i Legal framework
Employment law is principally governed by the Philippine Labour Code, which covers the following aspects of the employment relationship: (1) pre-employment; (2) human resource development, including provisions on overseas recruitment and technical apprenticeships; (3) labour standards, such as working hours and premium pay; (4) working conditions; (5) labour relations, such as union formation, collective bargaining, and strikes; and (6) post employment, including termination and retirement.
The Labour Code is the statutory basis for the creation of the National Labour Relations Commission (NLRC), which is the primary tribunal with jurisdiction over employment disputes. It also empowers the Secretary of Labour and Employment to regulate certain aspects of the employment relationship by administrative fiat, and grants that office a ‘visitorial power’ to conduct workplace inspections to check whether employers comply with labour standards and working conditions.
There are also various special laws detailing statutory minimum employment benefits and standards, with which an employer is legally obliged to comply. These include:
- a Laws requiring mandatory employer-share contributions to a state fund, including (1) the Social Security Law, which regulates use of and entitlement to the state pension fund, and the Employee’s Compensation Program for work-related injuries and death; (2) the National Health Insurance Act (Philhealth), which is the national health insurance benefit; and (3) the State Home Development Mutual Fund Law (the PAG-IBIG fund) which is the national savings programme for shelter financing.
- b Laws recognising unique benefits for special classes of employees, such as (1) single parents (who can take special leave to attend to their parental duties); (2) women (who enjoy maternity benefits, facilities, and special two-month leave for gynaecological conditions); and (3) fathers (who may take seven days’ leave after the birth of their children).
- c Other special laws regulate specific areas of concern in the employment relationship, such as the Sexual Harassment Law, which defines and punishes workplace sexual harassment, and the Comprehensive Dangerous Drugs Act, which provides a legal framework for employee drug testing.
Finally, there is a large body of Philippine Supreme Court jurisprudence on employment and labour law. The Supreme Court hears many cases involving termination of employment, collective bargaining disputes, and labour relations and labour standards issues. Many legal doctrines applicable to employment law, not found in statutes, arise from such jurisprudence.
There is a separate legal framework governing the engagement and employment of Filipino overseas foreign workers (OFWs), which is not tackled in this discussion.
ii Courts and tribunals
The primary tribunal tasked to resolve employer–employee disputes is the NLRC. This is a quasi-judicial body headed by a presiding commissioner and 23 commissioners, divided among eight divisions. The NLRC divisions have the power to hear appeals from regional arbitration branches, which are comprised of labour arbiters sitting in regional offices. These labour arbiters have jurisdiction to receive evidence, hear and decide any of the following: (1) unfair labour practice cases; (2) termination disputes; (3) financial claims other than those arising from social security, Philhealth or employee compensation rules; (4) claims for damages; and (5) strike and lockout disputes.
Voluntary arbitrators are employment law practitioners who have been certified by the Department of Labour and Employment (DOLE) to conduct voluntary arbitration – an alternative, voluntary dispute resolution process that runs in parallel to the compulsory processes of the NLRC. The difference is that a voluntary arbitrator’s appointment – either singly or as a panel – is at the behest of the disputing parties. Voluntary arbitrators have exclusive jurisdiction over disputes arising from the interpretation or enforcement of a collective bargaining agreement (CBA), or a company personnel policy. The voluntary arbitrator may also hear disputes that are typically submitted to a labour arbiter, if the parties agree to resort to the voluntary arbitration process.
The Social Security Commission and the Employees’ Compensation Commission hear and resolve disputes pertaining to the entitlement to social security and Employees’ Compensation Programme benefits, respectively.
Decisions of these quasi-judicial entities may be elevated to the Court of Appeals, an appellate judicial body with the power to review lower court and quasi-judicial judgments. There is final resort to the Philippine Supreme Court on questions of law.
DOLE, headed by the Secretary of Labour and Employment, is the principal government agency with responsibility for enforcing employment laws. DOLE acts through the Office of the Secretary of Labour and Employment, or through regional offices, to monitor and enforce compliance with labour standards, address labour-relations issues and generally regulate employer–employee relations.
DOLE also acts through attached administrative agencies that have specific mandates in areas affecting employment. Among these agencies are: (1) the NLRC; (2) National Conciliation and Mediation Board (NCMB), which conciliates and mediates disputes between employer establishments and their labour unions; (3) the Philippine Overseas Employment Administration, which regulates all aspects of recruitment and placement of Filipinos for work outside the Philippines; (4) the Overseas Workers Welfare Administration, which operates a special fund for the benefit of overseas Filipino workers; (5) the Occupational Health and Safety Center, which recommends workplace safety regulations to the DOLE; and (6) the National Wages and Productivity Commission, which conducts policy studies and advises regional wage boards on the appropriate rate for the minimum wage.
ii YEAR IN REVIEW
Contracting out and outsourcing remained a top-of-mind issue in Philippine employment law this year. Promises by the newly elected President to eliminate an outsourcing practice known as ‘endo’, in which temporary workers are rotated on the basis of five-month contracts, put pressure on the DOLE administration and employers to grant permanent employment status to contractual workers. Employers want the freedom to engage workers on terms that are less stringent than the permanent tenure contemplated by a ‘regular employment’, while unions are generally against such schemes to increase labour flexibility. The DOLE in 2016 increased the scope and frequency of its inspection power, conducting compliance audits of establishments – particularly in the retail and hospitality industry – to determine the status of their compliance with labour laws, and in particular, the validity of temporary work arrangements. A DOLE regulation governing outsourcing and contractualisation practices was under review at the end of 2016.
A new anti-age discrimination law (Republic Act No. 10911) took effect in 2016, making it illegal to consider age as a factor in advertising for work, hiring or laying off an employee, unless age is a bona fide occupational qualification, or the action is in accordance with a bona fide seniority system.
iii SIGNIFICANT CASES
There is a large body of Supreme Court jurisprudence on employment law, and given that the principal statute, the Labour Code, has not been subject to any major amendments since 1989, contemporary jurisprudence tends to reiterate established doctrine.
The legalities of fixed-term employment contracts continued to be subject to judicial review. In Jamias v. NLRC and Innodata Processing Corp et al (GR No. 159350, 9 March 2016), the Supreme Court ruled that a project employment contract in which employees were (1) assigned to a specific project (2) for a specific duration, (3) under circumstances where the parties dealt with each other on more or less equal terms, was a valid fixed-term arrangement that expired on the ‘day certain’ specified in the contract, regardless of the nature of the work being perfomed by the employees.
Because labour disputes in the Philippines can sometimes evolve into multi-stage, multi-forum proceedings, the Supreme Court in Rodriguez et al v. NLRC and Philippine Airlines (GR No. 178501, 11 January 2016) found it necessary to clarify that determinations of fact by a superior tribunal can become final and binding on other tribunals in separate but related actions between the same parties. This case involved the legality of a pilots’ strike in 1998, and the Court ruled that, between two separate actions – one involving an illegal termination dispute, the other an illegal strike lawsuit – there was ‘conclusiveness of judgment’ as to which pilots were considered to have lost their employment for having participated in illegal strike activity. The Supreme Court in Industrial Personnel & Management Services Inc v. De Vera (GR No. 205703, 7 March 2016), laid down definitive rules as to when foreign law can apply to an overseas employment contract. As a general rule, employment contracts with Philippine nationals recruited in the Philippines for an overseas position must comply with Philippine law. However, surveying prior jurisprudence, this ruling concludes that foreign law may govern if: (1) it is expressly stipulated in the overseas employment contract that a specific foreign law shall govern; (2) the foreign law invoked must be proven before the courts pursuant to the Philippine rules on evidence; (3) the foreign law stipulated in the overseas employment contract must not be contrary to law, morals, good customs, public order, or public policy of the Philippines; and (4) the overseas employment contract must be processed through the POEA, the government agency that regulates overseas deployment of Filipino workers.
iv BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Employment relationships in the Philippines are generally either ‘regular’ or for a fixed-term. A regular employment arises when the work for which the employee is engaged, is considered ‘usually necessary and desirable’ to the employer’s business. The tenure of regular employees is not limited, and can be terminated only for cause.
A fixed-term employment must: (1) be for a specific term, season, or project for which the employee is temporarily engaged; and (2) not be for work that is considered ‘regular’.
Employment relationships are created by contract. As a general rule, there is no required form for employment contracts, which may be oral or written.
The best practice is for the employer and the employee to execute a written contract at the time of the employee’s engagement, recording those aspects of the employment relationship that may become contentious in case of a disagreement, such as the employee’s scope of work and compensation. If applicable, it is also appropriate for the written employment contract to reflect the fact that the employee is being engaged on a probationary basis and whether certain performance or quality-of-work standards are expected of the employee.
The only instance in which Philippine law requires that employment contracts take a specific form is in respect of employees of an independent contractor, namely, a person or entity that provides services to a principal. Such employees must execute a written contract that, at minimum, contains the following terms and conditions:
- a the specific description of the job, work or service to be performed by the employee;
- b the place of work and other terms and conditions of employment, including a statement of the wage rate applicable to the employee; and
- c the term or duration of employment, that must at least be co-extensive with the service agreement between the independent contractor and the principal (Department of Labour and Employment Order No. 18-A, Series of 2011).
As a general rule, any action that ‘diminishes’ benefits already enjoyed by an employee, or that alters any material aspect of the employment relationship, can only be done with employee consent. An employer may undertake unilateral changes to the employment relationship, if such changes benefit the employee.
ii Probationary periods
Employees may be hired on a probationary basis, for a period not exceeding six calendar months. At the time of hiring, the employee must be notified (1) that his or her engagement is probationary; and (2) about the employer’s standards he or she needs to meet to attain regular employment status. The employer is free to determine these probationary standards of employment, provided they are ‘reasonable’.
An employee who is not informed about the probationary nature of the employment or the applicable probationary standards, or who is allowed to continue working beyond the six-month period, is automatically considered a regular employee.
iii Establishing a presence
A foreign company can directly hire employees even if it is not officially registered or incorporated in the Philippines. A consequence of such an arrangement is that the unregistered foreign company may be considered to be ‘doing business’ in the Philippines without a licence and will not have a legal personality to sue or defend itself in any litigation before a Philippine court.
Any direct hiring by a foreign company must be for work to be performed within Philippine territory only. The employment of Filipino nationals for work to be performed outside the Philippines is governed by special rules on recruitment and placement, and can only be done through licensed recruitment entities.
A foreign company directly hiring employees to perform services in the Philippines will need to provide minimum statutory employment benefits, including:
- a the minimum wage, which varies depending on the region in which the company operates (Metro Manila is in the national capital region, where minimum wages are the highest);
- b overtime pay for work rendered beyond eight hours a day;
- c premium-rate pay for work performed at night, on holidays and on rest days;
- d leave, including (1) at least five days’ statutory leave after an employee has rendered one year of service; (2) paternity leave of seven days and maternity leave of up to 78 days; and (3) ‘single parent’ leave of seven days;
- e 13th-month pay equivalent to one-twelfth of an employee’s annual pay;
- f retirement pay of at least half a month’s pay for every year of service, when the employee reaches the statutory retirement age of 65; and
- g a mandatory monthly employer share to the Philippine Social Security fund, the national health fund (Philhealth), and the national shelter financing fund (PAG-IBIG).
The foreign company is obliged to report the employment to the Philippine tax authority, the Bureau of Internal Revenue, and withhold an appropriate percentage of the employee’s pay for income taxes.
Independent contractors can hire workers to perform services in the Philippines for an offshore non-resident foreign company. In such a case, no employment relationship is created between the independent contractor’s employees, and the offshore non-resident foreign company. A typical example of such a situation is a business process outsourcing arrangement. Engaging an independent contractor in this manner does not typically create a tax-liable permanent establishment of the foreign company in the Philippines, provided that (1) the services rendered by the employees of the independent contractor benefit non-Philippine end-users, (i.e., they are exported); and (2) the arrangement does not create an agency relationship between the independent contractor and the foreign company.
v RESTRICTIVE COVENANTS
Non-compete clauses are recognised by Philippine law and can be enforced by Philippine courts, subject only to a general ‘reasonableness’ requirement, which is assessed on a case-by-case basis.
A common test of validity is whether the non-compete arrangement is limited ‘by time and to trade’. A two-year period is generally considered valid; further, it must only limit the employee’s engagement in a competitive business or employment.
The non-compete clause must be in writing. When entered into at the time of the employee’s engagement, there is generally no requirement for the non-compete clause to be supported by a separate consideration.
Other forms of restrictive covenants, such as confidentiality clauses, non-disclosure agreements and non-solicitation contracts, are also valid under Philippine law, and may be included as part of an employment agreement provided their terms are reasonable.
A court assessing whether the restrictive covenant is reasonable may consider the following: (1) whether the covenant protects a legitimate business interest of the employer; (2) whether the covenant creates an undue burden on the employee; (3) whether the covenant is injurious to the public welfare; (4) whether the time and territorial limitations contained in the covenant are reasonable; and (5) whether the restraint is reasonable from the standpoint of public policy.
i Working time
Philippine law stipulates that ‘normal hours of work’ should not exceed eight hours a day. Regulations issued by DOLE also stipulate that employees are entitled to a one-hour lunch break during the work day and 20-minute rest periods in the morning and afternoon. The lunch break is not considered part of working time.
Philippine law also mandates at least one rest day – a full 24-hour period – for every six days worked by an employee.
There is no longer a night work prohibition under Philippine law, but work performed between 10pm and 6am the following day is subject to the payment of a ‘night differential’, equivalent to 10 per cent of the regular hourly wage rate; and the requirement for the employer to furnish special facilities for night workers, including – under certain conditions – transportation or sleeping facilities.
Working time regulations do not apply to managerial employees and ‘field personnel’ (those who perform their duties in the field and away from the principal place of business).
Beyond the normal eight working hours, any work actually performed, or if the employee is required to be on duty at a prescribed workplace regardless of whether he or she is actually performing work, entitles the employee to overtime pay.
Overtime pay is equivalent to 25 per cent over the employee’s regular rate.
An employee may be compelled to work overtime or on his or her rest day under certain special conditions, subject to the payment of a premium wage rate. These conditions are specifically enumerated in the Labour Code, and contemplate situations where overtime or rest day work is urgent or intended to address extraordinary circumstances.
vii FOREIGN WORKERS
An employer may engage foreign workers (i.e., non-resident aliens) to perform work in the Philippines.
An alien employment permit (AEP) from DOLE is required, which then becomes the basis for the foreign worker to apply for a Section 9(g) working visa from the Philippine Bureau of Immigration. The AEP is essentially a certification that there is no person in the Philippines who is ‘competent, able and willing to perform the services’ intended for the foreign worker.
There is generally no limit to the number of foreign workers that an employer may engage, but the number of such incumbents is considered in the DOLE permitting process. The validity of the AEP is coterminous with the duration of the foreign worker’s employment, for as long as the foreign worker is engaged by the same employer.
Local employment laws apply to the foreign worker, subject to conflict-of-laws principles in the event his or her employment contract is executed abroad. As a general rule, multiple contacts between incidents of his employment and the Philippines (e.g., work location, tax situs and employer nationality) grant the foreign worker the same right of access to Philippine employment tribunals as Filipino nationals. The fact that the employer has sponsored the foreign worker for an AEP is generally also considered in exercising Philippine tribunal jurisdiction.
As a general rule, foreign workers engaged by a Philippine-resident employer, are subject to tax. Similar to Filipino employees, the employer has the obligation to withhold and remit the applicable percentage from compensation as income tax.
viii GLOBAL POLICIES
An employer may promulgate and enforce internal discipline rules, which the employee must obey, subject to the general requirement that these rules must be reasonable.
Prior notice of these rules, but not employee consent, is required for the rules to be effective. A usual practice is for the employee to confirm his or her receipt in writing of applicable work rules, on the day he or she is hired. This is not a requirement for the validity of the rules, however; it is only intended to deter an employee from alleging ignorance of a specific company rule before his or her violation. Actual notice is best, but constructive notice includes physical posting in company bulletin boards or other conspicuous places in the workplace and digital distribution by company email or an internal company computer network.
There is no requirement for these rules to be filed with or approved by any government regulatory agency, nor that they be published in the vernacular or other local dialect.
Jurisprudence recognises the right of the employees to be ‘consulted’ on company work rules, but this is typically an issue in unionised work environments.
There are special statutes governing specific employee discipline issues, with which internal rules must comply. Policies addressing sexual harassment in the workplace and drug testing must comply with statutory minimum standards, and many employers simply adopt the substantive and procedural stipulations in the relevant statute as their internal policies.
The Labour Code also provides a non-exclusive enumeration of ‘just causes’ to terminate an employee for a disciplinary issue, including (1) serious misconduct; (2) wilful disobedience; (3) gross and habitual neglect; (4) fraud or wilful breach of trust; (5) commission of a crime against the employer; and (6) other analogous causes. These ‘just causes’ are deemed ‘written into’ employment contracts and employer work rules; terminations are valid if any of these ‘just causes’ exist.
The Philippines recognises both English and Filipino as official languages.
There is no legal requirement for employee documentation to be translated into the vernacular language, a local dialect, or to a language known to the employee.
However, to avoid any future claims that consent to any agreement between employer and employee was vitiated, it is good practice to translate a document conveying any waiver of employee rights into a language known to the employee. A quitclaim or similar release document, typically executed as part of an employee’s severance, is an example of the type of document that as a good practice should be translated for the benefit of the employee’s full understanding.
There is jurisprudence that a quitclaim may be declared invalid if its terms were not understood, or misunderstood, by an employee, leading him or her to subsequently disavow it despite his or her receipt of consideration pursuant to the quitclaim.
x EMPLOYEE REPRESENTATION
The Philippine Constitution guarantees workers’ right to self-organisation. Private sector employees who occupy both rank-and-file and supervisory positions have the right to form and join labour unions for the purpose of collective bargaining with their employer. Managerial employees (i.e., those who exercise managerial powers and prerogatives) have no right to demand collective bargaining, but may form associations for mutual aid and protection.
Labour unions in the Philippines are primarily organised at the enterprise level, that is, they are ‘local’ labour unions that comprise a group of workers employed by a single employer. A group of 10 or more local labour unions may constitute a national union or federation, groups of which may be organised further into a trade union centre. Collective bargaining occurs between a single employer and its local labour union.
National unions may charter a local labour union. However, when a group of workers choose to remain independent and not affiliate with any national union, they must secure the consent of at least 20 per cent of the workers in the bargaining unit they seek to represent in order to organise the independent local labour union.
A local labour union may legally demand that the employer bargain collectively with it only after it has been legally organised and a registration certificate issued to it by DOLE, and it is chosen in a certification election by a majority of the workers in the bargaining unit it seeks to represent.
A local labour union chosen in such a manner is considered the ‘certified bargaining agent’ for all the workers in that bargaining unit, with the exclusive right to represent them in collective bargaining with the employer. The term of a certified bargaining agent is five years, generally reckoned from the date that a CBA is concluded with the employer.
A certified bargaining agent can legally compel the employer to participate in collective bargaining negotiations, with the end in view of concluding a CBA. The CBA must reflect the parties’ agreement on wages, hours of work and other terms and conditions of employment. The employer is not forced to agree to the terms demanded by the certified bargaining agent, although the latter can use collective action, such as a strike, to persuade the employer. Once a CBA is concluded between the parties, an employer is legally obliged to enforce its terms for the duration of the agreement.
In addition to the statutory right to take collective action, certified bargaining agents and their officers are also protected from employer retaliation by legal provisions punishing employer ‘unfair labour practices’, namely, acts by an employer or its agent that restrain or interfere with the right to self-organisation.
xi DATA PROTECTION
i Requirements for registration
The Philippines has a broadly worded Data Privacy Act, which encompasses all types of personal information processing, including employee data. Under administrative rules published in late 2016 by the National Privacy Commission (the state regulatory body overseeing compliance with the Data Privacy Act), entities with data systems that access or require sensitive personal information of at least 1,000 individuals, must register with the National Privacy Commission.
In a situation where employers collect personal information about its incumbent or prospective employees, the Data Privacy Act’s general consent requirement applies, and employee consent must be secured. However, the employee’s personal data can still be processed even if the employee objects or withholds consent, provided that the collection or processing is necessary or desirable in the context of the employer–employee relationship (Rule VIII, Section 34(b), Implementing Rules of the Data Privacy Act).
The employee whose personal information is collected, processed or stored, is entitled to know:
- a the description of the personal information to be entered into the employer’s system;
- b the purposes for which the information is being processed;
- c the scope and method of the personal information processing;
- d the recipients or classes of recipients to whom the information is or may be disclosed;
- e the methods used for automated access, if this is allowed by the data subject, and the extent to which such access is authorised;
- f the identity and contact details of the personal information controller or its representative;
- g the period for which the information will be stored; and
- h the existence of their rights as employee data subjects, namely, to access, correction and the right to lodge a complaint before the National Privacy Commission.
An employer that processes or stores such data is considered a ‘personal information controller’, with the obligation to implement ‘reasonable and appropriate organisational, physical, and technical measures’ to protect the data against loss, unauthorised access or disclosure, or any unlawful processing.
ii Cross-border data transfers
There is at present no requirement for an employer, acting as personal information controller, to register its data with any state authority before any cross-border transfer, unless the employer falls within the registration requirement of the Data Privacy Act because its data systems can access, or it requires, the sensitive personal information of at least 1,000 individuals, in which case, it must disclose any proposed transfers outside the Philippines. Also, regardless of registration compliance, the employer is considered the original personal information controller; it remains accountable for ensuring continued compliance with the protections required by the Data Privacy Act, and must use ‘contractual or other reasonable means to provide a comparable level of protection while the information are being processed by a third party’.
Employees have a general right to know how their personal information will be used and with whom it will be shared. Therefore, they must consent to any cross-border transfers or sharing of personal information with, for instance, a foreign parent company or affiliate of the employer.
iii Sensitive data
Sensitive personal information refers to personal information:
- a about an individual’s race, ethnic origin, marital status, age, colour, and religious, philosophical or political affiliations;
- b about an individual’s health, education, genes or sex life, or about any proceeding for any offence committed or alleged to have been committed by such person, the disposal of such proceedings, or the sentence of any court in such proceedings;
- c issued by government agencies peculiar to an individual, which includes, but is not limited to, social security numbers, previous or current health records, licences or suspension or revocation thereof, and tax returns; and
- d that is specifically established by an executive order or an act of Congress to be kept classified.
Employee data subjects enjoy the same rights in respect of sensitive personal information, as other personal information. The Data Privacy Act, however, provides for more serious criminal and civil penalties for breaches or violations involving sensitive personal information.
iv Background checks
Employment background checks appear to be legally possible under an exception to the Data Privacy Act. Implementing Rules that took effect late in 2016 allow the processing of personal data even if the individual objects or withholds consent, provided that the collection or processing is necessary or desirable in the context of the employer–employee relationship between the collector and the data subject (Rule VIII, Section 34(b), Implementing Rules of the Data Privacy Act).
In practice, employers conduct such background checks, which inquire into whether the employee has a criminal record, and also encompasses credit history, whether the employee has previously filed a suit against former employers and the like. There is no legal bar to a requirement for an employee to provide his or her own medical history, or subject himself or herself to a medical examination, as a condition for employment, subject to Data Privacy Act restrictions on the storage, transmission and sharing of such sensitive personal information.
Depending on the circumstances, it may also be an act of unfair labour practice for an employer to conduct background checks or any type of investigation regarding an employee’s prior or current labour union affiliation.
xii DISCONTINUING EMPLOYMENT
Employees in the Philippines enjoy security of tenure, and may not be dismissed except for cause.
The law recognises two broad categories of cause: just cause and authorised cause. ‘Just cause’ refers to those grounds for termination to which employee fault or negligence may be attributable, and include:
- a serious misconduct;
- b wilful disobedience;
- c gross and habitual neglect;
- d fraud or wilful breach of trust;
- e commission of a crime against the employer; and
- f other analogous causes.
‘Authorised cause’ refers to those causes in which the employee’s termination is not due to any act or neglect by him or her, but which arises from an employer’s specific circumstances. These include:
- a the installation of labour-saving devices or redundancy, in which employees’ functions become superfluous to the business requirements of the enterprise;
- b retrenchment to prevent losses, in which employee terminations are necessary in order to prevent or minimise serious business losses; and
- c cessation of operation, where the employer closes down all or part of its business.
Terminations for just cause must observe a strict procedure, in which the employee is formally made to show cause, allowed to render a written explanation or given an internal administrative hearing and formally notified of the evidence and reasons for dismissal.
Terminations for authorised cause must be preceded by at least one month’s written notice to the affected employees and to DOLE, in which the reasons for the terminations are specified. The written notice and the notice period are mandatory and the validity of the termination may be called into question if this has not been complied with. In such a case, an employer may be liable to pay the employee a monetary indemnity. However, an employer can require that the employee stop reporting for work as of the notice date, but must pay the employee for the one-month notice period, during which he or she is still considered an employee.
There is no statutory requirement to separately notify an employee’s labour union, although this obligation may be stipulated in a CBA.
Employees terminated for an authorised cause must also be given separation pay, the statutory minimum of which ranges from half a month’s salary for every year of service (in the event of a retrenchment or cessation) to one-month’s salary for every year of service (for a redundancy). Higher amounts may be provided by a CBA, the employment contract, or company practice (i.e., employees may be in a position to demand the same higher rate granted to similarly situated employees who were previously terminated under the same circumstances).
No employee or class of employee is legally exempt from termination. Employment agreements or a CBA may, however, set out an order of preference for authorised cause terminations; for instance, a CBA may stipulate that the employer respect a ‘last in, first out’ rule in selecting employees to be terminated.
An employee may choose to contest his or her termination in litigation, by alleging the absence or insufficiency of the stated cause. Jurisdiction for such an action lies with the NLRC. The parties may settle their dispute during these proceedings, or enter into a compromise or settlement agreement at any time.
Philippine law recognises the right of an employer to terminate an employee if his position is ‘redundant’, that is, it is superfluous to the business requirements of the enterprise. A redundancy situation may also arise in case the employer reorganises its business or specific work units, such that certain positions are duplicated or considered unnecessary as a result of cost-cutting or streamlining measures. It is important for the validity of the redundancy that it is motivated by a valid business purpose. To this end it is a good practice for an employer to have a management study as evidence to justify the business reasons for the redundancy declaration. The employer must also use ‘fair and reasonable criteria’ to determine which work positions and which incumbents will be declared redundant.
A redundancy is a type of authorised cause termination and requires that the employer (1) provide written notice to the affected employee and DOLE, at least one month before the intended termination date; and (2) render separation pay to the employee, at the rate of at least one month’s pay for every year of service.
As set out in subsection i, supra, the written notice and the one-month notice period are mandatory, however, an employee may be paid in lieu of notice.
An employment contract or CBA may provide for other requirements, such as a higher rate of separation pay, special notice provisions (longer than the statutory minimum, or with special notice to the employee’s labour union) or that the employer observe set criteria or an order of preference (such as a ‘last in, first out’ rule) to select employees to be declared redundant.
An employee may contest the validity of the redundancy declaration by filing a lawsuit for illegal termination with the NLRC. Such a suit may prosper if there is proof that the redundancy declaration was done in bad faith, as when replacements were hired for the allegedly redundant positions shortly after the terminations took effect. The parties may settle the dispute during the proceedings before the NLRC or enter into a compromise or settlement agreement at any time.
xiii TRANSFER OF BUSINESS
The Philippines does not have a statute specifically intended to protect employees affected by a merger, acquisition or outsourcing transaction. However, Philippine jurisprudence grants certain tenure protections to employees in these situations. For instance, employees affected by a merger become regular employees of the surviving entity on the day the merger is approved by the Securities and Exchange Commission. Additionally, because Philippine law generally prohibits the diminution of employee benefits, the rates of pay and other employment terms of the workers absorbed by the surviving entity, must be maintained.
As a result of the merger or consolidation, the consolidating entities may have a good-faith legal basis to conduct a redundancy exercise, particularly in areas where work functions will be duplicated.
Short of a merger or consolidation, a pure asset acquisition does not automatically effect transfers of employment to the acquiring entity. The acquirer is under no legal obligation to hire the employees of the target company, and it can pick and choose from among those employees. The acquirer can also decide to engage these employees either on the basis of completely new, ‘day one’ employment contracts; or, as a consideration of the transaction with the target entity, offer to recognise the workers’ tenure with the target entity.
DOLE administrative regulations and jurisprudence also protect workers from invalid outsourcing arrangements, where the work to be contracted out is performed by regular employees. Work that is ‘usually necessary and desirable’ to the ‘usual trade or business of the employer’ cannot be outsourced to a third-party service provider.
The conflict between organised labour and employers on the issue of contracting out and other similar labour flexibility schemes will likely continue into 2017. Organised labour continues to lobby for more measures to enforce tenure protection. Among the pending bills in Congress is an amendment to the Labour Code that criminalises illegal contracting-out and outsourcing, and puts a cap on the number of fixed-term positions that an employer may allocate, as a ratio of total employment.
In keeping with the populist initiatives of the current government, there will likely be more legislative proposals to increase worker benefits, most notably a bill to increase paid maternity leave to at least 100 days, from the current 78-day maximum. Though currently enjoying a favourable regulatory environment because of their economic contributions, business process outsourcings – call centres in particular – face increasing scrutiny. There are proposals to pass a ‘Magna Carta’ rights law for workers in call centres, intended to require employers to take measures that reduce the monotony and stress of the typical call centre environment.
1 Rolando Mario G Villonco and Rafael H E Khan are partners and Carmina Marie R Panlilio is an associate at Siguion Reyna, Montecillo & Ongsiako Law Office.