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Will ending

contractualization be bad
for business?
By: Anna Meloto-Wilk - @inquirerdotnet
Philippine Daily Inquirer / 01:01 AM May 08, 2017

Promising to end contractualization or 5-6 month work contracts in his first 100 days in
office was a hallmark of President Rodrigo Duterte’s campaign.

So much so that during his first few days as President, he immediately gave instructions
to the Department of Labor and Employment to abolish “endo” or end-contract as it is
more popularly known.

There was an almost immediate and widespread reaction from the business sector.

Many asserted that ending contractualization will spell disaster for business and the
Philippine economy.

Just last year, the Philippine Institute for Development Studies released a paper
authored by Vicente Paqueo and Aniceto Orbeta issuing grave warnings about how
ending temporary employment contracts or TECs will not only hurt business but argued
that it is not even favored by workers affected by it.

But are these doom and gloom warnings really warranted? Will ending
contractualization and providing more secure and permanent jobs to a significant
percentage of the Philippine labor sector spell disaster for our economy?

For the purposes of this article, we are using the term contractualization or “endo” to
mean work that is limited to 5-6 months contracts that do not provide statutory benefits
and security of tenure.
Proponents of TECs argue that contractualization is necessary because not all work is
needed year round as in the case of seasonal workers in agriculture or when there is a
temporary surge in business which requires additional workers.

Although it is true that there are types of work that are seasonal, what we are seeing in
the Philippine business context is that this argument is being applied even in positions
that are needed all year round.

When our company, Human Nature, first ventured into retail distribution, we were
faced with the choice of employing manpower agencies or hiring our own

We quickly learned that in this industry, merchandisers are only on five- month
contracts, after which they are let go and re-hired or let go altogether to find work
somewhere else.

Given the existing practices in this industry, we decided to hire our own merchandisers
knowing that they are integral to the success of our retail business.

Because our merchandisers are regularized, we are able to train them better. We don’t
have to incur the cost of training new workers every five months which impacts our
business positively.

They are also able to build better relationships with our retail partners and are more
confident to make decisions on the floor because of their experience.

Another industry where we believe that contractualization should be limited and more
strictly regulated is in the manufacturing sector.

When we first opened our cosmetic manufacturing facility, we were surprised to find
out that many of our applicants had been contractual for years. Peds was one of our
most experienced production workers operating complicated machines, measuring raw
materials and following detailed and quite complex manufacturing instructions on his
Prior to joining Human Nature, he had been on six-month contracts for the past 14
years with other companies without getting regularized or receiving any of the basic

His job, like many other jobs in the manufacturing sector, is needed all year round and
requires technical skills and experience.

Without him and the likes of him, we wouldn’t have the quality products that are the
lifeblood of the company and it is only right that we show appreciation for the value
that he provides.

Common arguments
High cost of regularizing employees. Many from the anti-endo camp argue that many
businesses will die if government mandates that contractualization be abolished.

They say it will hit the small and medium sized enterprises and many of them will not
be able to afford regularizing employees.

First of all, truly viable and sustainable businesses should have a clear path
towardregularization with the costs of full time employment factored into their
operating expenses.

Salaries and taxes should be part of operating expenses and any business person worth
his salt should be able to factor in those costs and still be profitable over time.

Low productivity of regularized employees. Another common argument against

regularizing staff, which I often hear from business owners, is that employees turn lazy
and only deliver the bare minimum once they are regularized.

Even if we base these conclusions on human weakness, there are ways to ensure
employee performance.

What has worked really well for us is having an evolved and involved human resources
I say evolved and involved because they aren’t just concerned with the usual HR
functions such as compensation and benefits but have extended their services to
teaching life skills and providing counseling services to our people.

As a social enterprise with a majority of the staff coming from disadvantaged

backgrounds, Human Nature currently has 10 full time HR staff for our 433 employees,
which gives us a ratio more than double that of the setup of a traditional for-profit
businesses. Some might argue this is not cost effective but we have seen the investment
pay off in the productivity of our staff.

The accuracy hit rate for our warehouse team is 99.85 percent which is at par or even
higher than many warehouses in the UK where my co-founder first had logistics
operations. Because of a strict but compassionate manager who exercises tough love on
his team supported by a highly involved and innovative HR team, the warehouse staff
has been hitting their targets and showing high productivity which has helped make our
company profitable for the past eight years.

Five months is enough time for a worker to do well in his job. Another common belief
among employers is that within five months, a worker should be able to do well in his
job and no longer make any mistake.

As a social enterprise, we deliberately hire people from the low-skilled, marginalized

sectors not because that kind of labor is cheap but because we want to provide dignified
work and opportunities to those among us who need it most.

On average, based on our experience for the past eight years, it takes about eight
months for the truly stellar performers to achieve proficiency in their tasks while the
normal recruits take one to two years to truly shine.

The quality of education and training in our country is still not at the level to make our
people job-ready even among those who graduate from college.

Given that the majority of the workforce only achieve high school level leaves us with
low-skilled workers.
While the government is still trying to solve this training and job-readiness gap, we
have taken it upon ourselves to do the bridging and train our people to become
productive contributors to society.

Management prerogative to terminate underperforming employees. Many employers

complain that regularized employees are almost impossible to fire given the conditions
of termination in the Labor Code of the Philippines.

But when you look closely at what the law says, it is very easy to comply with the
conditions of firing for as long as there is just cause or authorized cause and for as long
as procedural due process is observed.

This again points to having a good HR team or the business owner having the
knowledge and conscientiousness to follow the law.

When employees know that the company cares about them and their welfare and that
the employer genuinely wants them to do well, they give the best of themselves and go
over and beyond the call of duty in order to help the company succeed.

Job opportunities for low-skilled workers will be gone if TECs are abolished. Perhaps
one of the strongest arguments for maintaining the status quo is that the majority of
Philippine workers who are low-skilled will be out of jobs when this model is

In reality, the need for workers will still remain the same. It is just the relationship
between employers and workers that will change.

There are already models that are an improvement to the current system (no tenure and
no benefits) with more progressive manpower agencies employing their workers that
are seconded to their client companies full-time, providing them security and benefits.

In this model, companies do not have to absorb the overhead costs of additional people
but the workers are also provided with secure employment from their agencies.
The bolder move would be for companies themselves to employ the people that they
need to fill in permanent positions year-round and provide the robust human resource
support that low-skilled workers need in order to develop.

Unique challenges
Another major point being put forward by the proponents of temporary employment
contracts in industries such as retail merchandising and manufacturing is that the
practice filters out workers who do not make the cut.

And since the Philippines has such a massive pool of low-skilled, cheap labor,
contractualization basically legitimizes having a disposable workforce that allows
business owners to keep their labor costs rock-bottom low.

Economists further assert that contractual arrangements will create the most jobs and
address unemployment, a sentiment echoed by many business owners who say that
inclusive growth can be achieved through job creation regardless of the quality of those

But not all jobs are created equal and temporary employment contracts in positions that
are needed all year round and are integral to business are in a way a form of legal
exploitation or an extractive economic practice meant to benefit only the business

To be very honest, it is not easy to employ low-skilled workers or anyone from the poor
which is why I understand why many business owners prefer not to take them on

The poor often have a limiting mindset of what they can and cannot do, they lack self-
confidence and initiative, they have a low sense of quality and mediocre standards and
often allow personal problems to affect their performance at work. Having said all
these, our experience has shown that if we, as business owners are genuinely sincere
about promoting inclusive growth, we need to take on these challenges that come with
hiring from the poor and take responsibility of developing them from low-skilled,
unproductive workers to highly skilled, valuable and contributing members not just to
our company but to our society as a whole.

One will be surprised to find that achieving this would be the most fulfilling goal of all
and the ripple effects to the economy would be one of shared and sustainable prosperity
for all.

If we really want to build a middle class in the Philippines, that middle class can only
come from the people who are poor today.

That Human Nature has managed to move hundreds of workers from abject poverty to
the new middle class by regularizing them and giving them real hope proves that the
only thing to fear, is fear itself.

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