Contractualization and Workers’ Rights:
SyCipLaw: Contractualisation may relate to the engagement of job contractors to perform services for a principal or the engagement of workers under short-term contracts.
1 – Job contracting
There has been an increase in contracting out or outsourcing of activities to job contractors in the past years. A contracting arrangement is an agreement whereby a client/principal farms out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such job or work is to be performed or completed within or outside the premises of the client/principal. The contractor, through its employees, will perform the contracted services.
While outsourcing or the contracting out of work is permitted under Philippine laws and has been recognized as a proprietary right of an entity in the exercise of a management prerogative, it is heavily regulated in the Philippines. Outsourcing arrangements must comply with the requirements of a permissible outsourcing arrangement under the Labor Code of the Philippines (“Labor Code”) and Department Order No. 174, series of 2017 (“DO 174-17”) issued by the Department of Labor and Employment (“DOLE”). Under DO 174-17, the following requisites should be present in order for a contracting arrangement to be permissible or legitimate:
a – the contractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own responsibility, according to its own manner and method;
b – the contractor has substantial capital to carry out the job farmed out by the principal on his account, manner and method, investment in the form of tools, equipment, machinery and supervision;
c – in performing the work farmed out, the contractor is free from the control and/or direction of the principal in all matters connected with the performance of the work except as to the result thereto; and
d – the service agreement ensures compliance with all the rights and benefits for all the employees of the contractor or subcontractor under the labor laws.
DO 174-17 prohibits labor-only contracting, which refers to an arrangement where the contractor (or subcontractor) merely recruits, supplies, or places workers to perform a job or work for a client/principal, and any of the following arrangements exists:
a – the contractor or subcontractor does not have substantial capital or investments in the form of tools, equipment, machineries, supervision, work premises, among others; and the employees recruited and placed by the contractor or subcontractor are performing activities which are directly related to the main business operation of the principal; or
b – the contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.
The main consequence of a finding that there is labor-only contracting is that the principal is deemed the direct employer of the employee of the contractor assigned to it. The principal is made liable not just for the wages, but also for all of the statutory benefits due to the contractor’s employee (assigned to render services to the client/principal).
2 – Workers under short term contracts
Some employers in the Philippines tend to repeatedly hire workers under short term contracts (i.e., four to six months) in an effort to avoid regularizing employees. Under the Philippine Labor Code, a probationary employee who has been allowed to work beyond the six-month probationary period automatically becomes a regular employee. A regular employee, regardless of classification, is entitled to the right to security of tenure, while rank-and-file employees are entitled to statutory benefits, such as overtime pay, premium pay for work done during rest days, holiday pay, service incentive leave benefits and 13th month pay, among others.
In relation to security of tenure, a regular employee may only be terminated for just or authorized causes under the Philippine Labor Code. Just causes include serious misconduct, willful disobedience, gross and habitual neglect of duty, fraud or willful breach of trust, commission of a crime or offense by the employee against the employer, and other analogous causes. Authorized causes include the installation of labor-saving devices, redundancy, retrenchment, and closure of business. Employment may also be terminated when the employee is suffering from any disease when the employee’s continued employment is detrimental to their own health or the health of the other employees. On the other hand, the employment of contractual workers terminates upon the expiration of the term of the contract.
“(…) The Regional Tripartite Wages and Productivity Board (“RTWPB”) periodically issues wage orders to address income disparities among different sectors of the Filipino workforce and the rising costs of living. The statutory minimum wage rates prescribed by the RTWPBs vary within industries, provinces or localities.”
Leslie C. Dy – Senior Partner, SyCipLaw
Fair Wages and Income Disparities:
CL: What steps have been taken to address income disparities among different sectors of the Filipino workforce, and how are fair wages determined?
SyCipLaw: The Regional Tripartite Wages and Productivity Board (“RTWPB”) periodically issues wage orders to address income disparities among different sectors of the Filipino workforce and the rising costs of living. The statutory minimum wage rates prescribed by the RTWPBs vary within industries, provinces or localities.
Pursuant to the Guidelines No. 03 series of 2020 or the “Omnibus Rules on Minimum Wage Determination” issued by the National Wages and Productivity Board, the minimum wage rates established by the RTWPB shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency, and general well-being of workers. In the determination of minimum wages, the following are considered:
- The demand for living wages;
- Wage adjustment vis-à-vis the consumer price index;
- The cost of living and changes or increases therein;
- The needs of workers and their families;
- The need to induce industries to invest in the countryside;
- Improvements in standards of living;
- The prevailing wage levels;
- Fair return of the capital invested and capacity to pay of employers;
- Effects on employment generation and family income; and
- The equitable distribution of income and wealth along the imperatives of economic and social development.
Labor Laws and Employee Protection:
CL: What are the key labor laws that protect employees’ rights in the Philippines, and how have they evolved in recent years to accommodate changing labor market dynamics?
The Labor Code and the Omnibus Rules Implementing the Labor Code, as amended, are the main employment statutes and regulations that protect employees’ rights in the Philippines. The Labor Code provides for the minimum labor standards such as hours of work, minimum wage, rights to holiday pay, premium pay, overtime pay, night shift differential pay, service incentive leave, and other employees’ rights, including the right to security of tenure and the right to collective bargaining.
Over the years, special laws have also been passed to provide additional protections and benefits for employees, such as 105 days of maternity leave (Republic Act No. 11210), paternity leave (Republic Act No. 8187), parental leave for solo parents (Republic Act No. 11861), leave for victims of violence against women and children (Republic Act No. 9262), and special leave for women or gynecological leave for women (Republic Act No. 9710), among others. Several laws were also enacted to address the evolving concerns of the workforce, such as but not limited to mental health (Republic Act No. 11036) and safety in the workplace (Republic Act No. 11058), among others.
“Under DO 238, the DOLE may conduct technical and advisory visit, labor inspection and occupational safety and health investigation to check the employers’ compliance with labor laws.”
Leslie C. Dy – Senior Partner, SyCipLaw
Recent Developments in Labor Regulations:
CL: In the past year, what were the most significant changes or updates in Philippine labor laws and regulations, and how have they affected employers and employees?
The DOLE issued Department Order No. 238, series of 2023 or the “Rules on the Administration and Enforcement of Labor Standards pursuant to Article 128 of the Labor Code of the Philippines, as renumbered, and Republic Act No. 11058” (“DO 238-23”), which aims to strengthen the visitorial and enforcement power of the DOLE Secretary to ensure the employers’ compliance with general labor standards, occupational safety and health standards, and other social legislations. Under DO 238, the DOLE may conduct technical and advisory visit, labor inspection and occupational safety and health investigation to check the employers’ compliance with labor laws.
Further, in the recent case of Ditiangkin, et al. v. Lazada E-Services Philippines, Inc. (G.R. No. 246892, September 21, 2022), the Supreme Court held that the riders engaged by Lazada as independent contractors are its regular employees, despite the fact that they signed an Independent Contractor Agreement providing that “no employer-employee relationship exists between [Lazada] and the [riders].” The Supreme Court held that the riders “cannot be considered independent contractors in a bilateral relationship [because] [t]he work performed by petitioners do not require a special skill or talent. Picking up and delivering goods from warehouse to buyers do not call for a specific expertise. It is also not shown that petitioners were hired due to their unique ability or competency.” This ruling in effect may limit the interpretation of who can be considered independent contractors.
Gender Equality and Workplace:
CL: When it comes to fair wages and equal opportunities for women and men at work, how does the Philippines address gender equality issues?
The Labor Code declares it unlawful for any employer to discriminate against any woman employee with respect to terms and conditions of employment solely on account of her sex:
a – Under Article 133 of the Labor Code, the payment of a lesser compensation, including wage, salary or other form of remuneration and fringe benefits, to a female employee as against a male employee, for work of equal value is considered as an act of discrimination. The law also prohibits favoring a male employee over a female employee with respect to promotion, training opportunities, study and scholarship grants solely on account of their sexes.
b – Article 136 of the Labor Code makes it unlawful for an employer to require as a condition of employment or continuation of employment that a woman employee shall not get married, or to stipulate expressly or tacitly that upon getting married, a woman employee shall be deemed resigned or separated, or to actually dismiss, discharge, discriminate or otherwise prejudice a woman employee merely by reason of her marriage.
c – Article 137 of the Labor Code declares it unlawful for an employer to deny any woman employee the benefits provided by the Labor Code, and to terminate the employment of a woman on account of her pregnancy, or while on leave or in confinement due to her pregnancy. It also prohibits the employer to discharge or refuse the admission of a female employee upon returning to her work for fear that she may again be pregnant.
Under Republic Act No. 9710 or the Magna Carta Act of Women, private entities and individuals found to have committed discrimination against women shall be liable to pay damages. Discrimination against women refers to any gender-based distinction, exclusion, or restriction which has the effect or purpose of impairing or nullifying the recognition, enjoyment, or exercise by women, irrespective of their marital status, on a basis of equality of men and women, of human rights and fundamental freedoms in the political, economic, social, cultural, civil, or any other field.
Labor Unions and Collective Bargaining:
CL: In the Philippines, how do labor unions advocate for workers’ rights, and how has collective bargaining improved wages and working conditions?
Labor unions in the Philippines that have been certified as sole and exclusive bargaining agents may request the management to enter into collective bargaining agreements and negotiate the terms of their employment, including salaries and benefits, which may be higher than the minimum required by law. While the collective bargaining agreements are effective for five years, the union may renegotiate the economic terms (or those provisions affecting the salaries and benefits of the employees) not later than three years from the execution of the agreement, which may further result in periodic increase of employee benefits.
Under the Labor Code, the management has the duty to enter into collective bargaining negotiations with a union in good faith. Further, the management may not perform any of the following unfair labor practices: (a) require as a condition of employment that a person or an employee shall not join a labor organization or shall withdraw from one to which he belongs; (b) contract out services or functions being performed by union members when such will interfere with, restrain, or coerce employees in the exercise of their right to self-organization; (c) discriminate as regards to wages, hours of work, and other terms and conditions of employment in order to encourage or discourage membership in any labor organization; (d) dismiss, discharge, prejudice or discriminate against an employee for having given or being about to give testimony under the Labor Code; (e) to violate the duty to bargain collectively; (f) to pay negotiation or attorney’s fees to the union or its officers or agents as part of the settlement of any issue in collective bargaining or any other dispute; and (g) to violate a collective bargaining agreement (“CBA”).
If the management and union fail to enter into a CBA due to the management’s refusal to bargain in good faith, the management may be held liable for unfair labor practice. The commission of unfair labor practices exposes the employer to civil and criminal liabilities.
“(…) The national government has also implemented the TUPAD program (Tulong Panghanap-buhay sa Ating Disadvantaged/Displaced Workers) which provides emergency employment for displaced workers, underemployed and seasonal workers, for a minimum of 10 days, but not to exceed a maximum of 30 days, depending on the nature of work to be performed.
There are also efforts to provide statutory protections for members of the informal sector, such as the Magna Carta for Workers in the Informal Economy, which was introduced as a bill in the Senate and the House of Representatives in 2020.”
Leslie C. Dy – Senior Partner, SyCipLaw
Government Initiatives for Workers’ Welfare:
CL: Specifically, what initiatives or programs has the Philippine government implemented to enhance the welfare of workers, particularly those in the informal sector, and how effective have they been?
With respect to workers in the informal sector, the legislature has enacted the Domestic Workers Act or Batas Kasambahay or Republic Act No. 10361, in order to codify the rights and privileges of domestic workers (i.e. general househelp, nursemaid, cook, gardener, laundry person, etc.) as well as the minimum terms and conditions of their employment.
The national government has also implemented the TUPAD program (Tulong Panghanap-buhay sa Ating Disadvantaged/Displaced Workers) which provides emergency employment for displaced workers, underemployed and seasonal workers, for a minimum of 10 days, but not to exceed a maximum of 30 days, depending on the nature of work to be performed.
There are also efforts to provide statutory protections for members of the informal sector, such as the Magna Carta for Workers in the Informal Economy, which was introduced as a bill in the Senate and the House of Representatives in 2020.
Impact of Technological Advancements on Labor:
CL: Considering the rise of automation and digital technology, how is the Philippine labor market adapting, and what challenges and opportunities do these advancements present in terms of job security and fair employment practices?
The rise of automation and digital technology presents both challenges and opportunities for the Philippine labor market. Considering the vast number of manual laborers, the rise of automation is bound to have a significant impact on the demand for warm bodies. In a 2020 study conducted by the International Labor Organization (“ILO”) on “The Future of Work in the Philippines: Assessing the impact of technological changes on occupation and sectors,” the ILO found that approximately 35% of current employment across certain occupations/fields are not “susceptible to destructive digitalization nor likely to experience the transformative impacts of digitalization.” However, “[a]bout 31[%] are associated with ‘collapsing’ occupations, or occupations where jobs have a high likelihood of being replaced by machines with little opportunity or transformative digitalization.” Moreover, “only about 5[%] belong to ‘rising star occupations’ or occupations for which digitalization exhibits a high likelihood of transforming jobs without necessarily replacing them.”[1] Consequently, while there is a risk that digitalization and the rise of automation can replace a large percentage of jobs, there is also a chance that these same jobs/tasks will be transformed by digital technology. It is therefore necessary to link skills development with the ongoing development in digital technology.
Mark Kevin U. Dellosa, a Senior Associate of the Firm, assisted in the preparation of the foregoing.
