Will Ethics Be Enough Reason to End Contractualization?

 

BRYAN L. RAPADAS

Divine Word College of Laoag

Abstract

The growing uncertainty and insecurity in the labor market are causing an alarm over the past years. Increasing unemployment and temporary employment arrangements worsen working and living conditions. This includes the contractual employees have to endure a hazardous, uncertain, and irregular working environment. Economic and financial challenges have caused widespread concern among workers. Often, statistics reflect only unemployment, but it fails to present that most people face a predicament who has work but do not have a decent occupation, a reasonable salary, security of tenure, social protection, and access to benefits and rights. The gravity of the problem requires a harmonized and systematic solution at national and global levels 

According to ILO Philippines (2017), precarious employment is described as a short-term or seasonal, or casual job, including fixed-term or temporary employment contracts and subcontracting arrangements.  This employment is disturbingly increasing not only in the informal economy but as well as in the formal economy.  Temporary employment is a serious threat to workers' rights to security of tenure, labor standards, job-related safety, and health, join labor unions, and social protection.  Contractual workers are hired to do the organization's vital work but are deprived of permanent employee rights. Many companies and organizations moved the gears towards temporary employment contracts through manpower services agencies and short-term or independent contractors instead of practicing permanent employment. 

Contractualization or more popularly known here in the Philippines as the "Endo" or "end of contract" or "5-5-5," is very much a contested form of employment in the country and even internationally.  Workers get hired not more than five months, so employers are not obliged to hire them as permanent employees on the sixth month as required by the Labor Code. It deprived contractual workers of all the rights and benefits granted by labor law to permanent employees. Due to legal loopholes surrounding the practice, Filipino workers' exploitation persists despite being declared illegal. Contractualization caught the attention of labor groups and political leaders, including President Duterte. Remember that during the election campaign of President Duterte, he promised to end the abusive labor practice endo.  However, it seems the conclusion has not yet come. The President certified the bill as urgent and sought to fulfill his promise, and eventually, he declined to sign the Security of Tenure (SOT) bill on July 26, 2019 (Santos, 2019). On December 1, 2020, the security of tenure bill was re-filed by the House of Representatives, which would ban labor-only contracts but would still allow justified and reasonable job contracting and fixed-term employment (Cepeda, 2020).

This article will tackle how contractualization began, its adverse effects, why it is happening, some advantages, possible effects of ending contractualization, and some key elements to prevent the progression of contractualization.

Keywords: endo, contractualization, business ethics, precarious work, temporary contract

Introduction 

Paqueo & Orbeta (2016) defines contractualization as generally practiced in the country and refers to a non-permanent form of employment mutually agreed in a contract by employee and employer through direct hiring or manpower service agency.  Most labor groups have claimed the practice violates the employees' rights and wellbeing. ILO (2011) added that contractual worker, includes the following forms: temporary employment contracts, hired through third-party manpower services agencies, subcontractors and workers declared themselves as self-employed even though they are reliant on and incorporated into the organization for which they fulfill the tasks. 

According to ILO Philippines (2017), Contractualization is characterized by employment term uncertainty and insecurity; multiple employers and vague employment relationship; a dearth of social protection and benefits; low pay; and freedom in joining a trade union and bargaining collectively. 

Furthermore, ILO (2011) also emphasized that, while the term precarious work is commonly used internationally, its definition remains ambiguous and complex. The severity of precarious work and other forms depends on the context of the country and its economic and social structure of the political systems. This resulted in several terms emerging from particular national contexts, such as temporary employment contracts, contractual employment, and contract of services. Forms of precarious work appear to be continually increasing, as employers regularly find alternative means to take advantage of the loopholes in regulations to boost their business's profitability at their employees' expense.

The European Metalworkers Federation (EMF) utilizes the term from a more extensive perspective: Precarious work is described as an atypical form of employment with low pay, no security of tenure, and inability to meet a living standard. Public Service International (PSI) holds that precarious work has indirect or vague employment with uncertainty and insecurity in the forms of restricted contract, temporary, employment-agency, casual, part-time, and seasonal contract with pseudo-self-employment. The International Metalworkers' Federation added that in Africa, precarious work is ordinary: four factors describe precarious employment: 1. employment security; 2. the ability to join trade unions which translates to authority to working conditions and autonomy; 3. the presence of mandated labor law protection; and 4. adequate salary to enable employees to enjoy a satisfactory standard of living. (ILO, 2011).

According to ILO (2011), as mentioned during the ILO Bureau for Workers' Activities (ACTRAV) Symposium, they identified two categories with corresponding conditions covering most of the adversely affected employees' precarious work arrangements:

Contractual arrangements

i.              Restricted continuance of contract (fixed-term, short-term, temporary, seasonal, day-labor, and casual labor)

 

ii.            Vagued employment arrangement (triangular and disguised employment, bogus self-employment, subcontracting)

Precarious conditions

i.          Low pay

ii.         No due process of employment termination

iii.        Deprivation to social protection and benefits

iii.           Workers unable or limited to practice labor rights 

How it Began in the Country

Ten years after implementing the Marcos regime's fare situated procedures, joblessness and underemployment trends caused unsteadiness in the public economy (Pasquin, 2018). The intense rivalry among industry players has prompted the shutting down of certain organizations that can no longer adapt to the competition's pace at the initial execution of streamlined commerce amid the 1980s. According to Macaraya (1999), those who were able to continue doing their business regardless of the economic changes recovered by making adjustments in their operations by taking advantage of technology innovations and an adaptable workforce. Using Herrera Law as a reference, contractualization then became a common practice and customary in the country.  The late Senator Ernesto Herrera introduced labor contracting by authoring revisions in 1989 to the Labor Code. By including a bill mandating the regularization of employees who have rendered six months of continuous service, others claim that companies were allowed not to regularize employees and rehire them after laying off for five months (Fernandez, 2016), though not without abuses as the unintended consequences.

The Negative Effects of Contractualization

No security of tenure. The normalization of precarious employment shows its intensely damaging consequences on society. It gives workers and communities uncertain and vulnerable situations, obstructing their life planning options. (ILO, 2011). 

With the critical focus on the flexible purpose of employment, contractual have no security of tenure, due to the nature of their work and employment, they are quickly hired and can be easily fired, especially to the low-skilled workers, which can be easily replaced, performing only peripheral functions to the firms' main objectives. 

Workers on temporary contracts may profit in the short term but will have to endure a risky situation in the long run due to contract renewal uncertainty. Temporary contracts are often linked to low pay and do not give the same benefits as the regular employees, which often accumulate as time goes by and are related to the employment tenure and status. As a result, workers will have challenges planning for their future (ILO, 2011).

Addison & Surfield (2009) also added that precarious work prevents employees from committing to their long-term plan for their lives due to unstable employment. In particular, temporary workers will have challenges getting married, having a family of their own, or building their own house due to their contracts' uncertain continuity and low wages. 

Researches discovered that contractual employees and even those inflexible employment desire a clear and rational life plan are exceptionally high.  In the context of the need for stable career paths, if an employee has only two choices, such as joblessness or temporary work, temporary work is preferred. However, the study additionally shows that a significant part of the apparent "advantage" of temporary work, broken career path is undesirable. 

Income security. According to Li Kungang (2010), if the company violates employees' rights by not giving overtime pay and remitting social insurance premiums, the contractual worker has no choice but to take it because it might cause the non-renewal of his/her contract. ILO (2011) also added that precarious work has been causing the low pay sector's upsurge. In countries without the full support of labor unions and mandated minimum pay, the descending trend in wage rates is exceptionally high during joblessness periods. People have no option but to take precarious jobs for mere survival even without social protection.

Lack of clarity. Another issue discussed by Fudge (2006) about contractualization is the ambiguity regarding the employer's information.  The involvement of subcontractors, franchisers, and agencies in the arrangement made it more complex. The legislation was not able to follow organizational adjustments, it failed to distinguish complicated multidimensional and the traditional simple mutual relationship between an employee and employer.  ILO (2011) added that workers hired by a manpower agency but who work for a detached entity are at risk because it is uncertain from the two parties, which are in charge and answerable for a worker's privileges and welfares. Due to weak labor law enforcement, it causes a trap to the workers in triangular or disguised employment, preventing them from protecting their rights. Through these practices, companies avoid their duties and responsibilities as employers.  

No trade union rights. Most contracts of services are not allowed to join a labor union, or if they are allowed, they are afraid to voice out their concerns because their contract can be terminated anytime. Limiting contractual workers from joining a labor union is one way of depriving them of raising their concerns, priorities, grievances, defending their interests, and engaging in negotiations and discussions with the employer. They are being suppressed to exercise their right of freedom of choice. 

Because of distress and uncertainty, workers are discouraged from joining labor unions, aggravating their vulnerability to precarious work arrangements. Workers are also discovered more likely to experience work-related safety and health issues (ILO, 2011). 

The workers have considerable leverage to influence working conditions under potentially dangerous circumstances through a labor union. Unions typically emphasize keeping workers healthy, injury-free, and wellbeing.

No paid leaves. The situation is aggravated because the contractual does not have paid leaves (for vacation and sick leave) but are subject to sanctions for tardiness and absences. They are in a no-work, no-pay arrangement. In particular, women find themselves more disadvantaged as service contractors because they are not granted paid leaves either for childbirth/-care, elderly care, or other domestic responsibilities. 

Lack of security and social protection. Job Orders (JOs) and contractual workers do not enjoy of having benefits such as social protection, 13th-month pay, personnel economic relief allowance (PERA), cost of living allowance (COLA). It is the workers' personal decision to have their social benefits and pay the premiums from their pocket.

Health and safety risks. According to Benach & Muntaner (2007), temporary work employment is linked with poor health and wellbeing situations. Employees are mostly exposed to risky work environments, stressful psychological and social working environments, and work overload. Research also discovered that contractual employees have the tendency not to get proper preparation for the work they do and that regulatory bodies do not regularly monitor their occupational safety and health. 

Quinlan (1999) also added that the employment relationship's precarious nature could poorly affect the worker emotionally and psychologically. Workers are pressured to accept the work, even their wellbeing and security are at risk. Subcontracting is also one way for companies to shift the responsibility by contracting out dangerous jobs, giving precarious workers the burden of more hazardous tasks.  In most countries, bogus self-employed workers do not receive any assistance from employees' compensation or health insurance risking long-term unemployment if they get injured or sick. 

Negative social impacts. The problem in democracy caused the underprivileged to feel powerless, underestimated, and no control over their own lives. This statement can stress that complete powerlessness means ending to be an independent individual. The feeling of restraint of a person to choices and fulfillment fuels the notion of defeat. The youths' frustration in deprived metropolitan areas does not have respectable jobs, causing them not to be hopeful for their future, lives, being, career and leading them to constant fiery rebellions. (ILO, 2011)

Precarious work has remarkably deteriorated the stability of society. The feeling of weakness and fear of adjustment cause workers to lose their confidence from joining labor unions and community organizations. In times of economic uncertainty, the government implements strict economic policies by cutting government spending and reduce social protection, which causes growing social disorder globally. The means of democracy are critical to raising these populations' common issues. This highlights the need for labor unions to gather the interests of the deprived and articulate their demands.  This is why political leaders should promote and point out the importance of self-organization to provide a platform for participation and fight for social inclusion (ILO, 2011).

Unjust. Because the policies are not fair when it comes to benefits for permanent employees and service contractors, even if contractuals work harder than some permanent employees, all the privileges and benefits are only for the latter. Those who work hard should also be appropriately compensated, just like regular employees. The permanent employees get all the bonuses and allowances while the contractuals who have helped them attain their performance ratings get nothing. 

Lower job satisfaction. Precarious workers experience higher perceived job insecurity rates associated with lower job satisfaction, mental health, and life fulfillment. Temporary contracts are perceived to have job insecurity held in various national and sectoral contexts from public sector employees in the United Kingdom (Guest and Conway, 2000).

With the idea of having uncertain and insecure employment, fixed-term employees are more inclined to experience mental fatigue, physical exhaustion, stomach aches, and increased illness (Aronsson et al., 2002). Thus, Warr (1994) included job insecurity as the primary stressor in temporary employment arrangements in his general framework for studying work and mental health. Guest and Conway (2000) added that temporary contracts are linked to lack of work-life balance, job dissatisfaction and more likely not to stay long in the company. Finally, Quinlan et al. (2000) argued that job dissatisfaction results from lack of training, supervision, and limited access to information associated with temporary contracts instead of solely to the work relationship's limited duration.

Why is it happening? 

According to Arthurs (2006), most countries have distributed the responsibility of enforcement and regulation of labor law among the various departments, which caused an unclear and vague platform to air concerns and influence policy. Weak implementation of labor law left those protected workers still feel unsecured. Moreover, ILO (2011) added that labor law enforcement deteriorated because of austerity measures made by the government. This is commonly experienced in the under-funded labor departments.

As per Civil Service Rule, government agencies are allowed to hire service contractors for a short duration only not exceeding six months for "piece work" or intermittent jobs which are peripheral tasks only. However, in reality, they are hired to render services essential to the government agency's functions or similar to those performed by regular employees. This causes the renewal of their contract and extending them for years.  The same goes with the private entities, they terminate the contract before the sixth month to avoid regularization of an employee, but in reality, the worker plays an important role and has a significant contribution to the company. Private organizations practice contract of service employment primarily to increase profits by hiring cheap labor, while for the government is due to limited budget resources.  

Some advantages of contractualization

Organizations hire contractual as a transition to regular work, it has been a good path toward the regularization of employment. This may also open an opportunity for applicants, especially fresh graduates, to earn experience.

Contratualization creates job opportunities for the unemployed especially for the low-skilled workers from the deprived families who can apply to private businesses who only need a high school graduate or college undergrad to do peripheral level tasks.  Most of the time, in government agencies, applicants should have a bachelor's degree, limiting the qualified candidates.

On the employer's part, they hire contractual to cut and avoid spending. It is more economical than maintaining a larger core workforce that would require more generous compensation comprising regular employees with labor entitlements and attaining a lean but means structure and has flexible work arrangements to augment their remaining regular workforces.

According to Osoro (2020), some authorities claim that the practice has considerably helped economic growth. To them, hiring workers on a temporary employment contract helped the jobless.  In the long run, this progresses the status of the economy. Also, contractualization promotes recruitment flexibility for companies. Combining both regular and temporary workers stimulates an efficient and productive environment.

Some key elements to prevent the progression of Contractualization

Paqueo & Orbeta (2016) mentioned that President Duterte and his economic advisors are carefully weighing the effects of ending endo and of restraining other forms of the contract of services. The urgency of ending the endo is an overstatement that could significantly hinder the country's economic growth. At present, the government may find a way and prioritize creating better job opportunities for informal workers, ease up the use of contracts of services, and find ways of giving better-paying jobs, stable sources of income, and tenure security.

ILO (2011) stressed that contractual workers in a company must be restricted only to actual rational requirements during peak seasons for labor demand. No company should be permitted to hire more than the rational limit, like five percent of their human resources. Temporary contracts should be justified and converted to a permanent contract after the probationary period if the work required is part of the company's essential processes. 

Pedersini & Coletto (2010) highlighted that some nations implemented regulations to avoid the abuse of contractual workers, such as:

1)    According to purposes or situations in which a company needs to hire temporary workers.

2)    The employer is restricted only to a certain percentage of the total number of workers.

3)    Certain sectors are not allowed to hire temporary workers.

4)    Regulating the length or quantity of short-term tasks for a particular worker. Some instances are:

Belgium permits the hiring of temporary workers only in the following conditions:

            I.  to work as a substitute for a regular employee;

          II.  for reinforcement during exceptional peak seasons of labor;

         III.  unusual job assignment;

        IV.  and for artistic presentation.

France's regulation is stricter because temporary workers can be hired for the following conditions:

            I.  substitute for absent employees;

          II.  accomplish the momentary upsurge of work; and

         III.  do essentially time-limited jobs.

The temporary work is also restricted to 18-24 months only, or else the contract needs to become permanent.

This is better than any other European nation such as Poland, Romania, and Italy, where the maximum limit is between 24-36 months.

A successful business should treat and rightfully reciprocate to their employees by giving them a just salary, conducive and safe working conditions, concern about their health and wellbeing, and most of all, security of tenure. If a business can provide these benefits to their employees including their contractual, the business will thrive in the long run as it will help boost the business output and decrease unnecessary expenses in the future; here is why. 

1

talTalented workers will be loyal to the company in the long run.  When an employee stays longer in a company, the more they appreciate and comprehend the work processes and the company's cause. It will result in less disruption from new hires learning new duties. The business will save resources for the new recruitment.

3.       Motivated employees produce a high output.  When they are paid more, they will work more diligently to justify their salary. Employees can also focus on their work rather than the dwelling of their unsatisfactory pay. 

4.       When employees give valuable or excellent work, they justify compensating for it. They should receive a reasonable portion in exchange for the value they are giving to the company.

5.       With the best and most talented employees, the output can be significantly higher. Subsequently, the business will need fewer employees, saving the business in net salaries.

Possible Effects of Ending Contractualization

President Duterte believes that ending contractualization causes an imbalance between investors and businesses and will put the Filipino workers in a difficult situation in the long run. However, he stressed that while he remains committed to eliminating the abuse of contractual employment, workers' and employers' interests should healthily co-exist. He highlighted that his goal is to end the exploitation while giving the businesses the freedom to participate in those practices advantageous to both management and the workforce.

The National Economic and Development Authority Secretary Pernia added that the law should benefit both the workers and employers as they submit to the President their proposed adjustments and recommendations to the SOT bill

Some business groups and organizations prompted the President if he endorses the bill, it could lose the confidence of the foreign and local investors, which will result in unemployment and a decline in job opportunities. The Employers Confederation of the Philippines said that the President might have comprehended the bill's adverse effect on the economy. The government only needs to re-enforce the existing labor regulations to combat illegal contractualization and not a new law. (Santos, 2019).

Conclusion

When a business becomes successful and incredibly profitable, the company should ethically and morally also give back to the employees by giving them the security of tenure and increasing their compensation and benefits because they are the ones who accelerate the business. If their pay affects their dependability, somehow, it will also impact their efficiency. This translates that their security and compensation are directly related to the company's success. Their satisfactory compensation supports their own life and influences their decisions. This is also what Stakeholder theory assumes that the success of a business can be measured in the value they give to the majority of their stakeholders, where employees are considered the most significant non-shareholding corporate stakeholding group. (Lynch-Fannon, 2004) 

Contractual workers are usually exempted from most labor protections and risky tasks. Agency employment relationships allow employers to avoid providing benefits as the permanent employers are enjoying. Moreover, the use of temporary and subcontracted labor commonly leads to the abusive use of such contracts that leave workers defenseless to unjustified employment termination, low job security, low wages, and little to no access to social security benefits. Workers' access to trade union rights is limited because they are hired temporarily or subcontracted.  They have legal restrictions to join the trade union and to be a part of a bargaining agreement.

Contractual workers should be treated equally with respect, the use of temporary contracts should not compromise their wages, working conditions, social and labor protection, and rights in joining the collective agreement same as other organization workers. Ethically, this is why permanent employment and direct hiring are much preferred and advantageous to contractual workers. 

The author was once a contractual employee and knew the feeling of being there.  He experienced working until 4 am for a week to finish a report. He experienced working beyond office hours and spending the weekend for his supervisor's interest. He experienced rendering overtime even without pay. He also experienced working a month without salary or allowance because the budget and contract are waiting to be approved.  All of these, he could not complain due to the fear of not getting his contract renewed, he had no voice, he felt so powerless and so abused. 

            The author hopes that whoever works hard should also be appropriately compensated regardless of employment status and that is using the relationship as an ethical base. This is the give-and-take (vice-versa) relationship between the employer and the employee.

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