Sole Discretion of Employer to Extend Service of a Retired Employee

Whether the retirement of the employee is optional or compulsory, the services may still
be continued or extend on a case to case basis upon the agreement of the employer and
employee. It is provided that upon the compulsory retirement of an employee, or an official in
the public or private service, the employment is deemed terminated. It was held in the case of
UST Faculty Union vs NLRC, G.R. No. 89885, August 6, 1990, that a member of the faculty of
UST who reaches the age of 65 is retired or separated from the service thereby. However, the
UST may grant extension of tenure to such a retiree unless they are manifestly inefficient or
manifestly physically incapacitated or are otherwise removed for cause. The grant of such
extension may be made in accordance with existing rules and regulations of the UST.

Length of Service
The period of actual service should be counted in the computation of the length of
service, excluded is the period of time when the establishment was closed. The minimum length
of services in an establishment or with an employer of at least 5 years required for entitlement to
retirement pay shall include authorized absences and vacations, regular holidays and mandatory
fulfillment of a military or civic duty.
It was held in the case of Santiago vs Binalbagan Estate, G.R. No. L-2268, October 20,
1950, that petitioner Federico Santiago’s demand for unpaid retirement gratuity for the entire
period of service, including the period covered by the Japanese occupation cannot be granted
because in view of Resolution 31, it provides that the gratuity should be one month's salary for
each year of service, and the proportionate amount of any fraction thereof, the petitioner is
entitled to collect gratuity only for the service actually rendered by him, that is, excluding the
periods during which, according to the stipulation, the defendant was closed.

Computation of Compulsory and Optional Retirement Benefits

In the absence of retirement plan or agreement providing for the retirement benefits of
employee in the establishment, an employee upon reaching the age of 60 years or more, but not
beyond 65 years which is hereby declared the compulsory retirement age, who has served at least
5 years in the said establishment, may retire and shall be entitled to retirement pay equivalent to
at least ½ month salary for every year of service, a fraction of at least 6 months being considered
as 1 whole year. Unless the parties provide for broader inclusions, the term ½ month salary shall
mean 15 days plus 1/12 of the 13 th month pay and the cash equivalent of not more than 5 days of
service incentive leave. It was held in the case of Paz vs Northern Tabacco, G.R. No. 199554,
February 18, 2015 for the computation of the retirement pay the respondent NTRCI followed
the formula in Article 287 and offered petitioner Paz the amount of P12,487.50 as retirement pay
based on the three years she worked for at least six months in 1995, 1999, and 2000. The Labor
Arbiter agreed with respondent NTRCI’s computation based on these three years and reached the
same amount as petitioner Paz’s retirement pay.

Basis of One Month’s Salary of Workers Paid by Results

For covered workers who are paid by results and do not have a fixed monthly rate, the
basis for determination of the salary for 15 days shall be their average daily salary, subject to the
provision of the Rule VII-A, Book III of the Rules Implementing the Labor Code on the payment
of wages of workers who are paid by results. The ADS is the average salary for the last 12
months reckoned from the date of their retirement, divided by the number of actual working days
in that particular period.

Age and Tenure Requirement under Art. 302 of the Labor Code are Cumulative; Non-
Compliance with One Negates Entitlement
Unless the parties provide for broader inclusions, the term ½ month salary shall mean 15
days plus 1/12 of the 13th month pay and the cash equivalent of not more than 5 days of service
incentive leave. In the absence of any applicable agreement, an employee must retire when he is
at least 60 years of age; and serve at least 5 years in the company to entitle him/her to a
retirement benefit of at least ½ month salary for every year of service, with a fraction of at least 6
months being considered as 1 whole year. It was held in the case of Padillo vs Rural bank of
Nabunturan Inc., G.R. No. 199338, January 21, 2013, In this case, it is undisputed that there
exists no retirement plan, collective bargaining agreement or any other equivalent contract
between the parties which set out the terms and condition for the retirement of employees, with
the sole exception of the Philam Life Plan which premiums had already been paid by the Bank.
Neither was it proven that there exists an established company policy of giving early retirement
packages to the Bank’s aging employees.