Thursday, April 26, 2018
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Corporate Securities Info

Permissible job outsourcing

Mention the words “job contractualization” or “outsourcing of jobs” and labor leaders will howl in protest.

To cut down on labor costs, many companies have sourced out to independent contractors the performance of certain areas of their operation that they do not consider part of their core business.

Product inquiries, request for information, reservations and other similar activities that used to be done internally are now being handled by business processing offices, more popularly known call centers.


Understandably, labor leaders are against job outsourcing or contractualization because it reduces union membership and, consequently, union dues and charges.

For the affected employees, these schemes threaten their livelihood and make short shrift of the constitutional guarantee on security of tenure.

The right of a company to outsource or contract out certain aspects of its business was recently passed upon by the Supreme Court in the case of “Bankard, Inc. vs NLRC, Paulo Buenconsejo, Bankard Employees Union – AWATU.” G.R. No. 171664, dated March 6, 2013.

The case arose from the notice of strike filed in June 2000 by the Bankard Employees Union as a result of a deadlock in collective bargaining negotiations with Bankard, Inc., a credit card company.


To avoid things from getting out of hand, the dispute was endorsed by then Labor Secretary Bienvenido Laguesma to the National Labor Relations Commission for resolution.

Aside from raising the issues that led to the CBA impasse, the union also complained about the unfair labor practices the company allegedly committed, namely: job contractualization, outsourcing/contracting-out jobs, manpower rationalization program, and discrimination.

The latter gripe was an offshoot of the Manpower Rationalization Program the company implemented in 1999 as part of its efforts to enhance its efficiency and be more competitive in the credit card industry.


Under the program, employees were invited to voluntarily resign in consideration for the payment of separation pay equivalent to at least two months’ salary for every year of service.

Those eligible under the company’s existing retirement plan would still be entitled to additional pay.

The majority of the company’s staff in its Phone Center and Service Fulfillment Division availed themselves of the program. The services performed by the resigned employees were contracted out to a call center agency.

The union claimed that “the number of regular employees had been reduced substantially through the management scheme of freeze-hiring policy on positions vacated by regular employees … and the introduction of a more drastic formula of streamlining its regular employees through the MRP.”


At the heart of this issue is Article 248 (c) of the Labor Code which states that it shall be unlawful (or an unfair labor practice) for an employer “to contract out services or functions being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization.”

The NLRC ruled in favor of the union. It said the reduction of employees and the outsourcing of their jobs had the ultimate effect of reducing the number of union members and increasing the number of contractual employees who are not qualified to become members of the union.

The company appealed the ruling to the Court of Appeals. No dice.

The court upheld the NLRC’s action and stated that the company’s freeze-hiring policy and contracting out of jobs was an unfair labor practice act because it “was able to limit and prevent the growth of the Union.”

Unfazed by the two setbacks, the company elevated the matter to the Supreme Court for final resolution.

Preliminary to its decision, the tribunal pointed out that the unfair labor practice acts referred to by the Labor Code relate to “acts that violate the workers’ right to organize.”

If that element on right of self-organization is not present, the acts of an employer, even if unfair, do not constitute unfair labor practice.


In its review of the records of the case, the tribunal noted that, outside of its bare allegations, the union failed to prove that the company’s manpower reduction program was aimed at drastically and deliberately reducing union membership.

It stated that “… there was no proof that the program was meant to encourage the employees to disassociate themselves from the Union or to restrain them from joining any union or organization.

“True, the program might have affected the number of union membership because of the employees’ voluntary resignation and availment of the package, but it does not necessarily follow that Bankard purposefully sought such result.”

The justices agreed with the company’s explanation that its action was a valid cost-cutting measure that was well within the scope of its managerial prerogatives. It was an exercise of business judgment that they had no right to interfere in.

Citing an earlier pronouncement, the tribunal said that “the law on unfair labor practices is not intended to deprive employers of their fundamental right to prescribe and enforce such rules as they honestly believe to be necessary to the proper, productive and profitable operation of their business.”

With these findings, the tribunal dismissed the union’s complaint for unfair labor practice acts.

Incidentally, things didn’t all come out bad for the union. There was a happy ending to the story—while the case was pending, the union and the company signed a CBA.

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TAGS: Business, column, Contractualization, job outsourcing, labor costs, raul j. palabrica
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