Case Study of a Medium Size Company Operating at the Countryside
35 -42
a. Background
35
b. Company Profile
36
c. Employment Profile
36 - 37
d. The Retirement Problem
38
e. Company As Cases on Retirement
40
f. Policy Impact HR Responses
43 - 44
g. Management Prerogatives and Options
44
h. Other Possible HRM Responses and Options
45
B.
Impact of Globalization to R.A. 7641
46
Labor and Employment Situation
47 - 48
Workers Displacement
49 - 51
Chapter VI
THE ROLE OF SOCIAL DIALOGUE IN RETIREMENT POLICY ISSUE
52 - 54
Chapter VII
CONCLUSION AND RECOMMENDATION
55 - 59
Policy Recommendations/Options
56 - 59 5
ANNEXES LIST OF ANNEXES
Annex A
List of Retirement Bills Filed in 15 th Congress
Annex B
Case Review Matrix : The Role of Social Dialogue in Retirement Policy Issue
Annex C
Questionnaire for a Case Study 6
ABSTRACT
Republic Act 7641 or The New Retirement Law in the Philippines, is originally conceived by the Department of Labor and Employment to give ample protection to workers, particularly, those that are not covered by retirement contract. This Act provides that, all private sector employees, regardless of their position designation or status and irrespective of the method by which their wages are paid are entitled to retirement benefit upon compulsory retirement of sixty five (65) years or upon optional retirement at sixty (60) years or more. The minimum retirement pay due to covered employees shall be equivalent to one-half month salary for every year of service. The Act mandated that retirement pay should be shouldered by the last employer.
The study attempts to assess and analyze the impact of R.A. 7641 to both labor and capital in a globalized business setting. The study examined both the policy content and the policy impact by looking at the relationship of age group to the incidence of workers termination, the bulk of retrenchment cases decided by NLRC and Supreme Court, and a workplace scenario in analyzing a specific case of one company who had volumes of retirement cases in court. The paper posit a hypothesis that the continued mandate of the law will only cause trigger to capital, to terminate employees approaching retirement age, just to avoid the giving of benefits. This can be manifested through legal and illegal options. The legal option is through the use of labor flexibility, which they termed as companys best practices while; the illegal options results to illegal dismissals.
The study concluded that the implementation of the Act has the logical implications on the increasing trend of termination/retrenchment of workers, especially when workers are approaching the age of retirement. The companies response to the mandate of law can be shielded by management prerogatives and globalization pressures to the detriment of old age loyal employees. The paper suggested some amendments to the Act to make it effective and implementable. This is in order to carry out the Constitutional wisdom of law for the workers to have a just share to the companys fruit of production, which is their investment during the best years of their lives.
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Chapter I
INTRODUCTION
A. Background of the Problem
Republic Act 7641 or The New Retirement Law in the Philippines, is an amendment of Article 287 of the Labor Code. The Act is originally conceived by the Department of Labor and Employment to give ample protection to old age workers, particularly, those that are not covered by Collective Bargaining Agreement or retirement contract. It gives a retirement pay to all workers reaching its twilight years of 60-65 years of age. The law is conceptualized as a protective measure to give workers their rightful share to the companys fruit of production, after investing the best years of their lives to the company.
RA 7641, was passed in Congress on December 9, 1992, and took effect on January 7, 1993. This Act provides that, all private sector employees, regardless of their position designation or status and irrespective of the method by which their wages are paid are entitled to retirement benefit upon compulsory retirement of sixty five (65) years or upon optional retirement at sixty (60) years or more. The minimum retirement pay due to covered employees shall be equivalent to one-half month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
Under the New Retirement Law, it is a financial obligation of an employer to give retirement pay to its employees reaching 60 to 65 years of age, who has served the company for at least five (5) years. The amount of retirement pay is based on expanded one half month salary equivalent of 22.5 days, based from their latest salary at the time of retirement. One half month salary shall mean: a) Fifteen (15) days salary based on the latest salary rate; b) Cash equivalent of five (5) days of service incentive leave; c)One-twelfth (1/12) of the thirteenth- month pay, (1/12 x 365/12=.083x30.41=2.52).
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Thus, for example, an employee, 30 years of age and receiving P5,000 basic pay in 1993, with an increment of 10% per year will have a salary of P87,000 after 30 years in the company. By the time, that an employee has already reached 60 years old and qualified for optional retirement, the company has the total financial liability of Two Hundred Fourty-Four Thousand, Six Hundred Eighty Seven Pesos (P244,687.50) to him. If the company is maintaining 100 workers at the time of the inception of the law, by the year 2023, the company has the financial liability of, 244,687.50 to each employee or a total of Two Hundred Fourty-Four Million, Six Hundred Eighty Seven Thousand, Five Hundred Pesos (P244,687,500.00). This is the actual picture of employees benefit and the financial burden to be shouldered by the employer, employing 100 regular workers at the time of inception of this Act.
There is a presumption that, many employers speculate that its impact would cause tremendous financial liability that will cripple their business operations if not cured outright. Queries received by the Department of Labor and Employment (DOLE) revealed that many of the employers, are not prepared for the mandatory implementation of the law. Hence, many capitalists tried to think of some management schemes to avoid the giving of benefits under R.A. 7641.
By looking at the labor side, at present, there are numerous cases of money claims on unpaid retirement benefits filed with the National Labor Relations Commissions(NLRC) and National Conciliation Mediation Board (NCMB), allegedly due to lack of companys fund or the companies have gone bankrupt and/or become insolvent. Likewise, illegal termination and constructive dismissal cases were observed when workers are nearing the age of retirement, as one of the companys prerogatives in avoiding the heavy financial burden of retirement benefits which is entrusted to the last employer of the retiring workers.
On the employers side, the Act created confusion on part of the management of keeping their loyal employees until retirement age, because of the tremendous financial obligations to be incurred by the company. Added to this, R.A. 7641 has a retroactive effect, as ruled by the Supreme Court in Oro Enterprises Inc. vs. NLRC. The retroactive 9
application of the Act will mean that the employer will pay all its retiring employees from 1993 onwards, the retirement pay to be computed from the date of their employment to the date of retirement to the company. For example, in the recently SC decided case in 27 April 2011, in Masing and Sons Devt. Corp. vs. Gregorio P. Rogelio, (GR 161787), the court ruled that employer has to pay Rogelio his retirement benefit under RA7641 from the date of his employment in 1949 up to the time of his termination in 1997. The impact of this ruling might even spell a financial collapse of small and medium size enterprises.
In todays realities, businesses are operating in a competitive global environment. The advent of globalization, change many companies on the way they are doing business. Today, many companies are undergoing reorganization, thus, doing numerical and functional flexibility to cope with the competitiveness in the global arena. Globalization has enabled firms to maximize their technological and organizational advantage like merger and consolidation and minimize business cost by employing labor flexibility.
Hypothetically, it is perceived that the present development in doing business and many forms of labor flexibility would logically render the Act ineffective. Logic dictates that, the way how business is organized and managed today would in effect cripple if not totally delete the mandates of R.A. 7641. The implementation of the Act therefore, has the logical implications of the increasing trend of termination/retrenchment of workers, especially when workers are approaching the age of retirement.
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B. Statement of the Problem
After nineteen years of RA 7641 implementation, a researcher may ask: Is the Act really effective? Does it achieve its purpose of protecting workers reaching the twilight years of their lives? What will be the Acts impact to both labor and capital in todays globalized business setting?
The retirement pay under this Act is basically the financial obligation of the employers. Many employers are not yet ready, unaware, or trying to avoid the financial liability brought about by the implementation of this Act. Thereby, before the situation comes, they are making of any legal means to terminate/retrench workers approaching the retirement age. Numerous cases on retirement and termination were filed at NLRC, allegedly due to lack of companys fund or that the companies gone bankrupt or insolvent. Many cases of workers above middle age are either; retrenched, terminated or separated by the company.
Further more, globalization has already changed the way the companies are doing business. The companies may either; merged, consolidate, restructured or stream lined to cope with competition. They maximize production while at the same time minimize labor cost by employing flexibility. Labor or numerical flexibility is now creating a big impact to the mandates of R.A. 7641.
Therefore, the change of events in business community provokes the following questions:
Can the globalize environment in business cripple the mandates of R.A. 7641, thereby rendering it moot and academic? How can the workers be protected by this tide of event, specially, when they are separated from service at the age where they cannot find employment anymore or rather the companys will not accept them because of their age? Will it be right to think that this Act will just trigger the employers to terminate the service of workers nearing retirement age? What will be the HRM response of company 11
when facing financial problem due to retirement pay for workers, especially now that labor flexibility is the rule of the game?
This situation is quite alarming that needs immediate policy assessment.
C. Significance of the Problem
The problem will generally affect the total work force registered at 35,061,000 1 . Specifically, it directly affects those at the age group of 45-64 years registered at 9,495,000.00 2 . The New Retirement Law logically creates an increase in the termination/retrenchment of the workers nearing retirement age. This implication will likewise create a domino effect to the whole employment structure. The company, instead of hiring permanent employees, will tend to hire part-time, contractual and temporary employees in the process. The act would create an effect on the companies manner of hiring as well as firing employees. Likewise, other types of non-regular workers like the five-months contractual arrangements, which are not covered by retirement law, will also benefit from the study.
The business community will also benefit from this study. The confusion of keeping or not their trained and employees till retirement will hopefully be clarified by the paper. Hopefully the Act if amended will find the balance between business viability and workers protectionism to make it attune with the change of times.
D. Objectives of the Study
In general, this policy paper will attempt to analyze the impact of the implementation of R.A. 7641 to both labor and capital, given a globalize setting. Likewise, this study attempts to recommend possible amendments to law and its implementing guidelines in order to really protect the workers just share to the companys fruit of production, during the productive years of their lives.
1 2010 Yearbook of Labor and Statistics, ISSNO115-1851 2 Ibid, pp. 29-31 12
Specifically, this research will attempt to:
1. Analyze the effectiveness of the implementation of the Act to both labor and capital given a global business setting; 2. Describe the employers responses to retirement benefits law, while coping up with globalization and the predicament suffered by the workers; 3. Suggest some recommendations on how the workers approaching retirement age will get the retirement benefits due them.
E. Scope and Limitations
The researcher finds it really hard to gather primary data from the employers perspective or through their human resource personnel (HRD). A focus group discussion with the management is also hard to explore, because most management representatives have the tendency to avoid honest answers to the issues involved.
Gathering of secondary data through cases is the most logical options that a researcher would do to prove the hypothesis. However, money claims specifically dealing on retirement are difficult to gather since cases are interlinked with illegal dismissals, retrenchment, unfair labor practice, etc. The researcher just limits the analysis to the retirement/termination cases already decided by the Supreme Court.
On examining the impact, the study limits itself to one specific company who is encountering problems on retirement cases in Courts. An attempt to present one case analysis from the viewpoint of the employer is pursued, to describe at the plant level how the company deals with their financial problem brought by the mandatory imposition of retirement benefits to the employer.
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CHAPTER II
THE RETIREMENT LAWS IN THE PHILIPPINES
A. Evolution of Retirement laws
The Philippines has an evolving four system of old-age protection scheme for its people. First, is the social assistance programs given for the benefit of the very poor in the society, these programs are particularly handled by the Department of Social Welfare and Development (DSWD), the Department of Health (DOH) and the Department of Labor and Employment (DOLE).
Second, is the mandatory defined benefit scheme which is provided by the Social Security System (SSS) for private sector workers and the Government Service Insurance System (GSIS) for public sector employees.
Third, includes the mandatory requirement of retirement pay through Republic Acts. Like, deposits maintained at the PAG_IBIG Fund, which become available upon retirement and the mandatory retirement pay provided for under Republic Act 7641 for the workers in private sector. The public sector workers receive a combination of first and second layer benefit.
Fourth, is voluntary in nature, where companies devise their own retirement plan or individuals on their own, buy pension plans and other pre-need products to provide the many contingencies in life.
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The Legal Basis At present there are four legal mode of giving retirement benefits in our country. First, are those covered by Republic Act No. 4917 for private employees covered by contract, through Retirement Plan initiated by the company, or negotiated through Collective Bargaining Agreement (CBA). Second, are those acquired voluntarily through a pre-need pension or retirement plans offered by pre-need companies, Third, are the retirement schemes governing all public servants. And lastly, under Republic Act 7641 which mandates the retirement benefit for those private workers who retire without a retirement contract.
1. The Retirement Benefits of Private Employees under RA 4917
It was on June 17, 1967, that the first Republic Act (RA 4917) on retirement benefits of employees in private firms was enacted. Basically, it provides tax exemption for the retirement pay received by officials and employees covered by a Reasonable Private Benefit Plan maintained by the employer. Provided, that: a) a retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty years of age at the time of his retirement; b) the benefits granted under this Act shall be availed of by an official or employee only once; c) that in case of separation of an official or an employee from the service of the employer due to death, sickness, or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempted.
The term reasonable private benefit plan means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer or officials and employees, wherein contributions are made by such employer or officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.
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2. Retirement under Contract offered by Pre-Need Insurance Company
Pre- Need Insurance Companies offered different retirement schemes to the company as a group or to individual workers. This mode of retirement applies to all workers who applied voluntarily through personal pension fund by the pre-need and life insurance companies. The funds can be thru companys gratuity, cost sharing scheme, productivity or profit sharing scheme.
An employee may retire or be retired by his employer upon reaching the retirement age established in the CBA or other tax-applicable agreement contract and shall receive the retirement benefits granted therein: provided, however, that such benefits shall not be less than the retirement pay required by RA 7641 and provided further that if such retirement benefits under the agreement are less, the employer shall pay the difference.
The pre-need and life insurance companies offer voluntarily personal pension funds. Pre-need companies are plan issuers authorized under Republic Act No. 8799 to sell or offer for sale to the public any pre-need plan in accordance with rules and regulations, which the Securities and Exchange Commission has prescribed. Pre-need plans pertain to contract which provide for the performance of future services or the payment of future monetary considerations at the time of actual need, for which plan holders pay in cash or installment at stated prices, with or without interest or insurance coverage and includes pension plans. Other dominant plan types are life, education and interment plans. 3
On the other hand, the Philippine Insurance Code allows Assurance Company to offer endowment and annuity contracts, which are classified as life insurance contracts for purposes of said law. Old age and regular endowments are availed by those who want guaranteed retirement income without however, entirely loosing the protection element of the plans.
3 Private Pension Scheme in the Philippines, A Country Paper, Emilio B. Aquino, 2002. 16
This kind of retirement plan has existed since 1967. The problem that crop- up on this kind of retirement is the availability of retirement fund at the date of retirement of an individual. However, this is now well guarded by the Securities and Exchange Commission (SEC).
3. Retirement Schemes of Public Servants or Government Workers
The Government Service Insurance System (GSIS) offers four retirement benefit packages under the following laws: 1. R.A. 8291 If you are at least 60 years old, have rendered a minimum of 15 years in government service and not a permanent total disability pensioner. 2. P.D. 1146 - if public employees have been in service after May 31, 1977 but before June 24, 1997 3. R.A 660 - if public employee were in service on or before May 31, 1977) 4. R.A. 1616 - if public employee were in the service on or before May 31, 1977 and;
R.A. 8291 provides two options for the qualified employee for availing retirement benefits:
Option 1 Lump-sum equivalent to the sum of the basic monthly pension for sixty months payable upon retirement and a monthly pension for life after the first five years. Option 2 Cash payment equivalent to 18 times the basic monthly pension payable upon retirement and monthly pension for life payable from date of retirement.
P.D. 1146 - if an employee entered government service after May 31, 1977 but before June 24, 1977, would be entitled to receive either of the sets of benefits below depending on years of service:
Option 1 Basic monthly pension, if an employees are at least 60 years old and had rendered 15 years of service. The basic monthly pension is guaranteed for five 17
years. After the five-year guarantee period, you would receive a basic monthly pension for life. You may request for the payment in lump-sum of the basic monthly pension for the guaranteed period of five years at a discounted rate of not less than 6%.
Option 2 if an employee are at least 60 years old and have rendered at least 3 years but less than 15 years of service, would be entitled to a cash payment equivalent to 100% of the average monthly compensation for every year of service.
RA 660 this kind of retirement scheme is given to an employee whose sum of age and years of service is 87 and at least 52 years old, have been in service on or before May 31, 1977 with the last three years of continuous service. An employee is entitled to receive the following benefits:
Monthly Annuity Guaranteed for Five Years and Lifetime Pension. If an employee would retire at the age of 52 to 59, he/she would receive automatic pension from the date of retirement with the option to request for a one-year lump sum at a discounted rate and every six months thereafter. If an employee would retire at the age of 60 to 62, he/she is automatically entitled to receive a three-year lump-sum with the remaining two-year balance payable at 63. If an employee would retire at the age of 63 and over he/she have two options: a) Lump-sum guaranteed for five years and pension will resume at the end of guaranteed period; or b) Automatic pension to start from date of retirement. This option would entitle the employee to a mandatory annual increase in pension and Christmas bonus.
R.A. 1616 if an employees have been in government service on or before May 31, 1977 with at least 20 years of service, the last three years of which had been continuous except in case of death, disability, abolition of position, reorganization or phase-out position. Under this act an employee would receive the following benefits:
Gratuity - an employees last employer would pay for the gratuity benefit, the computation of which would be based on total creditable service converted into gratuity months multiplied by the highest salary that you have received. 18
Refund of retirement premiums an employee is entitled to receive a refund from the Government Service Insurance System (GSIS) consisting of an employees personal contributions throughout the years of government service plus interest and government share without interest. 4
4. The birth of New Retirement Laws as Retirement Benefits of all Private workers not covered by Contract or CBA as mandated by RA 7641.
Republic Act 7641 is a new mode of retirement benefit under Article 287 of the Labor Code that covers all workers in private sector who reached the age of 60-65 years in a certain company with at least five years of service. At present, majority of Philippine workers, especially those employed in small and medium establishment have no retirement contracts. Hence, the Labor Code covers protection on retirement. R.A. 7641 provides the following:
Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows:
Art. 287. Retirement Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.
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 agreement and other agreements. Provided, however, that an employees retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared
4 GSIS benefits, Leaflets Form, 2000 19
compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
Unless the parties provide for broader exclusions, the term one half (1/2) month salary shall mean fifteen (15) days plus one twelfth (1/12) of the 13 th month pay and a cash equivalent of not more than five (5) days of service incentive leave. 5
Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are exempted from the coverage of this provision.
Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code
Republic Act 7641 came into force on January 7, 1993. Thereafter, the implementing rule was subsequently issued and published by the Department of Labor and Employment to implement the law and was made operative on the same date when the Act took effect.
In 1998, R.A. 8558 was signed to amend Article 287 as amended, by reducing the retirement age of underground mine workers from sixty (60) to fifty (50) years.
Proposed Legislation on Retirement Benefits
As early as March of 1997, the Committee already passed a Resolution on Revision of Laws in Congress to amend RA 7641 and its implementing rules. However, until the present time the Act is not yet amended. Foremost of which, the committee wish to determine the sufficiency of form and substance of the implementing rules and regulation of the Act and the setting up of a trust fund to insure the availability of funds
5 Integrated Labor and Labor Related Laws, Institute for Labor Studies, 2000. 20
to pay the retirement benefits. House Resolution 1030, entitled Resolution Directing the Committee on Revision of Laws and/or Oversight Committee to Conduct a Study and an Inquiry and to Evaluate, Review, and/or amend RA 7641 and Its Implementing Rules and Regulations Issued by the Department of Labor and Employment, Otherwise Known As the Retirement Law For the Private Sector For the Purpose Of, and with the End in View of Determining Whether the Implementing Rules and Regulations are Sufficient in Form and Substance to Properly Pursue and Implement the Law to its Fullest Extent by Making Mandatory the Setting Up of a Trust Fund or Retirement Fund to Insure and Assure Availability of Funds to Pay Retirement Benefits as the Need Arises.
Thirteen years have passed but until now, the problem brought about by the amendment of Article 287 of the Labor Code as amended by R.A. 7641 or the New Retirement Act is not yet been acted upon. During the 15 th Congress, there are more than 30 Bills were filed on retirement but it was observed that no single Bill seeking amendments of RA 7641 to remove confusions on its implementation was not passed in Congress . The Bills on retirement during the 15 th Congress is attached, as Annex A.
It is imperative therefore, to conduct a policy analysis to assess the effectiveness of the law and its impact, as a support in lobbying for the amendments of the Act. 21
CHAPTER III
ANALYTICAL FRAMEWORK
Figure 1 Impact of Retirement Act to both labor and Capital And its relationship to Globalization
There is no previous study yet on the impact of the R.A. 7641 to both labor and capital. This study shall, therefore adopt a micro framework by using cases filed in Court to analyze the implications or possible effects of the Act in a specific company. Factors like the pegging of retirement age to 60-65 years and imposing the burden of giving retirement benefits to last employer would cause the capital to shape up and modify some employment structures inside the company. Any action introduced by the capital would therefore create an implication to labor. Many workers with age ranges of 45-55 will likewise be eliminated through termination or retrenchment. This situation would R.A. 7641 - mandate the employer to pay - retirement age 60-65 - benefit of 22.5 days/years of service - Capital - avoid payment of benefits - terminate workers before retirement - changed in employment structure
Labor - unemployment, termination; - retrenchment at the age 45 55; - increase of cases filed Globalization - change of business organization - labor flexibility 22
imply bulk of cases filed at the Department of Labor and Employment (DOLE) as quasi- judicial body more specifically at the National Labor Relation Commission (NLRC).
As shown in Figure 1, the impact of retirement Act to capital or private companies would cause them to adopt, modify their employment structure for them to cushion the financial effect of retirement pay benefits. Some modifications that the mangement tends to adopt are early retirement, termination, retrenchment, job- contracting, hiring part-time employees, etc. It can be done by adopting labor flexibility, which is now acceptable by the government, as a process of adjusting to globalization. The companies are streamlining, merging or consolidating in competing with the globalize business environment. Many establishments just maintain core employees and do away with the production line workers to survive in the competition. Hence, it creates big impact to labor.
This is to test the hypothesis that, change of event would cause the implementation of the Act ineffective. If not timely cured and amended would create a big implication in negating the workers retirement benefit. The workers just share to the companys fruit of production, by rendering long years of service to the company during the best years of their lives would be gone into waste. The intention of the law of giving protection to workers in their twilight years will be defeated.
a. Definition of Variables
Republic Act 7641 or the New Retirement Law is the Act that has provided for the mandated payment of retirement benefits to all private sector employees regardless of their position, designation or status and irrespective of the method by which their wages are paid upon reaching the compulsory retirement age of sixty- five (65) or an optional retirement of sixty (60). The minimum retirement pay due to covered employees shall be equivalent to one-half month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
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Globalization is a condition, it simply means the state wherein any entity can obtain goods or services from anywhere, or have facility to access any place in the world. It is a phenomenon. It can be observed. It can be experienced.
Capital /Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as an employer.
Labor/ Employees - the total workforce. It includes any person in the employ of an employer. The term shall not be limited to the employees of a particular employer, unless the Labor Code so explicitly states. It shall include any individual whose work has ceased as a result of or in connection with any current labor dispute or because of any unfair labor practice if he has not obtained any other substantially equivalent and regular employment.
b. Globalization and its Effects
Globalization, in simple terms, means the state wherein any entity can obtain goods or services from anywhere, or have the facility to access any place in the world. As such, globalization may be seen to envision three things. First, the world is one huge market of traded goods and services, and the demand for such goods and services is both specialization-driven and technology-driven. Second, investments can locate- and in fact should be encouraged to locate- in areas which offer the most attractive comparative advantages, and bring back the most profits for the investor and the host country. And third, labor markets have become so integrated that the worlds human resources have now become an internationally-shared resource. (Aquino and San Gil, 1977).
Director General of ILO, in his report, at the Session of the International Conference, noted that while there had been an unprecedented increase in global output, there had been no corresponding growth in employment opportunities. In relation to the ILO- identified potential dangers, Bitonio, in his paper titled Some 24
Thoughts on Globalization, enumerates the four main macroeconomic issues endangered by globalization as far as employment is concerned:
1. The Factor-Price Equalization Theorem. The fear in the industrialized countries that globalization is unleashing new international competition from newly- industrialized countries that they cannot withstand and which is causing rising unemployment and falling relative wages among unskilled workers.
2. High Transitional Costs. For a developing country, trade and investment liberalization means greater internal and external competition. Necessary structural adjustment could lead to loss of jobs and widening wage inequality.
3. Integration of Labor Markets. A fear that globalization of the labor market is leading to a race to the bottom with respect to wages and labor standards. Thus, it may face difficulties in securing job tenure and in applying traditional systems of collective bargaining and industrial relations.
4. Loss of National Policy Autonomy. The increasing mobility of capital in the global setting poses a distinctive to governments to tax and regulate investments, thereby undermining its revenue resources. Global financial markets also limit governments discretion over interest rates, exchange rates portfolio investments. This implies loss of national policy autonomy and that governments are becoming impotent.
Labor Flexibility
At the plant-level, the companies respond to globalization pressures with different sorts of innovations. These innovations oftentimes referred as Best Practices or labor flexibility, which aimed at simultaneously reaching the highest level of quality, productivity and flexibility at competitive costs. From the employers point of view, labor flexibility measures-such as labor-only contracting, total quality management, flexible working hours, outsourcing, contractualization, and agency-hiring, among others are 25
necessity for the survival of the enterprises. However, the uncertainty is transferred to the workers, either in the form of less employment security, less income or both.
The companies, in surviving the cutthroat of competition sometimes lead to streamlining or re-engineering of the whole corporate structure and process and other forms such as downsizing, smart-sizing, right-sizing mean displacement of workers.
The rapid pace by which trade and investment policies have developed within the control of globalization has not been matched by the development of corresponding labor and employment policies.
Management Prerogatives
Management prerogatives refers to the rights of an employer to regulate all aspects of employment, such as the freedom to prescribe work assignments, working methods, processes to be followed, regulation regarding transfer of employees, supervision of their work, lay-off and discipline, and dismissal and recall of workers (Baybay Water District vs. COA).
Similarly, the Court has defined a valid exercise of management prerogative as one which covers hiring, work assignment, working methods, time, place and manner of work, tools to be used, process to be followed, supervision of workers, working regulations, transfer of employees, work supervision, lay-off of workers and the discipline, dismissal and recall of workers. Except as provided for or limited by special laws, employers are free to regulate, according to their own discretion and judgement, all aspects of employment (Consolidated Food Corp. vs. NLRC 1999). 6
6 Juris Bernadette M. Tomboc, CPA, JD, MSIRM, Management Prerogatives and Employees Participation, De La Salle University, Manila Philippines 26
CHAPTER IV
METHODOLOGY
A. Research Design
This study proceeds by presenting first the Legal Policy Framework of RA 7641, and analyzing its policy content. Some issues and cases emanated from both labor and capital are presented to understand deeper the flaws on the wordings of the provisions and its impact.
To address this concern, a cursory look on retirement cases filed in Supreme Court was reviewed. This was taken as a springboard in choosing a company for a case study. Primarily, the study intends to describe the undergoing internal labor flexibility by the company in resolving their financial problem/obligation under new retirement law by using questionnaire interview method.
Recent Supreme Court decisions on retirements in 2011 were also reviewed to find out if social dialogue within the workplace existed. Although statistics can provide a good idea of what is happening to the industrys labor market as a result of the mandatory implementation of New Retirement law nothing or little is known about the internal changes happening inside the company specially after the effect of global financial crisis in 2008. The facts of the case brought in Court will hopefully help the researcher understands the process of reduction of workers (organizational rightsizing) inside the workplace.
Then it proceeded in understanding its general impact by looking at the labor statistics in the industrys employment structure and termination structure. A cursory view of trends in age group employment and termination structure will give a hint on possible relationship on how the establishments adjust themselves to resolve the effect of New Retirement Law implementation. 27
B. Samples and Instrumentation
Case Study, both in actual cases filed in Courts and company practice were used as a tool for analysis. The Study focused on one case study of one company only. The company was selected based on the bulk of cases they are having in courts and their openness to share information about their company and their availability for interview. A combination of purposive and snowball technique is used in determining company sample. Questionnaire-interview method is also used to analyze the internal flexibility undergoing in specific companies. Labor Statistics data on employment by age group and termination trend is also used to determine the general impact of New Retirement Law.
C. Data and Collection Procedure
This policy research used both primary and secondary data. Primary data was taken at the (micro) plant level case analysis on companies responses to the problem brought about by several cases filed against the establishment in Courts. The primary data is gathered through a combination of personal interview and focus group discussion (FGD) with the management and questionnaire method. Company files on retirement are also gathered to support the FGD.
The secondary data is gathered through document review using internet and copies of retirement cases filed in judicial and quasi-judicial body like the NLRC, books, statistics, leaflets and other study related to the problem.
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CHAPTER V
RESULTS AND DISCUSSIONS
I. POLICY CONTENT:
A. R.A 7641 Legal Framework
Basically, the intention of the Act is to provide additional old age protection to private workers over and above the social protection scheme provided by SSS. It evolves as a measure to fill the deficiencies of old-age protection provided by SSS and Pag-Ibig.
R.A. 7641 provides and amendment of Article 287 of the Labor Code which reads as follows:
Article 287 of the Labor Code as amended by RA 7641, provides:
Retirement. Any employee may be retired upon reaching the age established in the collective bargaining agreement or other applicable employment contract.
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 agreement and other agreements. Provided, however, that an employees retirement benefits under any collective bargaining agreements and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said 29
establishment, may retire and shall be entitled to retirement pay equivalent to at least six (6) months being considered as one whole year. 7
Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13 th month pay and the cash equivalent of not more than five (5) days of service incentive leave.
The Bureau of Working Condition (BWC) of the DOLE released a simplified interpretation of the Act in its handbook entitled Statutory Monetary Benefits as follows:
Effectivity - Republic Act 7641 was passed on December 9, 1992, and took effect on January 7, 1993. The Act serves as an amendment of Article 287 of the Labor Code.
Coverage - This Act shall apply to all employees in the private sector, regardless of their position, designation or status and irrespective of the method by which their wages are paid. This benefit however, does not apply to government employees, and employees of retail, service and agricultural establishments or operations regularly employing not more than ten (10) employees.
Amount of Retirement Pay The minimum retirement pay shall be equivalent to one-half month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.
For the purpose of computing retirement pay, one-half month salary shall include all of the following:
a) 15 days salary based on the latest salary rate; b) cash equivalent of 5 days of service incentive leave; c) one-twelfth (1/12) of the 13 th month pay.
7 Integrated Labor and Labor Related Laws, Institute for Labor Studies, 2000 30
Other benefits may be included in the computation of the retirement pay upon agreement of the employer and the employee or if provided in the Collective Bargaining Agreement (CBA).
For covered workers who are paid by results and do not have fixed monthly salary rate, the basis for the determination of the salary for fifteen days shall be their average daily salary (ADS). Dividing the total salary or earnings for the last twelve months reckoned from the date of retirement by the number of actual working days in that particular period derives the ADS.
Retirement under a Collective Bargaining Agreement or Applicable Contract
Any employee may retire or be retired by his employer upon reaching the retirement age established in the CBA or other applicable agreement/contract and shall receive the retirement benefits granted therein; provided, however, that such retirement benefits shall not be less than the retirement pay required under RA 7641 and provided further that if such retirement benefits under the agreement are less, the employer shall pay the difference.
Where both the employer and the employee contribute to a retirement fund pursuant to the applicable agreement, the employers total contribution and the accrued interests thereof should not be less than the total retirement benefits to which the employee would have been entitled had there been no such retirement fund. If such total portion for the employer is less, the employer shall pay the deficiency.
Retirement Benefits of Workers who are Paid by Results
For covered workers who are paid by results and do not have a fixed monthly salary rate, the basis for determination of the salary for fifteen (15) days shall be their average daily salary (ADS). The ADS is derived by dividing the total salary or earnings for the last twelve months reckoned from the date of retirement by the number of actual 31
working days in that particular period, provided that the determination of rates of payment by results are in accordance with the established regulations.
Retirement Benefits of Part-time Workers
Part time workers are also entitled to retirement pay of one month salary for every year of service under RA 7641 after satisfying the following conditions precedent for optional retirement: (a) there is no retirement plan between the employer and the employee and (b) the employee should have reached the age of sixty (60) years, and should have rendered at least five (5) years of service with the employer.
Applying the foregoing principle, the components of retirement benefit of part time workers may likewise be computed at least in proportion to the salary of related benefits due them.
Retirement Benefit of Underground mine Employees under Republic Act 8558
The retirement of underground mine employees has been reduced to a much lower age. For this purpose, an underground mine employee refers to any person employed to extract mineral deposits underground or to work in excavations or workings such as shafts, winzes, tunnels, drifts, crosscuts, raises, working places whether abandoned or in use beneath the earths surface for the purpose of searching for and extracting mineral deposits.
Other Benefits upon Retirement
The retirement benefits under RA 7641 and RA 8558 are separate and distinct from those granted by the Social Security System.
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B. Observations and Findings
The following are the observed identified issues on the wordings of the law, which are deem considered as hindering factors for the effective implementation of the Act:
1. The conflict brought about by the retroactive application of RA 7641s (RA 7641 took effect on January 7, 1993).
Supreme Court in a number of its decisions ruled on the retroactive application of the law, Oro Enterprises, Inc. vs. NLRC and L.L. Cecilio, GR 110861, 14 November 1994; Philippine Scout Veterans Security & Investigation Agency vs. NLRC. G.R. No. 115019, 14 April 1997 and most recently Masing and Sons Development Corporation and Crispin Chan vs. Gregorio P. Rogelio, GR 161787, 27 April 2011. The Court upholds in its recent ruling that xxx the benefit under Republic Act 7641, which was enacted as a labor protection measure and as curative statute to respond, in part at least, to the financial well being of workers during their twilight years soon following their life of labor, can be extended not only from the date of its enactment but retroactively to the time the employment contracts started. 8
The DOLE, in the course of implementing the Act has received many queries among employers, foremost of which is the reckoning point of the effectivity date of the Act.
The retirees of 1993 onwards, claim that, their retirement pay should be reckoned from the date of employment which is strongly opposed by employers. The employers claim that, they will just start the giving of retirement pay benefits under 7641, on January 7, 1993 onwards and not backwards.
8 Masing and Sons Development Corporation and Crispin Chan vs. Gregorio P.Rogelio, GR 161787, 27 April 2011. 33
To illustrate the conflict:
The Supreme Court ruled on the retroactive application of the Act, it states that, its retroactivity reckoned from the date of employment. Meaning a company should give the retirement pay of 1993 retirees computed from the start of his/her employment. Hence, many employers claim that this decision seem to be inconsistent on the prospective application of the law, to wit: No law shall have retroactive effect.
The cases below clearly figure out the problem on effectivity date:
The case of Sta Catalina College and SR Loreta Oranza vs. NLRC and Hilaria G. Tarcero. GR No. 144483, November 19, 2003.
Hilaria, an employee is hired in 1955 as elementary school teacher by Sta. Catalina College. On May 31, 1997, Hilaria already reached her compulsory retirement age of 65. In 1998, the employee, Hilaria filed money claims on retirement pay benefit to her employer, claiming her 42 years of service in Sta. Catalina College under RA 7645. The employer, Sta Catalina College, contend that they are only liable for her retirement pay for four years. That is, from 1993 97 because of the non-retroactivity of the law. On its decision, the SC ruled that the employer have to shoulder the retirement pay of the employee multiplied to her 42 years of service.
The SC decisions, trigger a negative signal to employers. Why? This decision has caught many employers unaware of the bulk of financial responsibility that they have to shoulder on their retiring employees, since 1993. Since, the last employer has to shoulder the retirement pay of their retirees, many employers are not ready to assume the financial burden imposed by the Act. Hence, they results to employees termination before retirement. This situation is happening inside the company through legal remedies of management prerogatives and business flexibilities and other illegal means.
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This problem creates a domino effect of retirement cases filed in court. Cases like individual money claims and illegal dismissals are filed by the terminated employees afterwards. The employers contend that the financial effect of RA 7641 is tremendous that will cause financial collapse of the company. The employees on the other hand are contending on the language of RA 7641 as their esteemed right under the law.
The above conflict is continuously happening inside the company since 1993. It was observed from the cases studied that the source of conflict is basically the reckoning point of computing the retirement pay and the basis of computation of retirement pay. Under its implementing rules, retirement pay should be based on the latest salary of the retiring employees.
The heavy financial obligation of an employer which the Acts demanded to pay, at the time of retirement is causing a serious problem to the company. The management is curing this financial burden by terminating workers before they reached the age of retirement to avoid a financial collapse of the establishment.
2. The confusion on the computation of retirement pay based on the mathematical meaning of fifteen days as basis for the amount of payment.
The computation on the actual retirement benefit under the Act creates lots of confusion to employers, thus resulting increase of money claims cases being filed by workers. Under the Act the term one-half (1/2) month salary is not consistent with its mathematical meaning of fifteen (15) days. The component of one-half month under the Act is actually twenty two and half (22.5) days.
The Bureau of Working Condition explained that the application of the above phrase creates disparity in the computation of wages such as when deriving the daily salary rate of the employee. It must be noted that the employer practice of adopting or 35
using a factor/devisor to get the average daily rate (ADR) of an employee from his fixed monthly rate.
To illustrate, factor 365 days (where the employer pays his workers for his rest days/Sundays) may be compared with factor 314 days (where workers are not paid of their rest days) using the monthly rate of P6,000.00.
Average Monthly Rate ( AMR) x 12 _____________________________ = Average Daily Rate (ADR) Factor Thus;
P6,000.00 x 12 vs. P6,000.00 x 12 -------- -------- = P197.26/day ------------------ = P229.29/day 365 314
An interview with regional directors confirmed that many complaints on money claims in the region arise from the conflict of the interpretation of one-half month or 15 days application of the Act.
3. The retirement age pegged at the age of sixty (60) to sixty five (65) years.
The question of equity and justice are posed by both employers and workers as well as several unions in the pegging of giving the retirement benefits to 60-65 years of age. This issue has been a source of debate in Congress since 1993. Hence, there are lots of Bills filed in Congress reducing the retirement age to 55 to different types of workers.
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Queries received by the DOLE include the contention of some employees on the unfairness of this provision. The employees on one hand contend that, they need to wait for long years until 60-65 yrs of age, in one company, before they can be qualified for the retirement benefits. They are worried that before they will reach that age, they will be retrenched/terminated.
On the other hand, the employers are also complaining, because they find it hard to use loyalty, as a factor for promotion. The act of pegging the heavy financial burden to the employers has caused them to terminate employees before they will reach retirement age; either by offering early retirement benefits or other legal measures like retrenching the employees, just to avoid financial collapse due to retirement. Hence, the management are sometimes resulting of hiring temporary workers even for higher technical positions.
On the labor side, workers claimed that they were already, retrenched, terminated or dead before they will be qualified for the benefit.
On the side of capital, the employer explained that way to evade the mandates of the Act simply falls on what they called management prerogatives. Specially now, that business is operating in a globalize environment.
On the government side, the DOLE also believes that the giving of retirement benefits should be based on two options: 1) the years of service and 2) the age of employees, to justifiably give to labor sector its due share to the fruit of company production, which is the rationale behind RA7641. More importantly, this will prevent the negative response of employer on limiting the number of their employees to avoid benefits.
Likewise, the pegging of retirement age is detrimental to workers. Since, employers will just resolve their manpower supply to five-months contractual arrangement with lower age requirement, of 25 years and below. The older workers, of more than 30 -40 age group for example, will find it hard to find 37
employment. Worst, highly trained workers of 40 -55 years old are prone to termination. They find it hard to find employment because of age.
4. The silent provision on non- taxability of retirement benefits creates lots of confusion to capital
The tax exemption on the retirement law is not explicitly provided in RA 7641, neither in its implementing rules and regulation. Lots of cases had been filed on this aspect. In NLRC Region V (Bicol Region) alone, there are 27 cases of money claims filed against one company only. The claims are based on the confusing non-taxability of retirement benefits.
This problem cause the employer to be placed under the most difficult situation of whether or not to subject the retirement pay to tax. At present, the lies on the provision of Section 28 (b) (7) of the National Internal Revenue Code on Exclusions from Gross Income. The above Section states:
Sec. 28 (b) Exclusions from gross income the following items shall not be included in gross income and shall be exempt from taxation under this title: xxx (7) Retirement benefits, pensions, gratuities, etc. (A) Retirement benefits received by officials and employees of private firms, whether individuals or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, that the retiring official or employee has been in the service of the same employer for at least 10 years and is not less than 50 years of age at the time of his retirement. Provided, further, that the benefits granted under this paragraph shall be availed by an official or employee only once. For purpose of this subsection, the term reasonable retirement benefit plan means a pension, gratuity, stock bonus or profit sharing plan maintained by an employer for the benefit of some or all of his officials or employees, where contributions are made by such employer for official or employees or both, for the purpose of distributing to such officials or employees the earnings and 38
principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or diverted to, any purpose other than for the exclusive benefit of said officials or employees. 9
What does the law implies? It would mean that if the company has no BIR approved retirement benefit plan, the retirement benefit is taxable.
Articles from the Tax Watch Issue of SGV and Co. in 2005, confirmed the above statement. It noted that planning for retirement could save retirees from having to pay the top rate of 32% on their retirement pay. It explained in that article that, Failure to think ahead can lead to unexpected and exorbitant costs .
Under the Tax Code, retirement benefits are exempt from income tax whether these are received from private companies with private benefit plans under Republic Act 4917 or without retirement plans under RA 7641 provided the following proviso are complied with: a) There is a BIR approved retirement plan b) The employees is 50 years of age and stay in the company for 10 years; c) Should be availed only once
RA 7641 legal provisions and its implementing rule is silent about this non tax- requirements. It just plainly requires all private employers with at least 10 employees to pay retirement benefits to qualified employees in the absence of a retirement plan. But the law is silent if it should be taxable or not.
RA 4917, mandated a definite written program setting forth all provisions essential for qualification for retirement benefits but never mention about the non- taxability of the benefit. However, the Tax Code requires that the
9 National Internal Revenue Code 39
retirement plan should be approved by the BIR before it will be tax-free. How about if the plan is not yet approved? Should it be taxable? Under what law?
This inconsistency under the Act has created lot of problems that leads to so many cases filed, resulting to the too tedious adversarial procedure. 40
II. POLICY IMPACT
A. Impact of RA 7641 at the Company: (A plant level assessment)
This part presents the result of the case study of one company. The purpose of this exercise is to determine the impact of the passing of RA 7641 at the plant level. Likewise, it describes how the retirement cases being encountered by the company affect the management decisions and prerogatives.
The attempt is to describe the employer response to the restrictive implementation of the law. The problems that the company is facing with the bulk of cases on retirement filed against them; And, how the company is affected by the problem, while at the same time, coping up with the competition brought about by globalization. It is noteworthy to note a company samples to examine how the company is coping.
A. Background
Company A is a domestic corporation, medium in size, engaged in the manufacture of abaca pulp in since 1976. Company A is an industry leader and one of the worlds manufacturers of abaca pulp sheets. It has been supplying quality abaca pulp sheets to the international market for more than a decade now. Abaca fiber being considered as an indigenous product, which can only be found in the Philippines and Ecuador, is currently having a very large world demand.
Case Study: The Case of Medium Size Company operating at the countryside
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Company As current market is Japan, which is known for its very complex distribution channel. The product (pulp sheets) is being resell to Japanese companies to be used as their raw materials to manufacture specialty papers such as: currency or bank notes, electrolytic condenser papers, filter papers, tea bags, meat casings, disposables, non-woven and cigarette papers. To meet As increasing market demand and its vision of becoming one of the worlds largest manufacturers of abaca pulp sheets, the company need to strengthen both its external and internal environment.
B. Company Profile
Date Established: January 24, 1974 Principal Line of Business : Manufacturer/Exporter of abaca pulp Authorized Capital Stock : P35,000,000.00 No. of years of existence : 31 years Business Address : Dela Cost St. Salcedo Village Makati. Plant site : Albay
C. Employment Profile
The company is relatively small with the total of 147 employees, 9 of its employees are located in the head office in Makati while the other 138 workers are Bicolanos working in Malinao Plant in Albay. As company culture is characterized by a family- oriented environment, where everybody in the company knows everyone. At present the distribution of workers as to age groups are as follows:
Age- Employment Profile of Company As Employees Years in Service No. of Workers Percentage of Total 1-5 14 9% 6-10 41 27% 11-15 10 7% 16-20 33 23% 21-25 3 3% 26-30 46 31% TOTAL 147 100%
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The following graph indicates the number of years and the number of workers the companys under current plantilla of the company: Company A's Current Age-Plantilla 11 - 15 7% 6 - 10 28% 2 - 5 10% 26 - 29 32% 21 - 25 2% 16 - 20 21% 2 - 5 6 - 10 11 - 15 16 - 20 21 - 25 26 - 29
It was noted that 71% of its employees have been in the company for ten years or more.
Thirty two percent (32%) or 46 of its workers are already at the prime age approaching retirement with the total of 25-30 years in service. Three percent (3%) or 3 of them have served the company for 21-25 years. Twenty-one percent (21%) or 33 of them are already serving the company for 16-20 years. Seven percent (7%) or 10 of them had been in the company from 11- 15 years. Eight percent (8%) or 12 of them had been in the company for exactly ten years.
With the profile of employees, it is quite alarming to note that most of its workers are nearing a retirement age. By understanding their age at present, 114 of 43
them are already qualified to receive benefits under RA 7641, if they reached 60-65 years of age.
This scenario presents a very clear alarming illustration of the burden that the company has to face on the implementation of the RA 7641, since the start of January 7, 1993. Added to this injury, is the signing of their CBA in 2003, which specifically provides their employee of a tax-free BIR approved retirement plan. The Executive Vice President in Finance and Administration is alarmed with the problem and believed that if not be properly address by the management, will create a big impact on their financial status as well as employment structure.
D. The Retirement Problem
The number of cases filed against them in Court brings about Company As problem. From 1994-2004, there are a total of 27 labor cases on retirement filed against the company. The complaints are basically on money claims representing the amount of tax withheld by the company on their retirement pay. The following illustrates the problem at hand:
The CBA Agreement
In January of 2003, a new CBA was signed by labor and management. Art. X of its provision states that, the company agrees to provide to all its regular employee a BIR approved Retirement Plan out of pure gratuity. The retirement benefits provided by the company doubled the mandatory requirements under RA 7641.To wit:
Article X Retirement Plan The company agrees to provide a BIR approved Retirement Plan covering all regular employees. The amount of retirement fund shall commensurate to the provisions on retirement benefits as stipulated on Art. XII. 44
This retirement plan shall entitle the employee of a tax- free retirement benefits.
Under Article XII, the retirement benefits enjoyed by the employees are as follows:
Compulsory Retirement the company shall pay a retirement to forty five (45) days basic pay for every year of service (no length of service required);
Optional Retirement the company shall pay equivalent to thirty (30) days basic pay for every year of service;
Termination due to disease the company shall pay a separation pay equivalent to forty five days (45) for every year of service.
TheCompanys Dilemma
Since the effectivity of RA 7641 in 1993, many workers retired. In 2003, during the effectivity of their new CBA, Compnay A was in a dilemma of giving the retirement pay to workers as agreed in the CBA, since they are just in the process of applying for BIR approval for its Retirement Plan. As per BIR Rule, in the meantime that the Plan is not yet approved, Company A, being a withholding agent has a responsibility of deducting taxes to the retired employees and faithfully remit the same to the BIR.
By looking at the provision of the RA 7641, there is no provision under the law and its implementing rules that specifically provide for a tax-free retirement benefit. However, since, Art. X of the CBA agreement provides a tax free BIR approved Retirement Plan the retirees assumed that their retirement benefit is tax-free. The problem is, while the Retirement Plan is not yet approved, the company, under the BIR rule, has the obligation to withhold taxes to the retirement pay of the retirees. 45
The company is confused whether or not to subject the retirement pay to tax. Further, the process of BIR approval for a tax-free retirement plan needs to satisfy a rigorous requirement. Foremost of which, is the putting up of a retirement fund amounting to Six Million Eight Hundred Fifty Three Pesos, Four Hundred Twenty Five and Forty Four Centavos (P6, 853,425.44). The amount is so big that the company finds it hard to provide the amount immediately.
As per BIR Rule Sec. 2 (b), item 1 of Revenue Regulations No. 12-86, the retirement and separation pay constitute compensation subject to withholding tax. To wit:
BIR Rule 12-86 -Sec. 2 xxxxxx Pension, retirement, and separation pay. Pensions, retirement, and separation pay constitute compensation subject to withholding tax, except the following:
1) The benefit plan must be approved by the Bureau of Internal Revenue; 2) The retiring officials or employee must have been in service of the same employer for at least ten (10) years and is not less than fifty (50) years at the time of retirement; and 3) The retiring officials and employee shall not have previously availed of the privilege under retirement benefit of the same employer. E. Company As Cases on Retirement
In 2003, five of its employee retired. Alindeco, being a good father of the family, faithfully complied with the CBA agreement to its workers. The company gave the retirement benefit to the retirees, but was forced to withhold taxes as mandated by the above BIR rules. This act had cause instigation to the retirees to file money claims in 46
NLRC against Alindeco, on the ground that, as per CBA agreement, Alindeco should provide a tax- free retirement plan to its employees. By understanding the case involved, following information was gathered:
The following are the run down of cases filed against Company A:
The Companys Labor Cases on Retirement
Complainants Years Retired Retirement Pay Received Money Claims due to tax Status of Cases/decision 1. Employee A 2001 162,019.50 130,317.68 -underpayment of 65,049.25 as per CA decision
2. Employee B 1998 131, 853.48 76,003.26 -dismissed at CA
3. Employee C 2000 53,271.99 162,501.10 - dismissed at CA
4. Employee D 1997 87,000.00 44,499.45 -dismissed at CA
5. Employee E 2000 156,466.15 73,599.35 - pending -
6. Employee F 1998 123,482.60 42,893.75 Dismissed at CA
7. Employee G 1997 146,060.57 50,464.86 -Filed at NLRC Legazpi
8. Employee I 1998 112,417.45 13,860.00 - fled at NLRC Legaspi
9. Employee J 1998 23,115.01 190,063.91 -filed at NLRC Legazpi
10. Employee K 1998 142,964.65 117,789.16 Filed at NLRC Legazpi
11. Employee L 1995 107,432.60 45,846.36 -filed at NLRC, Legazpi
12. Employee M 1994 88,990.40 141,830.76 -filed at NLRC legazpi
13. Employee N 2000 129,280.94 248,596.94 -filed at NLRC Naga
14. Employee O
-
-
- Filed at NLRC Legazpi
15. Employee P
2003
180,344.63
116,082.79 -57,911.21 underpayment per CA decision
16. Employee Q
2003
293,776.00
210,901.76 -105,655.25 underpayment as per CA
17. Employee R
2004
232,407.14
124,713.21 -70,780.14 underpayment as per CA decision - filed before NLRC 47
18. Employee S 2003 102,476.97 207,978.67 Legazpi
19. Employee T
2004
99,660.63
205,050.62 - filed before NLRC Legazpi
20. Employee U
2002
212,950.30
190,063.91 - filed before NLRC Legazpi
21. Employee V
2002
146,801.39
50,464.86 -filed before NLRC Legazpi
22. Employee X
2004
218,472.71
132,995.74 -filed at NLRC Legazpi
23. Employee Y
2004
195,313.07
199,139.29 - filed before NLRC Legazpi
24. Employee Z
2004
204,446.19
204,466.19 - filed before NLRC Legazpi
27. Employee AA
2003
218,704.30 - President of Union the only retirees who do not file a case Sources: Case Background:
The complainants seek to claim for the balance of their retirement pay benefits representing the tax withheld and remitted to the BIR. The arguments anchored on the ground that the retirement pay should be exempt from taxes as mandated by RA 7641. Further, they argue that under Article X of their CBA, which was signed on January 1, 2003, Company A has agreed to provide a BIR approved Retirement Plan to the employees of the company.
On first batch of 10 cases, NLRC decided in favor of the claimants. NLRCs decision charged Company A with exemplary and moral damages of One Hundred Fifty Thousand Pesos to each and every complainant. The decision had bloated the award to One Million Two Hundred Forty Seven Pesos and Ninety Four Centavos(P1,000, 247.94).
On Appeal, the decision of the Court of Appeals (CA) affirmed NLRCs decision to five claimants, whose retirement falls from January 2003, which is the effectivity of their CBA. Company is obliged to return the tax withheld from the five retirees claims as indicated in the above Table. The other five cases were dismissed due to prescription, since it happened long before the effectivity of the CBA.
Company A, file a Petition for Partial Review in the Supreme Court. The company faithfully believes that the agreement under Art. X of CBA is prospective in nature. It 48
does not mean automatic as presumed by the Court. Their reason is grounded on the fact that the process of having the retirement plan approved by the BIR does not happen overnight. If the company did not deduct taxes from the retirement pay, as claimed by claimants, then BIR would penalize them being a withholding agent.
Company A believed that the act of deducting taxes from the retirement pay of the employees is within the bound of their CBA agreement. The management deem that the company just only acted with prudence like any good corporation should do, to keep its share of providing the lifeblood of the nation. They believe that their obligation under the CBA is to come up with the BIR approved retirement plan within the duration of CBA. That is from the period of January 2003 December 2004.
The decision of CA, had cause instigation to other retirees to file their own similar cases at NLRC. Another batch of cases on retirement are filed in NLRC afterwards.
On October 2004, the company is able to secure a tax-free, BIR Approved Retirement Plan through the Insular Life Assurance Co. Ltd. From then on, they did not deduct taxes to the retirement benefits of their employees. As of this writing there are already six employees who enjoyed a tax-free retirement benefits.
On the management side, there is still a big question that left hanging in their minds is Should the company be penalized while dutifully complying with the BIR Rules, and at the same time adhering to their CBA agreement of providing retirement benefits to its employees, which is over and above the mandates of RA7641? .
Policy Impact : an HR Response
Based from the in-depth discussion with the Vice President of Finance and Administration of the company, the management is disappointed with what is happening with their workers-retirees. They feel that the familial orientation of giving welfare to the employees, which is in fact doubled the mandatory requirement of the law, should not 49
deserve this kind of reaction. The cases filed against the company deviates their time and resources to handling cases in Courts, instead of focusing it to a much needed re- engineering of the company, both internal and external, to meet global competition.
The management initial point of view in analyzing the impact brought about by labor cases on retirement, while at the same time that the company is putting up a new plant to respond to the competition in a global market, are as follows:
The intensified competition in the world market will force the company to further cut cost and rationalize operations. Employment in the company until retirement age would become less of a norm, early retirement should become a permanent option for personnel above middle age. An attractive and comprehensive retirement package coupled with training on entrepreneurship is a must, to develop possible business partnership with our retired workers.
F. Management Prerogatives and Options
A companys option is to propose comprehensive early retirement scheme, to its employees. It is believed that this option is a recognized management prerogatives.
Initially, the plan of the management is to offer a comprehensive package of early retirement benefits to 71 of its employees. This retirement package will include an entrepreneurship training aligned with the product they have (abaca). The intention is to develop possible future business partnership with the workers-retirees.
As of this writing, the management has an initial plan of allotting at least Twenty Four Million Pesos (P24, 000,000.00) for the early retirement package. While, at present, Company A was able to put up another new manufacturing plant in Malinao Albay, to meet its market demands. The new plant is equipped with semi-automated machines that will increase its production, while at the same time reduce its workforce 50
requirements. Hence, offering early retirement to their employees could become a permanent option of the management.
This kind of prerogative is backed-up by several decisions by Supreme Court. In the case of Bulletin Publishing Corp. vs. Sanchez ( Philippine Airlines, Inc. vs. Airline Pilots Association of the Philippine 2002), the Court held:
The aforestated section (in CBA) explicitly declares, in no uncertain terms, that the retirement of an employee may be done upon initiative and option of the management. And when there are cases of voluntary retirement, the same is effective only upon the approval of the management. The fact that there are some supervisory employees who have not retired after 25 years with the company or have reached the age of sixty merely confirms that it is the singular prerogative of the management, at its option, to retire supervisors or rank and file workers when it deems fit. There should be no unfair labor practice committed by management if the retirement of private respondents were made in accord with the agreed option. That there were numerous instances wherein management exercised its option to retire employees pursuant to the aforementioned provisions appears to be fact, which private respondents have not converted.It seems only now when the question of legality of a supervisors union has arisen that private respondents attempt to inject the dubious theory that the private respondents are entitled to form a union or go on strike because there is allegedly no retirement policy for their benefit.
Other possible HRM responses and options : internal and external flexibility.
Internal flexibility refers to changes in work organization, wage system, work performance, evaluation of job/tasks. These measures afford a more flexible deployment of firms permanent staff to respond to work demands. It includes: job-rotation, multi- skilling, part-time works, overtime works, and flexible shift work.
51
External flexibility refers to the controlling the size of the workforce. This measures includes; job contracting, employment contracts of limited duration, agency hiring, cross posting of workers and buying of modern equipments.
B. Impact of Globalization to RA 7641
The New Retirement Law was created during the time when the country has not yet felt globalization. It was only in 1996, when the Philippines entered into GATT-WTO that the impact of globalization to labor and capital has been much felt by the country. The Act, being a social welfare policy is one of the legislations affected by this global development.
The integration of the global economy is unleashing much fiercer international competition, and the key to survive competition is competitiveness. Firms who want to survive this competition do not only resort to the use of flexible work arrangements, but also, streamlining or re-engineering of the whole corporate structure and process. Trade union leaders to mean the same thing view this and other forms such as downsizing, smart sizing: displacement of workers.
Labor sectors generally perceived globalization as a process of adjustments by economy and society, which often results in the retrenchment of workers, as companies consolidate their resources and gear them up for global competition. Under the regime of liberalization and regulation some companies resulted to termination of workers through retrenchment, closures, illegal termination and other means of avoiding workers nearing retirement age. This practice crippled the mandate of R.A. 7641. As seen on on the following Tables:
52
Labor and Employment Situation
Tables below, reflects a declining trend of employability as the workers increase in age bracket or nearing the retirement age.
Table 1 Employed Person by Age Group in the Philippines (2000 -2009)
From 2000 2009, shows a declining trend of employment as the age bracket increases. Employment rate reach its peak at the age bracket of 25-34 years of age at 25.20%. As workers reached 45 to 54 age group it decline to 17.49%; then sloped down to 9.45%for workers having 55-64 age group.
The graph reveals the following: Only 4.5 % of workers reach the retirement age bracket of 65 years old; The workers peak age of employability is from 25-34 years of age; Employability decline started from age 45; As workers nearing the retirement age of 45-54 employment drops by 7.71%; A sudden drop of 15.75% is observed as workers nearing the retirement bracket of 55-64 years of age.
This shows that age is related to employability because of the benefits attached to age and length of service. In some consultation handled by DOLE, representatives from the Visayas cited the case of Cebu Shipyard where there are now only about 400 54
workers, down from the original workforce of 600. Retiring or resigning workers are no longer replaced as a way of saving on operational costs. 10
Workers Diplacement
On the question : Can the workers displacements as a result of globalization will in effect, cripple if not totally delete the mandate of RA 7641?
In the study conducted by ILS in 1999, Understanding Globalization and Trade Union Responses, labor groups identified labor flexibility as one of the immediate effects of globalization. This measure is considered by labor groups as detrimental to workers, leading them to job insecurity, sub-standard terms and condition of work and worst is workers displacement. Among the issues raised by labor includes: contractualization, agency hiring, increasing feminization of cheap labor, and utilization of child labor are some forms of workers job displacement. Labor groups also claim that capital resorts to sub-standard terms and conditions of work such as: diminution of salaries, absence of social security like avoidance retirement benefits are considered as HRM options to achieve competitive advantage of gaining more production volume while at the same time reducing its labor force to attain more profits.
The capital side, on the other hand, argued that stiffer competition in a global market has caused them for increased labor flexibility measures. They view the issue as the management way of adopting to labor flexibility measures and as a means of keeping business viable and competitive. Making the matters worst, it was pointed out, that they lacked funds for old age assistance to their workers. They claim that displacement is the matter of companys survival. 11
10 Proceedings, Understanding Globalization and Trade Union Responses, 1999. 11 ibid 55
The Table below shows the following:
Table 3 Establishments Resorting to Permanent Closure and Workforce Reduction, due to Economic Reasons 2000 -2009
Year No. of Establishments Reporting No. of Workers Displaced 2000 2,258 67,624 2001 2,859 71,864 2002 3,403 80,091 2003 3,262 67,977 2004 2,008 36,163 2005 2,943 57,594 2006 2,979 59,376 2007 2,468 51,125 2008 2,436 52,863 2009 2,522 61,360 Total 27,138 538,480 Average 2,713 53,848 Source: Bureau of Labor and Employment Statistics
In brief, the number of establishments resorting to permanent establishment closure and workforce reduction in ten years (from 2000 2009) is ranging from 2,000 - 3,000 establishments. There is an average 2,713 establishments in the country who are undergoing organizational flexibility/rightsizing yearly to cope with globalized business competitiveness. This organizational flexibility is affecting a total of 538,480 workers who were displaced in ten years time or an average of 53,848 workers per year. The number of workers displacement varied, it reached its peak in 2002 and its lowest in 2004. The affected establishments were concentrated in the service sector, in urban centers (like NCR), and among establishments with micro employment size.
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Table 4 Workers Employment versus Workforce Reduction due to Economic Reasons 1999 -2010
Year No. of Workers Employed No. of Workers Displaced 2000 27,454 67,624 2001 29,156 71,864 2002 30,062 80,091 2003 30,635 67,977 2004 31,613 36,163 2005 34,958 57,594 2006 32,636 59,376 2007 33,560 51,125 2008 34,089 52,863 2009 35,061 61,360 Total 319,224 538,480 Average 31,922 53,848 Source: Bureau of Labor and Employment Statistics
By trying to compare the workers reduction viz number of employment per year, data revealed that the number of workers displaced is greater than workers employed. From 2000 2009, there were a total of 319,224 or an average of 31,922 persons employed, while the total of workers displaced were 538,480 or an average of 53,848 per year.
In general, data confirmed that, establishments resort to the reduction of workers to survive competition. In a globalized lingo, they called it as: downsizing or smart sizing. This management prerogative can legally evade/cripple the mandate of RA 7641.
It is quite alarming to note that, if the Act will not be amended, it will result to the unjust deletion of the retirement benefits to private workers. Hence, the constitutional right of workers share to the companys fruit of production, which is their investment, during the best years of their lives will just gone into waste. Amendments should consider business realities in global setting. 57
CHAPTER VI
The Role of Social Dialogue in Retirement Policy Issue
Social Dialogue simply means an exchange of ideas, a willingness to listen, and to respect other opinions. The International Labor Organization (ILO) defines broadly the concept of social dialogue, as: all types of negotiation, consultation or exchange of information between representatives of government, employers and workers, on issues of common interest relating to economic and social policy. 12
In a globalized economy, an alternative mechanism that works fast and produces long term economic and social benefits is highly recommended, rather than long and tedious adversarial legal procedures. ILO identified some of the possible benefits of using social dialogue as an alternative way of resolving labor issues, as follows:
Democratization of economic and social policy- making - More recently, social dialogue has become part of the approach to deal with economic growth and development. This has worked, not just in more industrialized countries, but in countries with quite difficult situation like Panama and Africa.
It adds legitimacy and ownership in a democratic society, any unilateral action without the consent with stakeholders is often met with resistance.
It reduces social conflicts by facilitating partnership and problem-solving approach Dialogue can minimize adversarial relationships through collaboration and partnership. It can develop a shared understanding of problems can facilitate discussion of policy alternatives and their
12 Junko Ishihawa, ILO: Key Features of National Social Dialogue: A Social Dialogue Resource Book. ILO Training Office Geneva, 2004 58
implications, and the finding of compromise to achieve common responses.
It eases tensions during economic hardship and transition periods social dialogue can be a very effective means to ease economic and social tensions during economic crisis or transition. 13
The DOLE most recent policy direction in resolving any labor issues and problems at the workplace is to engage both parties to social dialogue or conciliation/mediation first, before any labor problem will ripen into a case, Department Order No. 107-10, Series of 2010 (SeNA) . The directive is anchored with the objective of facilitating the resolution of disputes through Alternative Dispute Resolution(ADR) by mutual agreement of both parties. The intention is to attain harmony at the workplace and not to further harm the productivity of the company. This strategy is a balancing act of government, to cushion the impact of globalization that is directly affecting both labor and capital.
The study tries to examine the most recent Supreme Court decisions in 2011 with retirement problems to understand if social dialogue existed inside the company before the issue of retirement ripened into a case. Five cases were reviewed and noted the following observations. See Matrix attached as Annex B:
1. On the existence of Social Dialogue - Out of five Supreme Court decided cases in 2011 on retirement issue, there are two companies engaged in consultations. One is through its employees union, before implementing the companys Special Retirement Program. As a result, 102 employees agreed and benefitted with the plan, only one employee dissent resulting to his termination and filing of his case in court. The other case is through its grievance machinery procedure, but the consultation failed.
13 ILO Resource Book on Social Dialogue 59
2. On representation two companies have employees union. In one case, consultation and coming up with an agreement existed. The company had a reorganization and special retirement plan discussed and agreed with the employees union. However, consultation happened only during the planning and implementing stage. Consultations did not conform with the required phases of social dialogue in resolving problems. The other case is the non- compliance with some CBA benefits, where consultation with union is being processed by the grievance committee.
3. Sources of Problems resulting to filing of cases - two companies have undergone reorganization/ numerical and functional business flexibilities. One company had CBA renegotiation in economic benefits and two companies experienced individual cases on money claims due to retirement.
4. Facilitating Factors - the observed facilitating factors in cases studied include: a) the presence of installed mechanism that initiate consultation, like the presence of workers organization and grievance machinery inside the company; b) the presence of retirement plan before consultation; c) plan had passed consultation and agreement by the stakeholders before implementation.
5. Hindering Factors - the observed hindering factors that resulted to filing of cases in Court, includes: a) companys implementation of termination without a plan and consultations; b) non-involvement of workers in business rightsizing/reorganization; c) separation/termination without prior consultation to workers involved. 60
CHAPTER VII
CONCLUSION AND RECOMMENDATIONS
Concluding Remark
Globalization is a phenomenon that we cannot avoid. The increasing mobility of capital in a global setting has cause the implementation of RA 7641 or the New Retirement Law impotent. The companys respond to globalization pressures cut throats to the mandate of the Act. The giving of retirement benefits will just remain within the scope of management prerogatives. Hence, old age protection to all private workers not covered by contract will logically be minimized if not vanished.
The influx of labor cases on retirement has caused some companies to shape up through the use of its management prerogative right. The continued mandate of the law will just only cause trigger to capital, to avoid the giving of benefits. This can be manifested through legal and illegal options. The legal option is through the use of labor flexibility, which they termed as companys best practices while; the illegal options results to illegal dismissals. This kind of mandate just only results to the backlogging of cases on money claims filed by the retirees and displaced workers in NLRC. The displacement of workers as a result of globalization as well as the too rigorous adversarial process in Courts hurts not only labor but capital as well.
It is now imperative for the government to innovate some options that will not hurt the capital side and at the same time provide safety net to the labors rightful share to the companys fruit of production. Labor and capital should be considered as partners in the creation of wealth of a company and of a nation as well. Hence protection during the twilight-years of their lives should be considered as shared responsibility of labor, capital and government.
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Policy Recommendations/ Options
1. Provident Fund Scheme or Productivity Based Retirement Benefits - should be looked into as one scheme of the company, to provide old -age welfare benefits to their workers, which they can be withdrawn at the time of workers retirement to the company. This provident fund is a kind of scheme wherein both labor and capital will contribute to the fund. The amount of contribution of both labor and capital will depend on their respective agreement or through productivity based sharing agreement. If the fund is intended for retirement, then, it can only be withdrawn at the time of retirement. However, it can be loaned to the members as form of accessory benefits. The government contribution to the fund is its tax-free character. This can be modified through the creativeness of every company or through CBA.
2. Integration of retirement benefits provided under RA 7641 to the Social Security System (SSS) under Special Retirement Fund. This is to ensure the retirement pay of every workers irrespective of their employment status (including casuals, contractual and temporary workers). Like for instance, the GSIS Retirement scheme for public workers, wherein the retirement pay of every public worker is a shared contribution of the worker and the government. The sharing of retirement pay contribution is 9% from the workers equated by 12% from the government computed from the public employees latest salary. This kind of scheme can be used as pattern for private workers. Hence, every worker who already rendered one year of service will be entitled to at least 22.5 days (pay equivalent) retirement benefits from their employers, computed with a proportion of 2.5 days pay as workers share and 20 days as employers share. This kind of schemes can be remitted to SSS as their retirement benefits which can be done monthly or quarterly. In this way, the capital will not be financially harmed during the actual date of workers retirement. In the same way that workers nearing retirement age will not be prone to dismissal or retrenchment. The fund should be put in trust and portable in character, so that, in case the workers change employers or terminated from one job to another, the retirement 62
contribution remains intact with the care of SSS. The workers retirement fund can only be given to the workers upon reaching 50 60 years of age. In the same way that the fund cannot be withdrawn by the workers until they reached their retirement, but can be loaned to workers, like the GSIS fund, as an accessory benefit to the workers.
3. Integration of Retirement Benefit to Employment Contract for those workers under contractual arrangement, specially the rampant 5months-5 months contractual arrangement. This is to give ample protection to employees working under contract. In todays realities many workers are forced to accept 5-5 employment contracts just to have work. This management scheme is designed to avoid the giving of benefits to workers and to evade legal responsibilities. The lack of employment opportunity in the country, accepted 5-5 employment contract as a norm, especially in service industry. It is proposed that a model employment contract should be designed by DOLE to incorporate the giving of retirement benefits to workers who became victims of 5-5 contractual arrangement. The management of the retirement fund under this contract can be lodged at DOLE or SSS. This retirement fund is portable in character, so that it can be transferred to any system when workers find permanent employment.
4. Immediate amendment of RA 7641. The Proposed Provision for Amendments on RA 7641 are as follows:
Prospective Application on the Effectivity Date to address confusion on its implementation as well as to avoid termination of those workers nearing retirement age, prospective application of the law is recommended as an amendatory measure of the new retirement policy. This is to protect workers who are approaching retirement age from the fangs of legal and illegal termination. In the same light, this is to avoid the hesitance on the part of the employers to comply with the mandate of an Act. The employers notion of inequality under the law can be easily 63
cured-out by what they called as union reorganization or companys smartsizing.
In the recent case of Masing and Sons Development Corporation vs. Gregorio P. Rogelio (GR161787, 27 April 2011) the Court ruled that the application of law shall start not only from the date of its enactment but retroactively, from the time the employment contract started. The dispositive portion to wit, xxx the benefits under RA 7641 which enacted as a labor protection measure and as a curative respond, in part at least, to the financial well being of workers during their twilight years soon following their life to labor, can be extended not only from the date of its enactment but retroactively to the time the employment contracts started.
This decision created a big impact on the financial viability of the small and medium company who are maintaining the loyalty of their old workers.Further, this might trigger the HRD managers to retrench/dismiss workers nearing retirement age just to do away with financial mess.
Explicitly provide in the law the expanded equivalent of month pay which is equivalent to 22.5 days retirement benefit per year of service
This is to avoid confusion on the computation regarding the exact meaning of one-half month-salary under the Act.
Under the present law, one half months is equivalent to 22.5 days and not 15 days, it should be clarified in the provision in order to avoid confusion on the part of the employers. The component of one-half month under the Act at present creates confusion because different companies adopt different factor/devisor to get the average daily rate (ADR). At present employers used two factors to get ADR, as follows: a) 64
365 days (where employer pays his workers for his rest days and Sundays , b) 314 days (where workers are not paid of their rest days)
The Non-taxability of retirement pay should be clarified in the provision of the law.
This is to avoid confusion on the part of the employer whether or not to subject to tax the retirement pay of retirees. The silent provision on non- taxability of the Act has been the source of conflict at the workplace and legal battles in courts. The tedious legal battle resulted to the detriment not only of the workers involved but also the employers.
Non- taxability of retirement without any condition should be clear not only in the law itself, but in the IRR as well.
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REFERENCES I. Books Institute for Labor Studies (2000). Integrated labor and Labor Related Laws. Manila Philippines Azucena, Cesario Jr. ( 2010). The Labor Code with Comments and Cases. Rex Bookstore. Manila, Philippines. Institute for Labor Studies (1999). Understanding Globalization and Trade Union Responses. Intramuros Manila, Philippines. The National Internal Revenue Code. Manila, Philippines. Bureau of Labor and Employment Statistics (2010). Yearbook of Labor Statistics. DOLE Bldg. Intramuros, Manila. Aquino, Emilio B. (2002) Private Pension Scheme in the Philippines. Manila, Philippines Junko Ishihihawa (2004). ILO: Key Features of national Social Dialogue. A Social Dialogue Resource Book. ILO Training Office, Geneva. II. Pamphlets, Manuals International Labor Organization (2004). Promoting National Social Dialogue, An ILO Training Manual. In Focus Programme on Social Dialogue, Labor Law and Labor Administartion. Geneva, Switzerland. Department of Labor and Employment (2006). Handbook on Workers Statutory Monetary Benefits. DOLE, Intramuros, Manila. GSIS Leaflets on Retirement Benefits for Private Sector (2000). GSIS, Manila III. Cases and Bills on Retirement s.c.judiciary.gov.ph. Decisions on line elibrary.judiciary.gov.ph www.chanrobles.com/cralawsdecisions.htm www.congress.gov.ph
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Questionnaire for Case Study
Q1. Please provide vital information of your company:
A. Companys Profile:
1. Name of Company: 2. Date established: 3. Principal line of business: 4. Background: Mission/Vision/Goals/Strategy
5. Capitalization 6. No. Of workers
Q2. How many persons are working in this company at present? Please provide me the following information:
B. Employment Structure:
Occupation al Category
Employment Status Category Managerial/ Administrativ e Regular /Permane nt Workers Part- Time Temporary/ Seasonal Dispatc h Contract Total Engineers/ot her Professionals M F M F M F M F M F M F Clerical/Sales Foremen/ Supervisors
Production workers
Total
C. H R Responses in resolving problems on retirement:
Q3. Aside from salary what are other benefits you provide to the workers?
67
A3. _____________________________________________________________ ______ Q4. Approximately, at the average, how many persons are working in this establishment in 1992?
A4. Total: Men _____ Women ______
Q5. Do you encounter problems on the implementation of retirement law? Please describe the problem. A5. ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ ______________
Q7. Please indicate how you fill vacant positions in this company now. A7. Occupational Category Fill the vacant regular Get part time workers Sourced from agency- dispatch Get contract workers TOTAL Managerial/Administrative Engineers/Other Professionals
Clerical and Sales Workers Foremen/Supervisors Production workers
68
Q8. Please indicate the number of workers in this company who resigned voluntarily, were retrenched, or dismissed since 1992.
A8. TOTAL: Men _________ Women __________
Q9. Did the establishment hire replacements for the workers who resigned, were retrenched or dismissed?
A9. Yes All ____ ; Yes Some ______ ; No ________
Q10. In general, is the mandatory obligation imposed to the company by R.A. 7641 or retirement law discouraged the company to employ regular workers?
A10. Yes ______; No ________; Other Remarks __________
Q11. Does your company plan to increase _____ or decrease _______ the number of workers for the next two years.
Q12. What is your companys globalization strategy? Do you think this will help in resolving your labor issues on retirement benefits?
A13. What are your recommendations on how to effectively implement retirement law in the Philippines, that will be beneficial to both labor and capital. Please explain fully?
ANNEX - A RETIREMENT BILLS FILLED IN 15 TH CONGRESS BILL NO. TITLE AUTHORS 10 AN ACT UPGRADING THE RETIREMENT AND DISABILITY BENEFITS OF MILITARY PERSONNEL AND FOR OTHER PUPOSES Hon. Rodolfo G. Biazon
31
AN ACT REQUIRING ALL GOVERNMENT OFFICES TO ENSURE THE RELEASE OF RETIREMENT BENEFITS OF ITS EMPLOYEES WITHIN FIFTEEN DAYS FROM RETIREMENT
Hon. Jane Tan Castro
38 An act granting retirement, health care and death benefits to professional Filipino athletes who win world championship titles in international professional sports competitions or in other equally prestigious international championship games and providing funds therefor Pedro B. Acharon Jr.
165
An act amending article 287 of presidential decree 442, as amended, otherwise known as the labor code of the Philippines by adding a new article 287- a reducing the retirement age of racehorse jockeys from sixty (60) to fifty five (55)
Atty. Magtanggol T. Gunigundo I 70
284
410
An act requiring all government offices to ensure the release of the retirement benefits of its employees within fifteen days from retirement
An act further amending section three of republic act numbered three hundred and forty, as amended, otherwise known as the armed forces retirement law Rollo Golez
JuJuan Edgardo M. Angara
412 An act establishing a retirement benefit system for prosecutors in the national prosecution service of the department of justice and in the office of the ombudsman, providing funds therefor, and for the purposes Juan Edgardo M. Angara
449 An act reorganizing and renaming the Philippine retirement park system, enlarging its powers and for other purposes Juan Edgardo M. Angara
621
An act mandating the payment of retirement benefits to SSS or GSIS members within a maxim period of thirty (30) days from the retirement date and for other purposes
Juan Edgardo M. Angara
623
An act further amending section three of republic act numbered three hundred and forty,
Juan Edgardo M. Angara
71
885
979
1035
1207
1266
amended, otherwise known as the armed forces retirement law
An act providing for a mandatory clearance for all government officials upon their retirement from public office, and for other purposes
An act fixing the retirement age of the unformed personnel of the Philippines act numbered sixty-nine hundred and seventy five otherwise known as the department of the interior and local government act of 1990
An act to upgrade the salary scale of a retiring government employee by one grade for purposes of him/her retirement
An act reducing the retirement of government employees, amending for the purposes republic act no. 8291 otherwise known as the revised government service insurance act and for other purposes
An act granting retirement benefits to all barangay to all barangay officials who have
Augusto Boboy Syjuco
Augusto Boboy Syjuco
Augusto Boboy Syjuco
Pedro P. Romualdo
72
1296
1334
1434
1439
1436
1639
rendered at least fifteen (15) years of continuos service and providing funds therefor
An act to upgrade the salary scale of a retiring government employee by one grade for purposes of hir/her retirement
An act establishing the overseas Filipino workers social secutiry and retirement system and appropriating funds therefor
An act providing for five years minimum appointment with a monthly salary, health and retirement benefits for day care workers and appropriate fund thereof
An act providing monthly salary, health and retirement benefits for barangay workers, barangay nutrition scholars and barangay service point officers and appropriating fund thereof
An act increasing the retirement benefits of the members of the judiciary
An act providing early retirement and voluntary Augusto Boboy Syjuco
Augusto Boboy Syjuco
Rodante D. Marcoleta
Carmelo F. Lazatin
Carmelo F. Lazatin
73
1744
1830
1904
2094
2412
separation from the government service, providing a system of funding thereof, and for other purposes
An act providing automatic promotion of government officials and employees upon retirement from government service and for other purposes
An act to provide a retirement benefit for the overseas Filipino workers otherwise known as the migrant workers retirement act of 2010
An act granting retirement and health care benefits Filipino athletes who have won world titles or world championship and providing funds thereof
An act granting retirement incentives and health care benefits to professional Filipino athletes who have won titles or world championships and providing funds
An act granting a promotion of one salary grade higher to all government granting upon their promotion retirement.
Carmelo F. Lazatin
Rufus B. Rodriguez
Salvador H. Escudero III
Rex Gatchalian
Mark A. Villar
Mark Aceron H. Sambar
74
2808
2526
2682
2973
3016
An act lowering the mandatory retirement age of government employees, amending for this purpose sections 13(b) and 13-A Of R.A 8291, otherwise known as the revised government service insurance act of 1997
An act additional retirement benefits to all barangay officials and for other purposes
An act increasing the monthly retirement pension of all social security system (SSS) retirees to a minimum level of six thousand pesos (P6,000) under an economic adjustment pension program
An act amending section 13-A republic Act 8291 (GSIS ACT OF 1997) by the prescribing other conditions for entitlement to the retirement benefits, under section 13 of the same act, for government employees or officials being phased out and/ or not retained by his office/bureau/corporation due to privatizing/abolishing his office
Arnulfo F. Go
Randolph S. Ting
Wilfredo Mark M. Enverga
Rogelio J. Espina
Salvador Escudero III
75
3191
3236
3862 An act mandating the payment of retirement benefits to government retirees on the date of their retirement An act granting retirement benefits to all barangay officials who have renedered at leat 3 terms on continuos service and providing funds
An act to upgrade the salary scale of a retiring government employess by one grade for purposes of his.her retirement
An act requiring all government offices to ensure the release of the retirement benefits of its employees within 15 days from retirement
Salvador Escudero III
Imelda Calixto Rubiano
Malapitan
Catro
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ANNEX - B THE ROLE OF SOCIAL DIALOGUE IN RETIREMENT POLICY ISSUE
A. Representation: Checklist for Social Dialogue, (as examined from the Facts of the Case:
Supreme Court Case Profile (2011) PrEmployees OrOrganization exist?
W
How differences resolved within the workplace? Are there agreements/ Are there mechanisms exist for the ratification and enforcement of agreements? No. of workers Affected? Benefitted? Aggrieved?
Other mechanism exist to involve other stakeholders ? 1. GR 165381 Nelson A. Caluli vs. Eastern Telephone Phil. Inc. Corona C. J. Feb. 9, 2011 Yes; Eastern Telecommunic ations Employees Union (ETEU) - representing employees interest
Thru meeting/dialogu e explaining the exact details of right-sizing program and special retirement program Yes; ETEU agreed to the implementation of : Special Retirement Program with corresponding Retirement Package of 21/2 mo. Salary per year of service 102 workers benefitted with the agreement ;
1 worker dissent hence terminated in the course of reorganization. Not mentioned in a case;
Submission of dispute to NLRC
2. GR 183889 Gen. Milling Corporation- Independent labor Union (GMC-ILU) Vs. Gen. Milling Corp. Velasco J. June 15, 2011
Yes; General Milling Corporation- Independent Labor Union
Thru Grievance machinery;
exercise procedure within the grievance committee;
3. GR 182397 Alert Security and Investigation Agency, Inc. vs. SaidaliPasaliwa n, WilfredoVercele s, and MelchorBulusan Corana C. J. September 14,
None; Employees just defended themselves
Exercise of management Prerogatives;
none
3 workers aggrieved
Not mentioned;
Submission of issue to NLRC 77
2011
Supreme Court 2011 Case Profile PrePresence of Employees Orgaaninization ? How differences resolved within the workplace? Are there mechanisms exist for the ratification and enforcement of agreements? No. of workers benefitted to mutual agreement? No. of workers aggrieved/di ssent?
Othermecha nism exist to involve other stakeholders ?
4. GR 186209 United Laboratories Inc., vs. Jaime Domingo, CarmencitaPunz alan Domingo, AnonuevoRemi gio, Rodolfo AnnonuevoRem igio, Rodolfo Marcelo, Raul Norico, Eugenio Ozaraga Velasco, JR; J. Brion
None; Not mentioned in the case
Exercise of management prerogatives;
Failure to resolve grievance at the workplace.
None;
PDMP- is a company initiated cost restructuring measure which resulted in the redundancy of the job functions of the employees working in the provincial depots.
Employees in 16 regional branches;
Issue submitted to NLRC 5. GR 167787 Masing and Sons Development Corporation and Crispin Chan v. Gregorio P. Rogelio Corona C. J April 27, 2011
None Exercise of management prerogatives none 12 employees aggrieved Issue submitted to NLRC
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I. Dynamics of Social Dialogue
Brief description on how the phases of social dialogue are initiated in the workplace before ripening into a case:
Issues/Business Problem
Social Dialogue Phases Planning Initiating Implementing Monitoring Evaluating Feedback
1. GR 165381- Eastern Tel. Phil Case:
Labor issue: Reduction of workers due to rightsizing
Business Problem: In 1998, due to business troubles and losses, ETPI was compelled to implement a Rightsizing Program which consisted of two phase: first phase involved reduction of ETPIs workforce to only those employees that were necessary and ETPI could sustain;Second phase companywide reorganization which would result to transfer, merger, absorption, or abolition of certain departments of ETPI
Yes;
Special retirement Plan for affected employee
Yes ;
by offering employees who had rendered at least 15 years of service to have a Special Retirement Program;
Yes - the offer was initially rejected by ETEU, a recognized bargaining agent; threatened to stage a strike;
- consultations with ETEU existed; Agreement signed Feb. 9 1999 bet. ETPI and ETEU
Not mentioned in the case
Not mentioned
One case existed; -One employee do not agree with the offer and chose to stay; however on the second phase which is the company wide reorganizatio n, the division functions itself was absorbed by other divisions, the position was deleted; hence this SC decision 2. GR 183889-
Labor Issue: CBA non- compliance of some economic benefits, ie. retirement;
Problem: Union is espousing a computation which extends the benefits of imposed CBA beyond Not existed Not existed Not existed Not existed Not existed Issues ripened to a case 79
the remaining two-year duration of the original CBA; - the computation of benefits beyong Nov. 1993, be threshed out with the Grievance Procedure of the CBA
3. GR 182397
Issue: complaint for underpayment of wages;illegal dismissal;
Not existed
Not existed
Not existed
Not existed
Not existed
Issues ripened into case
Issues/Business Problem
Social Dialogue Phases Planning Initiating Implementing Monitoring Evaluating Feedback
4. GR 186209
Labor Issue; Reduction of workers due to organizational flexibility of the company. 3 employees demanding severance of their function to avail of retirement plan package
Business Problem: Unilab implemented a Physical Distribution Master Plan (PDMP) by consolidating its finished goods inventories and logistics activities, (warehousing, order processing, and shipping) into one distribution center in Manila. Jobs function were declared redundant and their position were abolished. Redundant employees separation package = 21/2 mo. Per every year of service; -Unilab closed down 16 provincial depot and gave the redundant employees a package of 21/2 mo/yr.
SD not existed;
PDMP Plan was implemented thru companys initiative.
PDMP Plan is self initiated by the company
employee s demandin g for a severance pay of their employme nt on redundanc y of their work.
No SD Implemented;
The job functions of employees working thereat were declared redundant and their positions were abolished.
Not existed
Not existed
Issues ripened to a case 80
of service;
5. GR 161787MSDCs case
Labor Issue: Rogelio brought against Chan a complaint for retirement in pursuant to RA 7641 in relation to Art. 287 of the Labor Code.
Business Problem; the payment of retirement benefit from date of employment 1949 up to 1997;
Rogelio was employed in 1949 by Pan Phil. Copra dealer, MSDCs predecessor, which engaged in the buying and selling of coprain IbajayAklan, with its main office, being in Kalibo, Aklan. It changed its business name several times, in 1990 MasingChan , the manager of the entire business was replaced by his son, Crispin Chan. Rogelio worked in Ibajay branch from 1949 until 1997. At that time he was 67 years old. Rogelio did not receive any retirement benefit from MSDC, hence for such claim and other benefits due them.
Decision actually affecting the RA 7641 The benefits under RA 7641, which was enacted as labor protection measure and as curative statute to respond, in part at least, to the financial well-being of workers during the twilight years soon following the life of labor, can be extended not only from the date of its enactment but retroactively to the time the employment
SD not existed
SD Not existed
SD Not existed
At the age of 67, employees was separated by the company without giving the retirement pay benefits
SD Not existed;
SD Not existed
Issues ripened to a case;
81
contract started. *Facilitating Factor:
- organized presence of unions initiating consultation process; - with pre-approved plan Special retirement Plan; - plan discussed, agreement had passed consultations before implementing the plan; - presence of the companys grievance procedure.
* Mitigating Factor:
- Implementation of workers reduction without Plan and consultations; - When the workers not involved in business decision; - Separation without prior consultation to workers.
I. Recommendations Based on companiescase experience, what gaps in practice and in law are necessary to make R.A. 7641 more effective.
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