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Report on Social Legislation
REPUBLIC ACT NO. 7641
December 9, 1992
RETIREMENT PAY LAW AN ACT AMENDING ARTICLE 287 OF PRESIDENTIAL DECREE NO. 442, AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE PHILIPPINES, BY PROVIDING FOR RETIREMENT PAY TO QUALIFIED PRIVATE SECTOR EMPLOYEES IN THE ABSENCE OF ANY RETIREMENT PLAN IN THE ESTABLISHMENT Section 1. Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: "Art. 287. Retirement. - Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. "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. "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 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. "Retail, service and agricultural establishments or operations employing not more than (10) employees or workers are exempted from the coverage of this provision. "Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code." Sec. 2. entitled Nothing in this Act shall deprive any employee of benefits to which he may be under existing laws or company policies or practices.
Sec. 3. This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2) national newspapers of general circulation, whichever comes earlier.
In case of termination due to the installation of labor-saving devices or redundancy. When the severance of employment is cause by a disease. whichever is higher. No. That he is paid 2 . such as installation of labor-saving devices. August 13. as generally understood. whichever is higher. When the termination of employment is due to causes authorized by law. redundancy.R. 2. redundancy. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses. G. particularly when the employee is found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees. The employer may also terminate the employment of any employee due to the installation of labor-saving devices. retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking. An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as the health of his co-employees: Provided. retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this title. (See Gabuay v. refers to the amount due to the employee who has been terminated from service for causes authorized by law (not due to employees fault or wrong-doing) such as installation of labor-saving devices. by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service. This is found in Art. which states. Disease as ground for termination. the worker affected thereby shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one (1) month pay for every year of service. Labor Code of the Philippines. Closure of establishment and reduction of personnel. 2004. A fraction of at least six (6) months shall be considered one (1) whole year. viz. This is provided under Art. viz.: Article 284. retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking. 148837. redundancy. 284 of Labor Code. Separation pay is intended to provide the employee with the resources during the period he is looking for another employment. Oversea Paper Supply. The provision states.) Five Instances when Separation Pay is due to Employee There are at least five instances in which an employee is entitled to payment of separation pay upon severance of employment: 1.Rachel Ann Asis Siñel 20090202736 Report on Social Legislation Separation Pay Meaning Separation pay. 283.: Article 283.
NLRC. Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative. August 23.e. and e. payment of separation pay may be ordered by the court even if the dismissal from service is found to have been for valid or just cause. i. The phrase “for any cause beyond the control of the said official or employee” in effect 3 . (See PLDT vs. 1988. c. Other causes analogous to the foregoing. An employer may terminate an employment for any of the following causes: a. No. Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work. a fraction of at least six months being considered as one whole year. When the termination from service of the employee has been declared illegal. 2004.R. whichever is greater. any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death. sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. when reinstatement is rendered impossible due to subsequent closure of business. (See Department Order 18-02. (See Gabuay v... G. Art. 282. Here. d. No. employees falling under this article are not entitled to separation pay. Oversea Paper Supply. August 13.g.Rachel Ann Asis Siñel 20090202736 Report on Social Legislation separation pay equivalent to at least one month salary or to one-half month salary for every year of service. or when the relationship between employer and employee has become strained (doctrine of strained relations).) 5. An employee may also be terminated for just causes as enumerated below under Article 282 of the Labor Code. 148837. Rules Implementing Article 106 to 109 of the Labor Code.) 4. Gross and habitual neglect by the employee of his duties. e. In exceptional cases. even if the employee is found to have been at fault. Is separation pay taxable? Under Section 32(B)(6)(b) of the 1997 Tax Code. Termination by employer. Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representatives. but his reinstatement to his former position is no longer feasible for some valid reason. b.) The previous articles stated the grounds where an employee can be entitled to a separation pay upon the termination of his services to the employer. where separation pay is awarded as a measure of social or compassionate justice. In case of pre-termination of employment contract in job-contracting arrangement. 3. L-80609. Generally.
is the amount to be paid to the employee who has reached the compulsory retirement age or who availed of voluntary retirement. 18 . Regs. However. An employee resignation is presumed to be voluntary. or such is an established practice or policy of the company. Distinguished from Retirement Pay Separation pay should not be confused with retirement pay. Sec 2(b)(2). 4 . Separation pay is the amount due to the employee where the cessation of employment is due to causes authorized by law (or for any of the other causes stated above). unless the same was reduced by the employer to defeat the intention of the Labor Code. The separation from the service of the official or employee must not be of his own making. The amount of the separation pay shall be multiplied with the number of years of actual service. separation pay under the foregoing ruling shall not be subject to income tax and consequently to withholding tax. Effect of Termination of Contractual Employment. on the other hand. including retirement pay as may be provided by law or in the contract between the principal and the contractor or subcontractor. Therefore. Retirement pay. . or from the completion of the phase of the job. this shall be without prejudice to completion bonuses or other emoluments. a fraction of at least six (6) months is considered as one (1) whole year. Revenue Regulations No 1-68.02 (Series of 2002) . in which case.In cases of termination of employment prior to the expiration of the contract between the principal and the contractor or subcontractor. Notes: The computation of separation pay shall be based on the latest salary rate. (Sec 4(f). Where the termination results from the expiration of the contract between the principal and the contractor or subcontractor. In computing the length of service. the latter shall not be entitled to separation pay. No 6-82. RULES IMPLEMENTING ARTICLES 106 TO 109 OF THE LABOR CODE. DEPARTMENT ORDER NO. Generally. Rev. the right of the contractual employee to separation pay or other related benefits shall be governed by the applicable laws and jurisprudence on termination of employment. AS AMENDED Section 10.Rachel Ann Asis Siñel 20090202736 Report on Social Legislation connotes involuntariness on the part of the official or employee. work or service for which the contractual employee is engaged. . an employee who resigns is not entitled to separation pay except when it is stipulated in his employment contract or collective bargaining agreement. the separation pay shall be based on the rate before the deduction. as amended).
G. 2009). No. coercion or manipulation. (See J Marketing Corp. The law does not oblige the employer to give separation pay if the initiative to terminate employment comes from employee himself. Separation pay as a rule is paid only in those instances where the severance of employment is due to factors beyond the control of the employee. G. February 21. No. et al. However. G. intimidation. by way of exceptions. et al. It does not cover cases where the employee is forced to resign with the use of threats. (Virgen Shipping Corp. In Hinatuan Mining Corporation. vs. in case of retrenchment to prevent losses where the employee is forced to depart from the company due to no fault on his part. Taran. There is no provision in the Labor Code which grants separation pay to voluntarily resigning employees. When payment of separation pay is stipulated in the employment contract or Collective Bargaining Agreement (CBA. 2009 citing Valdez vs. the court ruled viz. vs. 117394. 2.: 5 . NLRC. or where resignation is imposed as a penalty for an offense.R. separation pay is required by law to be paid to the dismissed employee. as follows: 1.. Thus. 178127.R. Barraquio. vs. instead of terminating him for just cause so as not to smear his employment record. also fall under the category of voluntary resignation. The common practice of allowing an employee to resign. there are at least two instances where an employee who voluntarily resign is entitled to receive separation pay. April 16. No. and that the employee must have knowingly and voluntarily dissociate himself from his employment for his own personal reasons.Rachel Ann Asis Siñel 20090202736 Report on Social Legislation Voluntary Resignation and Separation Pay Voluntary Resignation Resignation is defined as the voluntary act of an employee who finds himself in a situation where he believes that personal reasons cannot be sacrificed in favor of the exigency of the service and he has no other choice but to disassociate himself from his employment.R.) The key is that resignation must be a “voluntary act”. 1997. Separation Pay An employee who voluntarily resigns from his work is not entitled to separation pay. June 28. The case is totally different in case of voluntary resignation where severance of employment is due to employee’s own initiative. 163924. When it is sanctioned by established employer practice or policy. NLRC. for companies with existing bargaining agent or union).
” 6 . No. CA.” Special cases In addition to the exceptions cited above.Rachel Ann Asis Siñel 20090202736 Report on Social Legislation “It is well to note that there is no provision in the Labor Code which grants separation pay to voluntarily resigning employees. an employer who agrees to expend such benefit as an incident of the resignation should not be allowed to renege in the performance of such commitment. Separation pay may be awarded only in cases when the termination of employment is due to: (a) installation of labor saving devices. 2001. the employer agreed to give separation pay to the employee as an incident of the latter’s resignation. G. or (f) when an employee is illegally dismissed but reinstatement is no longer feasible. in Alfaro vs. In both of the above cases. except when it is stipulated in the employment contract or CBA. In fact. 140812. (c) retrenchment. and although such payment was not mandated under the CBA or employment contract. August 28.R. For example. The Court held that such practice should not be countenanced. but later on renege in the performance of such commitment. However. the rule is that an employee who voluntarily resigns from employment is not entitled to separation pay. there are other cases where the court may award separation pay to voluntarily resigning employee. (e) disease of an employee and his continued employment is prejudicial to himself or his coemployees. (d) closing or cessation of business operations. (b) redundancy. or it is sanctioned by established employer practice or policy. the Court ordered the payment of separation pay despite holding that the employee voluntarily resign from service. Same conclusion was arrived at in J Marketing. In Alfaro. separation pay need not be paid to an employee who voluntarily resigns. the Court ruled as follows: “Generally.
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