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Corporate Securities Info

Stalemate on ‘endo’ problem

/ 12:21 AM September 26, 2016

No solution is still in sight on the problem of illegal labor contractualization and the use of end-of-contract (endo) scheme to circumvent the law on regular employment.

By way of background, companies that outsource certain activities of their business to people supplied by labor contractors or service providers terminate the services of these employees after five months to avoid their conversion to regular employees. After a few days, the same people are re-hired to handle the same work for another five months and the hire-terminate-and re-hire cycle goes on.

The contractual employees do not enjoy security of tenure and are at the mercy of the employer and labor contracting agency for their livelihood.


Last elections, then candidate Mayor Rodrigo Duterte denounced “endo” as detrimental to the interests of employees and promised to put an end to it.

In an effort to fulfill that promise, Trade Secretary Ramon Lopez has proposed, after consultations with other government officials, a “win-win” structure to resolve the problem.

In the suggested solution, employers will be allowed to maintain two sets of employees—those they hire directly as regular employees and temporary employees sourced from accredited service providers.

The service providers shall treat the outsourced employees as their regular employees and shall be provided all the benefits and privileges that accrue to that status. These employees can be assigned to work at the service providers’ client-companies as the need arises.

In case there are no more jobs available, the service provider may terminate their employment on condition they are given termination or severance pay in accordance with the Labor Code.

The Employers Confederation of the Philippines (Ecop) has some misgivings about this arrangement. According to Ecop, it would require a huge financial burden on the part of the service providers, most of which are thinly capitalized.

They may have to add an additional 30 to 40 percent in their mark-up on their service contracts, which will increase the operational costs of their client-companies.

If this happens, “the manufacturers cannot or will not go through the agencies because it will no longer be competitive for their operations.”


The observation is valid.

Most labor contracting agencies in the country are single proprietorships or family-run enterprises that rely principally on the payments of their clients to sustain their operations.

It is common knowledge that although the service contracts show the employees are paid the mandatory minimum wage, they often receive less to make up for the high cost of materials and equipment for the contracted services, or to increase the profits of the proprietors.

Undoubtedly, a substantial increase in the mark-up of service contracts would be a disincentive to the companies to outsource certain aspects of their operations to service providers.

Under these circumstances, a company that needs additional personnel to, for example, meet increased seasonal demand for its goods or services, may opt to require its employees to perform overtime work or increase their production quota.

This may result in the deprivation of employment opportunities to people who could have otherwise been employed to handle seasonal increases in business activities and, in the process, aggravate the country’s high unemployment rate which, as of April this year, stood at 6.1 percent or roughly three million employable, willing and able Filipinos.

The solution to the “endo” problem should not be made to rest solely on the shoulders of the service providers. In a manner of speaking, the latter occupy the lowest rung and have the least clout in the labor sector hierarchy.

A tripartite approach is essential to meet the objective of protecting the interests of the affected employees without denigrating the companies that avail of their services.

Government must recognize there are occasions that require or justify the use of temporary or contractual employees by certain employers to address specific business needs.

Some business activities have predetermined or fixed completion periods that do not make it practical to maintain a set of employees, i.e., seasonal business trends or construction projects, regardless of whether or not there is an actual need for their services.

It would be unfair to force these businesses to maintain in their employment employees whose services are no longer needed or the purpose for which they were employed has already lapsed.

In the same token, business should not take advantage of temporary or contractual employees to perform services that are integral to or form part of their core business and should therefore be handled by regular employees. This smacks of exploitation of labor in the guise of legitimate labor outsourcing.

Finally, the government should strictly enforce the Labor Code provisions that require service providers to have sufficient capital and facilities before they are permitted to operate.

Frankly, the “endo” problem has reached serious proportions because the Department of Labor and Employment has been grossly remiss in the strict enforcement on the rules on job contracting.

It should not make the business sector and service providers pay for its negligence.

For comments, please send your e-mail to rpalabrica@inquirer.com.ph.

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