Would ending Endo contribute to inclusive economic growth? Part (2)
In my post last Oct. 20, 2016, we discussed about the paper written by Dr. Vicente Paqueo and Dr. Aniceto Orbeta on the impact of “ending endo” to inclusive growth.
Endo is the term used by progressive groups to describe the abusive practice of 555 by employers to circumvent the constitutional guarantee of security of tenure. 555 is the 5 month maximum contract given to temporary employees. Shortly after expiration, the contract will be renewed for another 5 months. And the cycle is repeated until the employee is dropped for good.
“ending endo“, is a populist policy being pushed by progressive groups to put to stop what they believed as social injustice. Denying the right of employees to job security. This is one of the issues raised to candidates last presidential elections, where the winning candidate, Rodrigo Duterte, promised to support.
DOLE has since released it’s action plan on how to fulfill the President Duterte’s (PDU30’s) promise:
- Limit the scope to the practice of 555
- 50% reduction for 2016
- 100% by 2017
- No plans for new legislation, but will influence all employers to comply with the present regulations.
- The labor code will be reviewed
In a nutshell, the study by Dr. Vicente Paqueo and Dr. Aniceto Orbeta believed that classifying all temporary employment contracts (TECs) as 555 will be counter productive because some TECs are value adding to employment generation and the economy.
Citing the experience of Europe, the study revealed that Europe once embraced a strict policy against TECs, similar to the Philippines (PH), and this led to jobless economic growth. Only after reforms were initiated that employment rate increased, and inclusive economic growth were felt.
The study also suggested that based on the survey they conducted, temporary employees interviewed in some parts of PH, were satisfied since most economic benefits were given, sans the security of tenure.
Furthermore, the practice of TECs actually helped temporary employees gain permanent employment as a result of longer assimilation to the job.
On the employer side, the study revealed that they opted to practice TEC and 555 to (1) cope to the changing business landscape (2) avoid the cost of maintaining regular employees and (3) avoid litigation cost associated to removing regular employees.
READ: Would Ending Endo Contribute To Inclusive Economic Growth? Part (1)
Reactions from the experts
Emmanuel F. Esguerra, Ph.D
Professor of Economics at UPSE, and acting Socia-Economic Planning Secretary General of NEDA from Feb. 1 – June 30, 2016.
Dr. Esguerra agreed with the economic reasons pointed out by the study since the business landscape has evolved. The present non flexible probationary period affects the viability of some companies, thus, they resort to TEC or ending the employment contract before regularization.
Since flexibility in the labor market will stay, Dr. Esguerra believed that the energy of stakeholders is best spent in developing a “risk sharing” mechanism. The concept should be able to protect the needs of the labor in a volatile business environment.
Ma. Nieves R. Confessor
Core faculty member of the Asian Institute of Management (AIM) and former Secretary of DOLE.
Prof. Confessor believed that the present form of the labor code is anchored on the import substitution policy, passed to address the concerns of PH labor landscape during the 70s. Since then, much has changed.
She also believed that focus should move from job security to income security. Since the notion of contractualization is part of the changing landscape of the global economy, the revenue of local businesses is dependent on cyclical demands, financial volatility and global risks. By flagging all forms of TEC as endo, the country will fail to appreciate and accept the new normal.
Prof. Confessor further believed that the concern about contractualization should not be focused not on permanent employment, but on risk sharing. The government, therefore, should take the lead in looking at the best practices of the world in protecting both employees and employers in facing an uncertain world.
Atty. Raul Angeles
Executive Director of the Board of Investments (BOI) of the Dept. of Trade and Industry (DTI).
DTI believed that the issue on contractualization can be better addressed through series of consultations with various stakeholders, thus, DTI and DOLE initiated such meetings with the end goal of enforcing employees rights and benefits which are provided in the Labor Code and DO No. 18-A.
Though DTI took note the study, the government will not condone the “endo practice” as a coping mechanism of employers to avoid costly mandates and labor market inflexibilities. Endo practice remains prohibited under DO No. 18-A, Series of 2011. although we support legitimate labor outsourcing of independent service contract as provided for under the same DO.
To balance business interest and employee rights, DTI came-up with this WIN-WIN proposal.
- Workers are hired by legitimate labor outsourcing Service Providers (SP) as approved by DO 18-A
- Workers are hired as regulars, with full benefits such as leave credits, 13th month, retirement, SSS, Philhealth, etc.
- Workers get deployed or re-deployed when needed, stays as regular status with SP. If no other client, workers enjoy retirement or separation pay, like a usual regular worker.
- Companies have flexibility to hire workers as regular or outsource due to seasonality or specific functions, so companies can focus on building the business.
- What is crucial is the compliance of service providers in giving full benefits to the workers. Due diligence needed if SP pays its workers full benefits. Principal companies should black list erring SPs because they can also be impleaded. SP associations should also police their ranks.
DTI claims that the proposal is different with the current practice because:
- The regular worker with full benefits has permanent status (vs current, co-terminus with project). Thus the worker must be redeployed to another principal company if the former principal company cuts the contract. If the worker cannot be redeployed, he/she can enjoy a retirement or separation pay like a regular worker in a company whichever is applicable.
- Retirement benefits or separation will be mandatory (vs current where only some do this depending on the principals. Normally, big companies would do this and pay little more for their retirement fund).
- Workers tenure is secured by the SP.
Alex V. Avila
Assistant Secretary, Department of Labor and Employment (DOLE)
ASec. Avila, welcomed the result of the study, and shared how the present administration will end endo. While they’re presently engaging all stakeholders to review relevant department orders and the labor code itself, enforcement of existing laws will continue.
Given the suggestion of DTI, do you think this will be palatable to both employer and labor groups?
This post is supported by a writing grant from the Philippine Center for Investigative Journalism (PCIJ) .