IN 1974 the Labor Code of the Philippines (Presidential Decree 442, as amended, promulgated on May 1, 1974), defined workers simply as “any member of the labor force, whether employed or unemployed” (Book One, Article 12(a)). Book Two, Title II, provided for different kinds of special workers: apprentices, learners and probationary employees.
In 1997 Department of Labor and Employment (DOLE) Department Order (DO) 10-97 was issued, amending the Implementing Rules of Books II and VI of the Labor Code. It prohibited labor only contracting but allowed subcontracting, provided that the contractor or subcontractor carried on a distinct and independent business and had substantial capital, and the agreement between them and the principal assured the contractual employees’ right and benefits.
Four years later, in 2001, the said department order was modified by DO 3-01, which added the element of a direct business relation, such that employees recruited, supplied or placed by such contractor or subcontractor must not be performing activities which are directly related to the main business of the principal, otherwise, the scheme would be deemed labor-only contracting, which the same issuance still prohibited.
In 2002 the DOLE again exercised the power granted to it under Article 106 of the Labor Code by issuing DO 18-02, which interpreted Articles 106 to 109 of the Labor Code. It provided for a trilateral relationship in contracting arrangements, with the principal, contractor or subcontractor, and the workers as parties thereto. DO 18-02 declared the practice of contractualization as legal for as long as it did not fall within the category of “labor-only contracting”, which is measured by the amount of capital and control of the supposed employer. It also equated security of tenure with having a definite contract, instead of the regular and permanent status previously enjoyed by workers who have worked for more than six months.
DO 18-A-11, the latest interpretation to Article 106, superseded DO 18-02 but did not propose substantial changes. It merely added more prohibitions under labor-only contracting.
A standard (traditional) type of employment relationship has for many years, been that of full-time work, under a contract of employment for unlimited duration, with a single employer and protected against unjustified dismissal. But of late, starting in the 1980s, new patterns of employment have emerged. Internationally, these forms of employment are known as precarious work. “Precarious works as those who fill permanent job needs but are denied permanent employee rights. Globally, these workers are subject to unstable employment, lower wage and more dangerous working conditions. They rarely receive social benefits and are often denied the right to join a union.” (International Labor Rights Forum at http: www.laborrights.org/issue/precarious work).
“Of late, precarious employment is the term used to describe employment condition that is not standard or nonregular. Precarious employment includes: outsourcing, contracting-out or subcontracting; casualization, contractualization or fixed-term contracts; use of labor agencies or labor only hiring; hiring of temporary or contingent workers; abusive use of seasonal and probationary employment and independent contractors.”
It has been argued by certain sectors that the Philippines has adopted a neoliberal mode of globalization, a regime of precarious employment through contractualization that was implemented by replacing regular workers with temporary ones who would not be entitled to benefits and seniority rights, and could easily be terminated. This practice is known as casualization, flexilization or informalization of labor (see Center for Women’s Resources, Asia Pacific Research Network official web site available at http:www.aprnet.org/conferences-a-workshop). Contractual employment has been called several names—“contractualization”, “casualization”, endo or “5-5-5”. The misconception is that contractual employment is illegal per se. No!
Contractualization that involves contracting out work to independent contractors is founded in law and practice (Article 106 Labor Code; Section 4, DO 18-A). It is an exercise of management prerogative and business judgment. Such prerogative is not only acknowledged by the Labor Code, but is anchored on the constitutional right of employers to property (San Miguel Corp. Employees Union-PTGWO v. Bersamin, et al. 186 SCRA 495-505) It must be underscored, however, that “the employer is motivated by good faith, and the contracting out must not have been resorted to circumvent the law or must not have been the result of malicious or arbitrary action” (Temic Automotive Philippines Inc. v. Temic Automotive Philippines Inc. Employers Union—FFW, GR. 186965, December 23, 2009.
Generally, the function being contracted should be noncore to the business. For instance, my law firm outsources our janitorial services to a janitorial services company that specializes in this type of work since it is not integral nor strategic to law practice.
In this case, the contractor is the janitorial company while the janitors are the employees not of my law firm but of the janitorial company.
By law and regulations of the DOLE, contracting out creates a trilateral relationship by and between the employer and the principal, the contractor and the latter’s employees in relation to the principal (Section 3(m), DO 18-A, Series of 2011). The trilateral relationship becomes operative when the contractor fails to pay wages of his employees in accordance with law by making the principal jointly and severally liable with the contractor (Art. 106 Labor Code; Section 5, DO 18-17). It is significant to note that the DOLE secretary on March 17, 2012, issued Department Circular 01, Series of 2012, excluding business-process outsourcings and the construction industry from coverage of DO 18-A.
Contracting out (globally referred to as outsourcing) is understood as contracting another company or person to do a particular function, process or service which is typically noncore to the business. “Outsourcing is done to save money, improve quality, or free company resources for other activities. Outsourcing was first done in the data-processing industry and has spread to areas, including messaging and call centers” (2008 ASPBI Business Process Outsourcing Activities, NSO).
Oftentimes, contractual employment is just being used as disguise for labor-only contracting. Labor-only contracting is prohibited under the law. Labor-only contracting is the condition of employment under the following circumstances:
The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility. The employees recruited, supplied or placed by such contractor or subcontractor are performing activities that are directly related to the main business of the principal but not performing activities of the main business.
An in-house agency is present. In-house agency refers to a contractor or subcontractor engaged in the supply of labor which is owned, managed or controlled by the principal; and operates solely for the principal owning, managing or controlling it.
Militant and labor groups have marched recently to Mendiola to ask President Duterte to fulfill his campaign promise to end all forms of contractualization. On December 28, 2016, Labor Secretary Silvestre H. Bello signed DO 168 (allegedly only a draft for comments), which replaces DO 18-A and puts heavy regulations on labor-contracting practices. These protesting groups are asking the President to set aside the new DO and instead issue an executive order that will ban fixed employment contracts. “The solution is to prohibit not to simply regulate”, according to the protesters (http:/news.abs.cbn.com/business/01/04/17).
My view is that we cannot solve this problem of contractualization with “Band-aid” solutions. As the confusion seems to be in the lack of a clear definition and parameters on what is allowed and not allowed by our labor laws, there is need to amend our existing laws, specifically Articles 106 and Articles 270 to 281 of the Labor Code. Existing law does not even have a penal sanction for contractualization.
Bottomline, all types of employment under contractualization and casualization cannot be terminated except for just or authorized cause, or disease, and only after due process is observed. For indeed, security of tenure is a basic right guaranteed by our Constitution.