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All You Need to Know About Contractualization

There are many questions and misconceptions that need to be cleared up when it comes to contractualization. Here are the answers to some of these queries:

What is

Contractualization refers to the practice of hiring employees who would render their services for a finite amount of time, usually, for a few months only. This is a system that has been practiced and used by many companies, including large corporations. These enterprises often utilize this arrangement in order to maintain their revenues up.

What is Endo?

In the previous presidential race, the issue of contractualization was put under the spotlight when it was discussed during the final presidential debate that was held on April 24, 2016.

The five candidates, including current president Rodrigo Duterte, have all expressed their opposition against “endo.” Endo means end of contract; it is also sometimes referred to as “5-5-5” practice. Why? This is because some employers hire workers and then terminate their contracts after five months, to avoid regularizing them – something that is mandated by the law. According to the law, an employee who has been working for a company for six months should be regularized unless the individual is not eligible to be a regular employee.

Regular employees are entitled to benefits and bonuses. However, through endo, employees are stripped of these privileges. These benefits include:

  • PhilHealth
  • SSS
  • Pag-IBIG
  • Home Development and Mutual Fund (HDMF)
  • 13th month pay
  • Paid sick leaves
  • Paid vacation leaves
  • Service incentive leave
  • Meal and rest periods
  • Housing and housing plans
  • Expense account
  • Company-sponsored vehicle
  • Educational assistance

Endo has received several criticisms from many people, particularly workers; in spite of this, it is important to note that 5-5-5 is in no way synonymous to contractualization unlike what some of you might think. Endo or end of contract is a practice that utilizes contractualization to abuse workers instead of valuing their contribution to different businesses.

Why Companies Practice Contractualization?

There are many legal forms of contractualization, such as the subcontracting of Filipino workers abroad or to foreign countries like Hong Kong and Singapore. Laws have been established to allow this system to run under certain industries like the car manufacturing, agriculture, and business process outsourcing (BPO) sectors in the local scene.

There are a number of conglomerates in the country, for example SM Investments Corporation, that would legally employ workers under this system for seasonal events or special occasions like Christmas and school openings.

Furthermore, companies are choosing to practice this structure because they receive a lot of benefits and these include:

  • Being able to adjust quickly and efficiently when their workload changes
  • Saving them the time and money from hiring full-time employees
  • Improving your staff’s work by hiring contractual employees who are highly skilled and could impart their knowledge to the internal staff

Can Local Firms Survive Without Contractualization?

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.

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.

However, there are many firms such as Human Nature that suggest that not many businesspeople believe instigating such policies is a good idea. They think that it would open opportunities for some people to take advantage of various businesses, knowing that they cannot be fired.

Moreover, there is no assurance that all corporations and organizations in the Philippines will be able to survive without hiring temporary workers; and without this guarantee, there is no way to tell if the market will thrive at all.

Will No-Contractualization Lead to Negative Economics?

The current Government has pledged to work on removing the entire system of contractualization in the Philippine Labor law, in order to end the abuse some corporations are participating in.

They are also working to end it in order to help workers get the benefits that being a regular employee entails. It is understandable for all political parties to want to get rid of endo for noble reasons however, they say that “the road to hell is paved with good intentions” and in this case, getting rid of contractualization might result into a disaster.

There are two main reasons as to why establishing a no-contractualization rule will cause negative economics:

  • First, putting a deadline to this system will result into the closing down of numerous business establishments across the country. This is because they simply do not have enough money to pay for the financial trappings that come hand in hand with regular-status employment.
  • Second, would-be investors will likely refuse to establish their businesses here because the new law would mean that they will not be able to develop profits from their own capital.


Contractualization in the Future

According to Bernardo Villegas, Centre for Research and Communication research director and UA&P co-founder, a win-win situation – where both employers and workers will be valued – can be established. He says a better path in contractualization can be made through the help of experienced work cooperatives like Asiapro.

In Asiapro, non-regularized employees still receive certain benefits that usually, only regular employees enjoy. In this regard, workers do not have to worry about being abused by the system. To learn more about Asiapro and our quest to help our member-owners, click here.