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Wielding Management Prerogative: Employment, Retirement and Resignation

Atty Gerard Nelson Manalo and Christian Andrew Labitoria Gallardo

Enshrined in the Constitution is the affirmation of the contribution of the labor sector in
the national development, as well as the protection guaranteed to the workers.1 Hence, an
employment contract is considered as a special form of agreement governed not only by the Civil
Code but also by the Labor Code as well as other special labor laws. Article 1700 of the Civil
Code provides that

“The relations between capital and labor are not merely contractual. They are so impressed with
public interest that labor contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed
shop, wages, working conditions, hours of labor and similar subjects”

However, given that it is still considered a contract, the parties may establish such
stipulations, clauses, terms and conditions provided that they are not contrary to law, morals,
good customs, public order and public policy.2 Bear in mind that the Constitutional policy to
provide full protection to labor is not meant to be an instrument to oppress employers. The law,
in protecting the rights of the laborer, authorizes neither oppression nor self-destruction of the
employer.3 As long as the employer is in the right therefore, and the employment contract does
not contravene the law or public policy, the cause of the employer shall be sustained.

The doctrine stated above lays the foundation for the principle of “management
prerogative” adopted by case law. Accordingly, it is a well-recognized principle that employers
have the right and prerogative to regulate every aspect of their business, generally without
restraint in accordance with their own discretion and judgment. 4 This privilege is inherent in the
right of employers to control and manage their enterprise effectively. 5 This allows the employer
to adopt labor policies for the benefit of their enterprise provided that it does not contravene the
rights of the laborers.

I. How to (legally) make any employee resign or retire early.

There are 2 types of retirement under the Labor Code: the optional retirement which can
be availed of by the employee upon reaching the age of 60 and the compulsory retirement which
is mandated upon reaching the age of 65, provided that at least 5 years of service has been
rendered by the employee concerned.6 However, both schemes come into play only in the
absence of a retirement plan. The employer and the employee are free to agree and stipulate on

Art 1306, Civil Code of the Philippines.
Filpro Inc v NLRC, G.R. No L-70546 (1986).
Deles, Jr v NLRC, G.R. No. 121348 (2000).
Mendoza v Rural Bank of Lucban, G.R. No. 155421 (2004).
Art 302, Labor Code of thePhilippines, PD 442.
the retirement age either in the Collective Bargaining Agreement or the employment contract.7
This is so because retirement is the result of a bilateral act of the parties, a voluntary agreement
between the employer and the employee whereby the latter, after reaching a certain age, agrees
to sever his or her employment with the latter.8 In line with this, the two parties may agree for an
earlier retirement age provided that the employee’s participation in the plan is voluntary. 9 The
acquiescence of the employee however must be properly secured. Retiring an employee at an
earlier age will amount to illegal dismissal if employee did not consent thereto.10

It is essential to note however that only employees in the private sector, regardless of
their position, designation or status and irrespective of the method by which their wages are paid
are covered by the retirement provisions of the Labor Code. 11 Employees of the national
government and its political subdivisions, including government owned and controlled
corporations with original charters, are covered by the Civil Service Law and its regulations.

Unlike resignation which can be a product of an agreement between an employer and an

employee, an employee can resign unilaterally provided that a written notice to the employer has
been served at least a month in advance. It can be for any cause provided that it is done in a
reasonable manner. An employer has no right to compel the employee to resign earlier as it may amount
to constructive dismissal. The Labor Code clearly outlines the just and authorized causes, as well as the
process, for an employer to dismiss an employee.12

II. How to (legally) require them to remain employed longer.

No less than the Constitution proscribes involuntary servitude.13 Involuntary servitude is

defined as every condition of enforced or compulsory service of one to another, no matter under
what form such servitude may be disguised.14 Employees cannot therefore be compelled to
continue working against their will.

Nonetheless, as stated above, the parties may establish such stipulations, clauses, terms
and conditions in their employment contracts and collective bargaining agreements provided that
they are not contrary to law, morals, good customs, public order and public policy. 15 Hence, the
employment contract or the collective bargaining agreement may provide for the payment of
damages if the employee decides to resign within a specific period. However, such must be
founded on a reasonable cause and the employee must be shown to have voluntarily acquiesced

Cercado v Uniprom, G.R. No 188154 (2010).
Jaculbe v Silliman University, G.R. No. 156934 (2007).
§ 1, Rule II, Implementing Rules of the Retirement Pay Law, Labor Advisory on Retirement Pay Law dated
October 24, 1996.
See Art 282-284, Labor Code.
Rubi v Provincial Board of Mindoro, G.R. No. L-14078 (1919).
Art 1306, Civil Code of the Philippines.
therein. A common example of a scheme to require employees to work for a longer period under
pain of paying nominal damages is a training program. Given that the company invested on the
employee through endowing him the proper skill set and education for the work assignment, it is
but reasonable for the employer to expect that the employee shall remain with him for a
substantial number of years. 16

III How to (legally) make them pay for any accountability

The Labor Code considers it unlawful for any person, whether employer or not, directly
or indirectly, to withhold any amount of wages of a worker as a general rule.17 The Civil Code on
the other hand allows the withholding of wages only for debt due to the employer. 18 Case law
however provides that “an employer cannot simply refuse to pay the wages or benefits of its
employee because he has either defaulted in paying a loan guaranteed by his employer; or
violated their memorandum of agreement; or failed to render an accounting of his employer’s
property”.19 Thus, the Court ruled in one case that the management prerogative of an employer
cannot be understood to include the right to temporarily withhold the salary or wages of an
employee who was dismissed for poor performance and failure to show up in work for 15 days. 20
Such withholding of salary may constitute constructive dismissal.21

While the withholding of wages is generally proscribed, the Labor Code provides for
several exceptions, one of which is when the employer is authorized by law or regulations issued
by the Secretary of Labor and Employment to make such retention.22 As per the Civil Code of
the Philippines, the employer is authorized to withhold wages for debts due.23 “Debt” in this case
is understood to mean any obligation due from the employee to the employer. 24 It includes any
accountability that the employee may have to the employer.25 The case of Milan v NLRC
recognized the right of the employer to withhold the wages of an employee pending clearance
procedures.26 Thus,

“Requiring clearance before the release of last payments to the employee is a standard
procedure among employers, whether public or private. Clearance procedures are instituted to
ensure that the properties, real or personal, belonging to the employer but are in the possession of
the separated employee, are returned to the employer before the employee’s departure” 27

Elegir v Philippine Airlines Inc., G.R. No. 181995 (2012).
Art 116, Labor Code of the Philippines.
Art 1706, Civil Code of the Philippines.
Special Steel Products Inc v Villareal, G.R. No 143304 (2004).
SHS Perforated Materials Inc v Diaz, G.R. No. 185814 (2010).
Art 116, Labor Code of the Philippines
Art 1706, Civil Code of the Philippines.
Joselito Guianan Chan, Bar Reviewer on Labor Law (2017).
Milan v NLRC and Solid Mills Inc, G.R. No. 202961 (2015).
The employer can therefore withhold wages pending the clearance of an employee. After
clearance however, any remaining amount can only be enforced through a civil action for