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Philippines Poised to Reform Rules for Contract Workers

A Long Road to Contract Worker Reform in the Philippines

In 2019 we provided an update about a Philippine legislative proposal (Senate Bill No. 1826) which would have made it more difficult to hire contract workers.

The concern which gave rise to the legislation was the expanding practice of employing workers in six-month terms to avoid making them full-time employees, which would trigger entitlement of benefits, including paid leave. In 2018, temporary employment represented 21% of the total labor market in the Philippines.

Many business organizations asked President Duterte to veto the bill, describing it as in conflict with the rest of the world’s current transition to flexible working. Philippine labor unions supported the bill, despite the growing popularity of flexible work arrangements in the Philippines.

First Attempt at Reform Seen as “Unduly Broad”

The 17th Congress passed Senate Bill 1826. However, the bill was then vetoed by President Duterte, who supports expanded worker rights. Duterte said the proposed law: “Unduly broadens the scope and definition of prohibited labor-only contracting, effectively proscribing forms of contractualization that are not particularly unfavorable to employees involved.” The veto was criticized by many workers and labor unions and praised by many employers.

A New Compromise Measure is Introduced

After the defeat of Senate Bill 1826, a follow-up measure, House Bill 7036, also known as the Security of Tenure Act, was approved in December of 2020.

House Bill 7036 defines a labor-only contract as existing when the person supplying workers to an employer does not have:

  • Substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, or:
  • Has no control over the workers’ methods and means of accomplishing their work, or
  • The workers recruited and placed by such person are performing activities which are directly related and necessary to the principal business of such employer.

Where any of these three exist, a contractor is engaged in labor-only contracting. Under the Labor Code, these contractors are agents of the employer, who is responsible to the workers as if they were directly employed by the employer. Employers are also jointly and severally liable with the contractor where it fails to pay employee wages, allowances, or benefits.

House Bill 7036 also prohibits fixed-term employment, except in cases of:

  • Overseas Filipino workers
  • Workers on probation
  • Temporary workers of no longer than 6 months that replace absent regular employees
  • Project employees, and
  • Seasonal employees

House Bill 7036 also allows:

  • Reliever, project, and seasonal employees the right of first refusal of tasks, work or projects which are the subject of their employment and in hiring for open regular positions.
  • Clauses in employment contracts providing for a fixed term or definite periods of employment are now void. These workers are now deemed regular employees from their first day of their employment.

Reform Not Yet Completed

Whether House Bill 7036 will be signed by President Duterte is still unknown. It was drafted as a compromise follow-up measure to Senate Bill 1826. And it seeks to adequately answer concerns of workers and labor unions, while also protecting employers.

GoGlobal Philippines Can Help

By utilizing GoGlobal’s International PEO services in the Philippines, you can mitigate the risks of non-compliance mentioned above and ensure you’re structured properly as you expand into the Philippines. Our on-the-ground team is ready to assist!

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