Labor law in the Philippines is largely made up of social justice measures in which the State seeks to provide legal advantages to those who have little or no power in their economic relationships. Philippine labor law is premised on the notion that the employee needs the assistance of the law to equalize his standing with that of his more powerful employer. As such, mechanisms to protect labor are enshrined in the Constitution such as the right to self-organize and create unions. Another important right is security of tenure, which insulates the employee against the whims of his employer by requiring the latter to provide a substantive reason for terminating the employment and the observance of a procedure designed to protect the rights of the employee.

A. Type of employees

1. Regular

Typically, regular employees are those who are entitled to benefits provided by law, such as:

a. Social security (SSS);

b. Pag-IBIG;

c. PhilHealth;

d. 13th month pay;

e. Holiday pay;

f. Overtime pay;

g. Vacation leave;

h. Maternal or paternity leave; and

i. Parental leave for solo parents.

It is commonly believed that all employees must serve at least six months before they become regular. This is untrue. Under the Labor Code, so long as an employee performs any function that is necessary and desirable in the ordinary course of business, then such employee is deemed regular regardless of the term of his service. The only way to prevent such an employee from becoming regular on his first day would be to hire him on a probationary basis (more details below).

Regular employees enjoy security of tenure. Hence, their employment may only be terminated for just causes or authorized causes set out in the law. In addition, regular employees enjoy procedural due process, where the employee must be informed of the grounds for termination and be given the opportunity to present his defense or evidence. Thereafter, the employee must be notified of the employer’s decision to terminate his services. This is also referred to as the “two-notice rule” where the employer must send a first notice to the erring employee composed of the formal charge and the opportunity to defend himself. The second notice is the notice of termination.

2. Probationary

Probationary employees are those hired for a trial (or probationary) period during which the employee must demonstrate the ability to perform the job for which he has been hired. Upon doing so, at the end of the probationary period, the employee becomes a regular employee. Under the law, a probationary period must not exceed six (6) months and at the start of the this period, the employer must inform the employee of the standard by which his performance will be evaluated. If any of these requirements are not met, then the probationary employment is void and the employee is deemed regular from day one. It is advisable therefore to properly document the probationary employment to ensure that all legal requirements have been met.

It is important to remember that probationary employees also enjoy security of tenure during the probationary period and the employment may not be terminated without a substantive reason and compliance with the aforementioned two-notice rule.

3. Contractual Employees

On the other hand, contractual employees are employees whose period and condition of employment are dependent on the provisions of their contract. The Labor Code does not explicitly permit contractual or fixed-term employment but the courts have ruled that so long as the term in the contract is not used to pre-emptively end the employment and deny the employee’s security of tenure, then it is valid. Despite the rulings, however, it is advisable to use fixed-term employment for employees other than rank-and- file. Finally, it should be noted that fixed-term employees enjoy the right to security of tenure while the contract is in effect.

4. Seasonal and Project Employees

Seasonal employees are employed for seasonal work. Project employees are called to work only for the accomplishment of a particular project. The period of employment is co-terminus with the season or the project, as the case may be. In both cases, the employment is for a temporary (although not necessarily fixed) period at the end of which, the employee ceases to work for the employer. For open-ended engagements related to a particular project, a project employment might be appropriate rather than a fixed-term contract simply because projects may be pre-terminated or extended beyond the period originally contemplated. Finally, during the seasonal or project employment, the employee enjoys security of tenure and may not be terminated without cause.

B. Subcontractor or Independent Contractor

Hiring a subcontractor is an easy way to add manpower resources for any business. However, the Labor Code provides that those subcontractors who do not comply with the requirements of the law may create unwanted employer-employee relationships. Hence, the employees of the non-conforming subcontractor will be deemed the employees of the client. This creates a risk whereby a company hiring a subcontractor will become liable as a direct employer of the subcontractor’s employees. Such liability extends to the payment of wages, observance of all labor standards, and payment of government-mandated benefits like SSS and Pag-Ibig.

To avoid this risk, a start-up should only hire independent contractors who conform to the following requirements:

1. The subcontractor carries on a business which is distinct and independent from its client;

2. The subcontractor undertakes to perform the tasks or service on its own account and under its own responsibility;

3. The service is rendered according to the subcontractor’s manner and method – free from the control and direction of the client (e.g., the start-up) in all matters connected with the performance of the work except as to the results;

4. The subcontractor has substantial capital or investment; and,

5. The agreement between the parties assures the contractual employees of entitlement to all safety and health standards, the right to self-organize, the right to security or tenure and social and welfare benefits.

It should be noted that in many instances, body shopping does not conform to the above requirements and therefore the resources deployed to your workplace might be deemed regular employees who are legally entitled to be treated in the same way.