Entitlement to Redundancy Pay in Addition to Retirement Benefits

Introduction

One of the most frequently litigated issues in Philippine labor law is whether an employee whose employment is terminated on the ground of redundancy (or any other authorized cause) is entitled to both separation/redundancy pay and retirement benefits when he or she has already reached retirement age and has rendered the required length of service.

The short and settled answer, based on consistent Supreme Court rulings and DOLE policy pronouncements over the last three decades, is yes—the employee is entitled to both benefits, unless the CBA, retirement plan, or individual contract of employment expressly provides otherwise (and such provision is not less than the statutory minimum).

The two benefits are separate, distinct, and cumulative.

Legal Bases

1. Separation/Redundancy Pay
   Article 283 [now Article 298] of the Labor Code (authorized causes of termination) expressly provides:

   “In case of redundancy, the employee affected thereby shall be entitled to separation pay equivalent to at least one (1) month pay or to at least one-half (½) month pay for every year of service, whichever is higher.”

   Redundancy pay is therefore mandatory when the termination is due to redundancy, retrenchment to prevent losses, or closure/cessation of operations not due to serious business losses.

2. Retirement Pay
   Article 287 of the Labor Code, as amended by Republic Act No. 7641 (the Retirement Pay Law), provides:

   “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 (½) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.”

   The term “one-half (½) month salary” has been uniformly interpreted by the Supreme Court and DOLE to mean:

   15 days salary

   • 1/12 of the 13th-month pay
   • cash equivalent of 5 days of service incentive leave

   = 22.5 days per year of service (or daily rate × 22.5 × years of service).

Nature and Purpose of the Two Benefits

The Supreme Court has repeatedly emphasized the different legal nature and purpose of the two benefits:

• Separation/redundancy pay is in the nature of financial assistance or indemnity for the sudden loss of employment through no fault of the employee. It is intended to cushion the economic dislocation caused by termination.

• Retirement pay is a reward or gratuity for the employee’s long and faithful service to the employer. It is a form of pension or annuity for past services rendered.

Because they serve entirely different purposes and arise from different legal sources, there is no legal impediment to granting both.

Leading Supreme Court Decisions Affirming Cumulation

The rule allowing both benefits has been affirmed in an unbroken line of cases:

1. Aquino v. NLRC (G.R. No. 98108, 1993)
   First major pronouncement: retirement benefits and separation pay are not mutually exclusive.

2. Davao Integrated Port Stevedoring Services v. Abarquez (G.R. No. 102132, March 19, 1993)
   Explicitly declared that separation pay under Article 283 and retirement benefits under Article 287 are “separate and distinct.”

3. Philippine Carpet Employees Association (PHILCEA) v. Sto. Tomas (G.R. No. 168719, November 27, 2009)
   Re-affirmed the cumulative nature of the benefits.

4. Platinum Plans Philippines, Inc. v. Cucueco (G.R. No. 163779, February 28, 2008)
   Employee retrenched at age 61 was awarded both retrenchment pay and retirement benefits.

5. Eastern Mediterranean Maritime Ltd. v. Estanislao (G.R. No. 177732, June 17, 2015)
   Even seafarer retrenched due to redundancy was entitled to both disability benefits and retirement benefits when he reached retirement age.

6. University of the East v. UE Faculty Association (G.R. No. 179593, September 14, 2011, cited in later cases)
   The Court reiterated that nothing in the Labor Code prohibits the payment of both.

7. Hanford Philippines, Inc. v. Joseph (G.R. No. 206402, July 18, 2022)
   Most recent reiteration: “separation pay and retirement benefits are separate and distinct.”

DOLE Position

The Department of Labor and Employment has consistently maintained the same position:

• DOLE Explanatory Bulletin on R.A. 7641 (December 28, 1992)
  “Retirement benefits under Article 287 are separate and distinct from separation pay under Article 283.”

• DOLE Handbook on Workers’ Statutory Monetary Benefits (2023 edition, p. 47)
  “An employee who is terminated due to authorized causes and who is eligible for retirement is entitled to both separation pay and retirement pay.”

Exceptions and Qualifications

The right to both benefits is not absolute and may be limited in the following instances:

1. Express provision in CBA, retirement plan, or employment contract
   If the CBA or company retirement plan expressly states that separation pay shall be “in lieu of” or “charged against” retirement benefits (or vice versa), such stipulation prevails, provided the employee receives at least the statutory minimum.

   Example: Many CBAs provide that “in case of termination due to authorized causes, the employee shall be entitled to separation pay under Article 283/298, which shall include any retirement benefit due.” Such provision is valid.

2. Voluntary retirement availed of by the employee
   If the employee voluntarily opts to retire under the company’s optional early retirement program or upon reaching 60 years, he/she is entitled only to retirement benefits (unless the program expressly grants additional separation pay).

3. Illegal dismissal later converted to valid redundancy/retrenchment
   In some cases where the dismissal is initially declared illegal but the employer later proves business losses or redundancy, the Supreme Court has awarded separation pay in lieu of reinstatement, but retirement benefits are still granted separately if the employee is already of retirement age at the time finality of judgment is reached.

4. Underground mining employees
   Under R.A. 8558, retirement pay is one (1) month salary per year of service—hence separation pay for redundancy would be offset or integrated since it is the same amount.

Practical Computation Example

Employee:

• Monthly salary: ₱40,000
• Length of service: 20 years
• Age at termination: 62
• Termination ground: Valid redundancy

Entitlements:

1. Redundancy/Separation Pay
   Higher of:
   a) ₱40,000 × 20 years = ₱800,000
   b) ₱20,000 × 20 years = ₱400,000

   → ₱800,000 (one month per year is higher)

2. Retirement Pay
   Daily rate = ₱40,000 × 12 ÷ 313 (or 365, depending on company divisor) ≈ ₱1,533.55
   22.5 days × ₱1,533.55 × 20 years = ₱690,097.50

Total benefits payable: ₱800,000 + ₱690,097.50 = ₱1,490,097.50 (plus any unused leave credits, 13th-month proportion, etc.)

Conclusion

Under settled Philippine jurisprudence and DOLE policy, an employee terminated due to redundancy (or any authorized cause) who has reached retirement age and has at least five years of service is entitled to both redundancy/separation pay and retirement benefits. The two benefits are not mutually exclusive because they serve different purposes and spring from different provisions of the Labor Code.

Only an express agreement (CBA, retirement plan, or individual contract) providing for offset or substitution can deprive the employee of one of the benefits, and even then, the statutory floor must be observed.

Employers are therefore well-advised to clearly stipulate in their retirement plans or CBAs how the two benefits interact in order to avoid double payment and prolonged litigation.