G.R. No. 170948 , June 26, 2007
Silliman University vs. Nanila Fontelo-Paalan

FACTS

Respondent Nanila Fontelo-Paalan was employed by petitioner Silliman University in 1962 and was promoted to Head of the Medical Records Section. She retired on May 31, 1997, at age 57, having rendered 35 years of uninterrupted service, pursuant to the university’s retirement plan integrated into the employment contract. The plan provided for automatic retirement upon reaching age 65 or after 35 years of service. She received her full retirement benefits shortly after retiring.
Almost three years later, in May 2000, Paalan filed a complaint for illegal dismissal. She argued that the compulsory retirement provision after 35 years of service violated her constitutional right to security of tenure and contravened Republic Act No. 7641 , which sets the compulsory retirement age at 65. The Labor Arbiter ruled in her favor, declaring the dismissal illegal and ordering reinstatement with backwages.

ISSUE

Whether the compulsory retirement of an employee under a company retirement plan after rendering 35 years of service, even before reaching age 65, is valid.

RULING

The Supreme Court upheld the validity of the retirement. The legal logic is anchored on Article 287 of the Labor Code, which explicitly allows retirement ages established in an employment contract or collective bargaining agreement. The compulsory retirement age of 65 under RA 7641 applies only in the absence of such a retirement plan or agreement. Since Silliman University had a long-standing retirement plan, known to and integrated into the contracts of its employees, its specific provision for retirement after 35 years of service governed.
The Court clarified that security of tenure is not absolute and does not preclude termination for authorized causes, such as retirement under a valid plan. Paalan’s retirement was not a dismissal but a valid cessation of employment under the mutually agreed-upon terms. Her acceptance of full retirement benefits effectively estopped her from later claiming illegal dismissal. The Court also noted her undue delay in filing the complaint, which negated any claim that her retirement was involuntary. Consequently, the Court affirmed the appellate decisions upholding the retirement’s validity but modified the award, deleting the additional benefits granted by the NLRC as there was no legal basis for such an award given the validity of the plan and the full benefits already received.