Assessment of Labor recommendations in Arangkada

PART 4: GENERAL BUSINESS ENVIRONMENT – Labor

COMMENTS BY:

            VICENTE LEOGARDO, Jr.

Director General, Employers’ Confederation of the Philippines (ECOP)

A.

Modernize the 36-year old Labor Code to end the disadvantage it has created for the Philippines with regional competitors. Areas for possible amendment include allowing night work for women, making it easier to dismiss employees for sound business reasons and poor performance, non-diminution of wages and revising rules on labor contracting.

Rating: 4 stars (started)

1.   “Modernizing” the Labor Code is easier said than done.

The Labor Code is divided into seven books, each dealing with different and diverse fields of labor law.  Since its promulgation in 1974 as Presidential Decree No. 442, it has been amended 58 times, the latest  on June 21, 2011[1]. At the same time, new labor and related laws on specific  subjects were enacted independent of the Labor  Code,[2] which may need review and reintegration.  Many of the concepts and institutions introduced by the Labor Code which were developmental and employment orientated such as Book One, Pre-Employment, and Book Two, Human Resources Development, have stood the test of time and would require updating rather than major overhaul.

However, a number of the regulatory provisions of the Labor Code has been overtaken by the rapid changes that are taking place in the global marketplace and have become archaic and inflexible in terms of providing the environment that would enable enterprises to flourish and compete in the face of relentless globalization. Aggravating the situation is the heavy populist orientation in the interpretation and application of its provisions through policy, rules and case law arising from the constitutional mandate to afford protection to workers in the context of social justice. 

2.   Congressional Commissions

Since 1997, two Congressional Commissions were successively created for the purpose of an omnibus review and amendment of the Labor Code.

The Congressional Commission on Labor.[3]

The first one After conducting a series of public consultations and 29 standing committee hearings, the Commission completed its report and recommendations entitled Human Capital in the Emerging Economy in February 2001 and which were submitted to Congress and to the President.  This Report was revolutionary in character as it correctly analyzed the weaknesses of the labor market and recommended sweeping reforms to correct its imperfections to make both business and workers competitive and productive.  Unfortunately its recommendations did not appeal to the populists and leftists; and so they were never translated into legislation.

The COCLE

After the term of the Congressional Commission lapsed, Congress, through a bilateral resolution, created Congressional Oversight on Labor and Employment which produced a draft containing an omnibus amendment of the entire Labor Code.

COCLE did not adopt the recommendations of the Congressional Commission on Labor.  Instead, it retained the limitations and rigidities of the Labor Code. For  example it made contracting even more constrictive; it substantially increased the protection and benefits of employed labor without correlation to their effects on productivity, competitiveness and job generation.

The COCLE version was incorporated into separate bills filed in the Senate and House Committees of Labor, respectively and all these bills were pending deliberations until the election of a new Congress put a stop to the deliberations. 

DOLE Initiative

A fresh attempt has been initiated by DOLE Secretary Lina D. Baldoz this year to amend the Labor Code through the Tripartite Industrial Peace Council.  To this end, she issued Administrative Order No. 375, Series of 2011 organizing a Tripartite Labor Code Reform Project, 26 August 2011.

3.   Specific comments on the suggested “Areas for possible amendment. . .”

a)  On allowing night work for women.  This has already been done through a recent amendment.  R. A. No. 10151 was approved on June 21, 2011.[4]  It inserts a new Chapter V, “Employment of Night Workers” in Title III, Working Conditions for Special Group of Workers of Book III, Conditions of Employment, in the Labor Code.

The law covers all persons employed at night during a period of not less than 7 consecutive hours including the interval from midnight to five o’clock in the morning to be determined by the DOLE Secretary after consulting the workers’ representatives/labor organizations and employers.  It excepts those employed in agriculture, stock raising, fishing, maritime transport and inland navigation. 

At the same time it repeals Articles 130 and 131 of the Labor Code on night-work prohibition for women.  

Any violation of the Act and its implementing rules and regulations shall be punished with:

o   Fine of P30,000,00 to P50,000.00; or

o   Imprisonment of not less than six months; or

o   Both such fine or imprisonment at the discretion of the court

The implementing rules are now being formulated by the Tripartite Industrial Peace Council.

b)    On security of tenure. Instead of making it easier to dismiss employees for sound business reasons and poor performance, two pending bills in the Senate[5] and the House of Representatives[6] do the opposite. 

Senate Bill No. 858 repeals Art. 280 (Regular and Casual Employment) and Art.281 (Probationary Employment)  of the Labor Code and replaces them with its own provisions applied separately from the Code. It changes the existing legal classification of regular and non-regular employment into “work arrangements” based on “contracts for indefinite period” and “contracts for definite period.”[7] 

Contracts for definite period can be renewed only once; total duration of the contract, including renewal, not to exceed 2 years.

House Bill No. 4853 is a consolidation of 8 security of tenure bills that were heard on Dec. 8, 2010 before the House Committee on Labor and Employment, was approved and forwarded to the Committee on Rules for scheduling of plenary discussion by the House. 

It virtually outlaws contracting out in any form[8] and transforms all types of temporary employment (non-regular employment) into perpetual employment.[9]  

Penalties for violations:

o   Principal and subcontractor solidarily liable to indemnify each subcontracted employee not less than P50,000.00.

o   Any employer who deliberately categorizes or otherwise treats regular employees to be a non-regular employee is liable to indemnify each misclassified employee no less than P50,000.00 

c)  On revising rules on labor contracting. Department Order No. 18-A, series of 2011 implementing Articles 106 to 109 of the Labor Code replaced D. O. No. 18-02 and took effect on December 5, 2011. 

In essence, the new rules require employers to contract out work to independent contractors duly registered with the DOLE.  Registration of contractors is mandatory as a condition for engaging in service contracting and upon compliance with a number of requirements such as minimum capitalization of not less than P3,000,000.00, proof of financial capacity to pay the wages and other benefits of the workers in every service contract, using the Financial Capacity Formula in government contracts. 

Labor contracting is prohibited as well as contracting out services not done in good faith and based upon the exigencies of business.  Violation of these prohibitions as well as the prescribed rights of the contractor employees renders the principal the direct employer of the contractor employees.

B.

Rationalize holidays to approach ASEAN average of 15 paid days without reducing income of full-time employees and increasing income of casual workers

Rating: two stars (backward/regression)

To be inclusive, it is submitted that the grant of mandated paid leaves under existing laws should also be included in reckoning the impact on productivity and cost of doing business. 

a)    Pursuant to R. A. No. 9492,[10] there are two types of national non-working days in the country that are particularly relevant to wage and salary workers and their employers: regular holidays and special days. Regular holidays are paid non-working days while special days are unpaid non-working days that particularly apply to daily-paid wage workers based on the principle of no-work, no-pay.

Under this law, there are 12 paid regular holidays and 3 special days or a total of 15 national non-working days.  These non-working days are enumerated below.

b)   At the same time, under Presidential Decree No. 1083 and Presidential Proclamation No. 1198, the following three (3) paid Muslim holidays as shown in Table 2 are officially observed in the provinces of Basilan, Lanao del Norte, Maguindanao, North Cotabato, Sultan Kudarat, Sulu, Tawi-Tawi, Zamboanga del Norte and Zamboanga del Sur and in the cities of Cotabato, Iligan, Marawi, Pagadian and Zamboanga and such other Muslim provinces and cities as may be created.

Both Muslims and Christians working within the Muslim areas may not report during these holidays.  Muslim employees working outside of the Muslim provinces and cities are to be excused from work without diminution of salary or wages.

Table 2. Islamic Holidays

c)    The following days are also proclaimed as additional special days:

d)   Thus, there are in effect, a total of eighteen (18) national non-working days in the Philippines, twelve (12) of which are paid holidays and six (6) special days, as well as three (3) Muslim holidays.

e)    Aside from holidays and special days there are also paid leaves to which male and female wage and salary workers are entitled as provided by law:

f)     Table 5 shows the number of working days left in a year if all the national non-working days, corresponding paid leaves for male and female workers as well as the mandatory rest day per week to which all workers are entitled were to be added on an annual basis:

No to Additional Special Days and Paid Holidays

Recently deliberated before Congress  were 14  bills declaring nonworking public holidays in specific municipalities, cities and provinces.  ECOP expressed to Congress that it was not in favor of these bills, as any further reduction in the number of working days through additional non-working days or holidays would lead to the further deterioration of labor productivity and competitiveness as well as increased cost of doing business. Employers who find it necessary to operate on such holidays will have to pay an additional 30% of premium pay over and above the regular wage of workers for the first eight hours of work.

ECOP recommended that these dates be celebrated as special but working days instead of non-working holidays.

C.

In order to increase competitiveness, continue to allow firms providing same day services to overseas clients to provide employees, who have work on Philippine holidays, substitute days off with pay in lieu of paying holiday premium.

Rating: 6 stars (Completed/ongoing)

The above arrangement is covered by DOLE Department Advisory No. 2, Series of 2009, Guidelines on the Adoption of Flexible Work Arrangements.[11]  The Advisory enumerates the following flexible work arrangements[12] which may be considered, among others:

a)    Compressed Workweek refers to one where the normal workweek is reduced to less than six (6) days but the total number of work-hours of 48 hours per week shall remain. The normal workday is increased to more than eight hours but not to exceed twelve hours, without corresponding overtime premium. The concept can be adjusted accordingly depending on the normal workweek of the company pursuant to the provisions of Department Advisory No. 02, series of 2004, dated 2 December 2004.[13]

b)    Reduction of Workdays refers to one where the normal workdays per week are reduced but should not last for more than six months.

c)    Rotation of Workers refers to one where the employees are rotated or alternately provided work within the workweek.

d)    Forced Leave refers to one where the employees are required to go on leave for several days or weeks utilizing their leave credits if there are any.

e)    Broken-time schedule refers to one where the work schedule is not continuous but the work-hours within the day or week remain.

f)   Flexi-holidays schedule refers to one where the employees agree to avail the holidays at some other days provided there is no diminution of existing benefits as a result of such arrangement. 

D.

Make wage increases consistent with inflation and productivity. Redefine the basis for the minimum wage to take into account small families and more than one wage earner. Create industry specific minimum wages.

Rating: 4 stars (started)

1.   Introduction of the Two-Tiered Wage System by the National Wages and Productivity Commission. Basically, the two-tiered wage system consists of a mandatory regional floor wage as the first tier, and a productivity based pay for adjusting wages above the floor wage as the second tier.

2.   Background

The floor wage rationale is not new as its conceptual and operational framework is  embodied in R. A. No. 6727[14] and existing NWPC policy. The floor wage rationale can be clearly inferred from the standard prescribed by Art. 124 of the Labor Code, as amended by R. A. No. 6727.[15]

In the determination of such “regional minimum wage,” the regional boards shall consider among other relevant factors the ten enumerated factors in Art. 124 of the Labor Code.[16]

As far back in 1994, the NWPC formalized as policy the safety net concept of minimum wage fixing, based upon the ILO standard that statutory minimum wages constitute a safety net to protect the lowest paid of workers against the imperfections of the labor market as well as against possible abuses and exploitation when labor supply far exceeds demand and collective bargaining is weak.

Prior to the introduction of the two-tiered wage system, wage fixing had to address two problems: one was operational in nature and the other, the interplay of populist politics.

In so far as the operational aspect was concerned, none of the standards/criteria has been integrated into a methodology that would operationalize the prescribed concept and policy of minimum wage fixing. Of the ten standards, the major criterion used by the wage boards is the CPI, the derived inflation rate and its effect on the cost of living.

As a result, wage increases granted by the wage boards are usually tied to erosion caused by inflation plus an additional amount for political acceptability.  Thus, contrary to the intent and policy of the law, minimum wage fixing deteriorated into a politicized non-productivity based de facto wage indexation.  

In 2003, the National Statistics Coordination Board unveiled a simple methodology correlating the minimum wage rates vis-à-vis the poverty threshold level in each region by deriving per capita poverty threshold on a daily, monthly and annual basis, and multiplying the derived amounts with the census-based size of the household.

As the poverty threshold appears to be the most reliable indicator to correlate adequacy of family income with economic feasibility, ECOP advocated that the NWPC adopt this methodology and eventually, the NWPC did so in the two-tiered wage system.

3.   Mechanics of the two-tiered wage system

a)    First tier 

The regional floor wage shall be estimated using the regional poverty threshold estimates as a major reference data, together with the criteria for minimum wage determination. The floor wage shall:

o   The lowest wage level in the region;

o   Not be lower than the regional poverty threshold estimated by the NSCB;

o   Intended to protect the incomes of the most vulnerable workers such as the unskilled and news entrants who cannot bargain for themselves beyond the floor wage. New entrants shall be defined as first-time entrants to the labor market;

o   Not to be equated to the living wage; not given across-the-board nor shall it adopt a salary ceiling approach.

b)    Second tier

o   Be issued in the form of Wage Advisories (non-mandatory) to guide enterprises in the design and implementation of productivity based pay systems as a means of adjusting wages above the floor wage. The Advisories shall recommend a range of productivity/performance-based increases (e.g. based on sales, market share, profits, quality, delivery time, turnaround time, etc) given the economic outlook for the region/sector or industry.

o   The application of wage guidelines/advisories will be at firm level.

E.

Create millions of new jobs, many of higher quality, through increased investment. Reduce the annual shortage of jobs and give the Filipinos better choices of domestic and overseas employment.  

Rating: two stars (backward/regression)

Jobless Growth

Jobless growth continues to persist. Based on the July 2011 Labor Force Survey, while the labor force increased by 972,000 on a year-to-year basis, the economy created only 870,000 jobs during the same period.

The charts below show the pattern of jobless growth after the Asian Financial Crisis in 1997-1998.  This pattern heavily impacts on poverty reduction goals.

¹Due to change in definition of unemployment in 2005, there is a break in computation of
                         labor force beginning 2006

Shrinking Formal Sector

Likewise, the formal sector establishments and their employment continued the shrinking pattern that began after the Asian Financial Crisis in 1997-1998.

Overview of the Labor Market:

¹Includes 3,025,000,000 employees in government and government-owned or controlled corporations

²Total employed in 777,687 registered establishments

₃Self-employed without any paid employee: 10,858,000; worked for informal establishments including home-workers, jeepney,
  tricycle and pedicab drivers: 8,865,703; employer in own family-operated farm or business:1,394,000; unpaid family workers:   
  4,157,000; household workers: 1,926,000

Source: 2010 Annual Survey of Philippine Business and Industry; 2010 Labor Force Surveys, NSO; Current Labor Statistics, Oct. 2010, BLES

Investments and higher levels of sustained inclusive growth

There is a positive correlation between employment and growth. Reduction of chronic unemployment and underemployment is not possible without higher levels of sustained inclusive growth of 7% annually. Sustained growth can be attained only through higher domestic savings mobilization together with increased flow of FDI.