Leia Fidelis Gisela F.

Castro Section 3-A

October 15,2011 Labor Relations Law

The PAL Outsourcing: Arrivals and Departures in Labor Law
On the same day Typhoon Pedring was wreaking havoc over the country, something else was wreaking havoc in the nation’s premier airline and flag carrier. This, as 338 ground crew of the Philippine Airlines conducted a wildcat strike to the detriment of thousands of commuter’s stranded in the Ninoy Aquno International Airport last September 27, 2011 and grossly affecting services in the days to come. The strike was the last attempt of Philippine Airlines Employees Association (PALEA), the union of ground crew employees of PAL, to stop the impending outsourcing of jobs which would displace some 2,400 regular employees and union members. PAL, owned by the second richest man in the country – Lucio Tan, and its employees have a long standing love-hate relationship evidenced by the numerous battles being waged in court. Topping their many issues at present is labor outsourcing. This paper aims to discuss labor outsourcing particularly the case of PAL outsourcing which was implemented starting on October 1, 2011.

Outsourcing as PAL’s ticket out of its quagmire The term outsourcing is a foreign concept as no such term exists in Philippine labor laws. Outsourcing or sub-servicing as defined in the context of American Labor Law often refers to the process of contracting to a third-party. However, outsourcing is often viewed as involving the contracting out of a business function - commonly one previously performed in-house - to an external provider.1 If such is the definition then we can safely presume that labor outsourcing is the same as contracting or subcontracting which is contemplated under Articles 106 to 109 of the Philippine Labor Code. These provisions prescribe the conditions for regulating subcontracting and the rights and obligations of parties to this arrangement. Department of Labor and Employment Order No. 18, Series of 2002, which provides the implementing rules for Art. 106 to 109, defines contracting and subcontracting as: "An arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.”2


http://en.wikipedia.org/wiki/Outsourcing retrieved October 13, 2011 http://www.chanrobles.com/doledepartmentorderno18-02-2002.html retrieved October 13, 2011


. supplies or places workers to perform a job.jsp retrieved October 13.html retrieved October 13. SkyKitchen Philippines.com/doledepartmentorderno18-02-2002.” Specifically. Section 5 of DO No. In a press release posted on its official website PAL explained its basis for contracting out three non-core units (airport services. and SPi Global.. we will use these terms interchangeably. Inc. and collective bargaining. European Union blacklist on all Philippine carriers from flying anywhere in Europe. 6 What is prohibited by our laws is labor-only contracting. self-organization.com/dolecontractingsubcontractingprimer. effects of the devastating natural calamity in Japan.chanrobles. The term that is more commonly used is subcontracting. stiff competition from mega carriers. it has been “adversely affected by global economic upheavals. and any of the following elements are present: 3 http://www. inflight catering services and call center reservations operations) to the contractors: SkyLogistics Philippines. 18 -02 defines labor-only contracting as “an arrangement where the contractor or subcontractor merely recruits. Inc.3 PAL has opted to use the term “outsourcing or spin off” to describe its contracting program.Contracting and subcontracting are synonymous under Philippine labor law.philippineairlines. high fuel prices. In the context of this paper. PAL has been beleaguered by “losses up to $312 million in 2008 & 2009. pandemics.4 PAL said that in the last decade.philippineairlines. 2011 4 5 6 . 2011 http://www. 2011 http://www. security of tenure. work or service for a principal. Effects of the US FAA Category 2 downgrading of the country's civil aviation regulators which limits PAL’s operations to and from the United States.chanrobles. and the emergence of budget carriers. Loss of $10. acts of terrorism.com/news/facts_about_spin_off.”5 PAL said that outsourcing or contracting out non-core services has been a practice even in other international airlines in order to make business ends meet. 2011 http://www.com/news/facts_about_spin_off.6 million for Q1 of its current fiscal year (April-June 2011) due to weak demand as a result of lingering world economic condition. and Cut throat competition due to budget carriers and state-sponsored open skies policy.html retrieved October 13.jsp retrieved October 13. economic effects of social/political unrest in the Middle East and North Africa. excessive liberalization. Contracting and subcontracting arrangements are expressly allowed by law and are subject to regulation for the promotion of employment and the observance of the rights of workers to just and humane conditions of work. PAL’s ticket passes validation procedure No doubt resorting to outsourcing or contracting is a valid option for businesses.

as a precondition to employment or continued employment. a waiver of labor standards including 7 http://www. 2011 http://www. Book V of these Rules. requiring the contractual employee to perform functions which are currently being performed by the regular employees of the principal or of the contractor or subcontractor. a Cebu-based businessman.com/doledepartmentorderno18-02-2002. in any of the following instances: (i) In addition to his assigned functions. These are: “(a) Contracting out of a job.html retrieved October 13.html retrieved October 13. DO 18-02 states “The registration of contractors and subcontractors shall be necessary for purposes of establishing an effective labor market information and monitoring.”7 For a contracting service to be valid.(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job.” The job contractors hired by PAL are: SkyLogistics Philippines. 2011 http://www. which will handle inflight catering services. (c) Taking undue advantage of the economic situation or lack of bargaining strength of the contractual employee.chanrobles.8 However. a subsidiary of PLDT. Section 6 of DO No. SkyKitchen Philippines. a blank payroll. Inc. supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal. 18 -029 states additional prohibitions in contracting for being contrary to law or public policy. or undermining his security of tenure or basic rights. labor-only contracting is not the only prohibition in outsourcing.chanrobles. an antedated resignation letter. work or service to be performed and the employees recruited. or circumventing the provisions of regular employment. which will handle call center reservations operations. in the guise of a labor organization. Both companies are owned and managed by Manny Osmena. supplies workers to an employer. (ii) Requiring him to sign. 2011 8 9 . which will take over airport services (ground handling). or (ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee. and Cebu where the contracting program of PAL is registered. owned by Manny Pangilinan. Inc. with or without any monetary or other consideration whether in the capacity of an agent of the employer or as an ostensible independent contractor. The third contractor is SPi Global.com/doledepartmentorderno18-02-2002. work or service when not done in good faith and not justified by the exigencies of the business and the same results in the termination of regular employees and reduction of work hours or reduction or splitting of the bargaining unit. These contractors are presumed to be registered with the DOLE offices in Manila. "Cabo" refers to a person or group of persons or to a labor group which. Rule I.jsp retrieved October 13. the contractor or subcontractor must be duly registered with the DOLE.com/news/facts_about_spin_off.philippineairlines. (b) Contracting out of work with a "cabo" as defined in Section 1 (ii). Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. Pasay.

work or service being performed by union members when such will interfere with. contractor or subcontractor from any liability as to payment of future claims. 2011. the contracting/outsourcing plan has been declared a legal and valid exercise of management prerogative – twice by the DOLE on June 15. and medical and hospitalization benefit for one (1) year for those who will join the third party service providers were to be given to the affected employees not later than October 15. of whatever salary is given by the service provider to workers who accept the employment offer of the service provider. or a quitclaim releasing the principal. managed or controlled by the principal and which operates solely for the principal. P100.700 workers chose not to join PAL’s third party contractors.400 regular PAL employees and members of the PALEA. Notices of Separation have been validly issued to affected employees before their last day of work with PAL on September 30. unless the latter contract is divisible into phases for which substantially different skills are required and this is made known to the employee at the time of engagement. All of them have been offered an early retirement package and the choice to transfer work under the newly hired contracting companies which they should have communicated to PAL on September 9. 10 http://www. and (iii) Requiring him to sign a contract fixing the period of employment to a term shorter than the term of the contract between the principal and the contractor or subcontractor.jsp retrieved October 13. work or service directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent. 2010 by Sec. Rosalinda Baldoz and twice affirmed by the Office of the President. 2011 and August 11. No question can be imputed on the validity of the process undertaken by PAL. guaranteed salary for one year. 2011. 248 (c) of the Labor Code. as amended. More than 600 transferred to the new service providers while nearly 1.” In the PAL case. 2011.000 gratuity pay. (d) Contracting out of a job. work or service through an in-house agency which refers to a contractor or subcontractor engaged in the supply of labor which is owned.philippineairlines. 2011 . why then is PALEA howling foul? The PAL outsourcing process has affected close to 2. (f) Contracting out of a job.com/news/facts_about_spin_off. 2010 by acting Labor Secretary Romeo Lagman and on October 29. (e) Contracting out of a job.minimum wages and social or welfare benefits. Malacanang on March 25. Separation pay and other benefits which includes: 125% of the employee's monthly basic salary for every year of service.10 PALEA: A passenger left behind? If the PAL contracting/outsourcing plan has been declared legal and valid by DOLE and Malacanang. 2011. 100% commutable-to-cash accrued vacation and sick leaves. trip pass (free tickets) benefits depending on years of service. restrain or coerce employees in the exercise of their rights to self organization as provided in Art.

as amended. While there should be mutual consultation. and call center reservations operations which will be contracted out are all being performed by regular employees and PALEA members. Judging by the figures of affected employees numbering to 2. 6 of DO 18-02 (f). 248 c states the Unfair Labor Practices of Employers. Art. PALEA also cited figures of a gain of $5 billion in 2010 by PAL contrary to the claim of business losses by the airline management.With the exception of 338 former employees who joined the PALEA wildcat strike on September 27. The management cannot be denied the faculty of promoting efficiency and attaining economy by a study of what units are essential for its operation. all the affected employees have been given their separation pay and other benefits as scheduled. Everyone’s Labor Code (2007) . in the absence of proof and an actual case questioning any hidden motive of PAL in implementing the contracting program. or to escape his statutory duty to bargain collectively with his employees’ bargaining representative. PALEA says the contracting program of PAL is an unfair labor practice which violates Art. the PAL outsourcing remains valid. 248 (c) of the Labor Code. eventually deference is to be paid to what management decides. 6 of DO 18-02 (f) which states: “Contracting out of a job. Contracting work out by an employer is an unfair labor practice when it is motivated by a desire to prevent his employees from organizing and selecting a collective bargaining representative. the union has a cause to be worried. Contracting out of services is an exercise of business judgment or management prerogative.400 out of the 6. In the case of Manila Electric vs Secretary (February 22. The airport ground services.” The same is echoed by Sec. So also if the motive is to rid himself of union men. restrain or coerce employees in the exercise of their rights to self-organization. and in treating the latter. inflight catering services.” PALEA is alleging that the PAL contracting program is equivalent to union busting.000 plus members of PALEA. the employer should see to it that its employees are at least properly informed of its decision or modes of action in order to attain a harmonious labor-management relationship and enlighten the workers concerning their rights. It has the ultimate determination of whether services should be performed by its personnel or contracted to outside agencies. the Court will not interfere 11 48 Am Jur 2d 1101 as cited in Azucena. restrain or coerce employees in the exercise of their rights to self organization as provided in Art. 2011. 248 (c) of the Labor Code and Sec. work or service being performed by union members when such will interfere with. Absent proof that management acted in a malicious or arbitrary manner. PALEA says that the contracting out is a deliberate move to lessen their numbers hiding in the guise of business losses and management prerogative. CA. Hiring of workers is within the employer’s inherent freedom to regulate and is a valid exercise of its management prerogative subject only to special laws and agreements on the matter and the fair standards of justice.11 However. such that it shall be unlawful for an employer “To contract out services or functions being performed by union members when such will interfere with.2000) the court ruled “a line must be drawn between management prerogatives regarding business operations per se and those which affect the rights of employees.

R. Hon. 2011 with the blessing of DOLE and the Office of the President. 1999 Decision. 127598. No. February 22. the law already sufficiently regulates this matter. 12 Manila Electric Company vs. 2000] . Secretary of Labor Leonardo Quisumbing and Meralco Employees and Workers Association (MEWA) [G. These are matters that may be categorically determined only when an actual suit on the matter arises. As expected. many glitches have already started to appear and allegations of incompetence and inefficiency have already been claimed by passengers and former employees of the new system. For now. such that the employer must be motivated by good faith and the contracting out should not be resorted to circumvent the law or must not have been the result of malicious or arbitrary actions. remaining employees and management can only cross their fingers and hope for the best while PALEA and PAL critics are awaiting another fatal blow to the airline to prove their claim. Whether or not the contracting program will eventually work remains to be seen in the coming months. Jurisprudence also provides adequate limitations. In the middle of the mess are passengers only wishing and hoping that they and their luggage would arrive safely to their intended destinations The fate of the country’s flag carrier will definitely be worth watching out for.with the exercise of judgment by an employer.” 12 Fly with PAL expect a safe flight? The contracting program of PAL started last October 1. As mentioned in the January 27.

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