Labor department caught in a vise over contractualization formula

By Maria Eloisa I. Calderon, Businessworld, January 10, 2017

“THIS MORNING, I formally told them, there is no signed department order yet,” Labor Secretary Silvestre H. Bello III said in a Jan. 5 interview at his office, emerging from a meeting with labor leaders.

It was the first time the Labor chief spoke publicly since news broke during the New Year holidays that Labor Department Order 168 was out and already on President Rodrigo R. Duterte’s desk for review.

That directive, which supposedly ends the so-called “endo” (short for end of contract) or “5-5-5” arrangement but still allows employers to outsource jobs that are “directly related” to their principal line of business, is the bogeyman for laborers.

Several versions of the draft directive have surfaced — one just before Christmas and another before New Year’s Eve, sowing confusion.

The Trade Union Congress of the Philippines (TUCP) said a version the Labor department showed its leaders before Christmas — a copy of which was seen by BusinessWorld — banned employers from contracting out to a third party “activities or functions that are directly related to the principal business of the employer.”

The Employers Confederation of the Philippines (ECoP) and American Chamber of Commerce of the Philippines (AmCham), which met with Mr. Bello and Trade Secretary Ramon M. Lopez on Dec. 27, said that provision was dropped from the final draft.

Mr. Bello wants to get his ducks in a row: he had asked all four Labor undersecretaries to each draw up a proposed directive by this week, with a consolidated version targeted for review by the National Tripartite Industrial Peace Council and for his signing by end-January.

Both labor and employer groups sit with government in that council, which the Labor chief heads as chairman.

Mr. Bello said he’d number the new issuance Department Order No. 1 Series of 2017.

And it won’t need Mr. Duterte’s signature, Labor department officials said.

“There were a lot of speculation and preemption,” the Labor chief said.

“Originally, the draft stated… you cannot outsource it,” he recalled.

“But in the final draft — which I was supposed to sign — we allowed the outsourcing even of services that are directly related to the nature of the business. But there was a strong negative reaction.”

Both employer and worker groups agree that “endo” or “5-5-5” is illegal.

The flashpoint issue is how the new department order will treat “activities or functions that are directly related to the principal business of the employer,” something that’s at the very heart of trilateral employment arrangements among the employer, the contractor it hires and the contractor’s employees.

The draft department order — the version prepared before Christmas Day — read: “An activity or function is considered directly related to the principal business of the employer when it is an integral part of its principal line of business without which the product, goods or service cannot be completed, manufactured, or rendered, taking into consideration the primary purpose of the employer based on its registration with the Securities and Exchange Commission, Cooperative Development Authority or Department of Trade and Industry, as the case may be.”

Labor Undersecretary Joel B. Maglunsod, a former Anakpawis Partylist representative, has been pushing a version that says contracting in a trilateral employment relationship can be allowed if “the contractor carries on a distinct and independent business and undertakes to perform a specific, distinctly separate and identifiable job, work of service on its own responsibility, according to its own manner and method, and free from control and direction of the principal…”

“The principal employer’s core functions or directly related activities should not be contracted out,” Mr. Maglunsod said in Filipino during a Jan. 5 interview.

But ECoP President Donald G. Dee said that proposed provision “has no basis in law,” adding that the Labor Code of the Philippines and Supreme Court rulings allow companies to contract out core services or jobs.

“‘Endo’ is illegal. We will make sure this is completely eradicated,” the ECoP chief said in a Jan. 8 phone interview.

“But with regards legitimate contracting, that’s different altogether.”

Mr. Dee, who took part in the Dec. 27 meeting with Messrs. Bello and Lopez as well as leaders of AmCham and the Philippine Chamber of Commerce and Industry, clarified that business groups “never came up with any draft from the very beginning.”

“We just wanted to take a look at it and that’s the reason we’re only down to one provision,” Mr. Dee said.

“Putting this landmine will stifle investments.”

The scenario envisioned by businesses could be apocalyptic for an economy that still fails to capture as much investments as do its Southeast Asian neighbors.

“When Philippine business and employment policies prohibit investors’ flexibility, they will skip the Philippines and move to Vietnam, Indonesia, Thailand, or even Myanmar and Laos,” warned the AmCham in a statement sent to BusinessWorld last weekend.

There are roughly 631,000 workers under trilateral employment contracts and do not enjoy security of tenure, according to Mr. Maglunsod, citing Labor department data.

Mr. Bello said the existing labor law, specifically Article 106, provides for trilateral employment arrangements, including “project-based” and “seasonal” jobs.

“That’s allowed under 106… A department order cannot remove that,” he said.

“Only Congress can amend or repeal the law.”

But in a live interview with ANC on Jan. 5, Mr. Bello quizzed the news anchor, joking that the network’s cameramen are hired on an “endo” basis.

“You need your cameramen given the nature of your business,” Mr. Bello said.

“My inclination is prohibit the outsourcing of services directly related,” he told BusinessWorld in a separate interview.

The TUCP-Nagkaisa alliance is seeking an audience with the President in a letter dated Jan. 5 and coursed through Mr. Bello.

The group wants Mr. Duterte to “certify as an urgent Administration measure” House Bill No. 4444 that criminalizes contractualization.