Legal and illegal labor contracting

On Labor Day, President Duterte signed Executive Order No. 51 (EO 51) “to protect the right to security of tenure of all workers” and prohibit “contracting and subcontracting when undertaken to circumvent the workers’ right to security of tenure, self-organization and collective bargaining, and peaceful concerted activities.”

Illegal contracting. Unionized and organized labor is dismayed because the EO “did not end all forms of labor subcontracting, failed to allow only direct hiring, and merely reiterated what is already provided in the Labor Code.”

The President, however, replied that he could not prohibit what is allowed by the Labor Code, saying, “You’re asking me to violate the law. What if I am impeached?” His spokesperson Harry Roque added that “the prohibition on contractualization may only be expanded through legislation.”

To understand the controversy, let us carefully examine what is legal and what is illegal labor contracting.

Definitely illegal and subversive of public interest is “endo” or “5-5-5,” the scheme of hiring employees for only five months and replacing them with another batch also for five months, to evade the law requiring regularization after six months of service.

Illegal, too, is “labor-only contracting,” in which “the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.” (Sasan vs NLRC, Oct. 17, 2008)

According to Department Order No. 174 (Series 2017) of the Department of Labor and Employment (DOLE), labor-only contracting happens when the contractor or subcontractor does not have (1) “substantial capital [minimum of P5 million], OR (2) … investments in the form of tools, equipment, machineries, supervision, work premises, among others, AND (3) … the employees recruited or placed are performing activities which are directly related to the main business of the principal.” It happens also when “the contractor … does not exercise … control over the performance of the work of the employee.”

Consequently, the “contractor is considered merely an agent of the principal, [that] becomes solidarily liable … for all the rightful claims of the employees.” (Valencia vs Classique Vinyl, Jan. 30, 2017)

Legal contracting. On the other hand, unquestionably legal is “job-contracting” in which, per the Sasan case, “(a) the contractor or subcontractor carries on … an independent business and undertakes to perform the job, work or service … under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters … except as to the result thereof …; (b) the contractor … has substantial capital or investment; and (c) the agreement between the principal and the contractor … assures the contractual employees’ entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.”

The Labor Code also allows fixed-term employment contracts and allows “project” or “seasonal” workers. “Project employment is one which has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee.” (Ganzon vs Ando, Feb. 20, 2017)

Congressional action. Contrary to the demands of organized labor, the President or the labor secretary does not have the power to prohibit legitimate job-contracting or fixed-term employment. Neither do they have the prerogative to allow only direct hiring. They can only implement a law and carry out its legislative policy. They cannot modify, expand, or repeal it.

In fact, Art. 239 of the Revised Penal Code penalizes with imprisonment and fine “any public officer who shall encroach upon the powers of the legislative branch of the Government, either by making general rules or regulation beyond the scope of his [or her] authority, or by attempting to repeal a law or suspending the execution thereof.”

Should labor groups insist on prohibiting all forms of contracting and legalizing only direct hiring, they should look to Congress, not to the executive branch, for relief.

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