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Employment contracts
in the Philippines.

SALARY PAYMENT IN Philippine Peso (₱)

CONTRACT LANGUAGES Tagalog / English

PAYROLL TAX 11.75% + Provident Fund

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Philippines

Employment contracts in the Philippines serve as the foundation for the employer-employee relationship, establishing the terms of employment, duties, and rights of each party. Philippine labor laws are particularly stringent when it comes to the protections and benefits afforded to workers, making the understanding and crafting of employment contracts essential for both employers and employees in order to avoid legal disputes and ensure a harmonious working environment. These contracts are not only legally binding documents but also outline expectations and establish the framework for the tenure of employment.

Here we set out everything you need to know about employment contracts in the Philippines.

Employment Contract Types: Overview

Standard employment contract in the Philippines: Open-ended contract

An open-ended employment contract is a type of employment agreement between an employer and an employee that does not have a fixed end date, open-ended contracts continue until either party initiates termination.

Under these contracts, employees are afforded full benefits and security of tenure as mandated by Philippine labor laws. Regular employees cannot be dismissed without just or authorized cause.

This type of contract is common in the Philippines. 

Alternative employment contract in the Philippines: Fixed-term

A fixed-term contract, also known as a temporary or term contract, is a type of employment agreement between an employer and an employee that has a predetermined end date. In other words, it specifies a fixed period during which the employment relationship will exist. Once the contract reaches its expiration date, the employment relationship ends automatically, and no notice of termination is required.

Other Types of Employment Contract

Philippines law also allows for project-based and seasonal employment contracts. 

Video: The Different Types of Labor Contract in the Philippines

Legal Framework for Employment Contracts

The legal framework governing employment contracts in the Philippines is principally rooted in the Philippine Labor Code, with supplemental regulations enforced by the Department of Labor and Employment (DOLE).

Philippine Labor Code

The Philippine Labor Code, Presidential Decree No. 442, is the cornerstone of labor laws in the Philippines. It establishes the fundamental rights of workers, including terms of employment, working conditions, wages, benefits, and labor relations. Employment contracts must comply with the provisions of the Labor Code to ensure the protection of workers’ rights. Specifically, Articles 82 to 302 of the Code detail the various aspects of employment such as:

Types of Employment

  1. Regular Employment
  2. Project Employment
  3. Seasonal Employment
  4. Casual Employment

Minimum Employment Standards

  1. Working hours
  2. Rest days and holiday pay
  3. Overtime and night shift differential

Employee Benefits and Welfare:

  1. Social Security benefits
  2. Healthcare via the Philippine Health Insurance Corporation (PhilHealth)
  3. Employees’ Compensation Program
  4. Retirement benefits

Employment contracts cannot stipulate terms less favorable than what is prescribed by the Labor Code, as this would be deemed against public policy and, therefore, illegal and unenforceable.

Department of Labor and Employment Regulations

In addition to the Labor Code, the Department of Labor and Employment (DOLE) issues regulations that employers must observe. The DOLE acts as the regulatory body ensuring the enforcement of the Labor Code and is empowered to inspect workplaces, resolve labor disputes, and process claims and complaints regarding employer-employee relationships. Some key DOLE regulations that impact employment contracts include:

  1. DOLE Department Order No. 174, which regulates contracting and subcontracting arrangements.
  2. DOLE Department Order No. 183, which provides guidelines for the issuance of Alien Employment Permits.
  3. The Implementing Rules and Regulations (IRR) of the Labor Code, which concretize and operationalize the code’s provisions.

Adherence to DOLE regulations is mandatory when drafting employment contracts to ensure legality and prevent labor disputes. Employers who violate these regulations may be subject to fines, penalties, or other legal consequences.

Drafting a Philippines Labor Contract

In the Philippines, creating an accurate and comprehensive employment contract is critical to establish clear expectations and legal protection for both the employer and the employee.

Essential Contract Clauses

An employment contract must include specific clauses to be legally binding and clear. These clauses include:

  1. Identification of Parties: Full legal names and addresses of the employer and employee.
  2. Nature of Employment: Specify the type of employment (regular, probationary, project-based, etc.).
  3. Job Description: A detailed account of the roles and responsibilities.
  4. Place of Work: The principal place of work and possibility of reassignment.
  5. Working Hours and Schedule: Clearly outline the standard working hours and any overtime requirements.
  6. Salary: The amount and frequency of payment.
  7. Benefits: List any benefits such as health insurance, leave entitlements, and retirement plans.
  8. Confidentiality and Non-Disclosure: Protect company secrets and sensitive information.
  9. Non-Compete Clause: If applicable, a statement to prevent the employee from engaging in competing business during and after employment.
  10. Dispute Resolution: Procedures for handling disputes or complaints.

Employee Duties and Responsibilities

The contract must clearly state the duties and responsibilities of the employee. This includes:

  1. Primary Duties: Tasks and functions the employee is primarily hired to perform.
  2. Compliance: Adhering to company policies and legal regulations.
  3. Reporting: Structure and frequency of reporting to management.

Compensation and Benefits

The section on compensation and benefits should cover all forms of remuneration and perks offered. It typically includes:

  • Base Salary: Stated in the local currency on a monthly or annual basis.
  • Bonuses & Incentives: Eligibility and conditions for additional compensation.
  • Health and Welfare: Details on health insurance, dental, vision, and other forms of health-related benefits.
  • Leave: Vacation, sick, and special leave entitlements and procedures to avail them.
  • Retirement: Terms for retirement benefits as applicable in the Philippines.

Duration and Termination

The contract terms regarding its lifespan and conditions for termination are crucial:

  • Contract Duration: Whether the contract is for a fixed term or indefinite, and any probationary period.
  • Termination Notice: Required notice periods for both employer and employee-initiated termination.
  • Termination Causes: Circumstances under which the contract may be terminated such as redundancy, misconduct, or performance issues.
  • Severance: Any severance pay or benefits upon termination, following the guidelines of the Philippines’ Department of Labor and Employment.

Amendments and Modifications

Employment contracts in the Philippines can be amended or modified under certain conditions. These changes must be mutually agreed upon by both the employer and the employee. In compliance with Philippine labor laws, any amendment to the contract is subject to the provisions of the Labor Code, which ensures that the rights of the workers are not diminished.

Key Points on Contract Amendments:

  1. Mutual Consent: Both parties must voluntarily agree to the amendments.
  2. Written Form: Modifications should be documented in writing.
  3. Non-Diminution Clause: Workers’ rights and benefits must not be reduced.

A standard process for amendments generally involves the following steps:

  1. Proposal: An amendment is proposed by one party.
  2. Negotiation: Both parties discuss and negotiate the terms.
  3. Agreement: They reach a consensus on the new terms.
  4. Documentation: The amendment is formalized in a written document.
  5. Approval: The written amendment may be subject to approval by a labor authority, if required.

Specific Cases for Amendments may include:

  • Changes in compensation or benefits.
  • Modifications to job responsibilities.
  • Alterations in work hours or location.

Any modifications should be clearly specified to avoid ambiguities. It is advised that companies seek legal counsel when amending contracts to ensure compliance with the prevailing labor laws and regulations.

This framework ensures that amendments serve the interest of both parties while adhering to the legal standards set forth by Philippine law.

 

Breach of Contract and Remedies

In the context of Philippine law, a breach of contract occurs when one party fails to fulfill their obligations, leading to possible dispute resolutions and penalties. It is vital for both employers and employees to understand the consequences and remedies provided by the legal system.

Dispute Resolution

Disputes arising from employment contract breaches are initially subject to negotiation between the parties involved. If unresolved, parties may proceed to mediation or arbitration, as specified in the contract, or pursue litigation. The Department of Labor and Employment (DOLE) and the National Labor Relations Commission (NLRC) facilitate dispute resolution, with the latter handling labor disputes that require adjudication.

  • Negotiation: Direct discussions aimed at reaching a mutual agreement.
  • Mediation: A neutral third party assists in resolving the conflict.
  • Arbitration: A legally binding decision made by an arbitrator.
  • Litigation: Formal court proceedings to resolve the dispute.

Penalties for Non-Compliance

Non-compliance with an employment contract in the Philippines can lead to various penalties, depending on the severity of the breach.

  • For Employees: Penalties range from loss of benefits to financial restitution or even termination of employment.
  • For Employers: Consequences include payment of damagesback wagesseparation pay, or legal fines.

Courts or administrative bodies impose penalties to compensate the aggrieved party and deter future breaches. Employers found in violation of labor standards may face additional sanctions under the Labor Code of the Philippines or relevant labor laws.

 

Contract Renewal and Negotiation

When employment contracts in the Philippines are due for renewal, both employers and employees have the opportunity to negotiate terms. Key points of negotiation typically include salarybenefits, and job responsibilities.

Negotiation steps include:

  1. Review of Existing Contract: One should thoroughly review the terms of the current contract before negotiating.
  2. Assessment of Performance: Employees often present their accomplishments to negotiate better terms.
  3. Market Research: Knowledge of the prevailing industry standards assists in realistic negotiations.

It’s critical to remember that in the Philippines, labor laws give employees a degree of protection in terms of tenure and fair labor practices. Changes in the contract should be mutually agreed upon, and should not violate labor standards set by the Department of Labor and Employment (DOLE).

Timelines are also important; discussions should start well before the current contract expires to ensure a seamless transition. Should negotiations stall, it’s beneficial to have a contingency plan.

Documentation of Agreements:

  1. New salaries or benefits packages
  2. Changes in responsibilities
  3. Duration of the new contract

Employers must provide a Contract of Renewal which should be reviewed by the employee before signing to prevent future disputes. It’s advisable to seek legal advice for clarity on implications of proposed contract changes.

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FAQs

The main difference between an open-ended contract and a fixed-term contract lies in their respective durations and termination conditions.

Duration:

  • An open-ended contract does not have a fixed end date. It continues until either the employer or the employee decides to terminate the contract, typically with the appropriate notice period as per employment laws or the contract itself.
  • A fixed-term contract has a specific start date and end date. It is for a predetermined duration, and the employment relationship automatically ends on the agreed-upon end date without the need for notice of termination.

Termination:

  • The termination of an open-ended contract requires the employer or employee to provide proper notice, as per labor laws or the terms of the contract.
  • A fixed-term contract ends automatically on the specified end date, without the need for either party to provide notice of termination.

Each type of employment contract, whether open-ended or fixed-term, presents its own set of advantages, making it essential to weigh the specific needs and objectives of the business.

An open-ended employment contract provides a level of continuity and stability to the workforce, fostering long-term commitment and loyalty among employees.

Fixed-term contracts offer flexibility and adaptability to the business, particularly in scenarios where temporary or project-specific roles are necessary. Such contracts allow the company to respond efficiently to fluctuating demands.

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