Amicus Curiae

Neptali B. Salvanera

Ending the endo

Neptali B. Salvanera

January 05, 2017

“Contractualization” was one of the hot issues in the May 2016 elections.

In one of the presidential debates, all the then-candidates for president, including now President Rodrigo Duterte, vowed to end contractualization. One of the presidentiables, in fact, had a political advertisement promising to end the endo. Expectedly, a lot, especially from the labor sector, were jubilant. After all, the simplistic understanding is that, there will be no more contractual employees and all will be regular employees. Parenthetically, it must be noted that the Labor Code does not contain any definition of the term contractualization, as in fact, the term contractualization or contractual is not in the Labor Code. The term contractual is in Department Order No. 18-A, the rules on outsourcing, as referring to employees of the contractors or agencies. Loosely, however, the government and the media refer to contractual employees as simply those who are not regular employees.


Six months into the Duterte administration and we have yet to see the fruition of this campaign promise. The Secretary of the Department of Labor and Employment (DoLE), Silvestre Bello, had announced that the DoLE will issue Department Order No. 30 (or DO 30 -- conveniently riding on the President’s popular campaign monicker) before the end of 2016, which will amend DO 18-A. However, this did not happen. All we saw was a working draft of the supposed DO 30.

The proposed amendments under DO 30 are interesting, to say the least.

For a start, DO 30 proposes to cover not only trilateral relationship, which is the essence of outsourcing, but also bilateral relationship. Thus, it attempts to cover contractual employees engaged directly by the principal (i.e. bilateral) or through a contractor or agency (i.e. trilateral). DO 30, therefore, is more than an implementing rule of Articles 106 to 109 of the Labor Code, which refer to outsourcing or trilateral relationship. It also seeks to cover Articles 295 and 296 of the Labor Code.

DO 30 also seeks to clarify the nature of the job, work or service to be contracted out by inserting the phrase “specific, distinctly separate and identifiable.” Apparently, the objective is to disallow the practice of some contractors to offer all kinds of services that companies need -- from janitorial to clerical.

In this regard, the draft Order likewise explicitly states that “activities or functions that are directly related to the principal business of the employer shall not be contracted out to a contractor, except in case of season or project employment.”

DO 30 states that “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 xxx.”

This is a significant amendment that may well be the main reason for the delay in the official issuance of DO 30. This will certainly affect business as companies would be forced to hire regular employees to perform core activities. It is also disturbing to note that this amendment deviates from the law and jurisprudence. Article 106 of the Labor Code does not make a distinction as to which type of activity or function can be contracted out. The rulings of the Supreme Court also do not make any qualification as to the kind of services that a legitimate contractor may provide. Thus, this provision of DO 30 is of doubtful legality.

Other significant changes in DO 30 are the prohibition on sub-contracting (except in the construction industry) and the guarantee given to the employees of the contractors that they will be paid separation pay should the latter fail to redeploy or reassign them within a certain period from the time the Service Agreement with a principal is terminated or pre-terminated. Financial and livelihood assistance shall also be provided to the employees while waiting for another assignment. While these are beneficial to the employees, they add burden to companies.

This issue is not a simple one -- it is very complicated that it needs thorough and careful study. All stakeholders -- labor, business, academe, government, etc. -- should be consulted. The DoLE should not underestimate the complexity of the issue and the complex interplay of the interests of labor and business. The DoLE should be mindful that this is more than fulfilling a campaign promise. It will have a significant impact not only on the welfare of the workers but on the continued viability of the business as well. There is no need to rush. Haste makes waste.