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Less-than-six-months contract periods: IS THE RETAIL INDUSTRY

CIRCUMVENTING THE LAW? THE PHILIPPINE CASE

Article · November 2012

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 International Journal of Information Technology and Business Management

th
29 November 2012. Vol.7 No.1
© 2012 JITBM & ARF. All rights reserved

ISSN 2304-0777 www.jitbm.com

Less-than-six-months contract periods:

IS THE RETAIL INDUSTRY CIRCUMVENTING THE LAW? THE PHILIPPINE
CASE

Pamela F. Resurreccion
Faculty, Department of Marketing, Mindanao State University
Iligan Institute of Technology, Iligan City, Philippines

Ramon V. del Rosario

College of Business, De La Salle University, Manila, Philippines

Email: pamela.resurreccion@g.msuiit.edu.ph

ABSTRACT

While the State has been steadfast in its cognizance on labor as the ―primary social economic
force,‖ some circumstances have casted some doubts over the State’s sincerity in upholding such public
policy. One of this is the retail industry’s practice of subcontracting employees for less than six months.
This paper explores the legal basis of such practice and proposes some policy recommendations and a
research agenda in aid of legislation.

Keywords: subcontracting, contracting, contractualization, labor law, Philippines

1. RESEARCH BACKGROUND Security of tenure has been defined in

Article 279 in P.D. No. 442 as, the non –
The State has been steadfast in its termination of the services of an employee by the
cognizance on the importance and value of labor. employer, in cases of regular employment, except
In Article II, Section 18 of the 1987 Philippine for a just cause or authorized cause.
Constitution, the State clearly ―affirms labor as a
primary social economic force‖ and that ―it shall It was in the 1980s and 1990s that
protect the rights of workers and promote their workers’ security of tenure was observed to erode
welfare.‖ This policy permeates in many other very fast, particularly in industries which are
legislations and implementing rules passed down export-oriented and those with foreign equity, as
the hierarchy of laws of the State. For instance, they employ workers under a contract even for
Article 3 of the Presidential Decree (P.D.) No. 442, work that is ―desirable and necessary‖ or directly
otherwise known as the Labor Code of the connected with the main business of the company
Philippines, highlights the State’s policy to ―afford (Center for Women Resources, 2003). According
protection to labor‖ and to ―promote full to the same report, ―in many establishments, these
employment.‖ The same article manifests the temporary workers are not called ―contractuals.‖
State’s mandate to assure the rights of workers to They are given a plethora of names: trainee,
security of tenure. These provisions emphasize that apprentice, helper, casual, and piece rater. But they
security of tenure is a worker’s constitutional right. have one thing in common - they are doing the
work of regular workers but for a specified period
of time usually less than six months.

[25]
 In the Philippines, the combined share of 106 to 109 of the Labor Code, as amended. D.O.
casual, contractual and part-time workers in total No. 18 – 2 was criticized by labor – oriented groups
enterprise-based employment was between 14-15% as legitimizing contracting and subcontracting –
from 1990 to 1994. This went up to 18.1% which gravely undermine workers’ rights to
between 1994 and 1995. In 1997, the figure was security of tenure, self-organization, and collective
already 21.1% (Center for Women Resources, bargaining; more inclined to protect principal
2003). employers rather than protect workers employed
In 2002, 20 branches of the biggest retail trade store contracting and subcontracting arrangements;
in the country, had 92 % of the workers who are shifting accountability from principal (indirect
either direct hired or concessionaire hired employer) to contractors; and weakening the state’s
contractuals; a plastic manufacturing firm in capacity to monitor and regulate working
Southern Metro-Manila, employed 78% of its work conditions by promoting tripartite mechanisms and
force on contractual basis; a garments voluntary codes of good practices (EILER, 2012).
manufacturing firm also in Southern Metro-Manila, Contractualization has eroded salary and wages, job
had contractuals composing 80% of its total security and the exercise of unionism (Natividad,
workforce; and a tuna canning factory in southern 2008).
Philippines, employed ―contractuals‖ comprising
96% of its workers (Center for Women Resources, The changing labor law and movement
2003). toward contractualization poses questions as to
whether labor law will be able to continue to play
In 2010, the Department of Labor and the role of protecting wage earners for which it was
Employment reports that the number of originally developed (Gilles, 2003).
establishments resorting to outsourcing or
contracting out of job, work or service was placed Workers who do find jobs in the
at 2,471. This figure represents 10.4% of the Philippines find that they face another big hurdle
estimated 23,723 establishments. This suggests that after being hired: contractualization. Big
this type of working arrangement is not a common businesses, whether foreign or local, have long
practice among establishments (Bureau of Labor mastered the fine art of labor flexibilization in
and Employment Statistics, 2012). employment such that seven out of ten firms in the
country practice contractualization. Some of the
The bulk of establishments resorting to worst ―contractualizers‖ among companies are also
this type of work arrangement were mainly in among the biggest. Such widespread destruction of
manufacturing (31.2%); wholesale and retail trade the security of tenure of labor has had a profound
(19.9%); and real estate, renting and business impact on Philippine workers’ freedom to exercise
activities (11.1%). Altogether, they comprised their trade union and other democratic rights. Most
62.2% of total establishments engaged in of all, massive contractualization has greatly
contracting out (Bureau of Labor and Employment reduced the variable capital for wages, with the
Statistics, 2012). monopoly capitalists seeking ever-increasing super
profits in the face of the current world capitalist
Contracting out jobs/services emerged in crisis of overproduction (EILER, 2008).
the 1980s as a response of firms to deal with the
increasing competitions brought about by trade 2. RESEARCH PROBLEM
globalization. This flexible measure allows
establishments to cope with the fluctuating This paper generally aims to determine the
demands for their products in the market and legal basis or lack thereof of the practice of the
reduce cost by concentrating on their core business retail industry to subcontract most of their
and outsourcing non-core activities (e.g., back- employees for a period of less than six months.
office jobs, logistics and courier services, HR and Specifically, it aims to seek answers to the
training services, etc.) to other parties (Bureau of following:
Labor and Employment Statistics, 2012).
a. What are the laws that support the lack of
It must be recalled that on February 21, legal basis of the practice to subcontract
2002, Department of Labor and Employment employees for a period of less than six
(DOLE) promulgated Department Order (D.O.) No. months?
18 – 02 specifying the rules implementing Articles

[26]
 b. What are the laws that provide the legal Inc. vs. Servana (2008) and South Davao
basis for the practice of subcontracting Development Company, Inc. vs. Trade Union of the
employees for a period of less than six Phils., et. al. (2009). This withstanding, the
months? parameters are very clear on the conditions that
characterize subcontracted labor through an
c. What are the gaps and/or misalignments in independent contractor and subcontracted labor
legislations pertaining to subcontracting who are directly hired.
for a period of less than six months?
3.1 Project – based Subcontracted Labor
d. What are some possible improvements in
terms of policy making that could be As it is among the common arguments of
instituted to bridge the gaps or to correct parties in explaining why there is an engagement
the misalignment in legislations pertaining period specified in some contracts as in the case of
to subcontracting for a period of less than Philex Mining Corp. vs. NLRC (1999), the
six months? elements of a project – based subcontracted labor is
herein reviewed. Expounding on contractual
e. What are the potential research agenda employees being hired for projects, the Supreme
pertaining to subcontracting for a period of Court, in Philex Mining Corp. vs. NLRC (1999),
less than six months that could be held:
undertaken to aid legislation?
―Project employees are those
3. REVIEW OF RELATED LITERATURE workers hired (1) for a specific project or
undertaking, and (2) the completion or
The Supreme Court has ruled a relatively termination of such project has been
substantial number of cases on contracting or determined at the time of the engagement
subcontracting in the context of Articles 106 to 109 of the employee. The principal test for
of P.D. No. 442 or the Labor Code of the determining whether particular employees
Philippines, as amended. as project employees as distinguished
from regular employees, is whether or not
It is once again emphasized that the issue the project employees were assigned to
at hand revolves around the legality of engaging a carry out a specific project or undertaking,
worker under a contract for a period lesser than six the duration and scope of which were
months. Hence, the following Supreme Court specified at the time the employees were
Rulings are cited. engaged for that project (citing Violeta vs.
NLRC, 1997).‖
The Supreme Court has recognized that
private institutions, and even some government 3.2 Regular and Project Employment
offices, are observing the general practice of Distinguished
employing the services of independent contractors.
These independent contractors render services such To establish a clear definition of regular
as security, utility, and other specialized services employment as against project employment,
which may be deemed directly related to the reference is made to Article 280, paragraph 1 of
principal business of the indirect employer but are P.D. No. 442, to wit:
not necessary in the conduct of its operation as in
the case of Filipinas Synthetic Fiber Corporation ―ART. 280. Regular and Casual
(FILSYN) vs. NLRC, et. al. (1996). Employment.— The provisions of written
agreement to the contrary notwithstanding
Meanwhile, jurisprudence has a generous and regardless of the oral agreement of the
number of cases to ascertain the existence of an parties, an employment shall be deemed to
employee – employer relationship, to wit: (1) the be regular where the employee has been
selection and engagement of the employee; (2) the engaged to perform activities which are
payment of wages; (3) the power of dismissal; and usually necessary or desirable in the usual
(4) the power to control the employee’s conduct, or business or trade of the employer, except
the so called ―control test,‖ which is considered the where the employment has been fixed for
most important element as in the cases of TAPE, a specific project or undertaking the

[27]
 completion or termination of which has The Supreme Court further expounded, in
been determined at the time of the the same case,
engagement of the employee or where the
work or service to be performed is ―It is plain then that when the
seasonal in nature and the employment is employment contract was signed between
for the duration of the season.‖ Brent School and Alegre on July 18, 1971,
it was perfectly legitimate for them to
Henceforth, any employment that does not include in it a stipulation fixing the
meet the aforementioned definition is considered a duration thereof. Stipulations for a term
casual employee. However, if an employee has were explicitly recognized as valid by this
worked for at least one year, regardless if said work Court, for instance, in Biboso v. Victoria’s
engagement is ―continuous or broken,‖ the said Milling Co., Inc., promulgated on March
employee shall be deemed a regular employee with 31, 1977, and J. Walter Thompson Co.
due consideration to the work for which he has (Phil.) v. NLRC, promulgated on
been employed and his employment shall remain to December 29, 1983. The Thompson case
be so concurrent to the existence of such work. involved an executive who had been
In this explanation, the Supreme Court engaged for a fixed period of three (3)
contemplates four (4) kinds of employees as years. Biboso involved teachers in a
enumerated in the case of Leyte Geothermal Power private school as regards whom, the
Progressive Employees Union - ALU – TUCP vs. following pronouncement was made:
PNOC - Energy Development Corp. (2011): (a)
regular employees or those who have been What is decisive is that petitioners
"engaged to perform activities which are usually (teachers) were well aware at the time that
necessary or desirable in the usual business or trade their tenure was for a limited duration.
of the employer"; (b) project employees or those Upon its termination, both parties to the
"whose employment has been fixed for a specific employment relationship were free to
project or undertaking[,] the completion or renew it or to let it lapse. (p. 254)
termination of which has been determined at the
time of the engagement of the employee"; (c) Under American law the principle
seasonal employees or those who work or perform is the same. "Where a contract specifies
services which are seasonal in nature, and the the period of its duration, it terminates on
employment is for the duration of the season;8 and the expiration of such period." "A
(d) casual employees or those who are not regular, contract of employment for a definite
project, or seasonal employees. Jurisprudence has period terminates by its own terms at the
added a fifth kind— a fixed-term employee (Asia end of such period."
World Recruitment Inc. v. NLRC, 1999; Palomares
v. NLRC, 1997). The status of legitimacy continued
to be enjoyed by fixed-period employment
3.3 On Fixed – term Employment contracts under the Labor Code
(Presidential Decree No. 442), which went
The Civil Code of the Philippines, which into effect on November 1, 1974. The
was approved on June 18, 1949 and subsequently Code contained explicit references to fixed
enforced on August 30, 1950, contains specific period employment, or employment with a
provisions pertaining to ―obligations with a period,‖ fixed or definite period. Nevertheless,
particularly in Section 2, Chapter 3, Title 1, Book obscuration of the principle of illicitness
IV. The same statute covers ―contracts of labor and of term employment began to take place at
for a piece of work,‖ specifically found in Sections about this time.‖
2 and 3, Chapter 3, Title VIII, respectively, of Book
IV. The Court, in Brent School, Inc. & Dimache Fixed – term employment is further cited
vs. Zamora & Alegre (1990), firmly contended, in Mercado, et. al. vs. AMA Computer College
with reference to P.D. No. 442, that there is ―no (2010) as a valid employment mode under
prohibition against term-or fixed-period Philippine law and jurisprudence.
employment contained in any of its articles or is
otherwise deducible therefrom.‖ According to Abad (2001), a ―stipulation
in employment contracts providing for term

[28]
employment or fixed period employment are valid indicated by the broken lines in Figure 1 and herein
when the period was agreed upon knowingly, and constitute the subject of this research.
voluntarily by the parties without force, duress or
improper pressure exerted on the employee; and
when such stipulations were not designed to
circumvent the laws on security of tenure.‖ Hence,
an agreement or contract of employment with a
stipulated period of effectivity expires on the last
day of such period. He further emphasized that
―the decisive determinant in term employment
should not be the activities that the employee is
called upon to perform but the day certain agreed
upon by the parties for the commencement and the
termination of their employment relation.‖

In the case of Felix Buenaseda vs. NLRC

(1995), when an appointment is not renewed at a
Figure 1. Hierarchy of Laws in the Philippines
clearly stipulated date, it implies an expiration of
term and not dismissal.
5. DISCUSSION OF RESEARCH PROBLEM
3.4 When Contract and Statutes are Misaligned
5.1 The Philippine Constitution
In the case of Pakistan Airlines vs. Ople
(as cited in Innodata Phils., Inc. vs. Quejada-Lopez
It is indubitable that the State recognizes
& Natividad-Pascual, 2006)
―labor as a primary social economic force‖ and that
it shall protect the rights of workers and promote
―Indeed, a contract of employment
their welfare.‖ This has been clearly provided for
is impressed with public interest. For this
in the Philippine Constitution as a policy of the
reason, provisions of applicable statutes
State. In the same manner, the State also manifests,
are deemed written into the contract.
as a national policy, that the private sector has an
Hence, the "parties are not at liberty to
indispensable role; that private enterprise is
insulate themselves and their relationships
encouraged; and that incentives are provided to
from the impact of labor laws and
needed investments. This can easily be construed
regulations by simply contracting with
that the State equally favors both. In most
each other."
situations, in fact, both labor and private enterprise
have been regarded as having conflicting interests.
It was also emphasized in Phil. Federation
Moreover, because subcontracting allows for
of Credit Cooperative, Inc. vs. NLRC (as cited in
flexible arrangements and lesser employee benefits
Innodata Phils., Inc. vs. Quejada-Lopez &
costs, this has been the easy lure for investors.
Natividad-Pascual, 2006), ―in case of doubt, the
terms of a contract should be construed in favor of
While the constitution recognizes the
labor.‖
indispensable role of the private sector (Section
20), the incentives for investments may not
4. THEORETICAL FRAMEWORK
necessarily involve subcontracting.
This study is anchored on the hierarchy of
It is in this light that the 1987 Philippine
Laws in the Philippines as its theoretical
Constitution becomes vulnerable to differing
framework.
interpretations.
Furthermore, much of the issues raised by
5.2 The Statutes
stakeholders led to the notion that there appears to
be some misalignment in some laws of different
The primary applicable statute in labor
levels in the hierarchy and even in laws within the
matters is P.D. No. 442 otherwise known as the
same level of the hierarchy. These areas are
Labor Code of the Philippines, as amended.
Embodied in this law is a policy of the State to
[29]
promote labor’s security of tenure, among others. Pakistan International Airlines Corp. vs. Ople
Security of tenure has been defined as the non – (1990).
termination of the services of an employee by the
employer, in cases of regular employment, except 5.3 The Implementing Rules and Regulations
for a just cause or authorized cause. The disconnect (IRRs)
lies in the succeeding provisions concerning
contracting and subcontracting, specifically covered The Department of Labor and
by Articles 106 to 109 of the Labor Code. Labor Employment (DOLE), being the implementing
has the impression that these provisions have agency of the State in matters concerning labor, has
legitimized subcontracting which, considering its issued IRRs pertinent to subcontracting. One of
temporary nature, deviates from the State’s policy these IRRs is Department Order No. 3, Series of
of promoting security of tenure and labor’s welfare 2001, entitled: ―Revoking Department Order No.
in general – both emphasized in Section 18 of the 10 of 1997 and continuing to prohibit labor-only
Philippine Constitution and Article 3 of the Labor contracting‖ which was signed by DOLE Secretary
Code of the Philippines. Patricia A. Sto. Tomas on 08 May 2001, revoked
the rules implementing Articles 106 to 109 of Book
In the practice of subcontracting majority III of the Labor Code embodied in Department
of their employees by most retail establishments, Order No. 10, series of 1997. In 2002, Department
particularly by, but not limited to, department Order No. 18 – 02 was issued by DOLE, specifying
stores, it appears that these establishments have the ―Rules Implementing Articles 106 to 109 of the
observed a subcontracted employee engagement Labor Code, as Amended.‖ These IRRs have
period of less than six months. This certainly drawn more specific lines in the implementation of
elicited cynicism from among the labor advocates the subcontracting mode of employment. It must
since six months is the maximum prescribed be noted that these IRRs does not in any way
probationary period preluding a regular tenure. outlaw fixed – term employment. In this context,
It must be noted that once an eligible the employees are, once again, placed at the mercy
person enters in to an employment contract with a of the conditions validating a fixed – term
specified period of engagement, an obligation is employment contract.
imposed upon the person. Another statute supports
this, particularly Article 1193 of Republic Act No. Although it has been emphasized that the
386, otherwise known as the Civil Code of the State shall exercise its police powers if and when
Philippines which provides that ―obligations for there is ―substantial indication that the period
whose fulfillment a day certain has been fixed, shall specified in the employment agreement was
be demandable only when that day comes.‖ designed to circumvent the security of tenure of
Considering that a subcontracted employee regular employees,‖ the burden of proof lies with
voluntarily enters into a contract with a principal the employees. Given the economic constraints
with the knowledge of the employment period of these employees have, the necessary trigger for
less than six months, such contract is deemed valid investigation may not be undertaken.
and void.
Philippine jurisprudence have 6. CONCLUSION AND
demonstrated that the State does not tolerate such RECOMMENDATIONS
practice if ―it is apparent that periods have been
imposed to preclude acquisition of tenurial security The Philippine Constitution clearly
by the employees‖ as in the case of Cielo vs. NLRC demonstrates its resolute thrust to support and
(1991). However, Abad (2001) notes that ―the protect labor and promote its welfare. This is
critical consideration in determining its validity is further reflected in the policy declarations of
the presence or absence of a substantial indication succeeding statutes. Although subcontracting
that the period specified in the employment appears to contradict with this basic public policy,
agreement was designed to circumvent the security based on the pertinent statutes and implementing
of tenure of regular employees. Hence, if the net rules and regulations, contracting or subcontracting
effect of the agreement is to render the employment a worker, whether through an agency or directly
basically at the pleasure of the employer thus hired, is well supported. Specifically, a fixed –
intended to prevent security of tenure from accruing term contract has a legal basis by virtue of Article
in favor of the employees even during the specified 1193 of the Civil Code of the Philippines and as
period, then it is unlawful‖ as in the case of

[30]
well as Philippine jurisprudence with particular and national economic performance at the
reference to Brent School, Inc. vs. Zamora, (1990). macro – level.

However, these do not correct the 7. REFERENCES

misalignments between the Philippine Constitution
and statutes and IRRs in the context of public Abad, D. A. (2001). DEPARTMENT ORDER NO.
policy and the ambiguity among statutes. The 3, Series of 2001: Its implications on working
Philippine Constitution remains to be the supreme arrangements/varied forms of employment, and
law of the land thus all other laws must mirror what available legal remedies. Retrieved April 6, 2012,
the Constitution promulgates. from Antonio H. Abad & Associates Law Office:
http://ablelawfirm.tripod.com/do3.htm
Anent to this, the following is hereby
recommended: Asia World Recruitment Inc. v. NLRC (1999), 371
Phil. 745, 755-756.
a. The Department of Labor and Employment
(DOLE) must intensify its campaign for the Brent School, Inc. & Dimache vs. Zamora &
compliance of labor standards as the law clearly Alegre (February 5, 1990), G.R. No. L – 48494,
provides that labor standards must be strictly 260 Phil. 747, 758-762.
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arrangements. Henceforth, probes and audits Bureau of Labor and Employment Statistics. (2012,
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performance management systems to increase Contracting out Jobs/Services. Labstat Updates,
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Cielo vs. NLRC (1991), 193 SCRA 410.
c. In aid of legislation, the following research
agenda is laid out: Civil Code of the Philippines (June 18, 1949), Book
IV.
1. A comprehensive employment survey on
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stores. The objective of this study is to (1987).
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EILER. (2012, February 7). DO 18-A window-
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