G.R. No. 199338 - Padillo vs. Rural Bank of Nabunturan, Inc.

Case Summary (G.R. No. 199338)

Factual Background

Padillo was employed by the Bank since October 1, 1977, as SA Bookkeeper and served for twenty-nine years. Due to the Bank’s liquidity problems around 2003, the Bank procured a Philam Life insurance/retirement plan in Padillo’s favor (Philam Plan Certificate No. 88204) for P100,000, maturing on July 11, 2009. In late 2007 Padillo suffered a mild stroke attributable to hypertension, diagnosed as Hypertension S/P CVA with short-term memory loss and classified as total disability. On September 10, 2007 Padillo wrote to the Bank seeking early retirement; he subsequently stopped reporting for work and was separated for poor and failing health (certified December 4, 2007). Padillo filed a complaint on September 23, 2008 with the NLRC for recovery of unpaid retirement benefits, alleging among other things that a co-employee, Nenita Lusan, had been granted an early retirement package.

Procedural History Overview

Labor Arbiter (LA) Decision (March 13, 2009): dismissed Padillo’s complaint but ordered the Bank to pay P100,000 as financial assistance, treated as an advance on the Philam Life Plan benefit. NLRC (December 29, 2009; denial of reconsideration March 31, 2010): reversed LA, ordered separation pay of P164,903.70 in addition to P100,000. Court of Appeals (CA) (June 28, 2011; resolution Oct. 27, 2011): granted respondents’ petition for certiorari, set aside the NLRC resolutions, reinstated the LA decision with modification awarding P50,000 as financial assistance exclusive of the P100,000 Philam benefit. Supreme Court (this decision): partly granted petition, modified CA award increasing financial assistance to P75,000, exclusive of the P100,000 Philam benefit.

Labor Arbiter’s Ruling

The LA found Padillo ineligible for retirement pay under Article 300 because he was only fifty-five years old when he resigned and Article 300 provides retirement benefits for employees aged sixty to sixty-five in the absence of an applicable retirement plan or agreement. The LA dismissed Padillo’s complaint but directed payment of P100,000 as financial assistance (treated as an advance under the Philam Life Plan).

NLRC Decision and Reasoning

The NLRC reversed the LA and awarded separation pay of P164,903.70 plus the P100,000 Philam benefit. The NLRC applied Article 297 (termination on the ground of disease) and relied on Abaquin Security and Detective Agency, Inc. v. Atienza, reasoning that although Padillo resigned, he did so because of poor health; the NLRC accordingly treated the separation as termination due to disease.

Court of Appeals Ruling and Rationale

The CA granted certiorari, set aside the NLRC resolutions, and reinstated the LA decision with modification. It held (1) Article 300 on retirement benefits was inapplicable because Padillo was only fifty-five at separation, and there was no agreement or established company policy to grant early retirement; (2) evidence was insufficient to show a company-wide practice based on a single instance (Lusan); and (3) Article 297 did not apply because Padillo initiated the separation—citing Villaruel v. Yeo Han Guan—that Article 297 presupposes employer-initiated termination for disease. The CA nonetheless awarded P50,000 as financial assistance in view of Padillo’s long service and circumstances.

Issues Presented to the Supreme Court

Whether Article 297 (termination for disease) applies and entitles Padillo to separation pay.
Whether Padillo is entitled to retirement benefits under Article 300.
Whether the NLRC appropriately applied Abaquin to grant separation pay despite voluntary resignation.
Whether respondents acted in bad faith warranting damages or additional relief.
Whether the CA’s financial assistance award was appropriate.

Supreme Court: On Applicability of Article 297

The Court held Article 297 does not apply because Padillo voluntarily severed employment; his September 10, 2007 letter and his cessation of work show he initiated retirement. Article 297 presupposes employer-initiated termination where the employer is required to have certification from a competent public health authority before terminating on disease grounds. The Court affirmed the CA’s reliance on Villaruel: Article 297 contemplates employer-initiated termination and does not cover employee-initiated resignation due to illness.

Supreme Court: On the NLRC’s Reliance on Abaquin

The Court found the NLRC’s reliance on Abaquin misplaced. Abaquin involved a security guard who could not collectively bargain under the old law, placing him in a special class deserving equitable consideration despite voluntary resignation. Padillo did not belong to that special class (security guards under the old regime); current law distinguishes managerial and confidential employees, and no analogous deprivation of collective action was shown. Therefore Abaquin is inapplicable here.

Supreme Court: On Article 300 Retirement Entitlement

Article 300 (as amended) sets cumulative age and tenure requirements: in the absence of a retirement plan or agreement, an employee must be at least sixty (60) years old (but not beyond sixty-five) and have at least five (5) years’ service to be entitled to statutory retirement pay (one-half month salary per year of service). The Court found no collective bargaining agreement or company retirement plan (other than the Philam Life Plan already paid), nor an established company practice of granting early retirement (the isolated Lusan case is insufficient). Padillo met the tenure requirement but not the age requirement (he was fifty-five), so he was not entitled to retirement benefits under Article 300.

Supr

Case Syllabus (G.R. No. 199338)

Procedural History

Petition for Review on Certiorari filed before the Supreme Court assails the Cagayan de Oro City Court of Appeals (CA) Decision dated June 28, 2011 and Resolution dated October 27, 2011 in CA-G.R. SP No. 03669-MIN, which revoked and set aside the National Labor Relations Commission’s (NLRC’s) Resolutions dated December 29, 2009 and March 31, 2010 and reinstated the Labor Arbiter’s (LA’s) Decision dated March 13, 2009, with modification.
Labor Arbiter (LA) rendered Decision on March 13, 2009 dismissing petitioner’s complaint but ordering the Bank to pay P100,000.00 as financial assistance, treated as an advance on the Philam Life Plan proceeds.
NLRC Fifth Division reversed LA on December 29, 2009 and ordered respondents to pay separation pay in the amount of P164,903.70 in addition to the P100,000.00 Philam Life Plan benefit; NLRC denied respondents’ motion for reconsideration in its March 31, 2010 Resolution.
Respondents filed certiorari with the CA; on June 28, 2011 the CA set aside the NLRC resolutions and reinstated the LA Decision but modified the award, directing respondents to pay P50,000.00 as financial assistance exclusive of the P100,000.00 Philam Life Plan benefit.
Petitioners (substituted heirs after petitioner’s death) filed the instant petition to the Supreme Court challenging the CA’s ruling on multiple grounds; the Supreme Court rendered judgment on January 21, 2013 (G.R. No. 199338), partly granting the petition and modifying the CA award.

Facts of the Case

Petitioner Eleazar S. Padillo began employment with respondent Rural Bank of Nabunturan, Inc. (the Bank) on October 1, 1977 as SA Bookkeeper.
Due to liquidity problems circa 2003, the Bank procured retirement/insurance plans with Philippine American Life and General Insurance Company (Philam Life) for employees; Philam Plan Certificate of Full Payment No. 88204, Plan Type 02FP10SC, Agreement No. PP98013771 was issued in favor of Padillo for P100,000.00, maturing July 11, 2009.
On October 14, 2004 Mark S. Oropeza purchased majority shares in the Bank, became its President, and implemented management changes that gradually rehabilitated the Bank’s finances and liquidity.
In late 2007 Padillo suffered a mild stroke due to hypertension, diagnosed as Hypertension S/P CVA with short term memory loss, classified as total disability; his health impaired his ability to work.
Padillo wrote a letter dated September 10, 2007 addressed to Oropeza applying for early retirement and requesting settlement of retirement benefits; despite follow-ups, his request was not granted.
Padillo stopped reporting for work and was separated on October 3, 2007 due to poor and failing health as reflected in a Bank Certification dated December 4, 2007.
Padillo filed a complaint on September 23, 2008 with NLRC Regional Arbitration Branch No. XI (Davao City) for recovery of unpaid retirement benefits; he alleged Bank policy of granting early retirement to aging employees and cited co-employee Nenita Lusan who allegedly received P348,672.72 retirement benefits at age 53.

Labor Arbiter Ruling (March 13, 2009)

LA dismissed Padillo’s complaint for retirement benefits under Article 300 (formerly Article 287) of the Labor Code, finding Padillo disqualified because he was only 55 years old when he resigned, while Article 300 provides an optional retirement age of 60 and compulsory retirement age of 65.
LA nonetheless directed the Bank to pay Padillo P100,000.00 as financial assistance, treated as an advance on the Philam Life Plan benefits.

NLRC Ruling (December 29, 2009; Reconsideration denied March 31, 2010)

NLRC reversed and set aside the LA Decision and ordered respondents to pay separation pay of P164,903.70 in addition to the P100,000.00 Philam Life Plan benefit.
NLRC justified its grant of separation pay by applying the Labor Code provision on termination on the ground of disease, Article 297 (formerly Article 323), concluding that Padillo’s resignation was effectively compelled by poor health.
NLRC relied on the Supreme Court’s decision in Abaquin Security and Detective Agency, Inc. v. Atienza as supportive precedent.
Respondents’ motion for reconsideration before the NLRC was denied in its March 31, 2010 Resolution.

Court of Appeals Ruling (June 28, 2011; Resolution Oct. 27, 2011)

CA granted respondents’ petition for certiorari, set aside NLRC’s resolutions, and reinstated LA’s March 13, 2009 Decision, but modified the award:
- Ordered respondents to pay Padillo P50,000.00 as financial assistance, exclusive of the P100,000.00 Philam Life Plan benefit (which matured on July 11, 2009).
CA held:
- Padillo could not, absent any agreement, receive retirement benefits pursuant to Article 300 because he was only 55 years old at retirement.
- Evidence insufficient to prove an established company policy of granting early retirement packages; the Lusan incident was insufficient to prove company practice.
- Article 297 separation pay for disease inapplicable because Padillo initiated the severance; CA relied on Villaruel v. Yeo Han Guan to support that Article 297 presupposes employer-initiated termination.
CA nonetheless awarded P50,000.00 financial assistance considering: Padillo’s 29 years of service, no derogatory record, and that separation was due to failing