Is it legal for an employee to be on a contractual basis with a renewable contract every year?
In the Philippines, the practice of employing workers on a contractual basis has been a topic of much discussion and concern, particularly regarding its legality and the rights of the workers involved. Under Philippine labor laws, contractual employment is legal, but it must adhere to specific regulations set by the Labor Code of the Philippines and related Department of Labor and Employment (DOLE) issuances.
1. Definition and Nature of Contractual Employment:
Contractual employment refers to an arrangement where an employee is hired for a specific period, typically under a fixed-term contract. This type of employment is distinct from regular employment, which generally involves an indefinite period of service. Contractual employees are often engaged for seasonal work, project-based tasks, or specific business requirements that do not necessitate permanent hiring.
2. Legal Framework and Conditions:
While contractual employment is allowed, it is governed by specific rules to protect employees from abuse. The Labor Code provides that an employee becomes regular if they perform tasks that are usually necessary or desirable in the usual business or trade of the employer, unless the employment is for a fixed term or specific project. Therefore, if the employment contract explicitly states that the engagement is for a particular project or time-bound task, and this condition is genuinely adhered to, the contractual arrangement is typically considered lawful.
3. The Issue of Contract Renewal:
Employers may renew contracts at the end of each term, but they must be cautious not to abuse this practice. The Supreme Court has ruled in several cases that repeated renewals of fixed-term contracts without justifiable reason can be deemed a circumvention of labor laws, potentially resulting in the employee being classified as regular. A contractual employee whose contract is renewed multiple times and who performs work necessary and desirable to the employer’s business might argue for regularization.
4. Prohibition of Labor-Only Contracting:
The law also strictly prohibits labor-only contracting, where the contractor merely supplies workers to an employer who controls the work done. This practice is illegal, and workers in such situations are considered regular employees of the principal employer. Contractual arrangements should not serve as a means to avoid granting workers the benefits and security associated with regular employment.
5. Workers' Rights and Entitlements:
Even under a contractual arrangement, employees are entitled to certain rights and benefits, such as minimum wage, overtime pay, 13th-month pay, holiday pay, and other statutory benefits. Additionally, contractual employees have the right to due process in cases of termination before the contract’s expiration.
Conclusion:
Contractual employment is legally permissible in the Philippines, provided it is used appropriately and does not contravene labor laws designed to protect workers' rights. Employers must ensure that such contracts are not a tool to evade obligations or deny employees their rightful benefits. If a contractual employee is engaged repeatedly without just cause for non-regularization, they may have grounds to claim regular status, which comes with more extensive rights and job security.