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7/14/2015 G.R. No. 166377 - MA. ISABEL T. SANTOS v. SERVIER PHILIPPINES, INC., ET AL.

: NOVEMBER 2008 - PHILIPPINE SUPREME COURT JURI

THIRDDIVISION
[G.R.NO.166377:November28,2008]
MA.ISABELT.SANTOS,representedbyANTONIOP.SANTOS,Petitioner,v.SERVIERPHILIPPINES,INC.
andNATIONALLABORRELATIONSCOMMISSION,Respondents.
DECISION
NACHURA,J.:
BeforethisCourtisaPetitionforReviewonCertiorariunderRule45oftheRulesofCourt,seekingtosetasidethe
CourtofAppeals(CA)Decision,1datedAugust12,2004anditsResolution2datedDecember17,2004,inCAG.R.SP
No.75706.
Thefacts,asculledfromtherecords,areasfollows:
PetitionerMa.IsabelT.SantoswastheHumanResourceManagerofrespondentServierPhilippines,Inc.since1991
untilherterminationfromservicein1999.OnMarch26and27,1998,petitionerattendedameeting3ofallhuman
resource managers of respondent, held in Paris, France. Since the last day of the meeting coincided with the
graduation of petitioner's only child, she arranged for a European vacation with her family right after the meeting.
She,thus,filedavacationleaveeffectiveMarch30,1998.4
OnMarch29,1998,petitioner,togetherwithherhusbandAntonioP.Santos,herson,andsomefriends,haddinner
at Leon des Bruxelles, a Paris restaurant known for mussels5 as their specialty. While having dinner, petitioner
complainedofstomachpain,thenvomited.Eventually,shewasbroughttothehospitalknownasCentreChirurgical
deLQuestwhereshefellintocomafor21daysandlaterstayedattheIntensiveCareUnit(ICU)for52days.The
hospitalfoundthattheprobablecauseofhersuddenattackwas"alimentaryallergy,"asshehadrecentlyingesteda
mealofmusselswhichresultedinaconcomitantuticarialeruption.6
During the time that petitioner was confined at the hospital, her husband and son stayed with her in Paris.
Petitioner'shospitalizationexpenses,aswellasthoseofherhusbandandson,werepaidbyrespondent.7
InJune1998,petitioner'sattendingphysiciansgaveaprognosisoftheformer'sconditionand,withtheconsentof
her family, allowed her to go back to the Philippines for the continuation of her medical treatment. She was then
confined at the St. Luke's Medical Center for rehabilitation.8 During the period of petitioner's rehabilitation,
respondentcontinuedtopaytheformer'ssalariesandtoassistherinpayingherhospitalbills.
In a letter dated May 14, 1999, respondent informed the petitioner that the former had requested the latter's
physician to conduct a thorough physical and psychological evaluation of her condition, to determine her fitness to
resumeherworkatthecompany.Petitioner'sphysicianconcludedthattheformerhadnotfullyrecoveredmentally
andphysically.Hence,respondentwasconstrainedtoterminatepetitioner'sserviceseffectiveAugust31,1999.9
As a consequence of petitioner's termination from employment, respondent offered a retirement package which
consistsof:

RetirementPlanBenefits:

P1,063,841.76

Insurance
Pension
at
20,000.00/month
for
60
months
from
company
sponsoredgrouplifepolicy:

P1,200,000.00

Educationalassistance:
MedicalandHealthCare:

P465,000.00
P200,000.0010

Of the promised retirement benefits amounting to P1,063,841.76, only P701,454.89 was released to petitioner's
husband,thebalance11thereofwaswithheldallegedlyfortaxationpurposes.Respondentalsofailedtogivetheother
benefitslistedabove.12
Petitioner,representedbyherhusband,institutedtheinstantcaseforunpaidsalariesunpaidseparationpayunpaid
balance of retirement package plus interest insurance pension for permanent disability educational assistance for
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her son medical assistance reimbursement of medical and rehabilitation expenses moral, exemplary, and actual
damages,plusattorney'sfees.ThecasewasdocketedasNLRCNCR(SOUTH)CaseNo.30060252001.
OnSeptember28,2001,LaborArbiterAlimanD.MangandogrenderedaDecision13dismissingpetitioner'scomplaint.
The Labor Arbiter stressed that respondent had been generous in giving financial assistance to the petitioner.14He
likewise noted that there was a retirement plan for the benefit of the employees. In denying petitioner's claim for
separation pay, the Labor Arbiter ratiocinated that the same had already been integrated in the retirement plan
established by respondent. Thus, petitioner could no longer collect separation pay over and above her retirement
benefits.15The arbiter refused to rule on the legality of the deductions made by respondent from petitioner's total
retirementbenefitsfortaxationpurposes,astheissuewasbeyondthejurisdictionoftheNLRC.16Onthematterof
educational assistance, the Labor Arbiter found that the same may be granted only upon the submission of a
certificateofenrollment.17Lastly,astopetitioner'sclaimfordamagesandattorney'sfees,theLaborArbiterdenied
thesameastheformer'sdismissalwasnottaintedwithbadfaith.18
On appeal to the National Labor Relations Commission (NLRC), the tribunal set aside the Labor Arbiter's decision,
rulingthat:
WHEREFORE, premises considered, Complainant's appeal is partly GRANTED. The Labor Arbiter's
decisionintheaboveentitledcaseisherebySETASIDE.RespondentisorderedtopayComplainant's
portionofherseparationpaycoveringthefollowing:1)P200,000.00formedicalandhealthcarefrom
September1999toApril2001and2)P35,000.00peryearforherson'shighschool(secondyearto
fourthyear)educationandP45,000.00persemesterforthelatter'sfouryearcollegeeducation,upon
presentationofanyapplicablecertificateofenrollment.
SOORDERED.19
The NLRC emphasized that petitioner was not retired from the service pursuant to law, collective bargaining
agreement (CBA) or other employment contract rather, she was dismissed from employment due to a
disease/disabilityunderArticle28420oftheLaborCode.21Inviewofhernonentitlementtoretirementbenefits,the
amountsreceivedbypetitionershouldthenbetreatedasherseparationpay.22Thoughnotlegallyobligedtogivethe
other benefits, i.e., educational assistance, respondent volunteered to grant them, for humanitarian consideration.
TheNLRCthereforeorderedthepaymentoftheotherbenefitspromisedbytherespondent.23Lastly,itsustainedthe
denialofpetitioner'sclaimfordamagesforthelatter'sfailuretosubstantiatethesame.24
Unsatisfied,petitionerelevatedthemattertotheCourtofAppealswhichaffirmedtheNLRCdecision.25
Hence,theinstantpetition.
Attheoutset,theCourtnotesthatinitially,petitionerraisedtheissueofwhethershewasentitledtoseparationpay,
retirementbenefits,anddamages.Insupportofherclaimforseparationpay,shecitedArticle284oftheLaborCode,
as amended. However, in coming to this Court via a Petition for Review onCertiorari, she abandoned her original
positionandallegedthatshewas,infact,notdismissedfromemploymentbasedontheaboveprovision.Sheargued
that her situation could not be characterized as a disease rather, she became disabled. In short, in her petition
before us, she now changes her theory by saying that she is not entitled to separation pay but to retirement pay
pursuant to Section 4,26Article V of the Retirement Plan, on disability retirement. She, thus, prayed for the full
paymentofherretirementbenefitsbygivingbacktohertheamountdeductedfortaxationpurposes.
In our Resolution27 dated November 23, 2005 requiring the parties to submit their respective memoranda, we
specificallystated:
NonewissuesmayberaisedbyapartyintheMemorandumandtheissuesraisedinthepleadingsbut
notincludedintheMemorandumshallbedeemedwaivedorabandoned.
Beingsummationsoftheparties'previouspleadings,theCourtmayconsidertheMemorandaalonein
decidingorresolvingthispetition.
Pursuant to the above resolution, any argument raised in her petition, but not raised in her Memorandum,28 is
deemedabandoned.29Hence,theonlyissueproperfordeterminationistheproprietyofdeductingP362,386.87from
her total benefits, for taxation purposes. Nevertheless, in order to resolve the legality of the deduction, it is
imperativethatwesettle,onceandforall,thegroundrelieduponbyrespondentinterminatingtheservicesofthe
petitioner,aswellasthenatureofthebenefitsgiventoheraftersuchtermination.Onlythencanwedecidewhether
theamountdeductedbytherespondentshouldbepaidtothepetitioner.
Respondent dismissed the petitioner from her employment based on Article 284 of the Labor Code, as amended,
whichreads:
Art.284.DISEASEASGROUNDFORTERMINATION
Anemployermayterminatetheservicesofanemployeewhohasbeenfoundtobesufferingfromany
diseaseandwhosecontinuedemploymentisprohibitedbylaworisprejudicialtohishealthaswellas
tothehealthofhiscoemployees:Provided,Thatheispaidseparationpayequivalenttoatleastone
(1) month salary or to onehalf (1/2) month salary for every year of service, whichever is greater, a
fractionofatleastsix(6)monthsbeingconsideredasone(1)wholeyear.
As she was dismissed on the abovementioned ground, the law gives the petitioner the right to demand separation
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pay. However, respondent established a retirement plan in favor of all its employees which specifically provides for
"disabilityretirement,"towit:
Sec.4.DISABILITYRETIREMENT
IntheeventthataMemberisretiredbytheCompanyduetopermanenttotalincapacityordisability,
as determined by a competent physician appointed by the Company, his disability retirement benefit
shallbetheFullMember'sAccountBalancedeterminedasofthelastvaluationdate.xxx.30
Onthebasisoftheabovementionedretirementplan,respondentofferedthepetitioneraretirementpackagewhich
consists of retirement plan benefits, insurance pension, and educational assistance.31Theamountof P1,063,841.76
representedthedisabilityretirementbenefitprovidedforintheplanwhiletheinsurancepensionwastobepaidby
their insurer and the educational assistance was voluntarily undertaken by the respondent as a gesture of
compassiontothepetitioner.32
WehavedeclaredinAquinov.NationalLaborRelationsCommission33thatthereceiptofretirementbenefitsdoesnot
bartheretireefromreceivingseparationpay.Separationpayisastatutoryrightdesignedtoprovidetheemployee
withthewherewithalduringtheperiodthathe/sheislookingforanotheremployment.Ontheotherhand,retirement
benefits are intended to help the employee enjoy the remaining years of his life, lessening the burden of worrying
abouthisfinancialsupport,andareaformofrewardforhisloyaltyandservicetotheemployer.34Hence,theyare
not mutually exclusive. However, this is only true if there is no specific prohibition against the payment of both
benefitsintheretirementplanand/orintheCollectiveBargainingAgreement(CBA).35
Intheinstantcase,theRetirementPlanbarsthepetitionerfromclaimingadditionalbenefitsontopofthatprovided
forinthePlan.Section2,ArticleXIIoftheRetirementPlanprovides:
Section2.NODUPLICATIONOFBENEFITS
NootherbenefitsotherthanthoseprovidedunderthisPlanshallbepayablefromtheFund.Further,in
theeventtheMemberreceivesbenefitsunderthePlan,heshallbeprecludedfromreceivinganyother
benefits under the Labor Code or under any present or future legislation under any other contract or
CollectiveBargainingAgreementwiththeCompany.36
Therebeingsuchaprovision,asheldinCruzv.PhilippineGlobalCommunications,Inc.,37petitionerisentitledonlyto
eithertheseparationpayunderthelaworretirementbenefitsunderthePlan,andnotboth.
Clearly,thebenefitsreceivedbypetitionerfromtherespondentrepresentherretirementbenefitsunderthePlan.The
questionthatnowconfrontsusiswhetherthesebenefitsaretaxable.Ifso,respondentcorrectlymadethededuction
fortaxpurposes.Otherwise,thedeductionwasillegalandrespondentisstillliableforthecompletionofpetitioner's
retirementbenefits.
Respondentarguesthatthelegalityofthedeductionfrompetitioner'stotalbenefitscannotbetakencognizanceofby
thisCourtsincetheissuewasnotraisedduringtheearlystageoftheproceedings.38
Wedonotagree.
Records reveal that as early as in petitioner's position paper filed with the Labor Arbiter, she already raised the
legality of said deduction, albeit designated as "unpaid balance of the retirement package." Petitioner specifically
averred that P362,386.87 was not given to her by respondent as it was allegedly a part of the former's taxable
income.39This is likewise evident in the Labor Arbiter and the NLRC's decisions although they ruled that the issue
was beyond the tribunal's jurisdiction. They even suggested that petitioner's claim for illegal deduction could be
addressedbyfilingataxrefundwiththeBureauofInternalRevenue.40
ContrarytotheLaborArbiterandNLRC'sconclusions,petitioner'sclaimforillegaldeductionfallswithinthetribunal's
jurisdiction. It is noteworthy that petitioner demanded the completion of her retirement benefits, including the
amountwithheldbyrespondentfortaxationpurposes.Theissueofdeductionfortaxpurposesisintertwinedwiththe
main issue of whether or not petitioner's benefits have been fully given her. It is, therefore, a money claim arising
from the employeremployee relationship, which clearly falls within the jurisdiction41of the Labor Arbiter and the
NLRC.
This is not the first time that the labor tribunal is faced with the issue of illegal deduction. InIntercontinental
BroastingCorporation(IBC)v.Amarilla,42IBCwithheldthesalarydifferentialsdueitsretiredemployeestooffsetthe
tax due on their retirement benefits. The retirees thus lodged a complaint with the NLRC questioning said
withholding.TheyaverredthattheirretirementbenefitswereexemptfromincometaxandIBChadnoauthorityto
withhold their salary differentials. The Labor Arbiter took cognizance of the case, and this Court made a definitive
rulingthatretirementbenefitsareexemptfromincometax,providedthatcertainrequirementsaremet.
Nothing,therefore,preventsusfromdecidingthismainissueofwhethertheretirementbenefitsaretaxable.
Weanswerintheaffirmative.
Section 32 (B) (6) (a) of the New National Internal Revenue Code (NIRC) provides for the exclusion of retirement
benefitsfromgrossincome,thus:
(6)RetirementBenefits,Pensions,Gratuities,etc.'
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a)RetirementbenefitsreceivedunderRepublicAct7641andthosereceivedbyofficialsandemployees
ofprivatefirms,whetherindividualorcorporate,inaccordancewithareasonableprivatebenefitplan
maintainedbytheemployer:Provided,Thattheretiringofficialoremployeehasbeenintheserviceof
thesameemployerforatleastten(10)yearsandisnotlessthanfifty(50)yearsofageatthetimeof
hisretirement:Providedfurther,Thatthebenefitsgrantedunderthissubparagraphshallbeavailedof
byanofficialoremployeeonlyonce.xxx.
Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened to prove the
concurrenceofthefollowingelements:(1)areasonableprivatebenefitplanismaintainedbytheemployer(2)the
retiringofficialoremployeehasbeenintheserviceofthesameemployerforatleastten(10)years(3)theretiring
officialoremployeeisnotlessthanfifty(50)yearsofageatthetimeofhisretirementand(4)thebenefithadbeen
availedofonlyonce.43
Asdiscussedabove,petitionerwasqualifiedfordisabilityretirement.Atthetimeofsuchretirement,petitionerwas
only41yearsofageandhadbeenintheserviceformoreorlesseight(8)years.Assuch,theaboveprovisionisnot
applicable for failure to comply with the age and length of service requirements. Therefore, respondent cannot be
faultedfordeductingfrompetitioner'stotalretirementbenefitstheamountofP362,386.87,fortaxationpurposes.
WHEREFORE,thepetitionisDENIEDforlackofmerit.TheCourtofAppealsDecisiondatedAugust12,2004andits
ResolutiondatedDecember17,2004,inCAG.R.SPNo.75706areAFFIRMED.
SOORDERED.
Endnotes:
1PennedbyAssociateJusticeEliezerR.DeLosSantos,withAssociateJusticesDelilahVidallonMagtolis

andArturoD.Brion(nowamemberofthisCourt),concurringrollo,pp.3442.
2Rollo,p.44.
3Themeetingwasentitled"ReunionDRHInternationale."
4Rollo,p.35.
5Commonlyknownas"tahong"inthePhilippines.
6Rollo,p.35.
7Id.at36.
8Id.

9Petitioner'sterminationfromemploymentwasembodiedinaletterdatedJuly15,1999id.at132

133.

10Rollo,p.134.
11AmountingtoP362,386.87.
12Rollo,p.37.
13Id.at204213.
14Id.at209.
15Id.at210211.
16Id.at211.
17Id.
18Id.at211212.
19Id.at264265
20ART.284.DISEASEASGROUNDFORTERMINATION

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
prejudicialtohishealthaswellastothehealthofhiscoemployees:Provided,Thatheis
paid separation pay equivalent to at least one (1) month salary or to onehalf (1/2)
monthsalaryforeveryyearofservice,whicheverisgreater,afractionofatleastsix(6)
monthsbeingconsideredasone(1)wholeyear.
21Rollo,pp.260261.

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22Id.at262.
23

Said benefits consist of the following: 1) P200,000.00 for medical and health care and 2)
educationalassistanceforpetitioner'ssonid.at264265.
24Rollo,p.263.
25Supra.note1.
26Section4.DISABILITYRETIREMENT.

IntheeventthataMemberisretiredbytheCompanyduetopermanenttotalincapacity
or disability, as determined by a competent physician appointed by the Company, his
disabilityretirementbenefitshallbetheFullMember'sAccountBalancedeterminedasof
thelastvaluationdate.xxxrollo,p.359.
27Rollo,pp.785786.
28Id.at915942.
29Republicv.Kalaw,G.R.No.155138,June8,2004,431SCRA401,406.
30Rollo,p.359.
31Id.at134.
32Id.
33G.R.No.87653,February11,1992,206SCRA118.
34Aquinov.NationallaborRelationsCommission,G.R.No.87653,February11,1992,206SCRA118,

121122.

35Aquinov.NationallaborRelationsCommission,G.R.No.87653,February11,1992,206SCRA118,

122UniversityoftheEastv.MinisterofLabor,No.L74007,July31,1987,152SCRA676Batangas
LagunaTayabasBusCompanyv.CourtofAppeals,163Phil.494(1976).
36Rollo,p.364.
37G.R.No.141868,May28,2004,430SCRA184.
38Rollo,p.947.
39Id.at120.
40Id.at211,264.
41Article217oftheLaborCode,asamendedreads:

Article217.JURISDICTIONOFLABORARBITERSANDTHECOMMISSION
(a)ExceptasotherwiseprovidedunderthisCode,theLaborArbitersshallhaveoriginal
and exclusive jurisdiction to hear and decide x x x, the following cases involving all
workers,whetheragriculturalornonagricultural:
xxx
6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits,allotherclaimsarisingfromemployeremployeerelationsxxx.
42G.R.No.162775,October27,2006,505SCRA687.
43Intercontinental Broasting Corporation (IBC) v. Amarilla, G.R. No. 162775, October 27, 2006, 505

SCRA687,699.

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