The Long Battle to End ‘Contractualization’ in the Philippines

During his campaign for the presidency, Rodrigo Duterte promised that if he wins, he would end “contractualization” and improve labor conditions for all. He was referring to the practice of businesses hiring employees under a fixed-term contract, which is prevalent in various industries and a cause of concern for low-income Filipino workers. Now, four years into his term, the problem still stands. The House of Representatives recently passed a security of tenure bill, but the fight to end contractualization continues. 

In colloquial terms, the practice is called “endo,” short for “end-of-contract,” or “5-5-5,” because contracts usually span five months at a time. After five months, employers rehire employees for another fixed-term, and the cycle continues. Article 296 of the Philippine Labor Code states that employees who continue to work after a six-month probationary period must be regularized, and as such, given benefits like medical insurance, paid leaves, and security of tenure. The provision was meant to protect workers but companies learned to circumvent it to save money, usually by outsourcing contract workers from an agency. 

“[Endo sheds light] on the way employers look at labor. [That] labor is dispensable — it’s not important. There are certain things [companies] are willing to spend on, but they are not willing to spend on labor or their employees,” Dominique Gana, a corporate attorney told VICE World News. 

After much delay and many amendments, Duterte filed an Executive Order (EO) against contractualization on May 1, 2018, Labor Day. Labor groups were disappointed with the EO, saying it was not the draft they prepared, nor did it reflect their negotiations with the Department of Labor and Employment (DOLE). They wanted the government to make direct hiring the norm, and labor contracting an exception. Critics said the EO “backs employers” and not Filipino workers.

“From a legal standpoint, his EO was nothing different because it actually just repeats what has been in the law consistently. In all the different department orders of DOLE and all the Supreme Court decisions, it has been very clear that endo is prohibited,” Gana said. “I think what changed was the implementation on the part of DOLE. It’s more like they decided to be stricter.” 

After Duterte signed the EO, 20 companies suspected of practicing endo were identified and urged to regularize employees on fixed contracts. But instead of hiring employees full time, per the government’s directive, several of the country’s largest companies chose to lay off around 200,000 workers, according to Ariel Casilao, who represented the pro-labor group Anakpawis in Congress. 

In September 2018, Duterte certified as urgent the Security of Tenure Bill, a proposed law against contractualization. For a time, this reassured labor workers that the president was “staying true” to his promise to end endo. Under the bill, all employees except those defined under probationary, seasonal, or project employment, would be deemed ‘regular.’ But in 2019, Duterte acknowledged that this would “place capital and management at an impossibly difficult predicament with adverse consequences to the Filipino workers in the long-term,” and ultimately vetoed the bill after businesses said that it would be too difficult to follow. A study by the Philippine Institute for Development Studies (PIDS) published in 2016 reported that ending contractualization altogether would be more expensive for companies by about 30 to 40 percent. 

While the promise to “end endo” was paved with good intentions, it became clear that both a tepid and a sweeping approach to the issue will result in unfavorable outcomes. A law that allows some forms of contractualization won’t satisfy labor groups, while one with a sweeping ban will be against business interests. Now, policymakers face the challenge of protecting employees and closing loopholes that could make them vulnerable to exploitation, while not alienating the businesses that keep the economy running. 

Gana said that ideally, there should be a balance between protecting employers and employees, but also noted that the government ought to prioritize the latter. 

“Government should really protect the laborers because they have no bargaining power,” she said. “They leave it to the government to make sure that employers are looking out for what’s best for them.”

Gana emphasized the value of job security in developing countries like the Philippines, where so much of a citizens’ basic needs are not covered by the government. 

“Security of tenure is so important to [Filipinos] because it means that we are getting a regular salary every day for a certain period that we’re working. And as long as we’re good employees [or] we don’t do any of the ‘just causes’ for termination, then we would still be an employee. That means our livelihood is secured,” she said. 

On Dec. 2, the House of Representatives passed another version of the Security of Tenure Bill on its third and final reading. It prohibits fixed-term employment but identifies specific exceptions, namely overseas Filipino workers, workers on probation, relievers who are temporary replacements of absent regular employees with engagements not exceeding six months, project employees, and seasonal employees. There is also a PHP30,000 ($624) penalty for each victim employee by businesses engaging in endo, which is a leap from the PHP1,000 ($21) - PHP10,000 ($208) fine per business stated in current law. The senate version of the bill is still pending. 

Labor groups are divided on this new bill. Some think that it’s a step in the right direction, albeit a small one. Others, like Trade Union Congress of the Philippines (TUCP) spokesperson Alan Tanjusay, have “grave reservations and serious concerns over the bill.”

“Workers have long fought for an end to contractualization, even after an initial Presidential veto in 2019, only to be presented now with a further watered-down version, which will further betray their hopes,” he told VICE World News. 

He said that what the Philippines needs is a law that inhibits employers from blurring their relationship with employees, to prevent abuse and exploitation. Employees who should be regularized — meaning those who have performed essential services with the same company for years — should be acknowledged as such in the terms of their employment. 

For Gana, meeting those expectations will be difficult, but necessary. 

“At the end of the day, the government [needs to] make a stand and would have to choose to be more beneficial to the workers, because who’s going to take care of them?”