Political will and ‘endo’

Labor Secretary Silvestre H. Bello III signed on March 16 Department Order (DO) 174, or the Rules Implementing Articles 106-109 of the Labor Code, after months of consultations with both labor and management, pursuant to the promise of President Duterte to end illegal contracting and endo. The new DO supersedes the much-assailed DO 18-A, which was oftentimes circumvented to allow various forms of contractual arrangements and end-of-contract schemes.

The official statement of the Department of Labor and Employment (DOLE) states that: “DO 174: 1) Reaffirms the constitutional and statutory right to security of tenure of workers; 2) Applies to all parties in an arrangement where employer-employee relationship exists; 3) Absolutely prohibits labor-only contracting, and specifies other illicit forms of employment arrangements; 4) Allows only permissible contracting and subcontracting as defined; 5) Re-enforces the rights of workers to labor standards, self-organization, collective bargaining and security of tenure; and 6) Requires mandatory registration of contractors and subcontractors and provides clear procedures for cancellation of registration.”

The new department order prohibits the following: labor-only contracting; farming of work through “cabo”; contracting out of job or work through an in-house agency; contracting out of job or work through an in-house cooperative, which merely supplies workers to the principal; contracting out of a job or work by reason of a strike or lockout, whether actual or imminent; and contracting out of a job or work being performed by union members and such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization as provided in Article 259 of the Labor Code, as amended.

It also prohibits contractors and subcontractors to require their employees to perform functions which are currently being performed by the regular employees of the principal; sign, as a precondition to employment or continued employment, an antedated resignation letter; a blank payroll; a waiver of labor standards, including minimum wages and social or welfare benefits; or a quitclaim releasing the principal or contractor from liability as to payment of future claims; or require the employee to become member of a cooperative; repeated hiring of employees under an employment contract of short duration.

The DO also prohibits the signing of a contract that fixes the period of employment to a term shorter than the term of the service agreement, unless the contract is divisible into phases for which substantially different skills are required and this is made known to the employee at the time of engagement; and such other practices, schemes or employment arrangements designed to circumvent the right of workers to security of tenure. The order also shortens the validity of the certificate of registration of contractors and subcontractors from three years to two years and increases the registration fee from P25,000 to P100,000.

Although DO 174 that Bello issued appears to be more comprehensive than any of the department orders issued in previous administrations, it does not totally abolish contracting out. The Ecumenical Institute for Labor Education and Research, speaking through its Executive Director Rochelle Poras, pointed out that DO 174 “still encourages short-term contracts and violates job security in the guise of legal contractualization”. The new rules did not end the practice of hiring workers and letting them go before they reach six months at work, which would automatically make them regular employees. Militant Labor groups Kilusang Mayo Uno (KMU) and the Partido Manggagawa (PM) protested DO 174 as “pro-contractualization”. It only “reiterated prohibitions already spelled out in the old DO 18-A, which it was meant to supersede,” PM Spokesman Wilson Fortaleza said. KMU Secretary General Jerome Adonis said the order only “proves that President Duterte’s promise of ending contractualization is mere lip service”.

Even the Associated Labor Unions-Trade Union Congress of the Philippines (ALU-TUCP), traditionally known to take conservative stand on labor issues, decried DO 174 as a “loss-loss” situation for workers and a “win-win” formula in favor of employers, manpower services and cooperatives, Spokesman Alan Tanjusay said. “While the order banned labor-only contracting, it failed to plug loopholes that would allow employers to seek the cheapest job contracts that would burden workers with low, illegal wages. It is a ‘death order’ to workers’ rights to security of tenure, right to regular direct hiring of jobs and the right to organize.”

On the other hand, the Employers Confederation of the Philippines (Ecop), speaking through its acting President Sergio Ortiz-Luis, warned that DO 174 could lead to massive retrenchment, displacement of workers, and there are allegedly some portions in the DO that are not practical or even violative of existing labor laws. Ecop, however, has assured full compliance with DO 174 and employers are already allegedly preparing their offices, manufacturers and service organizations for inspections by labor laws compliance officers assigned to inspect implementation of department orders. Presidential spokesman Ernesto C. Abella, on the other hand, has hailed the issuance of DO 174 “as fulfillment of the campaign promise of the President” and as “a major step in upholding and protecting the labor rights of our great Filipino workers”. The Makati Business Club (MBC) Executive Director Peter Perfecto says DO 174 “addresses abuses, as well as considers the objectives of our global competitiveness, inclusive growth and micro, small and medium enterprises and entrepreneurship agenda”.

What is clear to me from all the opinions raised and statements issued against (by labor) or in favor (by management) is that DO 174 is neither far from perfect nor completely satisfactory. Among other reasons, it does not even have a penal provision, meaning there are no penalties in DO 174 for employers/companies/agencies who violate endo (end of contract) and “555” schemes, wherein workers renew their contracts every five months and other illegal activities enumerated in DO 174. Moreover, what is prohibited to be done directly (by employers) is now allowed to be done indirectly as the DO merely differentiates “legitimate” from “nonlegitimate” contractualization instead of ending the system altogether. Admittedly, this cannot be done by mere DOLE regulation. If total abolition of contracting out is the desire of labor, this can only be done by Congress through legislation. This is when “inquiries in aid of legislation” can and should be properly used to reconcile the obvious conflicting positions of labor and management on contractualization. The endo and “555” issues need to be thoroughly studied with the end in view of transcending the present “lose-lose” situation to a “win-win” one; where labor’s right to security of tenure and fair and just compensation is protected and secured and management’s right to reasonable return in investments and to expansion and growth in order to be competitive both locally and globally is preserved. Now is not the time for mere lip service. The President can show his political will by ordering the DOLE to draft a bill (not a department order) abolishing contractualization. The bill can be certified as urgent so that it is speedily acted upon (we have seen how this was done with the death penalty). If the President wills it, he can tell Congress to give priority to this much-needed legislation instead of Congress wasting people’s money on divisive impeachment charges!


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I HAVE always enjoyed reading Dean West’s blogs, which are insightful and laced with a bit of humor. Dean is founder and president of Association Laboratory Inc., a US firm that provides quality information and strategic insights to association leaders.