PUNZALAN, John Emil C.

HUMSS 174
The Dilemma of Contractualization: Economy or People?

Contractualization broadly refers to the practice of firms outsourcing the hiring of workers to

other firms or agencies. Contractualization have various forms and there are some legally allowed by the

law such as subcontracting for overseas Filipino workers (OFWs). The law also allows subcontracting for

industries that are temporary or project-based by nature, including business process outsourcing (BPO),

car manufacturing, and agriculture. These legal forms of contractualization are necessary and beneficial

to the Philippines who are trying to prop up its manufacturing industry. However, the issue lies however

with the unfair labor practices of “end of contract1,” more commonly known as endo contractualization,

and deceptive contractorship 2 . These are the contractualization practices that people seek the

government to prohibit and ban.

The trend of contractualization began began in the 1970s with the establishment of the country's

first export processing zones under President Ferdinand Marcos. He instituted a decree that allowed the

recruitment of temporary workers (Schnabel, 2016)3. To this day it is estimated that seven out of ten

companies are engaged in contractualization. Even more alarming is that big players are in this game. The

Philippine government, the biggest single employer, hires contractual employees through service bureaus

to evade the law of attrition in hiring of employees. Under the cloak of legal niceties in order to evade the

Civil Service law, it hires personnel under such categories as co-terminus, casuals, temporary

appointments or job order employees. In the 1990s, the largest food and beverage company, San Miguel

Corporation (SMC), employed about 39,000 workers but today is has only about 20,000 workforce and

out of this figure, there only about 1,000 regular employees left. The rest, of course, are hired as

1
End of Contract refers to the labor practice of hiring workers for only five months and replacing them with a new
batch of workers also for five months, to evade the law requiring regularization after six months of service
2
It is done by hiring a person and making him/her work as an employee but treating him/her as a “contractor.” In
the law, a contractor is not an employee and therefore not covered by the Labor Code.
3
Schnabel, C. (2016). Can PH firms thrive without contractualization?.
contractual workers. The country’s flag carrier, Philippine Airline s (PAL), used to employ about 12,700

employees including 450 pilots and 1,300 cabin crews in January 2005. With the termination of about

7,700 ground crew even if the labor dispute has yet to be settled, the company has only about 5,000

regular workforce left. SM, the country’s biggest chain of shopping malls, nine out of ten workers, majority

of whom are salesladies who stand to attend customers the whole day’s shift, are hired as contractual

employees through an agency or by a concessionaire. And worse, these contractual employees are not

paid the minimum wage as mandated by law. This move is resorted to in order to save labor cost of

production and prevent the regularization of workers. And, if this trend is sustained, workers will wake up

one day to find that there are no more regulars in their ranks (Antiga, 2016)4.

Completely eradicating all forms of contractualization, however, have economic consequences

particularly in firms’ hiring decisions and the employment level, and could actually undermine the goal of

achieving, rapid, inclusive, and sustained economic growth (Paqueo and Orbeta, 2016) 5 . Also, it will

increase the firms’ production costs by 30-40%. On the other hand, the abuse of contractualization by

firms must also be weighed in and its infringement of the rights of workers cannot be dismissed outright.

In solving this dilemma of contractualization trend, there are two possible approaches. First, since

the total and immediate prohibition of contractualization will result to catastrophic consequences, the

government may implement the removal of contractualization in stages, starting off with major and large

firms. As a pro-active effort to the anticipated consequences of the gradual removal of contractualization,

the government must ensure stable macroeconomic fundamentals and lower costs for utilities,

transportation, corporate income tax, and other expenditures to compensate with the increased

wage/labor costs. On the other hand, the other approach is the establishment of workers’ cooperative

4
Antiga, R. (2016). Tell it to Sun.Star: Problem of contractualization.
5
Paqueo, V. and Orbeta, A. (2016). Beware of the “End of Contractualization!” Battle Cry. Philippine Institute for
Development Studies Discussion Paper 2016-55
nationwide. Workers who cannot be hired full-time by any company are organized as workers'

cooperatives which are the ones who employ the workers 12 months a year and serve the needs of firms

whose demand for workers is seasonal, i.e. banana and pineapple plantations, commercial centers,

restaurants, etc. The social security and medical benefits for these workers are then paid for by the

cooperatives. However, in my belief and analysis of the contractualization trend, the latter approach is

more feasible than the former.