Job contractualization, often referred to as contractual employment or temporary employment, is a

labor arrangement where an employee is hired for a specific period or task, usually under a fixed-term
contract. This contrasts with permanent or regular employment, where the employment relationship is
ongoing and not limited by a specific duration.

The Labor Code of 1974 and Article 281 allow companies to hire workers on six-month contracts.
Although these contracts offer some benefits, they don't provide long-term employee benefits. The idea
behind this is to allow employers to observe if the employees meet the job requirements during a
probationary period. This provision was created to address challenges companies faced under the
existing labor code, where firing an employee immediately for misconduct wasn't straightforward. The
probationary period gives employers time to assess employees, and it also allows workers to learn their
job. Article 281, implemented during martial law, still applies today, and is associated with the
controversial practice of ENDO-contracting, where companies exploit short-term contracts to avoid
certain labor obligations.

Pros of Job Contractualization:

Flexibility for Employers: Contractualization provides employers with flexibility in managing

their workforce based on project needs, seasonal demand, or specific tasks. This can be
particularly beneficial for industries with fluctuating workloads.

Cost Management: Contractual employees often do not receive the same benefits as
permanent employees, such as health insurance, retirement plans, or paid leave. This can help
employers manage labor costs more effectively.

Trial Periods: Employers can use contractual arrangements as a trial period to assess the skills
and suitability of an employee before considering them for a permanent position.

Adaptability: In rapidly changing industries, where skills requirements may vary,

contractualization allows companies to adapt quickly to new needs by bringing in specialized
skills for a limited time.

Cons of Job Contractualization:

Job Insecurity: Contractual employees often face job insecurity due to the temporary nature of
their employment. This lack of job stability can lead to stress and negatively impact the overall
well-being of workers.

Limited Benefits: Contractual employees typically receive fewer benefits compared to

permanent staff, such as health care, retirement plans, and paid time off. This can result in a
lower overall compensation package.

Reduced Employee Loyalty: Contractual workers may be less committed to the organization
since their relationship is temporary. This can impact morale and organizational culture.
 Potential for Abuse: In some cases, employers may exploit contractual arrangements to avoid
providing benefits or job security, leading to unfair labor practices.

Skewed Power Dynamics: Contractual employees may feel less empowered to voice concerns
or negotiate for better working conditions due to their temporary status.

Regular Employee V.S Contractual Employee

Regular employees are hired full-time and receive benefits after a 6-month probationary period. They
are entitled to statutory benefits such as:

 paid annual leave,

 parental leave,
 worker’s compensation insurance,
 and paid sick leave.

Additionally, employers must pay a monthly contribution to the Social Security System (SSS) that
includes the benefits of maternity pay, sickness pay, pensions, disability benefits, salary loans, life
insurance, and funeral grants. Regular and private employees are entitled to health insurance programs
that are 3.5% of the employee’s basic salary.

Contract employees have benefits but are not permanent employees. They must be hired to perform
work for a specific project or task and are not entitled to any specific benefits. Any benefits are
determined by the contractual agreement between the business and the contractor.

Insights:

- State workers in the Philippines, led by groups like KALAKON and COURAGE, protested outside
the Department of Budget Management (DBM) in Manila, demanding job regularization for over
700,000 contractual workers. They opposed policies like Joint Circular No. 2 S. 2020, fearing it
would make them sub-contractors through third-party agencies. The protesters criticized
administration policies like devolution and privatization, fearing mass layoffs. They urged the
government to fill vacant positions (169,688) for regularization, as promised by President
Ferdinand "Bongbong" Marcos Jr. They also sought salary increases, respect for union rights,
and action on International Labor Organization recommendations. The protesters hope for
positive change amid rising contractual government workers.

https://newsinfo.inquirer.net/1747546/protesters-demand-regularization-of-700000-government-
workers
Additional insights:

1. Herbert Docena argues that the practice of contractualization in the Philippines, where workers
are hired on short-term contracts without receiving full benefits, is not beneficial for Filipinos,
despite claims by business groups. These groups argue that contractualization helps companies
make more profits, hire more workers, and boost economic growth.

However, Docena disagrees, saying that contractualization allows companies to pay workers less
for the same work, hindering economic development. He argues that this harms the interests of
both workers and all Filipinos, including the capitalists themselves.

Additionally, Docena contends that contractualization weakens the ability of workers to resist
exploitation, organize collectively, and advocate for a better society. In simpler terms, he
believes that the practice hurts everyone in the long run, including the very businesses that
claim it benefits them.
https://www.rappler.com/voices/thought-leaders/147934-docena-why-contractualization-bad-
for-everyone/

2. The Makati Business Club (MBC) is cautioning against completely stopping contractual
employment in the Philippines. They acknowledge that abuses in contractualization need to be
addressed, but argue that certain industries, like construction and business processing
outsourcing (BPO), heavily rely on contracts for specific projects. The MBC emphasizes that
instead of condemning contractualization entirely, the focus should be on preventing abuses in
its application.
https://business.inquirer.net/210173/contractualization-legal-abused

3. In 2018, Senator Joel Villanueva spoke about Senate Bill No. 1826, also known as the Security of
Tenure Bill, addressing issues like "endo" and labor-only contracting in the Philippines. He
highlighted the urgency of passing a law to stop abusive work practices, emphasizing the
negative impact on over 1.9 million private sector workers. The bill aims to end "endo," a
practice where workers are continuously employed on short-term contracts, leaving them
without job security and benefits.

Villanueva explained the challenges faced by non-regular workers, including being stuck in
poverty due to constant changes in employment and receiving only minimum wage with
deductions for uniforms and cooperative shares. He lamented the weak enforcement of
regularization orders by the Department of Labor and Employment (DOLE).

The senator clarified that ending these practices is not anti-business, stating that providing
workers with certainty and social protection makes them more efficient and productive. He
referred to a study in 13 European countries, showing a positive relationship between worker
tenure and productivity.
 The proposed Security of Tenure Bill has four key features:
1. Prohibiting labor-only contracting to protect workers' security of tenure.
2. Allowing only independent, licensed, and specialized job contracting, with tighter
rules on probationary employees.
3. Establishing a Transition Support Program (TSP) for workers to receive skills training
and financial assistance during job transitions.
4. Providing clear policies for the Department of Labor and Employment (DOLE) and
employers.

Villanueva emphasized that the bill is pro-labor, pro-business, and pro-Filipino, promoting
respect for workers' dignity and caring for businesses, whether large or small.

https://legacy.senate.gov.ph/press_release/2018/0807_villanueva1.asp

References:

https://digitalcommons.salve.edu/cgi/viewcontent.cgi?article=1144&context=pell_theses#:~:text=ENDO
%2Dcontracting%2Fcontractualization%20refers%20to,the%20intention%20to%20increase%20profits.