Policy Brief

Translating research evidence and advancing new frameworks to inform policy and practice

Series No. 2015-PB02

11 June 2015

EXAMINING THE “5-5-5” ARRANGEMENT IN

CONTRACTUALIZATION:
A Study on the Repeated Hiring Practices of Firms in
Selected Industries
Overview: The implementation of labor contracting in the Philippines has created issues and concerns.
Foremost in these issues is the “5-5-5” arrangement where contractual workers are terminated after five months,
and then re-hired again for another five months. Regardless of the prohibition on the repeated hiring of
contractual workers, reports of contractors and principals circumventing the law on security of tenure have
surfaced. This arrangement in labor contracting created insecurity in the labor market, depriving contractual
workers of their right to decent and full employment. The purpose of this research is to examine the cases of “5-
5-5” scheme in labor contracting through the conduct of case studies in selected industries. Particularly, it seeks
to identify models of hiring practices and knowledge and policy gaps in the implementation of Department Order
18-A, the regulation governing labor contracting in the Philippines.

What is the issue? especially on contractualization,

1. Firms employ contractual workers to
generate savings by minimizing labor
costs. Moreover, via labor contracting,
firms can adjust their workforce in
terms of the number of employees
they hire and fire.
2. Even though labor contracting is
allowed by law, it became an
instrument that caused the deprivation
of contractual workers’ right to decent
work, especially their right to security
of tenure.
3. The objective of contracting is to help
firms be more competitive in the
market and at the same time provide
more employment opportunities
especially for the unemployed.
However, the status of contracting
arrangements in the country
contradicts the true objective of the
policy – business interest prevails over
workers right to decent employment.
4. As the sole agency mandated to
formulate and evaluate labor policies
and regulations, it is imperative that
the Department of Labor and
Employment (DOLE) should review
policies and regulations it has issued
including Department Orders (DOs)
and advisories, in order to address
circumventions in the regulation and
gaps in the implementation of labor
contracting.
5. The case study identified knowledge
and policy gaps in the implementation
of contracting, therefore, the DOLE
should design and implement
programs that will improve transfer of
labor market information and access
to labor market information services
particularly to employers, contractors
and their workers.
Why is the issue important?
6. The prevalent cases of “5-5-5”
arrangement in labor contracting have
compromised the contractual workers’
right to security of tenure. One of the
clear reasons why employers tend to
circumvent the law on contracting is
the evasion of having their workers to
be regularized.
7. A number of firms in the Philippines
have adopted policies and developed
models that resulted in “5-5-5”
becoming a standard practice in labor
contracting. As a result of this

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 scheme, contractual workers became
vulnerable to insecure working
conditions.
What are the facts and figures?
8. The legalization of the practice of
contracting and subcontracting
workers started on March 2, 1989,
when a major amendment in the
Labor Code was enacted by the virtue
of Republic Act (RA) 6715 or
otherwise known as the “Herrera
Law”, in which it was named after
former Senator Ernesto F. Herrera.
The law strengthened the legalization
of contracting and subcontracting in
the Philippines.
9. In 1997, the Department of Labor and
Employment (DOLE) issued
Department Order (DO) 10-97 in
1997, wherein it amended the rules
implementing Books 3 and 6 of the
Labor Code. This was followed by DO
18-02 in 2002. The DO acknowledged
the legality of contracting and
subcontracting for as long as it does
not categorize as “labor-only
contracting”.
10. A decade later, the DO 18-A was
issued. The DO intend to enhance the
regulation of contracting and
subcontracting. One of the salient
features of the order is the mandatory
registration of all job contractors with
the DOLE. More, this order introduced
the concept of “trilateral relationship”
in labor contracting, wherein a direct
employer-employee relationship
should exists between the job
contractor (agency) and contractual
workers. Most importantly, the order
prohibited the employment of short-
duration and repetitive hiring of
workers, known as “endo” (end-of-
contract).However, the DO did not
create penalties for any violation
pertaining to contracting and
subcontracting arrangements.
11. As of 2012, the Philippine Statistics
Authority (formerly Bureau of Labor
and Employment Statistics) estimated
that there are 489,315 agency-hired
workers employed in various business
establishments in the Philippines.
12. As per the statistics released by BLES
last 2012, the top three sectors that
engage the services of contractual
workers are: (a) manufacturing
(31.2%); (b) wholesale and retail
trade (19.9%); and (c) real state,
renting and business activities
(11.1%).
What are the views of the
stakeholders?
13. Most job contractors elicited that
employing a contractual worker for
five months is a kind of a “short-term
duration of employment”, as stated in
the provision found in DO 18-A. In
addition, their understanding on
“repeated hiring” is the
extension/renewal of contractual
worker’s employment contract. On
regards to the termination, the power
to dismiss workers is bestowed to
their clients (principals). Majority of
the job contractors do not have
unions.
14. The majority of the principals defined
“short-term duration of employment”
as a type of working arrangement
where the employment contract of
workers are terminated after five
months. Further, these principals
defined “repeated hiring” as the
extension/renewal of employment
contract.
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What are the models examined? Figure 2. Cooperative member
deployed as workers of principals
15. Rotating Contracting Arrangement –
On this model, Principal engages the
service of Contractor A, who hires
workers. These workers are given a
five months employment contract.
Upon the expiration of their contract,
the workers are referred to Contractor
B for another employment contract,
also five months. This scenario was
the same for Contractor C. It should
be put in mind that the three job
contractors operate inside the
company of Principal. Moreover, they
are managed by only one person. 17. Principal as recruiter of workers for
the job contractor – On this kind of
Figure 1. Rotating Contracting arrangement in labor contracting, it is
Arrangement the principal that recruit and screen
workers. When the hiring and
selection process is finished, the
shortlisted workers are referred to the
contracting agency for the signing of
employment contract. The newly-hired
workers will be deployed to render
services for the principal. Instead of
the job contractor maintains personal
files and documents of the workers, it
is the principal that safe keeps the 201
files of the workers.

16. Cooperative Members deployed as

Workers of Principals - The principal Figure 3. Principal as recruiter of
engages the services of manpower workers for the job contractor
cooperative, which is composed of
contributing members. The members
of the cooperative, instead of hiring
and recruiting workers, are converted
into employees of the requesting
client (principal). The workers, before
deployment, are required to pay
membership fee and will be subjected
to pay monthly dues.

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What can be the solution? Intensify the enforcement powers of
Labor Law Compliance Officers
Identify existing gaps in the regulatory (LLCOs) through capacity building
policies of labor contracting programs

18. This pertains to a particular 19. By conducting a training needs

provision of the law regulating assessment, it should aid DOLE on
contracting, which is Section 7 of designing training programs that will
DO 18-A. Other Prohibitions (7,) help in resolving existing skills gaps
that is not clear on its objective to of LLCOs on enforcing contracting
prohibit cases of short-term arrangements. In order for the
employment contracts. This grey training more effective, the
area of the law has restricted DOLE participants should teach or
to penalize circumventors, communicate the skills and
particularly job contractors. In order knowledge they learned to their co-
to prevent cases of circumventions, workers and supervisors.
therefore, amendments should be
made to the provision. DOLE must Pros
specify the number of months that
will be considered as an  The enhancement of
employment of short-duration. enforcement powers of
LLCOs due to capacity
Pros building programs should
minimize the cases of
 If the DOLE will clearly circumvention in
specify the number of contracting arrangement.
months that is considered
an employment of short- Cons
duration, DO 18-A should
prevent the cases of  The facilitation of training
circumvention of the programs will lead to the
workers’ right to security of incurrence of additional
tenure. expenditure to DOLE.

Cons Undertake a comprehensive review of

the proposal on definite and indefinite
 It will create a “chilling period of employment in contracting
effect” to job contractors; arrangements.
this means that job
contractors will lessen their 20. As one of the strategies stated in
hiring of contractual the Rights at Work pillar of the
workers to avoid getting decent work principle, a
penalized. comprehensive review of the
proposal on definite and indefinite
period of employment in a
contracting arrangement must be
undertaken. Further researches

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 could be conducted to carefully chance to acquire a regular
examine the proposal on what status of employment.
should be the fixed and
indeterminate period of employment
in labor contracting, wherein it can
Cons
serve as a guide for policy makers
on formulating labor policies that  However, if the proposal on
will reduce or eliminate the cases of definite and indefinite
excessive renewals/extensions of period of employment will
employment contracts. form part of the regulation
or be enacted into law, job
Pros
contractors, in order to
 If a policy is implemented minimize labor costs, will
clearly specifying the reduce their manpower
definite period of pool of contractual
employment in contracting workers.
arrangements, contractual
workers will be given a

REFERENCES
Aguilar, V. (1990).Subcontracting, Employment and Industrial Relations in Selected Philippine
Export Manufacturing Establishments. UP: Quezon City, Philippines.
Azucena, C.A. (2010). Employment and Outsourcing under the Philippine Law. Manila,
Philippines: Rex Publishing Inc.
Azucena, C.A. (2010). The Labor Code With Comments and Cases (Vols. I and II). Manila,
Philippines: Rex Publishing Inc.
Kalleberg, A.L. (2003). Flexible Firms and Labor Market Segmentation: Effects of Workplace
Restructuring on Jobs and Workers. University of North Carolina, USA: Sage Publishing.
Department Order 18-02
Department Order 18-A
DOLE, The Philippines Labor and Employment Plan 2011-2016
DOLE, The Implications of the “No-to-subcontracting” (2013)
DOLE Q &A on Contracting and Subcontracting (2011)
PSA-BLES 2011/2012 BLES Integrated Survey (BITS)

About the Policy Brief

This policy brief is an abridged version of the full working paper, under the same research title, written by Mr. Ivan Cassidy F. Villena, Labor and
Employment Officer III, Institute for Labor Studies. This publication is regularly released by the Institute in support of the DOLE’s contributions to
ongoing national policy discourses on key labor and employment policy issues of the day.

Institute for Labor Studies

5th Floor, DOLE Building, Gen. Luna St., Intramuros, Manila * Telephone Number: (632) 527-3490 * Fax Number: (632) 527-3491
www.ilsdole.gov.ph * facebook.com/ils.dole * twitter.com/laborpolicyhub * Instagram.com/ilsdole

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