Ending the endless debate on ‘endo’

in 2016, presidential aspirant rodrigo duterte made a grand promise to the country’s trade unions: “labor contractualization” to end within weeks of his presidency. Today, six years after assuming office in Malacañang, the duterte promise remains unfulfilled.

Can the next president do better? The two poll leaders, Bongbong Marcos and Leni Robredo, have taken a pro-trade union stand and have promised to end “labor hiring abuses.” Their position is not new. They have been reiterating this position since 2016 during the vice presidential contest. Should Bongbong or Leni get elected, how will their administration put an end to the endless policy debate on labor contractualization?

Incidentally, the two are joined by a few running for national positions at the executive and legislative branch levels. All have become populist and have aligned themselves with the trade unions’ demand for an end to “labor contractualization.”

The problem, however, is how exactly can the contractualization virus becontainedpolicy-wise.malacañang failed to shepherd the passage of an

acceptable “Security of Tenure” bill in thelasttwocongresses.thepresident himself vetoed a much-debated SOT bill on the ground that the proposed law, which “corrects” labor abuses, unduly restricts employers’ ability to achieve business f lexibility, especially in the outsourcing of certain activities deemed legit.

For this writer, a just and win-win approach to the issue of labor abuses arising from labor contractualization is possible under a transformative reform-minded government. The following are some key reform measures:

First, formally declare the “endo” system illegal.

As generally understood by labor and HR practitioners, an “endo” refers to a person hired on a limited period, at less than six months, to prevent this employee from acquiring automatically a regular or permanent status after passing the maximum six-month probationary testing provided under the Labor Code. The endos are described by many as the “5-5-5 workers,” packed like sardines in restricted work places with restricted rights. The endo system is perpetuated by employers who do direct hiring as well as by manpower agencies contracted by the principal employers to provide workers that, on paper, belong to the manpower agencies even if these workers are doing work needed by these principal employers.

Labor abuses under the endo system are widespread and well-known. They include the non-regularization of the workers, avoidance of troublesome union organizers and nonpayment of mandated labor benefits such as the 13th month pay, annual leaves, health benefits, social security benefits and so on. Business-wise, the primary incentive for a company in resorting to the endo system is labor cost reduction. On the other hand, endo workers, particularly those who are hired and re-hired as “endos forever” face an uncertain, unstable and insecure future.

Second, repeal/abolish Articles 106-109 of the Labor Code and replace them with clearer laws on the hiring of employees and the duties/obligations of employers and employees in an employer-employee relationship. Articles 106-109, written in 1972-1974 during the early years of martial law, have generated endless and intense debates on what are “legitimate independent job contracting” and “prohibited labor-only contracting.” Around one-third of labor cases in the country revolve around the issue of what is “permissible” and what is “prohibited ” job contracting.

These articles of the Labor Code have encouraged the proliferation through the years of manpower agencies, including “cooperative manpower agencies,” that are supposedly engaged in undertaking jobs and activities contracted out by principal employers. The problem is that many of the jobs and activities being “farmed out” by the principal employers are jobs and activities that are not only regular and necessary in the business of the principal employers but are also jobs and activities that are being undertaken right within the work/business premises owned by the principal employers. This situation has given rise to what the trade unions describe as widespread “labor contractualization” and numerous labor abuses. A series of Department Orders—from DO 10 under President Fidel Ramos to DO 174 under President Duterte —have failed to contain the labor contractualization virus, including its endo variant.

But will the above proposals (repeal of Articles 106-109) make it extremely expensive for Philippine industry to hire labor and compete globally? The following, very quickly, are some realities:

One, the use of third-party manpower agencies/cooperative manpower agencies does not necessarily cheapen a principal’s labor budget. The contracting principal employers have to allocate at least 10 percent more for every employee hired by the agency to cover the latter’s own “business operations,” including the agency’s budget for the expenses of every employee such as minimum wage, training cost, supervision, etc.

Second, there is reason to believe that the failure of the Philippines to scale up the industrial ladder through higher investments on skills and professional upgrading is due precisely to the obsession of some employers to focus on having the cheapest labor made possible through the resort to labor contracting via third-party manpower agencies. Cheap labor does not necessarily translate to productive, creative and technolog y-adaptive labor, which is a must under Industry Revolution IV. Look how our BPO sector, which is less reliant on third-party manpower agencies, is succeeding, and look how our manufacturing (both the export and domestic sub-sectors), which is heavily focused on labor cost-cutting, has been floundering.

But where will the manpower/ cooperative manpower agencies go? They still have a role to play in the labor market, that is, as intermediaries, e.g., as recruiters/screeners/testers, pre-employment trainors/skills developers (being done in the BPO sector), deployment consultants, personnel evaluators, etc.

As to the swings in the labor and employment market due to market uncertainties, the Labor Code provides very clear provisions stating that employers are not required to keep more workers than what is needed due to the introduction of “labor-saving devices,” redundancy, business reversals and so on.

By the way, the above “repeal” proposal does not cover the “normal” subcontracting of work by firms/principals to outside firms/ subcontractors who do work/activities outside the principal’s business premises and which are distinctly different from the usual business of the principal.

The point of this article is how to address labor contractualization in a more decisive manner. The way forward is to follow what the Constitution (Section 3, Article XIII) says: all workers are entitled to just, equal and humane treatment. Articles 106-109 of the Labor Code and the accompanying rise of the endo/contractualization system have subverted this charter’s mandate. It is high time for the institutionalization of a progressive labor policy regime.