Status of Contractualization in Public Sector PDF

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UNIVERSIT UNIVERSITY Y OF CAL CALOOCAN OOCAN CIT CITY Y

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STATUS OF CONTRACTUALIZATION IN THE PUBLIC SECTOR

A Thesis presented to The Faculty of the Graduate School University of Caloocan City

In partial fulfillment of the requirements for the degree of Master in Public Administration

By:

RYAN CHRISTOPHER R. FANCUBILA 2019

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Chapter 1 THE PROBLEM AND ITS BACKGROUND

Introduction Contractualizaton is a term not found in the Labor Code and not even in the rules and regulations issued by the Department of Labor and Employment (DOLE). Contractualization therefore has no official or standard definition. The loud public talk to ban contractualization suggests the need to be clear about its different meanings. One meaning is “endo” or end of contract. The other is “deceptive contractorship”. Endo” is an abusive or corrupted use of the law. But hiring of employees on temporary basis is not altogether illegal where such kind of hiring is really needed by the business. The law allows employment in a project with pre-agreed termination date as well as seasonal employment, and fixed-period employment.

The other meaning of contractualization is in the form of “deceptive contractorship”. It is done by hiring a person and making him/her work as an employee but treating him/her as a “contractor”. A contractor is not an employee and therefore not covered by the Labor Code. Employee status, on the other 2

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hand, puts the worker under the Labor Code’s protective umbrella. By considering an employee as a contractor, the hirer is able to evade the obligations of an employer, such as the SSS registration, payment of Labor Code employment benefits, e.g., holiday pay, 13th month pay, etc. Some people like the vice dean of the Economics Program at the University of Asia and the Pacific (UA&P), Cid Tereso, believes that the time to end contractualization is now. He claims that the local economy has grown to be robust and strong. According to him, it would be perfect timing to implement strategies like a no-firing policy to move away from the current abuse. The Department of Labor and Employment (DOLE) has taken the first step in its campaign to end the practice of contractualization by big businesses like the SM Malls, popularly referred to as “endo.” Labor Secretrary Silvestre Bello issued Department Order No. 162, series of 2016 which directs DOLE regional offices to stop accepting applications from new third-party service providers. Labor Undersecretary Joel Maglunsod said the issuance of Order No. 162 is in compliance with President Rodrigo Duterte’s campaign promise of ending widespread contractual employment during his term. Meanwhile, the International Labor Organization (ILO) said the Philippines is moving forward both in terms of its compliance with international labor laws and resolving the issue of contractualization. ILO Philippine Country Director 3

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Khalid Hassan said he views the government to be taking “very seriously” the issue of labor contractualization after the labor department released a list of companies who are still allegedly practicing it. The list consisted of 3,377 companies the Department of Labor and Employment (DoLE) submitted to Malacañang, though only the leading firms were made public.

Background of the Study

The practice of contractualization has begun under the government of former president Ferdinand Marcos back in the 1970s, when the Philippine economy was experiencing a high unemployment rate and was suffering from instability. In the Philippine context, contractualization “is a work arrangement whereby workers are only hired for only about five months without security of tenure, monetary, non-monetary, and social protection benefits.”

In this current administration, the abolishment of contractualization is one of the current issues the state is facing. Labor contractualization has been a subject of discussions in the congress and among Filipino citizens. This arises due to the issues of unemployment and under employment. It is undeniable that most of the biggest businesses in the country are involve in this situation. Latest news include an article about Anak Pawis Partylist Rep. Ariel Casilao filing a 4

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measure abolishing the contractual employment scheme in the country. During the campaign period, President Duterte vowed to abolish the contractualization scheme, which he described as unfair labor practice and tool of exploitation against the working class. The main purpose of every business is to gain profit. The most common way to achieve this is through minimizing the expenses of the company.

Most business owners today engage in contractualization of employees. The jobs available for them usually does not require a college degree and therefore would give them minimum wage. Also, contractual employees do not receive any benefits such as SSS, Philhealth, and Pag-IBIG contributions unlike the regular employees. This is one evidence that businesses can lessen their costs because they are not required to pay high amount of salaries to their workers. This situation is not advantageous to the employees since it does not give the security of a permanent job. It also cannot develop their skills properly given the period of time they have for one job and the great possibility that they would have another job few months later which is different from that of the current. The businesses may have lesser expenses however the quality of services they offer may be compromised thus, affecting their sales and net income.

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President Rodrigo Duterte on Tuesday, May 1, signed an executive order on contractualization particularly prohibiting the illegal contracting and subcontracting of workers. This is for both the public and the private sector.

There are compliance already being observed among private sectors. In the government, it has been reported that half — or about 750,000 — of those employed in various national and local government offices continue to work in various positions (even in approved government posts) without the benefits enjoyed by government employees. Most of these workers are covered by contracts in the bureaucratic jargon like “job order,” “emergency hiring,” and “memorandum of agreement,” all of which simply try to skirt the Civil Service law.

The proponent has chosen two government agencies for the study as follows; Office of the Ombudsman and National Housing Authority (NHA). The Ombudsman of the Philippines, also known as Tanodbayan ng Pilipinas (using Filipino loan words), is an ombudsman responsible for investigating and prosecuting Philippine government officials accused of crimes, especially graft and corruption.

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The National Housing Authority (NHA) was tasked to develop and implement a comprehensive and integrated housing program which shall embrace, among others, housing development and resettlement, sources and schemes of financing, and delineation of government and private sector participation.

This study came up to determine the effects of the abolishment of contractualization in above-mentioned agencies. This will also tackle the possible remedies and necessary preparations of said agencies with this change.

Statement of the Problem

This study aims to identify the impact of abolishment of contractualization, its effects to employees and employers and the possible remedies. Specifically, this study will seek answers to the following questions: 1. What are the mandates of the agencies and required employees? 2. How do the respondents assess the abolition of contractualization in terms of the following: 2.1 Number of permanent employees 2.2 Absorptive capacity of permanent employees 7

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2.3 Performance of agency mandate 3. What are the problems encountered by the public sector? 4. What is the significant difference between assessment of the two sets of respondents on the above indicators? 5. What recommendations may be proposed?

Hypothesis There is significant effect of the abolishment of contractualization to the status of the respondents.

Scope and Delimitation of the Study

This study about the status of contractual workers is bounded only to contractual employees of selected two agencies namely: Office of the Ombudsman (OMB) and National Housing Authority (NHA). The only focus of this study is to identify the current status of employees on said government agencies. This will tackle the possible impact of the abolishment of contractualization, its effects to employees and employers and the possible remedies. The researcher interviews employers and contractual employees to asses the abolition of contractualization in terms of number of permanent

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employees, absorptive capacity of permanent employees and performance of agency mandate. Analysis on the effects of abolishment of contractualization to the respondents is limited only to the variables stated above.

Significance of the Study

This study will be deemed beneficial to the employers because company heads will be able to foresee the effects of ending contractualization and their possible remedies. Employees who are under contractual status will also benefit from this study provided that this will inform them of the possible effects of ending contractualization on their part.

The proponent of the study will be aware of the possible effects of the abolishment of in his company. And for the future researchers, results of this study will serve as springboard for other related or more advance study on the same field.

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Chapter 2 REVIEW OF RELATED LITERATURE AND STUDIES

The Labor Code of the Philippines defines non-regular employee as the workers with fixed-contract of employment in a certain company which is usually a maximum of six months, thus, this type of employment does not offer security of tenure. The Labor Code of the Philippines states that it is the policy of the state to assure the right of workers to security of tenure, which is an act of social justice (Samson, 2004). This security of tenure is clearly referring to regular employment wherein the employer shall not terminate the services of an employee except for a just cause and as what is stated in the Labor Code of the Philippines (Samson, 2004). There were only two kinds of subcontracting until the mid1970’s, these are the nominated and the domestic. A nominated contractor is someone who is nominated, preferred, chosen by the client. Usually, named contractors are controlled by the client through the architect to do engineering work like piling, electro-mechanical services or structural frame. 10

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A domestic subcontractor, on the other hand, is selected by the recommendation of the client’s consultants. The client will have no power in choosing and no idea regarding the identity of the contractor. (Wade, 2005) According to the Bureau of Labor Employment Statistics, in the past ten years, the trend in the labor market of the Philippines shows that an increasing number of Filipinos are looking for a contractual job due to the economic recession. A big percentage of Filipino contract workers are domestic workers or also known as live-in caregivers. This boosted during the 80’s and started the trend of overseas contract workers (OCW) (Makilan, 2006).This started when the Asian financial crises occurred during the late 90’s. The financial crisis contributes highly in the unavailability of employment and as a result, seeking for low-paying contract works. This implies that the downturn of regular employment has a direct relationship with the economic slowdown (Al egado, 2010).

In the current administration, Voting 199-7, the House of Representatives approved on third and final reading the Security of Tenure Bill, which seeks to address the problem of contractualization. Article 294 of the Labor Code titled "Security of Tenure" is amended so that in cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized. "An illegally dismissed employee is entitled to immediate 11

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reinstatement even pending appeal and without loss of seniority rights and benefits, full back wages and accrued benefits provided by law, company policy of collective bargaining agreement," the bill reads. Article 295 titled "Regular Employment" is also amended to prohibit fixed-term employment. An official of the International Labor Organization (ILO) said the Philippine government and stakeholders must hold more dialogues to address labor challenges generated by contractualization. While a lot has to be done, Hassan noted that the Department of Labor and Employment (DOLE) is showing commitment to address the issue, admitting that a solution cannot be conceived in a short period of time.

The latest development on the government's actions regarding the subject was on May 1, when President Rodrigo Duterte signed an executive order that puts an end to illegal contractualization.

At present, the ILO is supporting DOLE through engagement and discussions of non-standard form of employment (NSE).NSE, an umbrella term for different arrangements that deviate from standard employment, includes parttime

and

on-call

work;

multi-party

employment

relationship;

employment; and temporary employment or contractualization.

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disguised

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In 2015, the main recommendations on NSE was to devise measures plugging regulatory gaps; strengthening collective bargaining or building the capacity of unions to ensure workers are well-represented; and strengthening social protection regardless of the worker's employment arrangement. (PNA) In the study, “Beware of the End Contractualization! Battle Cry,” Philippine Institute for Development Studies research fellows Vicente B. Paqueo and Aniceto C. Orbeta Jr. said ending contractualization would be more expensive for companies than the government estimated. Hiring more permanent employees would increase the cost of firms by about 30 percent to 40 percent, higher than the government’s estimate of around 10 percent.

The dilemma is that, on the one hand, limiting government action to tightening enforcement might not be enough to eliminate endo practice, as promised by President Duterte. On the other hand, aggressive threats of government harassment, huge penalties, business closures, as well as prohibition of all forms of TECs [temporary employment contracts] to close ‘loopholes’ could lead to unintended adverse consequences like reduction in job opportunities and inclusive growth

(Paqueo and Orbeta , 2018)This alone

illustrates why it is so hard to ban—with a shotgun approach and apparently without benefit of a better-thought-out strategy—all forms of contractualization

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and enforce workers’ right to security of tenure, even if it is guaranteed not just by any law but by the Constitution itself.

Theoretical Framework In this study, theories such as the Efficiency Wage Theory and the Flexible Firm Theory, which the concept of contractualization finds its significance, will be studied. The Efficiency Wage Theory describes the positive relationship existing between the productivity of workers and their wages. In this theory, wage is seen as an incentive for workers to be productive. This implies that it will be more beneficial for firms to give their workers’ wages that are higher than their marginal revenue product so as to encourage workers to be more productive. Furthermore, under this theory, there are three sub-models, namely: Shirking model, Gift Exchange model, and Adverse Selection model. First, the shirking model tries to explain that if workers receive higher wages, then the cost of losing the job will also be higher. This is because workers are satisfied with the wages they receive that they fear losing their job. Second, the gift-exchange model states that higher wages for workers could mean a gift from their employers. In return, they will give their best to be more productive. Third, adverse selection model explains that if the owners of the firms would give higher wages to their 14

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current employees, it will also attract newcomers from outside, thus the firm will have more options on hiring new workers (Blackwell, 2011).

On the other hand, Flexible Firm Theory states that labor flexibility must be integrated in the organization’s functional operations so that firms can become more competitive and become more adaptable to fluctuations in the economy. Since the market is continuously evolving, the workforce, through labor flexibilization, must be able to satisfy the demands of the market. The enhanced flexibility will assure the firm of meeting the competitive pressures in the market (Mohinudeen, 2011). In the study of contractualization, Pacqueo and Obreta (2016) notes three important hypotheses. These three hypotheses are: buffer stock, filter or screening hypothesis, and outsourcing efficiency. The buffer stock hypothesis system or scheme states that a person or a firm buys and stores stocks in periods of good harvest and releases stocks during bad harvest. If applied to the concept of contractualization, firms hire a buffer stock of temporary workers when the economy is performing well so that they can easily dismiss them in periods of economic recession, where there is a need for them to adjust their number of workers. Second, the filter or screening hypothesis suggest that employers filter or screen applicants based on their educational 15

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attainment. This can have an effect on the amount of earnings that each applicant will get. For instance, the possession of a college degree is considered to be costless means of identifying whether an applicant is of high quality. A person who has a college degree is more highly qualified than a person who do not possess one. The degree signals the employer of competence which can affect the applicant’s admission to a higher quality or better paying jobs. Third, the Outsourcing Efficiency Hypothesis shows that gaining labor flexibility through outsourcing leads to efficiency. This hypothesis is similar to the Flexible Firm theory.

C onceptual Fram ewor k

Accordi ng to educati onal researchers Lodi co, Spaul d ing and Voegtl e (2010), conceptual framew ork a...