April 16, 2017 5:00 pm JST

Duterte labor reform leaves nobody happy

Employers and unions angry at vague compromise on short-term contracts

JUN ENDO, Nikkei staff writer

MANILA -- The Philippine government is moving to crack down on the practice of hiring workers on short-term contracts, which is a major factor behind low wage levels in the country. But few people, if any, on either side of the debate seem satisfied with its efforts.

The Department of Labor and Employment, or DOLE, has issued an order reaffirming that, in principle, the practice is banned. Depending on how it is implemented, the order could have a significant impact on the country's labor market, especially for contractors and subcontractors who provide staff for short-term jobs.

Many workers, however, have expressed disappointment, saying the measures fall short of campaign promises made by President Rodrigo Duterte.

"We, at the Department, would have wanted a consensus ... that is both acceptable to, and endorsed by labor and employer," read a statement released by Labor Secretary Silvestre Bello III just after he issued Department Order 174 on March 16.

"But after almost nine months of dialogues, meetings, and consultations, the fundamental difference between labor and employer remains," it continued.

"Given this impasse and taking into consideration the social and economic impact of prolonged policy uncertainties, we think that it will be for the benefit of the greater public if the Department, through the Secretary of Labor, would finally put closure to this issue."

The order reiterated that contractual employment is prohibited in principle, but permits it in certain forms that meet a set of criteria, including the requirement that the contractor "is free from the control and/or direction" of the company farming out the work.

The latest order sets more detailed definitions and stricter conditions than the previous one issued in 2011, including higher registration fees for contractors.

The country's labor code requires employers to make workers on short-term contracts permanent employees after six months of service.

Permanent employees technically cannot be dismissed or have their wages cut. Employers also have to shoulder the costs of providing required welfare benefits.

Temporary staffing agencies avoid the costs of permanent employment by hiring workers on five-month contracts and rehiring them after the term expires, a practice which just falls within the letter of the law. Some employers engage in such practices directly.

Short-term work contracts are especially common in labor-intensive sectors like retail, catering and manufacturing, and wages are typically around 300 pesos ($6) per day, below the legal minimum wage.

The system has served as an incentive for companies to depend heavily on cheap labor, keeping productivity in the country low.

Workers have long been calling for a total ban on the practice of short-term hiring, claiming it effectively forces them to work for unfairly low wages.

With Duterte vowing to outlaw contractual employment through labor reform during his election campaign, DOLE entered talks with both labor and management immediately after he took office. After it urged a number of companies to stop short-term hiring, 37,000 of their 62,000 workers on short-term contracts have been made regular employees.

DOLE plans to ensure they will all be on a permanent contracts by the end of 2017.

Employers have lobbied hard against the proposal. The Employers Confederation of the Philippines has warned the move would lead to declines in both investment and employment.

Some government policymakers have sided with the business community. In November, Trade Secretary Ramon Lopez said a total ban on short-term work contracts would lead to the loss of employment flexibility.

Duterte then instructed DOLE to review the order, calling for comprehensive debate on the issue.

The latest order is apparently designed as a compromise; stressing the importance of protecting workers' rights while also giving consideration to the arguments made by employees.

But the terminology it contains is unspecific at best, using phrass like "repeated hiring" and "an employment contract of short duration," meaning its restrictions on short-term employment are unlikely to be effective. 

The confederation has issued a statement saying its members are preparing to respond and some short-term work agencies are likely to be affected.

The government has even admitted that the language is vague and open to interpretation. Some observers have pointed out that the regulations can easily be sidestepped.

Unions have voiced anger at the order, which they see as a snub to their demand for a total ban on the practice. The day after it was issued, members staged a demonstration in front of DOLE, chanting that Duterte has broken his promise.

Everything now depends on how the order is implemented.

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