Restrictive amendments to Labor Code (2)

This was my column last Wednesday.  Sorry for the late post.

Last Monday I wrote about the current initiative being pushed at the House of Representatives —a bill to amend the Labor Code. The proposed amendments, however, are objectionable because they are restrictive. Instead of building a nurturing business climate that would in turn create more opportunities for employment, the proposed amendments seek to clamp down on industry’s management prerogatives.

A number of business organizations have already registered their respective positions on the bill. In this space, I will cull from the position paper of the People Management Association of the Philippines. PMAP is the national organization of human resource professionals in the country. PMAP has asked lawmakers to reconsider their support to the bill citing potential negative unintended consequences on business and ultimately, on employees.

The proposed amendments to the Labor Code are packaged under a noble intent—to strengthen security of tenure of workers in the private sector. As I wrote in this space last Monday, it’s an issue that is everyone’s concern. Unfortunately, many of our legislators seem to still adhere to what PMAP refers to as “the outmoded conflictual paradigm of big business versus the disempowered worker.” Really, anyone who still subscribes to the notion that business is not interested in providing security of tenure is either grossly misinformed or terribly prejudiced. The buzzword in the business sector in the last five years has been “talent retention” and the most popular programs have been on engaging employees and ensuring commitment towards the organization. To put it clearly and in no uncertain terms: Business also wants to provide workers security of tenure.

Of course, as the PMAP position paper says, there are “inadequacies of certain organizations in the private sector.” There are companies that for some reason or another have been unable to comply with certain laws. This, however, is not the norm. And as PMAP maintains, it is “an issue that might not be necessarily addressed by added government regulation. Safeguards already exist in the law; it is enforcement that needs greater attention.” In short, what PMAP is saying is that we must stop this penchant for complicating things in this country. It seems that our default reaction to solving most of our problems is by adding yet another law to complicate things, or creating another oversight body, or putting in place more control measures rather than on making laws work.

What exactly is wrong with the proposed amendments to the Labor Code? Aside from the outmoded premise of the bill—which is that strengthening security of tenure is best achieved by clamping down on the business sector—the unintended consequences are possibly debilitating. In this column I will just focus on two proposals which are indicative of the myopia of our lawmakers.

First, the bill prohibits the “engagement by the principal of subcontracted employees in excess of 10 percent of the principal’s total workforce” and limits the permissible number of casual and contractual employment to 20 percent of an organization’s total workforce. According to PMAP, “the arbitrary and artificial cap on the number of contractual employees fails to appreciate the purpose of workforce planning and incorrectly sees the process as static and short-term.” Very few companies require a fixed number of workers throughout the year as there are obviously seasonal peaks and lows in business and production cycles. The immediate consequence is that organizations are now forced to reconsider hiring more employees over and above the proposed caps particularly during peak seasons. Instead, companies will now resort to other alternatives such as automation, productivity programs, etc. Rather than create employment, the unintended consequence is reduction in the number of jobs.

Of course it is obvious that the bill is pushing for regularization of contractual employees. (Another proposal is for companies to hire extra employees during peak season but to consider them regular employees who are on leave without pay throughout the rest of the year—a hybrid form of employment arrangement that doesn’t make sense)

Again, unfair assumption is that the business sector is allergic to hiring regular employees and prefers contractualization. Many companies hire contractual employees as a stop-gap measure, as extra “hands” to tide it over while searching for qualified candidates. If qualified people are available to begin with, there wouldn’t be a need for contractuals. The problem is systemic and can be traced back to our yawning mismatch problem—but forcing companies to eschew contractualization is not the solution. It will only lead to job contraction.

PMAP presents a compelling argument: “Not all casual and contractual workers beyond the 20 percent limit will be regularized. From our consultations with our members, indeed, they will increase the number of regular workers but in order to offset the additional costs associated with this regularization, they will decrease their total headcount. For instance, jobs previously performed by several casual/contractual workers will be integrated into a single regular position. Hence, the total number of jobs will inevitably contract. Further, automation and mechanization become viable options for several enterprises especially if manpower costs become prohibitive. Hence, instead of providing security of tenure, the bill will have unintended repercussions on the very core of employment: job availability. What is more alarming is that even local manufacturing companies have raised the possibility of moving their operations to neighboring Southeast Asian countries like Indonesia and Vietnam if headcount costs become too expensive in the Philippines. Again, this probable shift will be detrimental to the country’s overall employment situation.”

The bill likewise seeks to prohibit contracting out of a job, work or service being performed by or previously performed by regular employees and/or members of the bargaining unit. In addition, the bill seeks to render as unfair labor practice contracting out services or functions being performed by members of, or positions covered by, the bargaining unit or regular rank-and-file and supervisory employees.

According to PMAP “these provisions make organizational restructuring impossible. Further, these create a disincentive for start-up organizations that need to build their infrastructure but may not need to maintain a sizeable workforce once their systems and processes are already efficient and in place. Hence, the already difficult business environment brought on by the global financial crisis might be further aggravated by the bill’s restrictive provisions.”

PMAP further asserts that “as it is, foreign investors already lament the bureaucratic restrictions that make operations in the Philippines difficult. The proposed bill adds yet another hurdle that will push existing businesses to be cautious in expanding their operations and discourage prospective investors from setting up shop in the country. Clearly, the repercussions of the proposed bill extend beyond issues of job availability and a probable increase in unemployment to include larger issues such as economic viability and national competitiveness.”

PMAP has likewise presented compelling argument supported by empirical data that shows how the proposed amendments will unduly disadvantage small and medium enterprises, which comprise more than 90 percent of Philippine business, and how it is incongruent with the country’s thrust to build a competitive outsourcing industry.


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