Stricter DOLE rules force nearly 1,000 contractors out of business

Almost a year after the government implemented stricter rules on contractualization, close to 1,000 contractors are no longer operating because they failed to register with the Department of Labor and Employment (DOLE).

Based on the latest report of the DOLE’s Bureau of Working Conditions (BWC), the number of contractors registered with the DOLE is down to 4,623, from 5,581 in 2014.

Of the 4,623, around 3,200 of third-party service providers were able to register with the DOLE before its Department Order (DO) 174 took effect on April 4, 2017. Since DO 174 is not retroactive, these companies, which registered from January 2015 to April 3, 2017, will still enjoy the provisions of DO 18-A, including the three-year validity of their registration.

According to data from the DOLE, only 1,358 contractors have managed to comply with the requirements of DO 174 as of March. Their registration is valid for only two years.


Philippine Association of Legitimate Service Contractors (Palscon) National President Rhoda Caliwara attributed the decline in the number of registered contractors with the more costly requirements of DO 174.

She said many of the third-party service providers could no longer afford the registration fee, which has been raised to P100,000, from P25,000, and the required capitalization, which has been increased to P5 million, from P3 million.

“The others were no longer able to renew their registration after being found to have committed [labor] violations when inspected [by the DOLE],” Caliwara told the BusinessMirror in a phone interview.

She said some of their 250 member-companies were among those that were unable to register.

Aside from higher fees, DO 174 also contained the list of prohibited forms of contractualization as part of the DOLE’s attempts to further weed out fly-by-night contractors.

“We implemented  [DO 174]  to ensure only legitimate contractors will be able to operate,” Labor Secretary Silvestre H. Bello III said.

Fewer hired

While the decline in the number of operating contractors pales in comparison to the 11,000 that went out of business after DO 18-A was implemented in 2014, DO 174 was able to cut the number of workers hired during the period of its enforcement.

According to the preliminary report of the Bureau of Local Employment (BLE), the number of job placements nationwide at the Philippine Employment Service Offices (Peso) last year declined to 1.8 million, from 2 million in 2016.

No such trend was recorded in 2014 despite the implementation of DO 18-A. In fact, job placements in Pesos during the said year increased to 1.6 million, from 1.3 million in 2013.

Pesos are the job facilitating arm of local government units.

In Manila, Peso Officer in Charge Eileen C. Galang said the number of applicants they were able to place declined last year due to the DOLE’s stricter contractualization rules, as 80 percent of their participating employers are manpower agencies.

From 2,875 applicants in 2016, she said the number of their jobseekers hired through PESOs dropped to 2,469.

Galang said some participating manpower agencies were simply unable to renew their registration with the DOLE, while other became more selective in hiring applicants.

“In the past, once they interview a candidate, that candidate is already hired. Now, they implement additional steps like requiring candidates to go through another interview or take another exam or assessment at their office,” she said.

Galang added their client contractors are now “more picky” in hiring applicants, since the DOLE now requires them to regularize their contractual employees.

“One employer used to hire 200 [workers] on a six-month basis. Now, employers would hire only about 100, but these workers have security of tenure, so it would actually be good for them in the long run,” Galang said.

The senior labor employment officer in Manila, however, admitted that some manpower agencies will approach the Peso for project-based work, which is still allowed by law.

‘Lucrative business’

Labor expert and former DOLE Undersecretary Rene E. Ofreneo, however, cautioned against immediately attributing the changes in the labor force to the DOLE’s campaign against contractualization and DO 174.

He pointed out contractors generally only act as intermediary between employers and workers, thus usually have minimal impact on the number of employed workers.

“It doesn’t mean that if a contractor no longer operates, the principal which used to employ its services will no longer hire workers. It could do so through direct hiring,” Ofreneo said.

He added additional studies should still be conducted before the impact of DO 174 on the country’s workforce could be fully determined.

Based on the latest Integrated Survey on Labor and Employment (ISLE) of the Philippine Statistics Authority (PSA), the number of “non-regular” workers in the country in 2016 fell by 8 percent to 1.1 million, from 1.3 million in 2014.

Non-regular workers is the collective term used by the PSA for casual workers, contractual/project-based workers, seasonal workers, probationary workers and apprentices.

The PSA is expected to come out with a new ISLE report, which is conducted every two years, on 2019.

Despite cutting down the number of registered contractors, organized labor are unsatisfied with DO 174, since its still allows contractualization.

Labor coalition Nagkaisa and militant labor Kilusang Mayo Uno (KMU) said the policy did not address the plight of the millions of contractual workers nationwide, who still suffer from inadequate, if not nonexistent basic labor and safety standards.

“DO 174, however, is no different from previous orders, which allow ontractualization and give wide latitude to capitalists to subcontract and replace regular employees with contractual workers,” Nagkaisa Spokesman and Partido Manggagawa Chairman Renato Magtubo said in a previous statement.

Associated Labor Unions-Trade Union Congress of the Philippines (ALU-TUCP), an affiliate group of Nagkaisa, said the DO 174 also failed to significantly cut down the number of licensed contractors.

“We do not call it successful. It should only be around 1,500. The big number of labor contractors suggests that labor contracting remains a lucrative business,” ALU-TUCP Spokesman Alan Tanjusay said.

Labor Undersecretary Joel B. Maglunsod said the DOLE is still in the process of reviewing the implementation of DO 174 to determine how they could improve its provisions.

“We would like to know why workers have the impression that nothing has changed even when we have already implemented DO 174,” Maglunsod said.

While Nagkaisa and KMU commended the current administration of the DOLE for the regularization of over 75,000 contractual workers, they said this will be for naught if contractualization is still the norm.

Concerns over new EO

Nagkaisa and the KMU are now pushing for the signing of a new executive order (EO), which will ban contractualization except for occupations to be determined by the National Tripartite Industrial Peace Council.

Caliwara, however, expressed concern over the new EO, which she said may reduce the competitiveness of local businesses.

“This will limit the flexibility for businesses and may cause them to downscale their operations…in some cases, this may even cause them to relocate their business in other countries or encourage them to pursue automation,” Caliwara said.

Instead of issuing an EO, Palscon urged the DOLE to address the issues  on its campaign against contractualization, particularly its quota of contractual workers, which should be regularized by its labor inspectors.

Caliwara said the DOLE should see to it that the reports of its labor inspectors on contractual workers would be accurate and would consider the inputs of management and workers.

Last year the DOLE was only able to regularize 75,413 of its 180,000 target contractual workers. For 2018 it is targeting to regularize 300,000 contractual workers.

President Duterte is expected to decide on the appeal of labor groups about the new EO on contractualization during his next meeting with them later this month.

Maglunsod assured the government will consider the position of all stakeholders before it decides on the EO and other future policies on contractualization. But he noted they will not hesitate to impose additional restriction for contractualization
if necessary.

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Turning Points 2018