Contractual employment – legal and social perspectives

CONTRACTUAL EMPLOYMENT – LEGAL AND SOCIAL PERSPECTIVES
Delivered by TUCP President RUBEN D. TORRES before the PMAP General Membership Meeting on 25 May 2016 at Dusit Hotel, Makati.

1. Increasing demand to abolish labor contractualization

a. Unity of the labor movement. Earlier, this year, I proposed to the four affiliates of the International Trade Unions Confederation, namely the TUCP, FFW, KMU and SENTRO, the three biggest labor centers and federations that we forged an issue based alliance to combat labor contractualization. While the labor movement is largely fragmented, there is now an agreement to forge a common stand against contractualization and this alliance is growing in strength.

b. Politicians have joined in. On this issue, all the candidates for President declared during the campaign period that they were against contractualization. The presumptive President, Rodrigo Duterte, recently declared that in his first months in office, he will seek passage of legislation to prohibit contractualization. The labor movement, TUCP in particular, supported twelve candidates for senator who pledged that if elected they would abolish contracutalization. Eight of the TUCP supported candidates won. We expect them to honor this commitment to Filipino workers.

2. DOLE Defends Contractualization

The Department of Labor and Employment, before the elections published a defense of contractualization, alleging that contractualization as provided in Department Order No. 18-A is basically sound and contributes to employment creation; the fault is in inadequate implementation and observance of the safeguards provided therein.

The employers, through the ECOP and the associations of personnel managers, the PMAP are now mounting a concerted defense of contractualization, arguing that abolishing it would result in large numbers of workers being laid off, the unemployment problem would be worse, investors would shy away from the Philippines. They have organized a well funded lobby group to campaign for the continuation of contractualization, even as the next President of the Philippines vowed, during his campaign to end this nefarious practice of “endo”. Likewise the incoming Secretary of Labor and Employment, Silvestre H. Bello, as a congressman, had earlier announced his anti-contractualization position when the proposed i. congress a legislation to abolish the practice.

3. The concept of Contractualization is flawed

Contractualization under Department Order No. 18-A is intrinsically flawed that not even the most strict and avid implementation of the “safeguards” against violations and abuses provided therein could remedy.

4. Contractualization under the Department Order is an open defiance of the Labor Code prohibition of “Labor Only Contracting

The Labor Code expressly prohibits the practice of labor-only contracting. Under this provision, labor only contracting exists where the person who contracts to supply labor to a principal “has no substantial capital or investments in the form of tools, equipment, machineries, work premises, among others, and the employees recruited are performing activities which are usually necessary or desirable to the operation of the company, xxx” or “the contractor does not exercise the right of control over the performance of the worker of the employee.”

Before the issuance of Department Order No. 18-A on November 14, 2011, by Secretary Rosalinda Baldoz, the question of whether a person is a labor only contractor was merely left to the interpretation of the NLRC and the Supreme Court based on the facts of each case brought to their attention in a proper case. What is substantial capital is a judgment of the NLRC and the Supreme Court depending on the facts of the case. Thus, even a capitalization of tens of millions of pesos may be declared by the Court as not “substantial” to get the contractor out of the proscription of the labor laws.

DO-18-A now defines what is “substantial capital” and opened up a Pandora’s box of problems for the workers.

The Order defines “substantial capital”, i.e., “refers to paid -up capital stocks/shares of at least three million pesos (3,000,000 PHP) in case of corporation, partnerships and cooperatives, and in the case of single proprietorship, a net worth of at least Three Million pesos (P3,000.000).”

Accordingly, once a corporation or individual proprietor qualifies, there is no longer any restriction as to what kind of jobs or service he could provide contractual workers for his principals and how many workers he could employ.

Defining the term “legitimate contracting or subcontracting, the Order requires, that the contractor be registered as provided by the Order, that it has “substantial capital and/or investments” and it has a “Service Agreement that ensures compliance with all the rights and benefits under labor laws.”

The use of the phrase “and/or” suggests that the contractor merely has to have the three million pesos capital and this may also be his entire investments in both Article106 and in the Department Order No. 18-A in order to avoid being a “labor only” contractor. With his measly investment, he is ipso facto not a labor only contractor or “cabo” but a respectable, law abiding and legitimate businessman.

Consider the employment conditions in one shipbuilding company. There are now twenty five (25) service contractors engaged in providing workers of needed skills which now constitute seventy five percent (75%)of the total workforce. The service contractors merely provide the workers. All the machineries, tools and instruments to be used are provided by the principal company. The place of work is the shipyard also owned by the company. The process of work, the schedule of work and other work related activities are laid down by the principal company. And yet since the service contractors had invested the “substantial capital” the arrangement between the contractors and the principal is completely legitimate.

Consider a chain of fast food outlets where contractual employment is now the rule. The work places are the outlets, the methods and process of work are determined by the principal or the owner of the franchise. The service contractor merely supplies the workers.

Consider the malls, where sales and promotion activities are performed mostly contractual employees.

The Department of Labor Order provides in Section 4 thereof, that the legitimate contractor mist “undertake to perform the job, work. or service on its own responsibility, according to its own manner and method, and free from control and direction of the principal in all matters connected with the performance of the scope of work except as to the results thereof.” If every one of the twenty five subcontractors of the ship building company would do their subcontracted work according to their own “manner and method”, would the final output of the company which is a seaworthy ship be up to standards.

5. The security of employment issue

Security of tenure is guaranteed by the Constitution and by the Labor Code. The questioned Department Order provides that it is not allowed to require employees under a subcontracting arrangement to sign a contract fixing a period of employment to a term shorter than the term of the Service Agreement, u less 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.”

What is wrong with this? The term of employment is coterminous with the service agreement the conclusion of which the worker has no participation in and whose tenure of employment may even be shorter under the proviso. The term of the service agreement may only be for one month, two, months or in most cases, five months. Following the provision of the DO, the employee’s term of employment should follow the same number of months.

You may say: “Employment even for five months is better than being unemployed.” Why are you complaining? Is this not the argument for slavery? Perhaps, we should also study whether short term contractual employment as allowed under the Department Order promotes labor productivity. Certainly, the worker will not be able to dream of having a family if his employment is also uncertain.

6. Contractual employment and unionism

The Constitution and the Labor Code guarantees the right of all workers to form or join a union of their own choosing. The Department Order likewise provides that the workers under short term contractual employment are guaranteed the right to unionism and collective bargaining. So why are the unions complaining? Well, union organizers will tell you. Have you ever tried organizing workers who are not sure they would still have a job after five months? Before you get a contractual worker to sign the union membership form, he is already out of the company.

Under the Labor Code, workers have the right to engage in peaceful concerted activities like picketing and strike, as provided by law. The law requires that picketing and strikes should be in or around the premises of the employer. Under the Department Order, the employer is the service contractor. Service contractors may have his office in a room on the 30th floor of an office building. Where is the allowable area for picketing?

7. Concluding remarks

There are other objectionable features of Department Order No. 18-A and of the whole concept of contractual employment. I have no time to discuss the same with you today. I am sorry.

From the point of view of someone who was a unionists before being the Secretary of Labor and then became a unionists again as I am today, I say, The whole concept of contractualization as allowed in Department of Order No. 18-A is anti-union and anti-worker. It tries to deny the workers and unions of their rights guaranteed under our Constitution, the Labor Code and the relevant International Labor Organization Conventions.