Llora Motors, Inc. vs. Drilon

Article 287 of the Labor Code does not obligate an employer to establish an additional retirement scheme; entitlement to retirement benefits beyond those under existing laws, such as the Social Security Act, must rest on a collective bargaining agreement, other employment contract, or established employer policy. A formal trial-type hearing is not essential to due process in labor proceedings where the parties are afforded a fair and reasonable opportunity to explain their side.

Llora Motors, Inc. employed Primitivo V. Alviar as a truck driver beginning in September 1968, with Constantino Carlota, Jr. serving as company manager. The dispute implicated Article 287 of the Labor Code and Sections 13 and 14 of Rule I, Book VI of the Implementing Rules, which govern retirement from service and distinguish retirement benefits from termination or separation pay. The Social Security Act's compulsory retirement scheme and the constitutional guarantee of due process in labor proceedings supplied the broader statutory and constitutional backdrop.

Primitivo V. Alviar began working as a truck driver for Llora Motors, Inc. in September 1968. He rendered services eight hours a day, excluding overtime, seven days a week, and was paid on a per-trip basis plus emergency cost of living allowance (ECOLA). Constantino Carlota, Jr. was the company manager. Alviar stopped working on 19 April 1985, when he was 65 years old.

On 28 October 1985, Alviar filed a complaint with NLRC Regional Arbitration Branch No. I in San Fernando, La Union, docketed as NLRC Case No. RAB-I-0096-85, for "Separation Pay and Non-Payment of Daily Wages" against Llora Motors and Carlota. In his Position Paper, he claimed ECOLA underpayments from November 1982 up to April 1985 amounting to P4,709.54 and retirement benefits computed at one-half month's pay for every year of service.

Llora Motors and Carlota opposed the complaint, alleging that all employment benefits claimed had already been fully paid. They contended that Alviar had not been dismissed: sometime in early 1985 he showed lack of interest in his work and would be absent without apparent reason; Truck No. 802 assigned to him laid idle and deteriorated from non-use; in the last week of April 1985, when Alviar reported for work, he was informed that while Truck No. 802 had not been rehabilitated he could act as relief driver; and Alviar did not like to be a relief driver and did not report for work thereafter, so it was he who abandoned his work since the last week of April 1985. They also claimed that Alviar had not been retired because the corporation had no retirement plan or collective bargaining agreement, no union existed, and records would show that Alviar had received retirement benefits from the Social Security System when he retired therefrom in 1983.

In his pleadings before the Labor Arbiter, Alviar did not controvert the allegations of abandonment and non-dismissal. He simply alleged that in April 1985 he "retired from the service due to his old age of 65 years." On 27 January 1987, the Labor Arbiter rendered a Decision ordering Llora Motors and Carlota to pay Alviar P4,709.54 as unpaid ECOLA differentials, P9,985.80 as retirement benefits for 17 years, P1,469.53 as 10% attorney's fees, or a total of P16,164.87, plus legal interest on the total award compounded annually after ten days from receipt. They were also ordered to pay through the Regional Arbitration Branch Office or present proof of compliance within ten days from receipt.

Petitioners appealed to the NLRC, claiming they had been denied due process because the Labor Arbiter rendered judgment without first conducting formal hearings, and reiterating that Alviar had neither been dismissed nor retired, they questioned the P9,985.80 award of retirement benefits. On 20 January 1988, the NLRC issued a Resolution affirming the Labor Arbiter's decision and dismissing the appeal. A Motion for Reconsideration was denied on 28 March 1988.

The Labor Arbiter and the NLRC did not declare Alviar to have been illegally dismissed. There was also no pretense on Alviar's part that labor-saving devices had been installed, or that redundancy, retrenchment, or cessation of operations had occurred at Llora Motors, or that he was afflicted by a disabling disease, or that, being entitled to reinstatement, he could not be reinstated to his old position. These factual postures framed the Supreme Court's review of the retirement-benefits award.

• Due Process: Petitioners alleged that the Labor Arbiter rendered judgment without first conducting formal hearings, thereby violating their constitutional right to due process.
• Retirement Benefits: Petitioners urged that the award of retirement benefits was improper because there was no contractual or statutory basis for it; Alviar had neither been dismissed nor retired; the company had no retirement plan or collective bargaining agreement, no union existed, and Alviar had already received retirement benefits from the Social Security System in 1983.
• Propriety of Award: Petitioners questioned the P9,985.80 award of retirement benefits, reiterating that Alviar had neither been dismissed nor retired by the company.

• Allied Precedent: Respondents defended the award of retirement benefits by invoking Allied Investigation Bureau, Inc. vs. Ople, arguing that it supported the grant despite the absence of a collective bargaining agreement or employer policy.
• Entitlement to ECOLA and Retirement Benefits: Alviar claimed entitlement to ECOLA underpayments from November 1982 up to April 1985 in the amount of P4,709.54 and to retirement benefits computed at one-half month's pay for every year of service; he alleged that in April 1985 he retired from the service due to his old age of 65 years.

• Due Process: Whether petitioners were denied due process of law by the Labor Arbiter when he rendered judgment without conducting formal hearings.
• Retirement Benefits: Whether private respondent Alviar is legally entitled to receive retirement benefits from petitioners, his former employers.

• Due Process: No. A formal or trial-type hearing is not always essential to due process; the requirement is satisfied where the parties are afforded a fair and reasonable opportunity to explain their side, which petitioners had through their Position Paper and appellate pleadings.
• Retirement Benefits: No. Article 287 of the Labor Code does not require employers to establish an additional retirement scheme; entitlement to additional retirement benefits must arise from existing law, a collective bargaining agreement, other employment contract, or established employer policy, none of which existed here. The P9,985.80 award cannot be sustained as retirement benefits or termination pay.

• Due Process: The Court rejected the due process claim. A formal or trial-type hearing is not at all times and in all instances essential to due process; the requirements are satisfied where the parties are afforded a fair and reasonable opportunity to explain their side. Petitioners had that opportunity: before the Labor Arbiter rendered his decision, they submitted a Position Paper, complete with annexes, setting out the factual and legal bases of their position. They did not claim that their submissions were ignored or disregarded. They were also given additional opportunity to argue their case on appeal before the NLRC through a Memorandum and a Motion for Reconsideration, both of which were considered. Accordingly, the due process argument failed.

• Retirement Benefits: Article 287 of the Labor Code provides that any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract, and in case of retirement the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining or other agreement. The provision recognizes two sources of entitlement: existing laws, or a collective bargaining agreement or other employment contract. It does not itself impose upon employers an obligation to set up a retirement scheme over and above that already established under existing laws. Existing laws include the Social Security Act, which provides compulsory and contributory retirement benefits. Article 287 also recognizes that employers and employees may, by collective bargaining or other agreement, set up an additional retirement plan, but such consensual plan cannot substitute for or reduce the retirement benefits available under the compulsory Social Security scheme. Sections 13 and 14 of Rule I, Book VI of the Implementing Rules implement these concepts. Section 13 fixes the retirement age at 60 in the absence of a collective bargaining agreement or other applicable agreement providing for retirement at an older age. Section 14(a) entitles an employee retired pursuant to a bona-fide retirement plan or in accordance with an applicable individual or collective agreement or established employer policy to all retirement benefits provided therein or to termination pay equivalent to at least one-half month salary for every year of service, whichever is higher, with a fraction of at least six months considered as one whole year. Section 14(b) governs cases where both employer and employee contribute to the retirement plan, and Section 14(c) applies where the employee retires at 60 or older. The Court stressed that termination pay and retirement benefits are separate and distinct. Termination pay or separation pay is required in particular situations identified by the Labor Code or Implementing Rule I, and where properly due under the Labor Code or Section 4(b) of Implementing Rule I, it must be paid whether or not an additional retirement plan exists. Section 14, however, does not require termination pay to be paid to an employee who may want to retire but for whom no additional retirement plan had been set up by prior agreement with the employer. It speaks of an employee retired pursuant to a bona-fide retirement plan or in accordance with an applicable individual or collective agreement or established employer policy. Where termination pay is otherwise payable and an additional or consensual retirement plan exists, payments under the retirement plan may be credited against termination pay due, subject to the conditions that the retirement plan cannot reduce termination pay below one-half month's salary for every year of service and that the employee cannot be made to contribute to the termination pay, being entitled to full termination pay plus at least the return of his own contributions to the additional retirement plan. In this case, Llora Motors consistently resisted the demand for separation pay or retirement benefits, pointing to the absence of any collective bargaining agreement or other contractual basis or established employer policy contemplating such benefits. There was therefore no consensual basis for the payment of additional retirement benefits. The Labor Arbiter and the NLRC did not declare Alviar illegally dismissed, and there was no pretense that labor-saving devices had been installed, or that redundancy, retrenchment, or cessation of operations had occurred, or that Alviar was afflicted by a disabling disease, or that, being entitled to reinstatement, he could not be reinstated to his old position. Under these circumstances, the portion of the award requiring payment of an amount equivalent to one-half month's pay for every year of service could not be justified either as additional retirement benefits or as termination pay, and constituted an act without or in excess of jurisdiction. The respondents' reliance on Allied Investigation Bureau, Inc. vs. Ople was misplaced. In Allied, the employer had approved the employee's application for retirement benefits even though there was no collective bargaining agreement or employer policy establishing an additional retirement plan; that approval supplied the necessary consensual basis, although unilateral and possibly ad hoc. Here, Llora Motors consistently resisted the claim, so no consensual basis existed.

• Due Process in Labor Proceedings — A formal or trial-type hearing is not always essential to due process; the requirement is satisfied where the parties are afforded a fair and reasonable opportunity to explain their side. The Court applied this where petitioners filed a Position Paper with annexes and were heard on appeal through a Memorandum and Motion for Reconsideration.
• Article 287, Labor Code — Sources of Retirement Benefits — Entitlement to retirement benefits may accrue either under existing laws or under a collective bargaining agreement or other employment contract. Article 287 does not itself impose upon employers an obligation to set up a retirement scheme over and above that already established under existing laws. Applied: no CBA, other employment contract, or established employer policy existed, so no additional retirement benefits were due.
• Additional or Consensual Retirement Plan — Employers and employees may, by collective bargaining or other agreement, establish a retirement plan in addition to that established by the Social Security law, but such plan cannot substitute for or reduce the retirement benefits available under the compulsory Social Security scheme. Applied: no such plan was shown.
• Termination Pay vs. Retirement Benefits — Termination pay or separation pay is required in particular situations identified by the Labor Code or Implementing Rule I, while retirement benefits under Section 14 of Rule I require a bona-fide retirement plan, applicable individual or collective agreement, or established employer policy. The two concepts are separate and distinct. Applied: the award could not be justified as either.
• Consensual Basis for Retirement Benefits — Under Allied Investigation Bureau, Inc. vs. Ople, an employer's approval of an employee's retirement application may supply the consensual basis for retirement benefits even without a collective bargaining agreement or employer policy. Applied/distinguished: Llora Motors consistently resisted the claim, so no consensual basis existed.
• Act Without or In Excess of Jurisdiction — An award of retirement or termination pay without legal or contractual basis constitutes an act without or in excess of jurisdiction. Applied: the Labor Arbiter's award of one-half month's pay per year of service was set aside.

• "This Court has held in the past that a formal or trial-type hearing is not at all times and in all instances essential to due process, the requirements of which are satisfied where parties are afforded fair and reasonable opportunity to explain their side of the controversy at hand." — The Court used this formulation to reject petitioners' due process claim, holding that their Position Paper and appellate pleadings gave them the required opportunity to be heard.
• "Examination of Article 287 above shows that entitlement to retirement benefits may accrue either (a) under existing laws or (b) under a collective bargaining agreement or other employment contract. It is at once apparent that Article 287 does not itself purport to impose any obligation upon employers to set up a retirement scheme for their employees over and above that already established under existing laws." — This is the ratio decidendi on the principal issue, establishing that Article 287 does not compel an employer to create an additional retirement scheme.
• "Under these circumstances, the portion of the Labor Arbiter's award which required petitioners to pay an amount equivalent to a half month's pay for every year of service of Mr. Alviar cannot be justified either as (additional) retirement benefits or as termination pay and hence constituted an act without or in excess of jurisdiction." — The Court applied its distinction between retirement benefits and termination pay to set aside the monetary award.
• "Thus, while Allied had no collective bargaining agreement or similar employment contract establishing a plan under which employees could retire, its approval of Velasquez's application, although unilateral and possibly ad hoc, supplied the necessary consensual basis." — The Court distinguished Allied Investigation Bureau, Inc. vs. Ople, explaining that the employer's approval of the employee's retirement application supplied the consensual basis absent in Llora Motors' case.

• Allied Investigation Bureau, Inc. vs. Ople, 91 SCRA 265 (1975) — Distinguished. The Court held respondents' reliance misplaced because in Allied the employer had approved the employee's retirement application, supplying a consensual basis despite the absence of a collective bargaining agreement or employer policy; here Llora Motors consistently resisted the claim.
• Richards vs. Asoy, 152 SCRA 45 (1987) — Cited for the rule that a formal or trial-type hearing is not always essential to due process.
• Tajonera vs. Lamaroza, 110 SCRA 438 (1981) — Cited for the same due process rule that a fair and reasonable opportunity to explain one's side satisfies due process.

• Article 287, Labor Code — Retirement. Entitlement to retirement benefits may accrue under existing laws or under a collective bargaining agreement or other employment contract; the article does not require employers to establish an additional retirement scheme. Applied: no additional retirement benefits were due absent a CBA, other employment contract, or established employer policy.
• Sections 13 and 14, Rule I, Book VI, Rules and Regulations Implementing the Labor Code — Section 13 fixes retirement age at 60 in the absence of a CBA or other applicable agreement providing for an older age. Section 14 governs retirement benefits where an employee is retired pursuant to a bona-fide retirement plan, applicable individual or collective agreement, or established employer policy, and provides for termination pay equivalent to at least one-half month salary for every year of service, whichever is higher, with conditions on employer contributions and crediting. Applied: no such plan, agreement, or policy existed, so Section 14 could not sustain the award.
• Article 283, Labor Code — Cited in the Court's footnote as listing termination pay situations: installation of labor-saving devices, redundancy, retrenchment to prevent losses, and closing or cessation of operations. Applied: none of these situations was present.
• Article 284, Labor Code — Cited as referring to termination of services by reason of disease. Applied: no disabling disease was shown.
• Section 4(b), Rule I, Book VI, Implementing Rules — Cited as covering the situation where reinstatement is required but not possible because the company has closed or ceased operations or the employee's former position no longer exists. Applied: not present.
• Social Security Act, Republic Act No. 1161, as amended — Provides compulsory and contributory retirement benefits under existing law. Applied: Article 287 recognizes such existing-law benefits but does not require an employer to provide additional retirement benefits beyond them.
• Constitutional due process guarantee — Invoked by petitioners against the Labor Arbiter's failure to conduct formal hearings. Applied: the guarantee was not violated because petitioners were afforded a fair and reasonable opportunity to explain their side.

Fernan, C.J.; Gutierrez, Jr.; Bidin; and Cortes, JJ.