Divine Word College of Laoag Graduate School Laoag City

Term Paper & Case Analyses

In Partial Fulfillment of the Requirements in

Human Resources Management

Submitted by:

Christopher T. Raval
MBA-Student

Submitted to:

Dr. Florencia A. Oasan

Contractualization, A Way of Compensating Human Resources in the Philippine Airlines?

The Philippine Airlines, Inc. is known as the flag carrier of the country, an epitome of glamour, class and prestige of the country in the world. But recently, the reputation of the carrier has been put into shame and disappointments caused by cancellation of flights due to several failure in operations and labor disputes. Last August 1, 2010, Philippine Airlines announced that it will have to cancel some of its flights permanently after a number of pilots walked out to take higher-paid jobs abroad.Because of this, four of the national carrier's 160 daily trips will be discontinued unless the 25 pilots return to work as the airline is demanding, saying they have not honoured their contracts. Another issue that worsened the situation is when its affected employees held demonstration and disrupted operations to show their objection about the outsourcing plan of PAL. According to PAL Management: As part of its restructuring efforts in response to cut-throat competition in the global airline industry, your flag carrier Philippine Airlines (PAL) will spin off/outsource three noncore units (airport services, in-flight catering services and call center reservations operations) effective October 1, 2011. The program will affect close to 2,400 PAL workers who are assured of a generous separation package and job offers from party service providers.

In the last decade, PAL and other international carriers have been adversely affected by global economic upheavals, acts of terrorism, excessive liberalization, pandemics, stiff competition from mega carriers and the emergence of budget carriers. To adjust to these new realities, airlines worldwide adopted new business models to survive. Most, if not all airlines, adjusted through cost cutting and outsourcing non-core functions. To remain competitive and ensure long-term survival, PAL was forced by circumstances to adopt leading airline practices, especially in view of the following: First, PAL lost $312 million in two fiscal years (2008 & 2009).While PAL reported modest profits of $72.5 million in 2010, PAL again posted a loss of $10.6 million for Q1 of its current fiscal year (April-June 2011) due to a)weak demand as a result of lingering world economic condition b)high fuel prices c)effects of the devastating natural calamity in Japan d) economic effects of social/political unrest in the Middle East and North Africa. Another is the adverse effects of the US FAA Category 2 downgrading of the country's civil aviation regulators which limits PALs operations to and from the United States. The blacklisting of European Union on all Philippine carriers from

flying anywhere in Europe.Lastly, the cut throat competition due to budget carriers and state-sponsored open skies policy. PAL needs to restructure operations to survive on the long-term and save the jobs of its 5,000 remaining employees, stressed. Bautista, PAL President. Our detractors see the loss of jobs for 2,600 PAL Employees Association (PALEA) members but turn a blind eye on the 5,000 office personnel, cabin crew and pilots that PAL is trying to save, he pointed out. The law is on our side. Were not implementing the outsourcing program on mere whim or caprice but on the basis of legal orders from the Department of Labor and Employment and the Office of the President. Were saving the airline from financial ruin, Bautista reiterated. But Gerry Rivera, PALEA President refuted the statements from PAL Management. From his Press Statement last August 17,2010. The scourge of labor contractualization lies at the root of the labor dispute at Philippine Airlines. The contracting out of jobs of the ground personnel will lead to the massive layoff of some 3,000 PAL employees. Regular employees will be retired from PAL only to be rehired as contractual workers in companies owned by Lucio Tans Kamag-anak Inc. These companies will be money-earning service providers to PAL and so we end up doing the same work as before but for cheaper pay, less benefits and no security of tenure he said.He also stated Job security is also the demand of the PAL pilots and flight crew. Thus PAL management is faced with a three-front war with its airline pilots, flight crew and ground personnel because of its drive to demolish job security, replace regular employees with contractual workers and bust the remaining unions in the company Rivera also accused PAL keeps on repeating the lie that it is losing money and so the workers will have to be the burden of its rehabilitation. Of course PAL will be in the red because the sources of revenues, even its assets, have been transferred to sister companies like Macro Asia and Air Philippines. PALs maintenance and engineering department was shifted to Macro Asia and so expenses are charged to the former but the income is reflected in the latter. PAL ground personnel in the outlying stations services Air Philippines so the costs are borne by the former but latter keeps thesavings. Our job is our life and if necessary we will strike to defend our livelihood for the sake of our families Rivera, exclaimed.

Contractualization Contractualization or labor contractualization is the replacing of regular workers with temporary workers who receive lower wages with no or less benefits. These temporary workers are also known as sometimes called contractuals, trainees, apprentices, helpers, casuals, piece raters, agency-hired, and project employees, among others. They do the work of regular workers for a specified and limited period of time, usually less than six months. The work they do is desirable and necessary for the companys survival, but they never become regular employees even if they get rehired repeatedly under new contracts. While contractual employment is allowed under Article 106 of the Labor Code of the Philippines, this clause has been used and abused over time and led to the contractualization of labor. (wikiPilipinas) The prevalent practice of contractualization has been the main culprit in the reduction of union membership on a national scale. Without a union, workers rights are easily violated. Of late, precarious employment is the term used to describe the employment condition that is not standard or non-regular. Precarious employment has include: outsourcing, contracting-out or subcontracting; casualization, contractualization or fixedterm contracts; use of labor agencies or labor-only hiring; hiring of temporary or contingent workers; abusive use of seasonal and probationary employment and traineeships; and self-employment and independent contractors. Available literature shows that the trend of contractualization became evident in the mid1970s with the setting up of export processing zones by former President Ferdinand Marcos. Today, these export processing zones are better known as economic zones and technology parks. Up to this day, such are considered investors haven give the investment perks, which include tax holidays and other perks. The prevalence of contractualization became extensive with the issuance of Department of Labor and Employment (DOLE) Order No. 10 in 1997, which relaxed the rules on contracting or subcontracting. But the same DOLE order paved the way to using of contracting or subcontracting as disguise for labor-only contracting. DOLE Order No. 10 was repealed through DOLE Order No. 3 issued in 2001 only to be restored in 2002 through DOLE Order No. 18. Contractualization is not a unique case in the Philippines. It is also prevalent in other countries. Contractualization has evolved and assumed different names but the bottomline remains the same: Workers find no security in terms of tenure and benefits, among others, in the job. The premise as mandated by the law is this: It is legitimate contracting or subcontracting if the contractor or subcontractor has substantial capital or investment such as corporations, tools, equipment, implement, machineries, uniforms, protective gear, or safety devices actually used in the performance of the job, work or service contracted out. It is the prohibited labor-only contracting when the person supplying the workers to an employer does not have the substantial capital or investment in the form of tools,

equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. It is labor-only contracting if the contractor or agency will only deploy workers to perform services that are directly related to the companys nature of business. Contractualization of labor is favorable to the employers in more ways than one: 1. Union and strikes are prevented as workers as strictly they are not employees of the employer or principal. A five-month or less contract also does not give the employees a chance to organize. 2. Contractual workers replaced retrenched regular workers. 3. Most of the contractual workers do not have benefits such as PhilHealth and SSS. 4. Contractualization further depresses the already very low wages of workers. 4/10 respondents revealed that they are paid below the mandated minimum wage. From this income, they spend as much as P500 up to P1,000 in application requirements. They also have to pay for the cost of their uniforms and other work paraphernalia. 5. Contractuals cannot refuse overtime work which during the peak season means staying beyond until 10 p.m., though the labour code prohibits this as inhuman practice. 6. Contractualization brings down the workers self-esteem. As a whole, management looks down on workers but their biggest contempt is reserved for contractual. 7. It nurtures and reinforces the already prevailing culture of docility and subservience that have been inherited from the feudal-patriarchal culture introduced by Spanish colonizers.

Conclusion To date, this trend on contractualization has spread to business process outsourcing with 208,316 non-regular workers or close to one-third of the total 731, 548 workers in all industries. In 2008, DOLE through the Bureau of Employment Labor and Statistics conducted a survey. The survey indicated that some 25 percent of the total workers fall under the non-regular worker category such as probationary worker, casual worker, contractual/project-based workers, seasonal worker and apprentice/learner. According to the Asia-Pacific Research Network, in 2000, 20 branches of SM, the biggest retail trade store in the country, 92 percent of the workers are either direct hired or concessionaire hired contractuals. To date, SM branches have mushroomed to 40. This means that in 10 years, SM branches have doubled and by the doubling of the number of branches alone, one can deduce that its hired workers have presumably doubled too and so is the number of contractual. This has been the practice in retail business such as SM, Robinsons and Rustans, and companies engaged in semiconductors and electronics, garments, retail/mall and manufacturing in general.

The case of Philippine Airlines is also a case of contactualization where the regular pilots were offered an early retirement package and would then be rehired with lower salaries and less benefits as pilots of AirPhil Express, which is a sister company of PAL Contractualization at PAL is just the tip of the iceberg. In factories, shops, offices and malls contractual workers are working side-by-side with regular employees in doing the same job for lesser pay and worse working conditions. Job security is the assurance that an employee has about the continuity of gainful employment for his or her work life. Job security usually arises from the terms of the contract of employment, collective bargaining agreement, or labor legislation that prevents arbitrary termination, layoffs, and lockouts. It may also be affected by general economic conditions. Overtime, contractual employment has been used as a guise for labor-only contracting that led to the contractualization of labor. Anecdotal evidence in technology parks and economic zones show that the common trend is this: companies offer their regular workers attractive early retirement package and then the same regular workers will be rehired to perform the same work but this time on a minimum wage and as contractuals. This way, the company will be freed of obligations to allocate for their benefits and headaches like strikes and union organization. Oftentimes, they hire these workers for three to five months to do away with the six-month requirement of probationary employment, after which the worker will have to be regularize if the law will be followed. To avoid technicality, the workers are given reprieve of several months until they can be hired again. In effect, these workers became regular contractual. Job security is a right of every worker, a right that has been taken away by oligarchs. An evident of that is, business tycoons kept repeating that their companies are enduring great loss but in fact they maintain their standing in the Forbes Richest while there are millions of people suffering from poverty and starvation. How inhumane these people who cannot renounce luxury and dont even care if it is with the expense of their helpless weary workers.