Padillo vs. Rural Bank of Nabunturan, Inc.

An employee who voluntarily retires due to illness cannot claim separation pay under Article 297 of the Labor Code, which contemplates termination initiated by the employer on the ground of disease; nor can the employee claim retirement benefits under Article 300 if he fails to meet the 60-year age requirement, absent any retirement plan, collective bargaining agreement, or established company practice providing for early retirement.

Eleazar Padillo was employed by Rural Bank of Nabunturan, Inc. (the Bank) as a bookkeeper beginning October 1, 1977. Due to liquidity problems in 2003, the Bank took out retirement/insurance plans with Philippine American Life and General Insurance Company (Philam Life) for all its employees, including Padillo, whose plan was set to mature on July 11, 2009, with a benefit amount of ₱100,000.00. In October 2004, respondent Mark S. Oropeza purchased majority shares and took over management, leading to the Bank's gradual rehabilitation and recovery of liquidity. The Labor Code provisions at issue are Article 297 (formerly Article 284) on termination on the ground of disease and Article 300 (formerly Article 287) on retirement, as amended by Republic Act Nos. 7641 and 8558.

Eleazar Padillo was employed by Rural Bank of Nabunturan, Inc. as a bookkeeper on October 1, 1977. Sometime in 2003, the Bank, facing liquidity problems and anticipating possible closure, procured Philam Life retirement/insurance plans for all its employees. For Padillo, the Bank obtained Philam Plan Certificate of Full Payment No. 88204 with a benefit amount of ₱100,000.00, set to mature on July 11, 2009. On October 14, 2004, respondent Mark S. Oropeza purchased majority shares of the Bank and assumed the presidency, leading to its gradual financial rehabilitation and the recovery of liquidity.

During the latter part of 2007, Padillo suffered a mild stroke due to hypertension, which impaired his ability to work effectively. He was diagnosed with Hypertension S/P CVA (Cerebrovascular Accident) with short-term memory loss, classified as a total disability. On September 10, 2007, Padillo wrote a letter to Oropeza expressing his intention to avail of an early retirement package, citing his health condition and his desire to recover. He stated that he had decided to retire to avoid affecting his co-workers and the bank's operations, and requested the settlement of his retirement benefits. Despite several follow-ups, his request remained unheeded. He had stopped working before September 10, 2007 and never reported for work thereafter.

On October 3, 2007, Padillo was separated from employment due to his poor and failing health, as reflected in a Certification dated December 4, 2007 issued by the Bank. Not having received his claimed retirement benefits, Padillo filed a complaint on September 23, 2008 with the NLRC Regional Arbitration Branch No. XI in Davao City for the recovery of unpaid retirement benefits. He asserted that the Bank had adopted a policy of granting aging employees early retirement packages, citing the case of co-employee Nenita Lusan, who received retirement benefits of ₱348,672.72 when she retired at age 53. The respondents countered that Padillo's claim had no basis for grant, as there was no applicable retirement plan, agreement, or company policy entitling him to such benefits.

• Deviation from NLRC Factual Findings: Petitioner contended that the CA erred when it deviated from the factual findings of the NLRC.
• Misapplication of Villaruel: Petitioner argued that the CA misapplied the case of Villaruel vis-à-vis the factual antecedents of this case.
• Reduction of Financial Assistance: Petitioner asserted that the CA erred in drastically reducing the computation of financial assistance awarded by the NLRC.
• Bad Faith of Respondents: Petitioner contended that the CA failed to rule on the consequences of respondents' bad faith.
• Reversal of NLRC Resolution: Petitioner argued that the CA erred in reversing and setting aside the NLRC's December 29, 2009 Resolution.

• Lack of Basis for Retirement Benefits: Respondents countered that Padillo's claim for retirement benefits was not favorably acted upon for lack of any basis to grant the same, as there was no retirement plan, collective bargaining agreement, or established company practice providing for early retirement.
• Inapplicability of Article 297: Respondents maintained that separation pay under Article 297 of the Labor Code should not be given because it was Padillo who initiated the severance of his employment, and that even before September 10, 2007, he had already stopped working due to his poor and failing health.

• Applicability of Article 297 (Termination by Disease): Whether separation pay under Article 297 of the Labor Code is available to an employee who voluntarily retired due to illness, as opposed to being terminated by the employer on the ground of disease.
• Entitlement to Retirement Benefits under Article 300: Whether an employee who retired at age 55, with 29 years of service, is entitled to retirement benefits under Article 300 of the Labor Code in the absence of any retirement plan, agreement, or established company practice.
• Existence of Company Practice: Whether the grant of an early retirement package to a single co-employee (Lusan) constitutes an established company practice warranting the grant of similar benefits to Padillo.
• Award of Financial Assistance: Whether financial assistance should be awarded and in what amount, considering the employee's length of service and the circumstances of his separation.
• Bad Faith and Damages: Whether respondents acted in bad faith in refusing Padillo's claim, warranting the award of damages under Articles 19 and 21 of the Civil Code.

• Applicability of Article 297 (Termination by Disease): No. Article 297 of the Labor Code contemplates a situation where the employer, not the employee, initiates the termination on the ground of disease; since Padillo voluntarily retired, the provision does not apply.
• Entitlement to Retirement Benefits under Article 300: No. The age and tenure requirements under Article 300 are cumulative; Padillo met the five-year tenure requirement but not the 60-year age requirement, having retired at 55, and no applicable agreement or company practice provided for early retirement.
• Existence of Company Practice: No. A solitary instance of granting an early retirement package to one employee (Lusan) cannot establish a company practice, as the giving of benefits must be consistent, deliberate, and done over a long period of time.
• Award of Financial Assistance: Yes, but increased. The CA's award of ₱50,000.00 was increased to ₱75,000.00, exclusive of the ₱100,000.00 Philam Life Plan benefit, in light of social justice and Padillo's 29 years of dedicated service.
• Bad Faith and Damages: No. Respondents were within their right to refuse Padillo's claim, which had no basis in law or agreement, and none of the elements of abuse of right under Articles 19 and 21 of the Civil Code were present.

• Applicability of Article 297 (Termination by Disease): Article 297 of the Labor Code expressly provides that "an employer may terminate the services of an employee who has been found to be suffering from any disease." A plain reading of the provision clearly presupposes that it is the employer who terminates the services of the employee. It does not contemplate a situation where the employee severs the employment ties. This is why Section 8, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code requires a certification by a competent public health authority before an employer may terminate on this ground. The records show that Padillo's September 10, 2007 letter clearly expressed his intention to retire, and the fact that he had stopped working before that date and never reported for work thereafter confirmed that he voluntarily retired. The NLRC's reliance on Abaquin vs. Atienza was gravely misplaced because that case involved a security guard who belonged to a "special class of employees deprived of the right to ventilate demands collectively" under the old law — an equitable peculiarity absent in Padillo's case, as he was not among managerial or confidential employees prohibited from self-organization.

• Entitlement to Retirement Benefits under Article 300: Article 300 of the Labor Code, as amended by Republic Act Nos. 7641 and 8558, provides that in the absence of a retirement plan or agreement, an employee may retire upon reaching at least 60 years of age (but not beyond 65, the compulsory retirement age) and having served at least five years, entitling him to retirement pay of at least one-half month salary for every year of service. These age and tenure requirements are cumulative, and non-compliance with one negates entitlement altogether. It was undisputed that no retirement plan, collective bargaining agreement, or equivalent contract existed between the parties, save for the Philam Life Plan. While Padillo served 29 years, satisfying the tenure requirement, he was only 55 years old when he retired, falling short of the 60-year age requirement. His claim for retirement benefits under Article 300 was therefore denied, without prejudice to the Philam Life Plan proceeds.

• Existence of Company Practice: To be considered a company practice, the giving of benefits must have been done over a long period of time and shown to be consistent and deliberate, as held in Metropolitan Bank and Trust Company vs. National Labor Relations Commission. Petitioners' reliance on the solitary case of Lusan — who received an early retirement package at age 53 — could not establish that the Bank's grant to her had evolved into an established company practice, precisely because of the palpable lack of the element of consistency. There was no showing that other Bank employees were accorded the same benefits as Lusan.

• Award of Financial Assistance: The Court concurred with the CA that financial assistance was warranted, given that Padillo was severed not by reason of any infraction but because of his failing physical condition, and that he had devoted 29 years of dedicated service with no derogatory record. In light of the dictates of social justice and the supervening fact of Padillo's death on February 24, 2012, the Court increased the award from ₱50,000.00 to ₱75,000.00, still exclusive of the ₱100,000.00 Philam Life Plan benefit.

• Bad Faith and Damages: While damages may be recoverable for abuse of right under Article 21 in conjunction with Article 19 of the Civil Code, the elements — (1) a legal right or duty, (2) exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another — must all obtain. Records revealed none of these elements. Respondents were within their right to ignore Padillo's misplaced claim, as there was no basis under any applicable agreement or law acceding him the right to demand retirement benefits. The grant to Lusan was an isolated incident, and petitioners failed to show that any bad faith or motive attended the disparate treatment. Bad faith can never be presumed; it must be proved by clear and convincing evidence, which petitioners failed to do.

• Article 297 (Termination by Disease) — Employer-Initiated Termination Required — Article 297 of the Labor Code contemplates a situation where the employer, not the employee, initiates the termination of employment on the ground of disease. It does not apply where the employee voluntarily severs the employment relationship due to his own health condition. The provision requires a certification by a competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within six months even with proper medical treatment before an employer may terminate.

• Cumulative Age and Tenure Requirements for Retirement under Article 300 — In the absence of any retirement plan, collective bargaining agreement, or other applicable contract, an employee must satisfy both requirements: (1) at least 60 years of age (but not beyond 65, the compulsory retirement age) and (2) at least five years of service — to be entitled to retirement pay of at least one-half month salary for every year of service. These requirements are cumulative and non-compliance with one negates entitlement altogether. The term "one-half month salary" means 15 days plus one-twelfth of the 13th month pay and the cash equivalent of not more than five days of service incentive leave.

• Company Practice — Elements of Consistency and Deliberateness — To be considered a company practice, the giving of benefits should have been done over a long period of time and must be shown to have been consistent and deliberate. A solitary instance of granting a benefit to one employee is insufficient to establish a company practice due to the lack of the element of consistency.

• Abuse of Right under Articles 19 and 21 of the Civil Code — Damages may be recovered for abuse of right when the following elements obtain: (1) there is a legal right or duty; (2) exercised in bad faith; and (3) for the sole intent of prejudicing or injuring another. Bad faith can never be presumed; it must be proved by clear and convincing evidence.

• "A plain reading of the [Article 297 of the Labor Code] clearly presupposes that it is the employer who terminates the services of the employee found to be suffering from any disease and whose continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees. It does not contemplate a situation where it is the employee who severs his or her employment ties." — This passage, quoting Villaruel vs. Yeo Han Guan, articulates the ratio decidendi that Article 297 applies only to employer-initiated terminations, not voluntary retirements by the employee.

• "Notably, these age and tenure requirements are cumulative and non-compliance with one negates the employee's entitlement to the retirement benefits under Article 300 of the Labor Code altogether." — This statement defines the cumulative nature of the retirement eligibility requirements under Article 300, a key doctrinal point for bar review.

• "to be considered a company practice, the giving of the benefits should have been done over a long period of time, and must be shown to have been consistent and deliberate." — This formulation, citing Metropolitan Bank and Trust Company vs. NLRC, sets the standard for establishing company practice in labor relations, frequently invoked in subsequent jurisprudence.

• Villaruel vs. Yeo Han Guan, G.R. No. 169191, June 1, 2011, 650 SCRA 64 — Controlling precedent followed by the Court. It established that Article 297 of the Labor Code contemplates employer-initiated termination on the ground of disease and does not apply where the employee voluntarily severs employment ties. The CA correctly applied this case, and the Supreme Court affirmed its applicability.

• Abaquin Security and Detective Agency, Inc. vs. Atienza, G.R. No. 72971, October 15, 1990, 190 SCRA 460 — Distinguished. The NLRC relied on this case to award separation pay to an employee who voluntarily resigned due to illness, but the Court held it was gravely misplaced because Abaquin involved a "special class of employees" (security guards) deprived of the right to self-organize under the old law — an equitable peculiarity absent in Padillo's case.

• Metropolitan Bank and Trust Company vs. National Labor Relations Commission, G.R. No. 152928, June 18, 2009, 589 SCRA 376 — Followed. Cited for the doctrine that to constitute a company practice, the giving of benefits must be consistent, deliberate, and done over a long period of time.

• Albenson Enterprises Corp. vs. Court of Appeals, G.R. No. 88694, January 11, 1993, 217 SCRA 16 — Cited for the elements of abuse of right under Articles 19 and 21 of the Civil Code: (1) a legal right or duty; (2) exercised in bad faith; and (3) for the sole intent of prejudicing or injuring another.

• Gatmaitan vs. Gonzales, G.R. No. 149226, June 26, 2006, 492 SCRA 591 — Cited for the principle that bad faith can never be presumed but must be proved by clear and convincing evidence.

• San Miguel Corporation Supervisors and Exempt Union vs. Laguesma, G.R. No. 110399, August 15, 1997, 277 SCRA 370 — Cited for the definition of confidential employees who are prohibited from self-organization, relevant to distinguishing Abaquin.

• Article 297 (formerly Article 284), Labor Code of the Philippines — Governs termination of employment on the ground of disease. The Court held it inapplicable because it contemplates employer-initiated termination, not voluntary retirement by the employee. Requires certification by a competent public health authority that the disease cannot be cured within six months.

• Article 300 (formerly Article 287), Labor Code of the Philippines, as amended by Republic Act Nos. 7641 and 8558 — Governs retirement benefits. In the absence of a retirement plan or agreement, an employee must be at least 60 years old with at least five years of service to be entitled to retirement pay. Padillo met the tenure but not the age requirement.

• Article 19, Civil Code of the Philippines — Provides that every person must, in the exercise of rights and performance of duties, act with justice, give everyone his due, and observe honesty and good faith. Applied in conjunction with Article 21 to test whether respondents' refusal to grant benefits constituted abuse of right.

• Article 21, Civil Code of the Philippines — Provides that any person who willfully causes loss or injury to another in a manner contrary to morals, good customs, or public policy shall compensate the latter for the damage. Applied in conjunction with Article 19, but the Court found none of the elements present.

• Section 8, Rule I, Book VI, Omnibus Rules Implementing the Labor Code — Directs that an employer shall not terminate the services of an employee on the ground of disease unless there is a certification by a competent public health authority. Cited to support the interpretation that Article 297 contemplates employer-initiated termination.

Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Portugal Perez, and Marvic Mario Victor F. Leonen (designated additional member per Special Order No. 1408 dated January 15, 2013).