During the electoral debates, some candidates called for the abolition of “endo-contractualization” (also known as “5-5-5”), the scheme of hiring workers 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. This scheme is definitely illegal and subversive of public interest. Nonetheless, since it had been raised as an election issue, let me tackle it.
TO BEGIN WITH, OUR CONSTITUTION (Article XIII, Section 3) HAS A BIAS FOR LABOR balanced with the right of enterprises to reasonable margins, thus: “The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth.”
This biased approach is reflected in our lengthy Labor Code and most certainly in its Article 4: “All doubts in the implementation and interpretation of the provisions of this Code, including its implementing rules and regulations, shall be resolved in favor of labor.”
Legal contractualization (without “endo”) or job contracting happens, according to Article 106, “(w)henever an employer enters into a contract with another person for the performance of the former’s work.”
However, “labor-only” contracting is prohibited. It happens, per the same Article 106, “where the person supplying workers to an employer [1] does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and [2] the workers recruited and placed by such person are performing activities which are directly related to the major business operation of the principal.” In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.
TO SYNTHESIZE THE CONFUSING JURISPRUDENCE ON CONTRACTUALIZATION, the Supreme Court in Carpio v. Modair (June 21, 2021) articulated the following principles (which, while intended for the construction industry, can also apply to other fields involving job contracting and project employment):
FIRST, a worker is presumed a regular employee, unless the employer establishes that (1) the employee was hired under a contract specifying that the employment will last only for a specific undertaking, the termination of which is determined at the time of engagement; (2) there was indeed a project undertaken; and (3) the parties bargained on equal terms, with no vices of consent.
SECOND, if considered a regular employee at the outset, security of tenure already attaches, and the subsequent execution of project employment contracts cannot undermine such security, but will simply be considered a continuation in the regular engagement of such employee.
THIRD, even if initially engaged as a project employee, such nature of employment may ripen into regular status if (1) there is a continuous rehiring of project employees even after cessation of a project; and (2) the tasks performed by the alleged “project employee” are vital, necessary, and indispensable to the usual business or trade of the employer. Conversely, project-based employment will not ripen into regularity if the construction worker was truly engaged as a project-based employee, and between each successive project, the employer made no manifestations of any intent to treat the worker as a continuing resource for the main business.
FOURTH, regularized construction workers are subject to the “no work, no pay” principle, such that the employer is not obligated to pay them a salary when “on leave.” In case of an oversupply of regularized construction workers, then the employer can exercise management prerogative to decide whom to engage for the limited projects and whom to consider as still “on leave.”
FINALLY, submission of termination reports to the Department of Labor and Employment field offices “may be considered” only as an indicator of project employment; conversely, non-submission does not automatically grant regular status. By themselves, such circumstances do not determine the nature of employment.
BOTTOM LINE: I believe that the Constitution, the Labor Code, and jurisprudence have clearly defined the parameters for legitimate job contracting and project employment. All that is needed is proper implementation. They need not be election issues.