Saturday, July 05, 2008 Group, companies warn against unlawful labor-only contracting
THE Cebu Chamber of Commerce and Industry (CCCI) raised a need to improve the job contracting industry and encourage concerned companies to be more efficient.
An improved industry environment will also put a stop to “fly-by-night” job contractors, CCCI vice president for membership Ed Limtingco said during a forum on job contracting at the Parklane Hotel last Thursday.
“If (job contracting) is done properly, it will increase the productivity of a business,” said Limtingco.
The CCCI, in cooperation with Berkeley Systems Management Inc., will conduct the first industry forum on job contracting on July 10 as part of its continuing education program for the business community.
Edward Mendez, president and chief executive officer of Berkeley, said there is a need to improve the subcontracting sector since the “business process outsourcing boom has created a ripple effect,” which has allowed a number of subcontractors with different competencies to grow as well.
“(Local) companies have the option to outsource some non-core competencies and we have the capability to do it here,” Mendez said.
However, more jobs are being outsourced to companies abroad, like in Australia, since the industry is not doing the right thing, he added.
Some non-core competencies that may be outsourced include payroll administration, security and housekeeping services.
In the case of a manufacturing company, part of the production line—like packaging—can also be outsourced.
But there are companies that violate labor laws and the most “rampant” violation is “labor-only contracting.”
Lawyer Michelle Mendez-Palmares, a director of the Integrated Bar of the Philippines, said some companies resort to labor-only or small contracts to cut on operating costs.
“But if a contract is contrary to public policy, it will not hold,” she said.
When a company (principal company) resorts to subcontracting, it farms out the performance of a part of its business to another (the subcontractor). To perform the outsourced task of the principal company, the subcontractor hires its own employees.
In contrast, labor-only contracting refers to the practice where the subcontractor merely recruits, supplies or places workers to perform a job for the principal company. Labor-only contracting is illegal.
Palmares said the principal company, which is involved in a labor-only contract, is just as liable as the subcontractor and must answer claims for wage differentials.
Berkeley’s Mendez, on the other hand, said a five-percent profit margin on outsourced contracts is “alarming” because this means the contractor is getting its profits from other sources, like the salary of its employees or contributions to government-mandated benefits, such as those for the Social Security System or PhilHealth.
Mendez said a legitimate job-contracting party should be registered under the Department of Labor and Employment (Dole) as a job-contracting company and has substantial capital or investment.
The subcontract or agreement between the principal and the contractor should also assure the employees (of the subcontractor) entitlement to social and welfare benefits, as well as compliance to occupational safety and health standards.
Contractors are also required to submit reports on remittances of social and welfare benefits to the principal companies.
Mendez also advised principal companies not to allow its own employees to supervise or oversee workers of their subcontractors.
“The principal company should only be concerned with the results,” Palmares said.
In the July 10 forum, Dole is expected to give an update on Department Order 18-2, which amends Articles 5 and 106 of the Labor Code of the Philippines on contracting and sub-contracting. (DME)
