PHILIPPINES: An Introduction to Employment

Employment and Independent Contracting Post-Pandemic in the Philippines

The rise of independent contractors post-pandemic

The COVID-19 pandemic had disruptive effects on the Philippine labour landscape. The government-mandated lockdowns that barred in-person work set-ups prompted workers to question and challenge traditional employment models. This led to the rise of an online-based working environment that allowed work to be done remotely and without the need for physical interactions.

An independent report revealed that there were approximately 1.5 million independent contractors in the country in 2022. This figure rose during the pandemic years in 2020 and 2021, which saw Filipinos looking for opportunities to earn while maintaining flexibility in their time. As Filipinos adapted to remote work, the preferences of both workers and employers consequently adapted. This shift led to a growing preference for freelancing or independent work, which did not diminish even after the public state of emergency due to COVID-19 was lifted in 2023.

With a rising cost of living and the dismal minimum wage rates across the country, the benefits of independent contractor work cannot be understated for the average Filipino, such as flexibility in work time and place, which finds appeal in a post-pandemic world in which work-life balance and mental health have gained prominence.

Legislative regulation to address independent contractor issues

While independent contracting work offers many benefits, it is not without its challenges. Foremost, independent contractors do not have an employment relationship with the business entities they are engaged with. Thus, they lack job security and access to minimum labour standards and benefits under the Philippine Labour Code. This notwithstanding, the reality is that independent contractors are constrained to constantly market themselves and manage an irregular stream of income.

Currently, there is no legislative framework on how independent contracting agreements are regulated. By and large, freelancers are bound by the general provisions of the Philippines’ New Civil Code regarding the contracting agreements that they enter into with the businesses that engage them. There is, however, a legislative move related to the gig economy and freelancing that attempts to address issues of independent contractors, such as benefits, job security and taxation.

In February 2023, the Philippines’ House of Representatives passed the “Freelance Workers Protection Act”, which mandates the institutionalisation of benefits such as night differential and hazard pay for freelance workers whenever they are applicable. The bill mandates that a written contract must be executed by any hiring party with the freelance worker, containing the extent of the services retained or obtained and important details such as the amount of compensation and the schedule of payment.

While this is a welcome development, the bill is still pending deliberations before the Philippine Senate. Realistically, it may be several months or even years, if at all, before freelancers see this bill become a law on which they can anchor and assert their rights as workers under regulation by the Philippine government.

Philippine case law on independent contractors

In the landmark case of Ditiangkin, et al v Lazada E-Services Philippines, Inc., G.R. No. 246892 (2022), promulgated in 2022 but publicly released in January 2023, the Supreme Court made a significant pronouncement on the employment status of independent contractors; businesses should follow this status in order to legally engage Filipino independent contractors and avoid their misclassification as employees.

The case involves delivery riders from the e-commerce company Lazada, who were hired as independent contractors with the main task of picking up items from sellers and delivering them to Lazada's warehouse. However, Lazada later removed them from their usual routes and stopped giving them schedules, leading the riders to file a complaint against Lazada with the National Labour Relations Commission for illegal dismissal. The Supreme Court ruled in favour of the delivery riders, declaring them as regular employees of Lazada. The court found that Lazada failed to prove that the riders were independent contractors rather than employees.

In this particular case, the Supreme Court emphasised the significance of the economic dependency test over the traditional four-fold test when determining the existence of an employer-employee relationship between an independent contractor and their principal. The Supreme Court placed great importance on the fact that the delivery riders were performing essential functions that directly contributed to Lazada's business operations. According to the Philippine Supreme Court, the riders' delivery services played a crucial role in facilitating transactions between sellers and buyers, making it an integral part of Lazada's business.

This interpretation by the Supreme Court sets a precedent that raises concerns for businesses that engage independent contractors alongside their employees. It suggests that even highly skilled individuals who exercise control over how and when they perform their work may be classified as employees rather than independent contractors, based solely on the nature of tasks they perform that are essential to the business. Consequently, this ruling narrows down the scope of what can be covered under an individual independent contractor agreement.

How businesses can adapt to Ditiangkin

In the wake of the Ditiangkin ruling, it now advisable for businesses to strictly ensure that there is no control over the means and techniques used by the independent contractor when carrying out their assigned work. The independent contractors’ freedom to choose how to carry out their obligations must be expressly stated in the agreement between the parties, and this statement must be followed in the execution of the duties. However, it is still acceptable to offer broad principles that help achieve the desired outcomes without outlining the specific means or methods to be used.

It is further crucial to take into account the criteria of having a special skill or talent in order to be recognised as an independent contractor. Unfortunately, the Supreme Court refused to recognise the delivery riders' skill set in the Ditiangkin case, instead ruling that specific expertise is not always necessary for picking up and transporting goods from the warehouse to customers. The specific skill or expertise for which the contractor was hired should therefore be included in the independent contractor agreement.

The ability to show that independent contractors are not economically dependent on the principal is crucial. Businesses should therefore not restrict the ability of independent contractors to enter into contracts with other businesses. This measure will make it clear that the independent contractors' financial security depends on other sources besides one principal.

Conclusion  

The Philippine labour landscape has seen significant changes post-pandemic, with many Filipinos hopping on the independent contractor trend. Individuals are increasingly drawn to freelancing due to the flexibility, diverse opportunities and economic resilience it offers. However, it is equally important to acknowledge the challenges faced by independent contractors and the need for governments and industries to adapt to this changing landscape.