevilla should receive separation pay. The CA, citing the 2024 case of Sampana v. The Maritime Training Center of the Philippines, said no, because Ondevilla had already reached compulsory retirement age.

The Supreme Court, however, applied the earlier en banc decision in Laya, Jr. v. Philippine Veterans Bank (2018). Under Article VIII of the 1987 Constitution, a doctrine laid down by the Court en banc cannot be modified or reversed by a division ruling. Since Laya granted separation pay to an illegally dismissed employee who reached retirement age during the case, that rule prevails.

The Court ordered the following:

• Full backwages from August 29, 2019 until Ondevilla reached compulsory retirement age on August 29, 2024;
• Separation pay in lieu of reinstatement, since reinstatement was no longer feasible;
• Retirement pay under Article 302 of the Labor Code, equivalent to one-half month salary for every year of service;
• Attorney's fees of 10% of the total monetary award, plus 6% legal interest per annum.

Other Rulings

The Court also clarified two related matters. First, as a managerial employee, Ondevilla was not entitled to collective bargaining agreement (CBA) benefits. Managerial employees are barred from joining labor unions under Article 255 of the Labor Code, and there was no evidence of a company practice extending CBA benefits to managers.

Second, the Court ruled that labor tribunals have no jurisdiction over tax withholding disputes. Claims for tax refunds under the TRAIN Law must be filed with the Commissioner of Internal Revenue, not the NLRC.

Practical Takeaways

• Early retirement must be a genuine, mutual agreement. An employer cannot assume an employee has chosen to retire simply because the employee mentions retirement or invokes company practice. The employee's consent must be explicit and voluntary.
• A "contract expiration" cannot mask a dismissal. If an employer treats a regular employee's contract as expired to end the relationship, that may constitute illegal dismissal, especially if the employee's security of tenure is compromised.
• Reaching retirement age during litigation does not erase the right to separation pay. An illegally dismissed employee who reaches compulsory retirement age while the case is pending is still entitled to separation pay in lieu of reinstatement, per the en banc ruling in Laya.
• Managerial employees generally cannot claim CBA benefits. Unless the employer has a clear, established practice of extending such benefits to managers, the law prohibits them from enjoying union-negotiated concessions.
• Tax disputes belong to the BIR, not the NLRC. If an employer withholds the wrong amount of tax, the remedy is an administrative claim with 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.