Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
The key statute regulating employment law in the Philippines is the Labor Code, which is divided into seven ‘Books’. The Department of Labor and Employment (DOLE) issues Implementing Rules and Regulations for each Book of the Labor Code, which also have the force of law.

Other laws that impact upon employment matters include:

• Civil Code
• Social Security Act
• 13th Month Pay Law
• Anti-Sexual Harassment Law, and
• Migrant Workers and Overseas Filipinos Act.

Employer work rules
There is no general obligation upon an employer to formulate a set of general work rules in the Philippines. However, certain legislation may require specific rules and regulations to be formulated (eg pursuant to the Anti-Sexual Harassment Law and the Comprehensive Dangerous Drugs Act).

Probationary period
The Labor Code specifically contemplates the use of probationary periods for the employer to determine whether the employee is qualified for permanent employment. A probationary period will only be valid if the employer has informed the employee of the probationary period at the time of hire and advised the employee of the standards that they will be required to meet in order to qualify as a permanent employee.

Generally, a probationary period is limited to a maximum of six months. However, the employer and employee may agree to a longer period if:

• a longer period is justified by the nature of the work being performed by the employee, or
• the employee is being given a ‘second chance’ to meet the qualifying conditions that he/she failed to meet during the initial probationary period.

Minimum wage
Minimum wage rates in various regions are prescribed by the various Regional Tripartite Wages and Productivity Boards. Wage Orders are implemented periodically following a tripartite study involving government, employer and employee representatives.

Remuneration structure
The Labor Code recognises that wages due to an employee may include a fair and reasonable value towards board, lodging or other facilities customarily furnished by the employer to the employee. Implementing rules provide that the acceptance of such facilities by an employee must be voluntary, and set out the standards to determine the value of facilities deductible from an employee’s wage.

In addition to wages, a mandatory ‘13th Month Pay’ applies in respect of rank-and-file employees who have worked for an employer for at least one month in a calendar year. The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees, or to effectively recommend such actions.

The 13th Month Pay entitlement of rank-and-file employees is calculated based on one twelfth of the total basic salary earned by the employee in a calendar year, and must be paid no later than 24 December each year.

Working hours

Hours of work—In general, the normal hours of work of any employee may not exceed eight hours per day.

Rest periods—Employees are generally entitled to a 60-minute break for regular meal times.

An employee is entitled to a rest period of at least 24 hours after six consecutive normal work days.

Overtime—Work may be performed beyond eight hours per day, provided that the employee is paid for the overtime work at a rate of at least 125% of the regular wage rate.

Where an employee is required or permitted to work on a rest day, they are entitled to payment at the rate of 130% of the regular wage rate for all hours worked on that day.

Public holidays
In the Philippines, a distinction is made between ‘regular holidays’ and ‘special holidays’.

There are 11 prescribed regular holidays. Employees are entitled to a day off with full pay on regular holidays. If an employee is required to work on a regular holiday, they are entitled to pay at the rate of 200% of the regular wage rate. If the employee works on a regular holiday that is also the employee’s rest day, the employee is entitled to pay at the rate of 260% of the regular wage rate.

There are three prescribed special holidays. Employees are entitled to an unpaid day off on special holidays. If an employee works on a special holiday, they are entitled to pay at the rate of 130% of the regular wage rate. If the employee works on a special holiday that is also the employee’s rest day, the employee is entitled to pay at the rate of 150% of the regular wage rate.

Paid annual leave
There is no legal obligation to provide paid annual leave to employees.

Other types of leave
Service incentive leave— In general, after one year of service, employees are entitled to five days per annum paid service incentive leave. An employee may use this for a variety of personal reasons, including sickness or vacation. Any unused leave at the end of the year must be cashed out.

Sick leave— An employee who is confined to hospital for more than three days, and who has made at least three monthly premium contributions to the Social Security System (SSS) in the previous 12 months, is entitled to a sickness benefit at the rate of 90% of his/her average daily salary credit, up to a maximum of 120 days per calendar year. The employer advances the sickness benefit and may claim reimbursement of this benefit from the SSS.

Maternity leave— A female employee who has paid at least three monthly premium contributions to the SSS in the previous 12 months is entitled to maternity leave pay equivalent to 100% of her average daily salary credit for 60 days, or 78 days in the case of caesarean delivery. The employer advances the benefit and may claim reimbursement of this benefit from the SSS. The maternity leave benefit is only payable in respect of the employee’s first four deliveries or miscarriages.

Paternity leave— A married male employee is entitled to seven days paternity leave on full pay for the first four deliveries by his lawful spouse. Paternity leave benefits must be granted to the qualified employee after the delivery by his wife, without prejudice to an employer allowing an employee to avail of the benefit before or during the delivery, provided that the total number of days shall not exceed seven days for each delivery. If the paternity leave benefit is not availed of, it is not convertible to cash.

Solo parent leave— An employee who is a solo parent with at least one year’s service is entitled to seven working days of paid leave per annum.

Leave for victims of violence— A victim of violence as defined in the Anti-Violence Against Women and Their Children Act may be entitled to paid leave of up to ten days, extendible when the necessity arises, as prescribed in the protection order issued in favour of the victim.

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Termination of employment

Legal requirements
The employment of a ‘regular’ employee may not be terminated under Philippines law unless the employer has a ‘just cause’ or an ‘authorised cause’ for the termination. The Labor Code provides that employment is ‘regular’ where the employee has been engaged to perform activities that are necessary or desirable in the usual business or trade of the employer, excluding where the employment is only for a specific fixed project or for a definite season.

The law recognises the following ‘just causes’:

• serious misconduct or wilful disobedience by the employee of the lawful orders of the employer in connection with the employee’s work
• gross and habitual neglect by the employee of their duties
• fraud or wilful breach by the employee of the trust reposed in the employee by the employer
• commission of a crime or offence by the employee against the employer or a representative of the employer, and
• other causes analogous to those listed above.

Before an employer may terminate employment for a ‘just cause’, the employer must give written notice to the employee of the proposed termination and provide the employee with a reasonable opportunity to explain his/her side and to present evidence to the employer, with the assistance of legal counsel if desired by the employee.

An employer may also terminate employment for ‘authorised causes’, which include termination due to the installation of labour-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment, subject to certain conditions.

An employer may also terminate employment upon the employee reaching the compulsory retirement age (which is 65, unless otherwise agreed).

Notice periods
Provided that the employee has been given the opportunity to explain, as described above, an employer may terminate employment for a ‘just cause’ by written notice with immediate effect.

The notice period for termination for an ‘authorised cause’ is discussed under ‘Specific requirements applicable to redundancy’ below.

An employee may resign from their employment by serving written notice on the employer at least one month in advance.

Remedies
A ‘labor arbiter’ has power to order the immediate reinstatement of a wrongfully dismissed employee, including the payment of back pay. The labor arbiter may also award damages, including actual or compensatory damages (which must be proved with a reasonable degree of certainty), as well as an additional discretionary sum of damages, for which no proof of pecuniary loss is necessary.

Severance payments
Severance is payable upon termination of employment for an ‘authorised cause’:

• For a termination due to the installation of labour-saving devices or due to redundancy, severance pay is one month’s pay for every year of service. The minimum severance payment is one month’s pay.
• For a retrenchment to prevent losses, or a termination due to closure or cessation of operations, severance pay is a half month of pay for every year of service. The minimum severance payment is one month’s pay. (However, the employer may be able to avoid paying severance pay in the event of closure on account of serious financial losses or business reverses.)

Generally, no severance pay is payable upon termination for a ‘just cause’. However, labour tribunals have awarded severance pay in some instances of termination for a ‘just cause’, usually on account of the employee’s lengthy period of service.

In general, an employee who voluntarily resigns from employment will not be entitled to severance pay, unless otherwise provided for in the applicable employment contract, collective bargaining agreement or employer policy.

Specific requirements applicable to redundancy
For termination of employment based on ‘authorised causes’, both the employee and DOLE must be notified in writing at least 30 days before the termination. This prior notification is indispensible and pay in lieu thereof may not be made (though the employer may require the employee to take leave with pay for the 30-day period).

The Labor Code distinguishes between ‘redundancy’ and ‘retrenchment’, and the severance payments differ for each.

• A ‘redundancy’ exists where the services of an employee are in excess of what is reasonably required by the enterprise. This may be due to over-hiring, a decreased volume of business or the installation of labour-saving machinery.
• In contrast, a ‘retrenchment’ is linked with losses and is a cost-cutting measure. The losses incurred or expected must be substantial and reasonably imminent, such that the retrenchment is reasonably necessary and likely to prevent the expected losses. Hence, the employer will be expected to examine other options for preventing losses, and the hiring of replacements or outsourcing of work performed by retrenched employees will be considered inconsistent with retrenchment.

In both redundancy and retrenchment situations, the employer must apply fair and reasonable criteria (such as preferred status, efficiency and seniority of the employees) in ascertaining the positions to be made redundant/retrenched.

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Discrimination and harassment
Philippines law prohibits discrimination against women on the grounds of sex or pregnancy, as well as discrimination against disabled persons.

The Anti-Sexual Harassment Law prohibits sexual harassment in any work or training environment. Employers have a duty under the law to prevent and deter the commission of acts of sexual harassment, and to provide procedures for resolution or the prosecution of acts of sexual harassment.

The Magna Carta for Disabled Persons prohibits the discrimination against any qualified disabled person with regard to job application procedures, hiring, promotion, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment.

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Occupational health and safety
The Secretary of Labor is responsible for setting and enforcing mandatory occupational health and safety standards by appropriate orders, and for instituting and updating programs to ensure safe and healthy working conditions in all places of employment. To this end, a number of agencies attached to DOLE implement and issue relevant guidelines and processes.

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Regulation of outsourcing and contracting
Prohibition on Labor-only Contracting
In the Philippines, so-called ‘Labor-only Contracting’ is prohibited. Labor-only Contracting refers to the situation where the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and the following elements are present:

• the contractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility and the employees recruited, supplied, or placed by the contractor are performing activities directly related to the main business of the principal, or
• the contractor does not exercise the right to control the performance of the work of the contractual employee.

A principal may only engage a third party to provide services, where those services go beyond the mere provision of labour. In summary, the following conditions must be satisfied:

• the contracting company must carry on a distinct and independent business and undertake to perform the particular job, work or service on its own account and under its own responsibility, according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof, and
• the contracting company must have substantial capital or investment.

Engagement of independent contractors
Companies may be deemed to be the legal employer of an individual who has been described as an ‘independent contractor’. Regardless of the name given by the parties to the relationship, the key factor that determines an employer-employee relationship at law is the existence of control over the manner and means of doing the work. In general, if the principal wields such control over the so-called ‘independent contractor’, then the principal will be liable as the employer of that individual.

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Industrial relations

Legislation in brief
The right to form unions is recognised in the Philippine Constitution, and reinforced by the Labor Code and implementing regulations.

Managerial employees are not eligible to join, assist or form any labour organisation. Supervisory employees who are not ‘managerial’ may join labour organisations of their own, but they may not join those of the rank-and-file employees. Supervisory employees are those who, in the interests of the employer, recommend managerial actions with the use of independent judgment, provided that the exercise of such authority is not merely routine or clerical in nature.

Role of trade unions and collective agreements
Trade unions play a significant role in many companies in the Philippines. Their basic role is to foster collective bargaining and mutual protection. Unions often assist workers in the enforcement of their rights and in obtaining improved terms and conditions of employment.

Industrial action and disputes
The Constitution and the Labor Code guarantee both workers and employers the right to engage in certain activities in order to achieve legitimate activities. For employees, such activities may include strikes, picketing and boycotts, and for employers this means lockouts. Certain mandatory requirements apply in order to lawfully engage in such activities.
Disputes, including impending or existing strikes or lockouts, may be resolved through mediation by the National Conciliation and Mediation Board (NCMB) or by intervention by the Secretary of Labor, which may result in compulsory or voluntary arbitration. An assumption or certification by the Secretary of Labor of a dispute has the effect of automatically enjoining the intended or impending strike or lockout.

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