CONTRACTING ‘CONTRACTING’
By: Gerardo Maximo Francisco on May 24, 2018
A recent article in this column entitled “Fixing fixed-term contracts” (The Manila Times, May 10, 2018) discussed the illegalization of fixed-term employment contracts as one way that House Bill No. 6908 (An Act Strengthening the Security of Tenure of Workers, Amending for the Purpose Presidential Decree No. 442, as amended, otherwise known as the “Labor Code”) proposes to end the pernicious practice and problem of “endo” (end-of-contract). The article concluded that altogether banning fixed-term employment contracts to fix the endo problem was like “curing a headache by lopping off the head.”
House Bill No. 6908 also proposes to “contract” or reduce legitimate “contracting” by modifying and expanding the definition of prohibited “labor-only” contracting under Article 106 of the Labor Code, as follows:
“There is ‘labor-only’ contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, [and]OR HAS NO CONTROL OVER THE WORKERS’ METHODS AND MEANS OF ACCOMPLISHING THEIR WORK, or the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.”
Based on this proposed definition of prohibited labor-only contracting, an employer will no longer be able to lawfully contract out activities that are “directly related to the principal business of such employer.” When needed, a manufacturing concern will no longer be able to hire a contractor to provide it with additional skilled workers to assist it in its manufacturing processes and activities. In times of high demand, a sales establishment will be unable to engage a contractor to provide it with added salespersons. Businesses that have a real need to provisionally augment their workforce would then be forced to directly employ permanent workers to perform services which are only temporarily required. This is inefficient. And when there is no more work to be performed by these direct hires, they become superfluous and candidates for dismissal.
If the argument against contracting is that it allows the practice of endo to flourish, then the argument is invalid because the premise behind the argument is incorrect. Endo is illegal because the employee is unfairly prevented from becoming a regular employee and enjoying the benefits of a regular employee. In contracting, the worker is, ordinarily, already a regular employee (enjoying all the relevant benefits and full security of tenure) – of the contractor (not of the principal who engaged the contractor).
If the argument against contracting is that there is a proliferation of labor-only contractors, the solution is not to prohibit or reduce contracting but to enforce existing laws and rules (e.g., Department of Labor and Employment Department Order No. 174 [Series of 2017] “Rules Implementing Articles 106 to 109 of the Labor Code, as amended”) against these illegitimate contractors and the principals who engage them. Article 106 of the Labor Code provides that, in the case where there is a finding of “labor-only” contracting, the principal shall be considered as the direct employer of the employee of the contractor.
The legal framework to adequately address the problem of labor-only contractors exists. All that is left to do is to fully implement these laws and rules. The recently issued Executive Order No. 51 (May 1, 2018; “Implementing Article 106 of the Labor Code of the Philippines, as amended, to Protect the Right to Security of Tenure of All Workers based on Social Justice in the 1987 Philippine Constitution”) commits to implement applicable laws against illegal contracting in part through the exercise of the Visitorial and Enforcement Power of the Secretary of Labor and Employment under Article 128 of the Labor Code, which states, in part: “The Secretary of Labor and Employment or his duly authorized representatives, including labor regulation officers, shall have access to employer’s records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter, which may be necessary to determine violations, or which may aid in the enforcement of this Code and of any labor law, wage order or rules and regulations issued pursuant thereto.”
Contracting contributes to the productivity and efficiency of businesses and provides jobs. It should not be prohibited or restricted indiscriminately. Otherwise, this may again be a case of “curing a headache by lopping off the head.”
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Gerardo Maximo V. Francisco is a partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). He is a corporate, deal, litigation and labor lawyer. The contents of the above article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF Counsel’s website at www.mtfcounsel.com.
From the The Manila Times Website May 24, 2018