Just last year, much controversy arose upon the emergence of Senate Bill No. 1826 (SB 1826), or the bill on the Security of Tenure and End of Endo Act, which proposed several changes in the Labor Code provisions on contracting arrangements and employment relationships. Due to public clamor, President Rodrigo Roa Duterte even certified the necessity of the immediate passing of SB 1826. This, however, did not deter employer groups from continuing to lobby against the passage of SB 1826.
SB 1826 is now merely awaiting the signature or veto of President Duterte, with both houses of Congress recently approving the recent version of the bill this May. In anticipation of the signing of this bill, there is much talk about how the current legal landscape of contracting and employment will be reshaped. However, of the amendments under the approved version of SB 1826, there are three major changes which are foreseen to have the most significant effect, namely:
- Changes in the definition of labor-only contracting;
- Additional requirements for the licensing of job contractors; and
- Changes in the conditions and termination of employment.
It is worthy to examine some implications of these changes, as will be discussed below.
Changes in the definition of labor-only contracting
The approved version of SB 1826 retains the new and controversial definition of labor-only contracting. Per SB 1826, labor-only contracting already exists when any of the following is present:
- The contractor does not have substantial capital or investment;
- The workers supplied to the principal are performing activities which are directly related to the main business operation of such principal; or
- The contractor does not have control over the workers supplied to the principal.
Significantly, the second test poses the problem of determining which activities may be considered as “directly related” to the main business operation of the principal. To address this, SB 1826 empowers the appropriate Industry Tripartite Council and the Secretary of the Department of Labor and Employment (“DOLE Secretary”) to determine whether an activity is directly related to the main business operation of the principal. A perusal of SB 1826, however, would show that it does not provide any limitation or standard for this new function. Thus, it would appear that the appropriate Industry Tripartite Council and DOLE Secretary possess a very wide discretion in making the above determinations.
Additional requirements for the licensing of job contractors
While job contractors are still mandated to obtain a license under SB 1826, there are additional requirements which are noteworthy:
First, the job contractor must prove that it is an expert or specialist in the job contracted out. It may do this by showing, among others, that it employs the necessary competent professionals or skilled workers or that it has a proven track record in such field of specialization. Second, the job contractor must show that it has the financial capacity to carry on its contracting business, which is a separate requirement from the required paid-up capital or net worth of P5 million. Third, the job contractor must show that it has the tools and equipment which are reasonably necessary to perform the job contracted out. This requirement appears to be a deviation from the previous requirement, which only provided for a general provision of tools and equipment as proof of the existence of substantial investment.
Changes in the conditions and termination of employment.
SB 1826 does away with the definition of casual employment, which seems to suggest that all employees now render activities which are usually necessary and desirable to the business or trade of the employer.
Notably, SB 1826 does not mention fixed-term employment. It merely provides that all employees, except those under probationary, seasonal, or project employment, are deemed regular. This notwithstanding, it can still be argued that fixed-term employment is still valid. Note that the Brent doctrine (Brent School vs. Zamora, et al., G.R. No. L-48494, 5 February 1990) where the Supreme Court declared as valid fixed-term employment, is based on the Civil Code and not the Labor Code. In fact, the current provision of the Labor Code and SB 1826 do not differ in the sense that both do not mention anything about fixed-term employment. Thus, the fact that SB 1826 does not mention fixed-term employment is not a deviation at all from the current Labor Code. In any case, it would be interesting how the Supreme Court will rule on this matter.
Finally, on the matter of termination of employment, the employer must now submit proof of the existence of an authorized cause for termination and the payment of separation pay during the one month notice period. With this, SB 1826 appears to bring back the old discredited scheme of “clearance to terminate” for authorized cause separations.
Despite the above discussions, the truth of the matter is that these are only a few of the changes to be implemented assuming that SB 1826 will be passed into law. Even with the pending status of SB 1826, both employer and employee groups have much to say for and against the said bill. It is clear, however, that the passage of SB 1826 will mark a new era for our laws on contracting arrangements and employment relationships.