Title
Obusan vs. Philippine National Bank
Case
G.R. No. 181178
Decision Date
Jul 26, 2010
PNB's privatization led to Amelia Obusan's compulsory retirement at 60 under PNB-RRP; she contested, claiming a vested right to retire at 65. Courts upheld PNB’s valid retirement plan, affirming lower age.
retirement plan
compulsory retirement age
validity
A

Case Summary (G.R. No. 181178)

Factual Background

At the time Obusan was hired in 1979, PNB was government-owned or controlled and its retirement program was administered by the Government Service Insurance System (GSIS) under Presidential Decree No. 1146. When PNB was privatized on May 27, 1996, Section 6 of Executive Order No. 80 provided that upon transfer of the majority of issued common voting shares to private investors, the bank’s charter would cease and be deemed repealed, special privileges and restrictions would be withdrawn, and the bank would become a privately organized bank subject to laws applicable to private banks. The same provision further stated that the bank would cease to be a government owned or controlled corporation and would no longer be covered by service-wide agencies such as the Commission on Audit and the Civil Service Commission.

After privatization, PNB employees, including Obusan, were deemed retired from government service. The GSIS confirmed Obusan’s government retirement in a letter dated February 3, 1997 and paid retirement gratuity in the net amount of P390,633.76. Obusan continued working for PNB thereafter.

PNB’s board adopted a retirement plan by Resolution No. 30 dated December 22, 2000, as amended, approving the PNB-RRP. The plan’s Section 1, Article VI defined normal retirement as attaining age sixty, and specified that a member who reached the normal retirement date “shall have to compulsor[il]y retire” and receive retirement benefits under the plan.

PNB informed its officers and employees of the terms and conditions of the PNB-RRP in a memorandum dated February 21, 2001, and the PNB-RRP was registered with the Bureau of Internal Revenue pursuant to a letter dated June 27, 2001. The Philnabank Employees Association, PNB’s union of rank-and-file employees, recognized the PNB-RRP in a Collective Bargaining Agreement (CBA). PNB subsequently notified Obusan in a memorandum dated February 11, 2002 that her last day of employment would be March 3, 2002 because she would reach mandatory retirement age on March 4, 2002. Obusan, then President of the PNB Supervisors and Officers Association, challenged the compulsory retirement in a letter dated February 26, 2002, alleging illegal dismissal and unfair labor practice in the form of union busting. PNB replied on March 1, 2002, explaining that compulsory retirement under the PNB-RRP was not contrary to law and did not constitute union busting.

Labor Arbiter and NLRC Proceedings

Obusan filed a complaint before the Labor Arbiter for illegal dismissal and unfair labor practice, contending that PNB could not compulsorily retire her at age sixty because she allegedly had a vested right to retire at sixty-five based on civil service regulations. On April 25, 2003, the Labor Arbiter dismissed the complaint. It reasoned that although Obusan asserted a right to retire at sixty-five as existing at the time of her hiring, there was no jurisprudence or law supporting that claim. The Labor Arbiter found it undisputed that when Obusan was hired, PNB was still a government-owned and controlled corporation and thus civil service law governing compulsory retirement applied. However, it held that this applicability lasted only while PNB remained government-owned and controlled. Once PNB privatized and ceased to be government-owned and controlled, the Labor Code became the applicable framework, under which PNB could establish its own retirement plan within the bounds of law. The Labor Arbiter further held that Obusan could not assert that her right to be retired at sixty-five had already vested at hiring, because such right could only vest at retirement. It also found that the plan Obusan sought to apply had ceased to exist, being replaced by the PNB-RRP which complied with the Labor Code provisions on retirement plans.

Obusan appealed to the NLRC. By Resolution dated May 31, 2004, the NLRC dismissed the appeal and affirmed the Labor Arbiter in toto. In its discussion, it relied on Razon, Jr. v. NLRC to explain that while retirement schemes may create enforceable vested interests in retirement funds and benefits, the decision did not establish a vested right to a particular retirement age. The NLRC characterized retirement age as not property and not fixed or permanent, such that laws, contracts, and collective bargaining agreements could alter it. It added that the privatization of PNB and severance of its employees from government service constituted persuasive and compelling reasons for the loss of any entitlement to the government retirement plan.

Obusan’s motion for reconsideration was denied by NLRC Resolution dated August 28, 2006.

Proceedings in the Court of Appeals

Obusan then filed a petition for certiorari before the CA, alleging grave abuse of discretion by the NLRC. The CA denied the petition in a Decision dated September 21, 2007. It held that the PNB-RRP’s lowering of compulsory retirement age to sixty did not violate Article 287 of the Labor Code, even though the plan was issued after Obusan had been hired. The CA rejected Obusan’s argument that she had an enforceable right to retire at sixty-five that could not be impaired.

The CA denied Obusan’s motion for reconsideration by Resolution dated January 8, 2008.

Issues and Obusan’s Arguments in the Supreme Court

In her petition before the Supreme Court, Obusan maintained that PNB could not unilaterally lower compulsory retirement age to sixty without violating Article 287 of the Labor Code and without disregarding her alleged right to retire at sixty-five. She argued that the PNB-RRP should apply only to employees hired on and after February 21, 2001, the date the plan was adopted and communicated. She claimed that if the reduction of compulsory retirement age under the PNB-RRP were the product of agreement between PNB and its employees, she would have accepted it. According to her, the provision on retirement age was a unilateral act by PNB to which she did not consent.

In her supplement, Obusan invoked Jaculbe v. Silliman University, where the Court had characterized retirement as the result of a bilateral act between employer and employee. She also cited Pantranco North Express, Inc. v. NLRC, where the reduction of retirement age below sixty-five was accepted because it formed part of the CBA, with employees’ consent clearly expressed. Obusan thus argued that because neither the CA nor PNB cited a collective or other agreement justifying the early retirement age, her compulsory retirement at sixty should be deemed illegal dismissal. She further asserted that her participation in the plan was not truly voluntary, because PNB allegedly provided no meaningful choice other than to resign or lose her job.

Obusan also advanced a constitutional dimension through her claim that the compulsory retirement undermined her security of tenure. She urged that if the PNB-RRP could not be applied to her, Article 287 should control, granting her the right to compulsory retirement at sixty-five.

Respondent’s Position and the Supreme Court’s Legal Framework

The Court addressed the statutory framework first. Article 287 of the Labor Code, as amended by Republic Act No. 7641, provides for retirement upon reaching the retirement age established in the CBA or other applicable employment contract. It also contains a proviso that retirement benefits under any CBA and other agreements shall not be less than those provided by law. The law further provides that in the absence of a retirement plan or agreement providing for retirement benefits, an employee may retire upon reaching age sixty or more but not beyond sixty-five, with compulsory retirement age declared at sixty-five and optional retirement set at sixty.

The Court clarified that under Article 287, retirement age is primarily determined by the existing agreement or employment contract. It also noted that Article 287 operates on two specific conditions: where there is no CBA or applicable employment contract providing for retirement benefits, or where there is a CBA or applicable employment contract but the retirement benefits provided are below the statutory requirement. It explained the rationales for preventing the denial of benefits through schemes that would otherwise deprive employees and preventing private contracts from derogating from public law.

Applied to Obusan, the Court found that she was hired in 1979 when PNB was still government-owned and controlled, making civil service law applicable and reflecting a compulsory retirement age of sixty-five by operation of law. However, the Court held that once PNB privatized in 1996 and ceased to be a government-owned and controlled corporation, the employees were deemed retired from government service, and many, including Obusan, received corresponding retirement gratuities.

Validity and Compliance of the PNB-RRP

The Court rejected the thesis that the PNB-RRP constituted a retirement plan providing benefits less than what law requires. It held that the PNB-RRP factored the statutory retirement computation requirements in determining retirement pay. It observed that, for service rendered after privatization, the plan provided a benefit formula using a vesting multiple of one hundred twelve (112%) percent of the “Latest Monthly Plan Salary,” along with the method of computing the daily and monthly salary components, and that the plan reflected the Labor Code’s requirements in calculating the retirement benefits.

The Court also noted that the PNB-RRP accounted for the effect of privatization by granting additional benefits to those not qualified to receive the GSIS Retirement Gratuity Benefits. Under the plan, a member who failed to qualify to receive GSIS Retirement Gratuity Benefits would be entitled to one month basic salary as of May 26, 1996 for every year of service rendered before privatization. Thus, the plan was not characterized as diminishing mandated benefits below statutory standards.

In support of the legal proposit

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