I. Overview

In Philippine labor law, “separation pay” and “retirement pay” often get mixed up, especially when an employee who is already at or near retirement age stops working because of illness.

Key questions usually are:

If I resign because of illness, am I entitled to separation pay?
If I’m at retirement age and sick, do I get retirement pay, separation pay, or both?
What if the employer is the one who terminates me because of my disease?

This article explains the legal framework, typical scenarios, and practical implications, focusing on private-sector employees under Philippine law as of mid-2024.

Important note: This is general information, not a substitute for specific legal advice on an actual case.

II. Legal Framework

1. Security of tenure and modes of termination

Under the Labor Code of the Philippines, employees enjoy security of tenure. This means they can only be dismissed for:

Just causes – usually based on employee fault (e.g., serious misconduct, gross neglect).
Authorized causes – usually business-related or health-related (e.g., redundancy, closure, disease).

Separation pay is not due in all terminations. It is generally mandated only for authorized causes, not for voluntary resignations or dismissals for just causes.

2. Separation pay under the Labor Code (Authorized Causes)

The Labor Code (particularly provisions formerly numbered Articles 283 and 284, now renumbered) requires separation pay in certain situations, including:

Installation of labor-saving devices
Redundancy
Retrenchment to prevent losses
Closure or cessation of business
Termination due to disease

For these authorized causes, the law prescribes minimum separation pay formulas (e.g., one month or one-half month per year of service, depending on the cause).

3. Retirement pay under RA 7641 (Retirement Pay Law)

Retirement benefits are governed mainly by Article 302 of the Labor Code (as amended) and Republic Act No. 7641 (Retirement Pay Law). In general:

Optional retirement: As early as 60 years old, with at least 5 years of service.
Compulsory retirement: At 65 years old, with at least 5 years of service.

If there is no company retirement plan or CBA giving at least equivalent benefits, RA 7641 provides a minimum retirement pay:

At least one-half (1/2) month salary for every year of service, with a fraction of at least 6 months counted as one whole year.

Here, “1/2 month salary” is a legal term of art and usually includes:

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

So in effect, about 22.5 days per year of service, as a minimum, for qualified employees.

Note: RA 7641 generally applies to private sector employees whose employers are not already giving at least equivalent retirement benefits, with some exemptions (e.g., small employers with fewer than 10 employees).

4. Termination due to disease vs. resignation due to illness

The law draws a critical distinction:

Termination due to disease (employer-initiated)
- Employer dismisses the employee because of an illness that makes continued employment unlawful or prejudicial and cannot be cured within six months.
- This is an authorized cause; separation pay is mandated.
Resignation due to illness (employee-initiated)
- Employee voluntarily resigns because they are sick and can no longer continue working.
- This is voluntary resignation, not an authorized cause.
- As a general rule, no separation pay is legally required, unless there is a contractual or policy-based source.

This distinction is at the heart of the issue.

III. Separation Pay for Termination Due to Disease (Authorized Cause)

Although the question is about resignation, understanding termination due to disease helps clarify when separation pay is legally mandated.

1. Legal basis and requisites

The Labor Code allows an employer to terminate an employee on the ground of disease, when:

The employee is suffering from a disease;
The disease is such that:
- It is not curable within six (6) months, even with proper medical treatment; and
- Continued employment is prohibited by law or prejudicial to the employee’s health or to the health of co-employees;
The disease and prognosis are certified by a competent public health authority or duly licensed physician; and
The employer observes due process (usually:
- Notice to the employee of the ground,
- Opportunity to be heard/submit medical findings,
- Notice of termination).

If these requisites are met, the employer may legally terminate employment with separation pay.

2. Amount of separation pay

For termination due to disease, the law generally provides:

Separation pay equivalent to at least one (1) month salary or one-half (1/2) month salary for every year of service, whichever is higher.

A fraction of at least 6 months is treated as one whole year.

Example:

10 years of service
½ month per year → 5 months’ pay
1 month salary floor → 1 month The higher is 5 months, so the minimum separation pay is 5 months’ salary.

3. Termination at or near retirement age

If the employee is already 60–65 years old, but the employer relies on disease (not retirement) to terminate the employee, the ground is disease, so the entitlement is separation pay under the disease provision.

Whether the employee also gets retirement benefits depends on:

Existing retirement plan, CBA, or company policy; and
Interpretation of whether the employee may claim both retirement pay and separation pay.

Courts often avoid “double recovery” absent a clear agreement; they usually allow only one of the two benefits (whichever is more advantageous), unless the CBA or company plan clearly grants both.

IV. Resignation Due to Illness (Employee-Initiated)

Now to the core: What if the employee resigns due to illness at retirement age?

1. General rule: No statutory separation pay

Under the Labor Code, voluntary resignation is generally not one of the instances where separation pay is mandated.

Even if the employee resigns because of:

Incurable illness,
Mental health issues,
Physical incapacity,

as long as it is the employee’s voluntary act, the law does not automatically require the employer to pay separation pay.

There are exceptions (below), but the default rule is: No separation pay for voluntary resignation.

2. When separation pay may still be due

Even if there is no legal mandate, separation pay may become due and demandable in resignation due to illness if there is:

Contractual stipulation
- Employment contract, appointment letter, or offer document promising separation pay in cases of illness-related resignation.
Collective Bargaining Agreement (CBA)
- A CBA may provide benefits for resignation due to health, disability, or “medical separation,” even if the law does not.
Company policy or employee handbook
- Some companies have written HR policies granting “financial assistance” or “ex gratia benefits” for employees who resign due to illness, especially long-service employees or those at retirement age.
- Once such a policy is clear, definite, and consistently applied, the benefit can ripen into an enforceable obligation.
Established company practice
- If an employer consistently gives separation pay or financial assistance to employees who resign due to illness, this may become a company practice that cannot be withdrawn unilaterally if it is:
  - Deliberate,
  - Consistent, and
  - Extended over a long period of time.
Judicial equity (rare, case-by-case)
- In certain cases, courts grant financial assistance to dismissed employees as a matter of equity, not strict entitlement.
- This is not automatic and cannot be demanded as a “right,” but it is useful to understand that courts may soften harsh results in exceptional situations.

3. Constructive dismissal disguised as “resignation”

Sometimes, an employee “resigns” because the employer made working conditions unbearable or essentially forced the employee out (e.g., refusing to accommodate a serious illness, assigning impossible tasks, harassment).

If the resignation is actually forced or coerced, there may be constructive dismissal. In such a case:

The “resignation” is invalid;
The case is treated as illegal dismissal;
The employee may be entitled to:
- Backwages,
- Separation pay in lieu of reinstatement, plus
- Other monetary awards (e.g., moral and exemplary damages, attorney’s fees), depending on the circumstances.

This is very fact-specific and decided by the NLRC or courts based on evidence.

V. Retirement Age and Illness: How Do Retirement Benefits Fit In?

When illness occurs at or near retirement age, we must separate the concepts:

Retirement benefits – granted when employment ends due to retirement (optional or compulsory), per law or plan.
Separation pay – granted when employment ends for specified authorized causes (like disease), or when contractually agreed.

1. Optional vs. compulsory retirement

Optional retirement
- Employee may choose to retire, usually at 60 or above, if he/she meets the minimum service requirement (at least 5 years).
- Retirement pay is then due under the law or company plan.
Compulsory retirement
- Employer may mandate retirement when the employee reaches 65, if the conditions under RA 7641 and applicable plans or policies are met.
- Retirement pay is due.

Illness may be present in either case, but the legal ground for separation is retirement, not disease.

2. If an employee at retirement age resigns due to illness

Typical scenario:

Employee is 60–65 years old,
Has at least 5 years of service,
Has a serious illness,
Submits a resignation letter citing health reasons.

In many cases, even if the employee writes “resignation”, practically and legally it may qualify as optional retirement if:

The employee is of retirement age; and
There is a clear retirement policy or law that applies; and
The intent is to end employment due to age and length of service.

Thus, the employee may claim retirement benefits, not “separation pay,” if the requisites for retirement are met.

Employers sometimes treat this as “resignation” to avoid paying retirement benefits, but if the facts show that:

Age and service requirements are met, and
The real context is retirement due to age/illness,

the employee can argue entitlement to retirement pay under RA 7641 or the applicable plan, even if the letter uses the word "resignation."

3. Can an employee get both retirement pay and separation pay?

General tendencies in jurisprudence:

No double recovery, unless clearly allowed.
If the retirement plan or CBA states that separation pay is on top of retirement pay (e.g., in redundancy AND retirement scenarios), courts may allow both.
If there is no clear language, courts usually say the employee is entitled to only one of the benefits, and the more beneficial one is applied.

In illness-at-retirement scenarios, usually one of the following applies:

Retirement → retirement pay only; no additional separation pay, unless the plan or CBA says otherwise.
Disease (authorized cause) → separation pay for disease; usually no separate retirement pay, unless plan or CBA expressly grants both.

VI. Typical Scenarios

To make this concrete, here are common patterns (assuming private sector, no special CBA):

Scenario 1: Employee resigns at 62 due to illness; employer accepts; no special policy.

Age: 62 (within retirement age bracket).
Service: 20 years.
Company has no written retirement plan, only follows law.
Employee’s letter explicitly says: “I hereby resign due to health reasons.”

Possible results:

As resignation: No separation pay under the Labor Code.
As retirement: Employee may argue this is actually optional retirement, therefore retirement pay under RA 7641 is due (since age 62 + >5 years of service).
Employer may resist, claiming “resignation” and no retirement plan.
If litigated, a labor tribunal could examine:
- Whether the company has treated similar cases as retirement,
- Whether other employees were given retirement pay under similar circumstances,
- Whether the employee knowingly waived retirement.
If the employee is clearly qualified under RA 7641, there is a strong argument that minimum retirement benefits must still be paid, since RA 7641 is of mandatory application (unless employer is exempt or already has a better plan).

Scenario 2: Employer terminates 61-year-old employee for disease, with medical certification.

Employer relies explicitly on termination due to disease.
Proper medical certification states illness cannot be cured within 6 months; continued work is harmful.
Age: 61; service: 20 years.

Employee’s entitlements:

Separation pay: At least one month salary or 1/2 month per year of service (whichever is higher).
Debate: Is retirement pay also due?
- If no retirement plan, RA 7641 still applies for retirement; however, courts usually avoid giving both separation pay and retirement pay absent clear agreement.
- Tribunals typically treat the actual ground chosen by the employer—here, disease—as the basis of entitlement. So the employee gets separation pay, not retirement pay, unless the company plan or CBA provides otherwise.

Scenario 3: Employee is over 65, still working, then resigns due to illness

If an employee is already beyond 65, still employed, and resigns due to illness:

The employer could have already compulsorily retired the employee and paid retirement benefits.
If retirement pay has not yet been paid, the employee may argue that he/she is entitled to retirement benefits at the moment of separation, because the retirement entitlement vested at age 65 with sufficient service.
Again, separation pay as such (for resignation) is not mandated, but retirement pay is (unless an exemption applies).

VII. Tax Treatment (High-Level)

While tax rules can change, the traditional framework under the National Internal Revenue Code (NIRC) has generally been:

Separation pay due to causes beyond the employee’s control (e.g., death, sickness/disability, retrenchment) may be excluded from gross income and thus not subject to income tax, subject to certain conditions and BIR interpretations.
Retirement benefits:
- Retirement pay under RA 7641 or a reasonable private benefit plan registered with the BIR may be tax-exempt, if conditions are met (e.g., age, years of service, one-time retirement rule).
- Otherwise, retirement benefits may be taxable.

Given how frequently BIR rules are refined and interpreted, parties should consult updated tax guidance or a tax lawyer/CPA when applying these rules.

VIII. Other Related Benefits: SSS, PhilHealth, ECC

Separation or retirement due to illness intersects with social security and health coverage:

SSS Sickness and Disability Benefits
- SSS grants sickness benefits for periods of incapacity and disability benefits (partial or total) depending on the nature and permanence of the illness.
- Separate from employer-granted separation or retirement pay.
PhilHealth
- Provides in-patient and certain out-patient coverage for hospitalizations and procedures related to the illness.
Employees’ Compensation (EC) Program
- If the illness is work-related, EC benefits may be claimed (e.g., disability benefits, medical services, rehabilitation).
- Administered through SSS (private sector) and GSIS (public sector), but is distinct from regular SSS benefits.

These are statutory benefits independent of separation pay or retirement pay.

IX. Practical Guidance for Employees

If you are ill and at or near retirement age, consider the following:

Clarify your status
- Are you resigning, retiring, or being terminated? The label significantly affects your entitlements.
Check your age and years of service
- If you are 60 or older with at least 5 years of service, you likely qualify for retirement benefits under RA 7641 or your retirement plan.
Review company policies, handbook, and any retirement plan
- Look for provisions on:
  - Retirement age and conditions
  - Benefits for illness or disability
  - Financial assistance for health-related resignations
Ask for a copy of the CBA (if unionized)
- CBAs often have special provisions for illness, disability, or early retirement.
Get proper medical certification
- Especially if the ground involves disease or disability.
- This is essential for:
  - Termination due to disease (if employer initiates),
  - Disability claims (SSS/EC), and
  - Negotiating reasonable terms.
Be careful with resignations and quitclaims
- Do not sign resignation letters or quitclaims if you do not fully understand their legal impact.
- Courts scrutinize quitclaims, but they are not automatically void. If executed voluntarily, with full understanding, and adequate consideration, they may bar future claims.
Document communications
- Keep copies of letters, emails, HR memos, and medical records.
- These documents are crucial if disputes arise later.

X. Practical Guidance for Employers

Employers should handle illness-related resignations/terminations with care:

Determine the proper ground
- If the employee is still willing and able to work, but the employer believes the illness is incompatible with continued employment, consider termination due to disease, not mere “resignation,” and comply with all legal requisites.
- If the employee is of retirement age and meets service requirements, consider that retirement benefits may be legally due.
Observe due process
- For termination due to disease:
  - Obtain credible medical certification,
  - Give proper notices,
  - Allow the employee to respond.
Review internal policies, plans, and CBAs
- Ensure that the company’s actions are consistent with:
  - Retirement plan,
  - Employee handbook,
  - CBA provisions.
Avoid forced resignations
- Pressuring employees to “just resign” to avoid separation/retirement pay is risky and may lead to constructive dismissal cases, with higher liability.
Be consistent in granting benefits
- Inconsistent treatment can:
  - Create unwanted company practice, or
  - Be used as evidence of unfair labor practice or discrimination.
Train HR and line managers
- Illness-related separations are sensitive and legally complex; HR must be trained in both legal compliance and humane handling.

XI. Conclusion

In the Philippine context, resignation due to illness at retirement age sits at the crossroads of labor, retirement, and social security law:

Pure voluntary resignation, even if motivated by illness, does not automatically entitle the employee to separation pay under the Labor Code.
However, when the employee is at or beyond retirement age and has sufficient service, retirement pay under RA 7641 or a company plan often comes into play, regardless of the label used (“resignation” vs. “retirement”).
Separation pay is mandatory where there is termination due to disease (employer-initiated) that satisfies legal requisites.
The possibility of receiving both separation pay and retirement pay usually depends on the express terms of the CBA or retirement plan, with courts generally disfavoring double recovery when not clearly provided.

Because each situation depends heavily on actual facts, documents, and policies, anyone facing illness-related separation at or near retirement age is well-advised to:

Carefully review their contracts, company policies, and retirement plans,
Understand the legal distinction between resignation, termination due to disease, and retirement, and
Seek individualized legal advice to protect their rights and make informed decisions.