In the Philippine corporate landscape, the line between ownership, management, and employment often blurs—especially in family-owned or small-to-medium enterprises (SMEs). A common legal dilemma arises when a high-ranking individual reaches retirement age: Can an incorporator or a corporate officer claim retirement pay under the Labor Code?
The answer is not a simple "yes" or "no." It depends entirely on the legal nature of their relationship with the corporation.
1. The Core Distinction: "Corporate Officer" vs. "Employee"
To determine eligibility for retirement pay, Philippine law distinguishes between a corporate office and an employment position.
- Corporate Officers: These are individuals specifically mentioned in the Corporation Code or the company’s By-Laws (e.g., President, Treasurer, Secretary). Their relationship with the corporation is governed by the Corporation Code, and disputes regarding their position are generally considered intra-corporate controversies under the jurisdiction of Regional Trial Courts (RTC).
- Employees: These are individuals who perform services for the company under a contract of hire. Their relationship is governed by the Labor Code, and disputes fall under the jurisdiction of the Labor Arbiter and the National Labor Relations Commission (NLRC).
The Rule of Thumb: If an individual is strictly a corporate officer and nothing more, they are generally not entitled to statutory retirement pay under the Labor Code. However, they may still receive retirement benefits if specifically provided for in the company By-Laws or a separate contract.
2. The "Four-Fold Test" of Employment
An incorporator or officer can only claim Labor Code retirement pay if they can prove a dual role—that they were also a regular employee. The Philippine Supreme Court utilizes the Four-Fold Test to determine this:
- Selection and engagement of the employee.
- Payment of wages (as opposed to director’s fees or dividends).
- Power of dismissal.
- The Control Test: Does the corporation (through a board or superior) control not only the end result of the work but also the means and methods used to achieve it?
The Control Test is the most crucial. If an incorporator acts with total autonomy and answers to no one, they are likely an employer/owner, not an employee.
3. Can an Incorporator be an Employee?
Yes. Being an incorporator (one of the original founders) does not legally disqualify a person from being an employee. An incorporator can be hired as a manager, technician, or consultant. If they are on the payroll, subject to daily supervision, and meet the Four-Fold Test, they are entitled to all labor benefits, including:
- Service Incentive Leave
- 13th Month Pay
- Statutory Retirement Pay (RA 7641)
4. The Two-Hat Doctrine (Dual Capacity)
A person may wear "two hats" simultaneously. For example, an individual may be the Corporate Secretary (Officer) while also serving as the Human Resources Manager (Employee).
- In their capacity as HR Manager, they are an employee.
- Upon reaching the age of 60 (optional) or 65 (compulsory), they can claim retirement pay based on their salary as HR Manager.
5. Retirement Pay Requirements under RA 7641
If an officer-employee is deemed eligible, the retirement pay under the Labor Code (in the absence of a more favorable company plan) consists of:
- At least one-half (1/2) month salary for every year of service.
- A "half-month" is defined as 22.5 days: (15 days salary + 5 days service incentive leave + 1/12 of the 13th month pay).
- A fraction of at least six (6) months is considered as one whole year.
6. Critical Jurisprudence: The "Intra-Corporate" Trap
The biggest hurdle for officers claiming retirement pay is the jurisdiction issue.
If a President sues for "unpaid retirement pay" in a Labor Court, the company may argue it is an intra-corporate dispute. If the court finds that the person was a "Corporate Officer" per the By-Laws, the Labor Arbiter will dismiss the case for lack of jurisdiction. The claimant would then have to file a civil case in the RTC, where they must prove their right to retirement based on corporate policy or contract, rather than the Labor Code.
Summary Table
| Status | Source of Right | Jurisdiction |
|---|---|---|
| Pure Incorporator | Dividends / Share Sales | RTC (Commercial) |
| Pure Corporate Officer | By-Laws / Board Resolution | RTC (Commercial) |
| Employee (even if Officer) | Labor Code (RA 7641) | Labor Arbiter / NLRC |
Conclusion
An incorporator or officer can claim employee retirement pay only if they can prove an employer-employee relationship existed alongside their corporate role. Without the element of "control" and a clear employment contract, the law views them as part of the "employer" side of the table, making them ineligible for the protections of the Labor Code.
Would you like me to draft a sample Board Resolution that formally recognizes a corporate officer's dual status as an employee to secure their retirement benefits?