END OF

CONTRACTUALIZATION
(ENDO)
Security of Tenure Bill

San Sebastian College – Recoletos de Manila

College of Law
Legal Research

CHAN PINCO, JOHANNA REY R.

2019010623
1B1 - WSP
 I. Background
Labor Law deals with the rights and privileges of both the workers and the
employers. As stated in our 1987 Constitution, Section 3, Article XIII, “the State
shall be entitled to security of tenure, humane conditions of work, and living wage.”,
and “the State shall regulate the relations between workers and employers,
recognizing the right of labor to its just share in the fruits of production and the right
of enterprises to reasonable returns to investments, and to expansion and
growth.”1
According to Presidential Decree (PD) No. 442, otherwise known as the Labor
Code of the Philippines, states that all employees irrespective of employment
status or position shall not be dismissed without cause and due process.2 However,
per Rep. Raymond Democrito C. Mendoza under House Bill (HB) No. 4444,
contractualization has led to violation of the article stated above – no security of
tenure, humane working conditions and living wage as mandatory benefits such as
PhilHealth, Pag-Ibig, SSS, 13th month pay, leaves, etc. are being stripped off from
the employees.3

A. Introduction

1. History

During the Marcos Administration (1964 – 1986), when the

country was experiencing high unemployment rate and was suffering in
instability, the Labor Code of 1974 introduced the concept of
Probationary Employment which defined as shall not exceed six (6)
months from the date the employee started working. After which, the
employees shall be considered a regular employee, otherwise, there
must a just cause to be terminated.2 Due to this, companies found
ambiguity on Article 281 and apply it to exploit workers by means of
laying off to avoid extra costs thus higher revenues. With the following
administration, The Aquino Administration, it failed to tackle
contractualization. It amended Article 279 of the Labor Code to provide
better security of tenure for regular employees alone. It was during
Ramos Administration which contracting and sub-contracting were
permitted, and the word “Endo” (End of Contractualization) was invented
in response to 5-5-5 working condition of contractual employees. Up to
this day, endo remain unresolved and prevalent in the Philippines.

2. Security of Tenure Bill

Security of Tenure (SOT) bill which is supplemented by Executive

Order (EO) No. 51 (s. 2018) implementing Article 106 of The Labor Code
of the Philippines, as amended, to protect the right to Security of Tenure

1 Article 3 of Labor Code of the Philippines

2 Article 279
3 Explanatory Note

1
 to all workers based on Social Justice in the 1987 Philippines Constitute
states that SOT refers to the right of employees not to be dismissed or
removed without just or authorized cause and observance of procedural
due process consistent with the Constitution, Labor Code, as amended,
and as prevailing jurisprudence.4 Moreover, SOT tightened the definition
of Labor-Only Contracting (LOC) by means of changing “and” to “or” in
the list of conditions therefore LOC occurs when any of the these three
exist. Originally, LOC happens when:
a) No substantial capital or investment in the form of tools,
equipment, machineries, and
b) workers recruited and supplied or placed by such person are
performing activities which are directly related to the principal
business of such contractee, or
c) are under the direct control and supervision of the contractee.

3. Veto of the President

Last July 26, 2019, The Supreme Court (SC) of the Philippines
stated under the veto letter of the President “the State shall protect
the rights of workers and promote their welfare, such constitutional
policy is not intended to oppress or destroy capital and management,
and a healthy balance between the conflicting interests of labor and
management must be observed.”5 President Duterte provided that
LOC must be prohibited and legitimate job-contracting should be
allowed provided that the contractor is well capitalized, has sufficient
investments, and affords its employees all the benefits provided for
under the labor laws.5

II. Issue
Whether or not the reason of the President is appropriate to veto the Security
of Tenure Bill.

III. Legal Basis

Sec 3, Article XIII of the 1987 Constitution -
“…They shall be entitled to security of tenure, humane conditions of work, and a living
wage. They shall also participate in policy and decision-making processes affecting their
rights and benefits as may be provided by law.”

Definition of Job-Contracting and Labor-Only Contracting in Sasan v NLRC6 –

“Legitimate job-contracting or subcontracting if the following conditions concur: (2) The
contractor or subcontractor carries on a distinct and independent business and undertakes to
perform the job, work or service on its own account and under its own responsibility according
to its own manner and methods, and free from the control and direction of the principal in all
matters connected with the performance of the work except as to the results thereof; (b) The
contractor or subcontractor has substantial capital or investment; and (c) The agreement

4 Section 2
5 Veto Message from The Office of the President
6 G.R. No. 176240, 17 Oct 2008

2
 between the principal and contractor or subcontractor assures the contractual employees
entitlement to all labor and occupational safety and health standards, free exercise of the right
to self-organization security of tenure, and social and welfare benefits.”
“Labor-Only Contracting, a prohibited act, is an arrangement where the contractor or
subcontractor merely recruits, supplies, or places workers to perform a job, work, or service
for a principal.”

Article 281 of The Labor Code of the Philippines states that:

Probationary employment. – Probationary employment shall not exceed six (6) months
from the date the employee started working, unless it is covered by an apprenticeship
agreement stipulating a longer period. The services of an employee who has been
engaged on a probationary basis may be terminated for a just cause or when he fails to
qualify as a regular employee in accordance with reasonable standards made known by
the employer to the employee at the time of his engagement. An employee who is allowed
to work after a probationary period shall be considered a regular employee.

Article 281 of The Labor Code of the Philippines states that:

Termination by employer. - An employer may terminate an employment for any of the
following causes:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his employer
or any immediate member of his family or his duly authorized representatives; and
(e) Other causes analogous to the foregoing.

Definition of Social Justice in Calalang v Williams7 –

“…Social justice means the promotion of the welfare of all the people, the adoption by the
Government of measures calculated to insure economic stability of all the component
elements of society, through the maintenance of a proper economic and social equilibrium
in the interrelations of the members of the community, constitutionally, through the adoption
of measures legally justifiable, or extra-constitutionally through the exercise of powers
underlying the existence of all governments on the time-honored principle of salus populi
est suprema lex. Social justice, therefore, must be founded on the recognition of the
necessity of interdependence among divers and diverse units of a society and of the
protection that should be equally and evenly extended to all groups as a combined force in
our social and economic life, consistent with the fundamental and paramount objective of
the state of promoting the health, comfort, and quiet of all persons, and of bringing about
"the greatest good to the greatest number.”

IV. Considerations/ Discussions

Almost everyone, one way or another, experienced being on a contractual
employment status. Personally, on my first job after attaining my bachelor’s degree,
had a project-based employment status in an international company even when I
graduate in a university: no leaves, and medical benefits. Luckily, I was not yet fully
aware of my rights, and my needs in the real world. I would have not imagined how
excruciating this issue was until it was brought upon the 2016 Presidential Election.

7 G.R. No. 47800, 02 Dec 1940

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 After researching on the two sides of the coin, opinions of the author of the bill
and labor groups, I came to know that Security of Tenure Bill refers to two aspects:
(1) Tenure of an employee; and (2) Labor-Only Contracting.
Let’s start first with the second aspect. Differences between LOC and Job-
Contracting was distinguished in Sasan v NLRC case. Moreover, Labor-Only
Contracting happens when a contractor merely recruits the workers with the owner
paying their salaries, and benefits, or supervising their work, or providing the
equipment and tools needed by the worker. On the other hand, legitimate Job-
Contracting, currently known in the digital-age as “Outsourcing”, is when the
contractor controls the workers, pay their salaries and benefits, and supplied the
needed equipment and tools.8 As the President had stated during his veto that he
will allow legal contractualization and forbid LOC. In my view, this is not the main
issue as long as both the business owner or the contractor are following the laws,
and public policies. Either way, employees are concerned with the first aspect –
Tenure of an employee.
The main concern of every employee is to have a secure job that will sustain
their lives supplemented by benefits without the fear of losing it at any period.
According to Atty. Ces Alvero Azucena Jr., Contractualization is a term not found
in the Labor Code, even in the rules and regulation issued by the Department of
Labor and Employment (DOLE)9 and was coined only during Ramos
Administration which then was connoted as defined by Allan Pamis, “Endo” is
employing a worker only for a definitive short period of time, while “5-5-5” refers to
employment set-up under one can only work for five-month period and such
contract may be renewed again for another period of five-months.10 It is true that
laws relating to security of tenure are already in place in our Constitution and Labor
Code to protect and provide social justice to the laborers:
A. Sec 3, Article XIII, 1987 Philippine Constitution
B. E.O. No 5111
C. Article 281 of the Labor Code of the Philippines
D. Article 282 of the Labor Code of the Philippines
In Mylene Carvajal v Luzon Development Bank and/or Oscar Ramirez12, the
Court of Appeals duly held the termination of the petitioner due to failure to meet
employment standards. In her appointment letter, Carvajal is fully aware of that she
must comply with the standards set forth by the respondent.
It boils down, however, to being in a third-world country wherein unemployment
rate is high therefore leaving the unemployed with accepting such working
condition.

8 Job Contracting vs Labor-Only Contracting, Artemio V. Panganiban, 2017,

https://www.officialgazette.gov.ph/downloads/2019/07jul/20190726-Veto-Message-Senate-Bill-1826-
RRD.pdf
9 Contractualization: Which meaning do we mean?, Atty. Ces Alvero Azucena Jr, 2016,

https://business.inquirer.net/215071/contractualization-which-meaning-do-we-mean
10 5-5-5, Allan Pamis, 2017, https://www.manilatimes.net/2017/07/18/business/columnists-business/5-

5-5/339018/
11 Series 2018
12 G.R. No. 186169, 01 Aug 2012

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 The President also mentioned on his veto that he would want to maintain a
balance between the conflicting interest of investors and workers as the said bill
favors the latter. However, the Global Competitiveness Index Report13 showed that
restrictive labor regulations are not the top concern of businesses in the
Philippines. These are inefficient government bureaucracy, inadequate supply of
infrastructure, and corruption are the top hindrances of not doing business here in
the country.

In my view, I agree that it is not merely labor regulations that affect investors
from doing business in the country as the conditions under the Security of Tenure
Bill are already stated on provisions of the Labor Code of the Philippines and were
supported by EO No. 51 – To protect the right to Security of Tenure of all workers
based on Social Justice in the 1987 Philippine Constitution.
To relate it in Economics, according to Okun’s Law, there is a direct relationship
between employment rate and Gross Domestic Product (GDP) whereby a
percentage of decrease of employment rate (or an increase in unemployment rate)
constitute a two-percentage decrease of GDP. Provided that there is high
employment rate in the country, and there is a security of tenure to all workers, it
will result to an increase our GDP due to increase of Personal Consumption
Expenditure.

V. Recommendation
Indeed, the veto of the President is reasonable. We already have the rules and
laws in place protecting the labor sector wherein an employee cannot be removed
without just or authorized cause. Nevertheless, DOLE shall focus on restricting 5-
5-5 or “Endo” by punishing the corporations as it contradicts with the definition of
Social Justice in which there is no equal interdependence between the members
of the society, and it doesn’t promote the welfare of the people. It is also adequate
for the Government to review the problematic factors in doing business in the
Philippines as once resolved will not just entertain investors but also increase
employment rate hence will result to increase in GDP in the long run (Okun’s law).
Conferring to labor groups, prohibit all forms of contracting and legalizing only
direct hiring. It is, however, for my part, acceptable to give the freedom to business
to choose whether they would utilize a manpower agency to hire employees so
long as the contractor is following the law.

13 World Economic Forum, Executive Opinion Survey 2017

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 On the resubmitting the bill by Rep. Jericho Nograles, PBA Party-list14, there
will be a time for the House of Representatives and Senate to review the Security
of Tenure Bill under the bicameral conference committee which was skipped when
submitted to the President due to lack of time hence the House of Representatives
adopted in toto.

14 On the Record, One more time for ‘end endo’ bill. CNN Philippines, 01 Aug 2019