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ISSUES SURROUNDING
“CONTRACTUALIZATION” AND “CASUALIZATION”
Atty. Vicente Leogardo, Jr.
Director General, ECOP
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This document is circulated for the participants of the Special ECOP MGM and should NOT be used forcommercial presentation purposes partially or in its entirety without EXPRESSED permission from the AuthorAtty. Vicente Leogardo, Jr. or HRManagement & Business Solutions Inc.
Genesis
1. “Contractualization” and “casualization” are correlative
terms not found in the English dictionary coined by
Kilusan Mayo Uno in derision of, and objection to,
the contracting out of work by employers on one hand
and of short term and temporary employment on the
other.
2. The principal objection of KMU and other populists to
“contractualization” and “casualization” is that both
are allegedly violative of security of tenure
guaranteed by the Constitution.
3. “Contractualization” that involves contracting out work
to independent contractors is founded in law and
practice (Art. 106, Labor Code; Sec. 4, D. O. No. 18-A)
4. What is prohibited is “labor-only contracting” (Sec. 6, D.
O. No. 18-A) 2
Genesis (2)
5. With respect to “casualization” there is basis for
objection to the practice of hiring regular workers for
short term employment of usually 5 months, tagged
as “endo” or “5-5-5”, which is violative of security of
tenure.
6. Otherwise, objections to all the exceptions to regular
employment prescribed by Art. 294[280] of the Labor
have no legal basis.
7. Those who strongly object to both forms of
employment would suppress if not outlaw legitimate
job contracting and prohibit any kind of temporary
employment.
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Genesis (3)
8. This fixation is manifested in numerous bills
containing these prohibitions and requiring
employers to directly hire workers on regular basis
whether temporary, casual, contractual or fixed term.
Types of Employment Involved
1. Pursuant to Art. 294[280] of the Labor Code,
employees performing activities which are usually
necessary or desirable in the employer’s usual
business or trade can either be regular, project or
seasonal employees, while, as a general rule, those
performing activities not usually necessary or
desirable in the employer’s usual business or trade
are casual employees.
2. Art. 106 also provides for the contracting out of
employees employed by independent contractors
“Contractor’s employees includes on employed by a
contractor to perform or complete a job, work or service
pursuant to a Service Agreement with a principal (Sec. 3
[e], D. O. No. 18-A)5
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Types of Employment Involved (2)
3. Fixed term/fixed period employment: not covered by
Art. 280[294] and is subject exclusively to the will of
the parties ((Pakistan International Airlines Corporation vs. Ople,
etc., et al., 190 SCRA 90; ; Brent School Inc. vs. Zamora, et., et al.,
181 SCRA)
Differs from project and seasonal employment whose
completion is determined by the duration and period
of the activity, not by free choice of the parties (Brent
School, Inc. vs. Zamora, 181 SCRA 702)
Basic Principles Underlying “Contractualization”
1. “Contractualization” which involves contracting out
work to independent contractors is an exercise of
management prerogative and business judgment.
2. Such prerogative is not only acknowledged in Art. 106
of the Labor Code, but is premised on the
constitutional right of employers to property.
a) “It is the propriety right of San Miguel to exercise an
inherent prerogative and its best business judgment to
determine whether it should contract out performance of
some if its work to independent contractors.” (San Miguel
Corporation Employees Union-PTGWO vs. Bersamira, et al., 186
SCRA 495-505)
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Basic Principles Underlying “Contractualization” (2)
b) “As we have previously held, the company can determine
in its best business judgment whether it should contract
out the performance of some of its work for as long as
the employer is motivated by good faith, and the
contracting out must not have been resorted to
circumvent the law or must not have been the result of
malicious or arbitrary action.” (Temic Automotive
Philippines, Inc. vs. Temic Automotive Philippines, Inc.
Employees Union-FFW, G.R. No. 186965, December 23, 2009.
c) “The unilateral action of the employer in contracting out
of part of its distribution functions is a valid exercise of
management prerogative. (San Miguel Brewery Sales Force
Union [PTGWO] vs. Hon. Blas F. Ople, et al.,170 SCRA 25-28)
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“Contractualization” Is Integral to Doing Business
1. In the world of business, almost every organization
contracts out or outsources services and products as
a matter of exigency and cost-effectiveness.
2. Typically, the function being contracted out is
considered non-core to the business. An insurance
company, for example, might outsource its janitorial
and landscaping operations to firms that specialize in
those types of work since they are not integral to
insurance or strategic to the business.
3. Outlawing “contractualization” would not only be
violative of the constitutional rights of employer, but
also disastrous to business and the economy.
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“Contractualization” vis-à-vis Outsourcing
1. It appears that there is a failure of populist prejudice
against “contractualization” to connect contracting out
with outsourcing. While contracting is perceived by
militant labor and populists as an evil, there has not
been a peep from them against outsourcing.
2. Globally, outsourcing is understood as contracting
another company or person to do a particular function,
process or service which is typically non-core to the
business (SOURCINGmag.com; VENTURE UUTSOURCE ;
Computer Desktop Encyclopedia; Investment Dictionary; Financial &
Investment Dictionary; Small Business Encyclopedia; Wikipedia; etc.
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“Contractualization” vis-à-vis Outsourcing (2)
3. The official definition also does not differentiate:
“Outsourcing (or contracting out) - is the delegation of non-
core operations or jobs from internal production within a
business to an external entity (such as a subcontractor) that
specializes in that operation. Outsourcing is done to save
money, improve quality, or free company resources for
other activities. Outsourcing was first done in the data-
processing industry and has spread to areas, including
telemessaging and call centers” (2008 ASPBI Business Process
Outsourcing [BPO] Activities, NSO)
4. The critical difference is that the outsourcing industry
both here and abroad, rejects the application of
trilateral relationship
“Contractualization” vis-à-vis Outsourcing (3)
5. Contracting out under Art. 106 creates a trilateral
relationship by and between the employer as the
principal, the contractor and the latter’s employees in
relation to the principal (Sec. 3 [m], Department Order No. 18-
A, Series of 2011).
6. The trilateral relationship becomes operative when the
contractor fails to pay wages of his employees in
accordance with law by making the principal jointly
and severally liable with the contractor (Art. 106; Sec. 5,
D. O. No. 18-A)).
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“Contractualization” vis-à-vis Outsourcing (4)
7. In the 1990s as a result of explosive advances in ICT,
outsourcing expanded to online business processes
or as it is now termed, business process outsourcing
(BPO) where firms can outsource their business
processes to companies on the other side of the
planet.
8. Call centers have led the pack of BPO services in the
Philippines in terms of growth
9. Based IBM's Global Locations Trend Annual Report,
the Philippines has overtaken India as the global
leader in business support functions and “voice”
services.
“Contractualization” vis-à-vis Outsourcing (5)
10. As of 2014, BPOs direct contributions to the
economy were as follows:
a) 1.1M direct employment (2% of overall
employment)
b) $18.4B in revenue for 2014 (6% of GDP)
c) 700 BPO companies and global in-house centers
serving North America, Asia, and Europe
11. The umbrella organization of BPOs, BPAP, is a
member of ECOP.
12. Many BPO employees are contractual employees in
the sense that their terms are based on the service
contract.
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“Contractualization” vis-à-vis Outsourcing (6)
13. ECOP pointed out to DOLE that inasmuch as the
trilateral relationship which is an essential element of
contracting out under the Labor Code does not apply
to BPOs, there was danger that regulatory agencies
and quasi-judicial agencies in justiciable cases
would subject them to coverage under D. O. 18-A.
14. Accordingly, on March 13, 2012, the DOLE Secretary
issued Department Circular No. 01, Series of 2012,
excluding BPOs and the construction industry from
coverage of D. O. 18-A.
Basic Principles Underlying “Casualization”
1. “Casualization” is understood as the exception to
regular employment:
“. . . where the employment 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 or where the work or service to be
performed is seasonal in nature and the employment is
for the duration of the season (Art. 294[280], Labor Code)
2. Regular employment involves performance of
activities which are usually necessary or desirable in
the usual business or trade of the employer for an
indefinite period (Art. 293[279], Labor Code)
3. Subjecting regular employment to “casualization” is
illegal and subject to sanctions 16
“Contractualization” and “Casualization” Covered
By Security of Tenure
1. Security of tenure is guaranteed by the Constitution
(Article XIII, Social Justice And Human Rights, Labor Sec. 3) and
implemented by the Labor Code (Art. 279)
“Our Constitution, statutes and jurisprudence uniformly
guarantee to every to every employee or worker tenurial
security. What this means is that an employer shall not
dismiss an employee except for just or authorized cause
and only after due process is observed. Thus, for an
employee’s dismissal to be valid, the employer must meet
these basic requirements of: (1) just or authorized cause
(which constitutes the substantive aspect of a valid
dismissal); and (2) observance of due process (the
procedural aspect (Baguio Central University vs. Ignacio Gallente
G. R. No. 188267, Dec. 2, 2013) 17
“Contractualization” and “Casualization” Covered
By Security of Tenure (2)
2. All types of employment under “Contractualization”
and “Casualization” cannot be pre-terminated except
for just cause (Art. 296[282], Labor Code) , authorized
cause (Art. 297[283]) or disease (Art. 298[284])
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Types of Employment Characteristics
Regular 1. Indefinite period
2. May be preceded by probationary
employment as prequalification to regular
employment
3. Can only be terminated by the modes of
termination under the Labor Code
4. Activities directly related, except casual
employment that has been regularized as
long as activity lasts
Non-Regular
1. Seasonal; project
2. Casual not exceeding 1 year
3. Contractual (D. O. No. 18-02)
4. Fixed term
Definite period or temporary; pre-termination
based on just or authorized cause
1. May or may not be directly related;
2. Not directly related
3. Directly related
4. May or not be directly related
The accepted taxonomy of employment in accordance with law,
jurisprudence and practice is as follows:
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