Outsourcing and the employment relationship

This was the column I wrote for BusinessWorld's View from Taft last July 5.

From June 29 to July 2, De La Salle Professional Schools hosted the Annual Meeting of the Pacific Asian Consortium for International Business Education and Research (PACIBER) in Cebu. This year’s theme was a look at emerging global practices in outsourcing and related work arrangements.

During the meeting, I was privileged to moderate an informative panel session on Investment Decisions and Labor Concerns. During the session, Mr. Abhik Ghosh, Senior Labor Administrator and Labor Relations Specialist at the International Labor Organization’s (ILO) Manila office, gave an update on the new ILO recommendation covering the Employment Relationship.

This is a timely contribution from the ILO since, with the increasing popularity of outsourcing and contingent work, we have seen various types of work arrangements which have blurred the nature of the relationship between employer and employee. As a result, the legal protection of worker rights as well as the responsibilities of employers in protecting such rights have weakened.

Interestingly, as more service companies around the world learn to unbundle and distribute the various components of their value delivery process facilitated by information technology around the world, it has become more difficult to define who the employer is. Triangular employment relationships, where the work or services of the worker are provided to a third party (the user) has increasingly become the norm. Unfortunately, such arrangements can render employees vulnerable to violations of their rights as workers. Worse, companies can be tempted to deliberately hide the true legal status of their employees precisely to escape responsibility for honoring employee rights.

Take call center agents, for example. During the early call center years, it wasn’t unusual to hear tales of random dismissals among permanent employees. Such employees, young as they were, had very rudimentary notions of their rights under the Labor Code. And given the absence of any labor organizing in the call center industry, similar abuses can easily continue. Certainly, it would be interesting to see how the legendary unhealthy working hours in the outsourcing industry will be addressed in the near term.

Thus, the ILO recommendation is an attempt to address the above difficulties. It is a natural progression following the 1998 ILO Declaration of Fundamental Principles and Rights at Work.
With increasing liberalization of international trade, including that of services, some sectors hope that labor standards would help mitigate the adverse effects on workers. This is especially crucial given that under the impetus of globalisation, some countries, including the Philippines, motivated by market-oriented economic doctrine and by a perception of unions as being obstructive to economic efficiency, are sorely tempted to pursue policies which put aside the rights of workers.

Mr. Ghosh explained that the recommendation encourages countries to create national policy that clarifies the existence of an employment relationship given the increasingly complex arrangements now available. Such policies may be based on, among others, the fact that work (1) is carried out according to instructions and under another party’s control, (2) involves integration of the worker in the organization of the enterprise, (3) is performed solely or mainly for the benefit of another person, (4) is performed personally by the worker, (5) is performed within specific working hours or at a workplace specified or agreed by another party is of a particular duration and has a certain continuity, and (6) requiring the worker’s availability involves provision of tools, materials and machinery by party requesting work. In addition, an employment relationship exists when there is periodic payment of remuneration to the worker and such payment is the worker’s sole or principal source of income.

I hope that countries will respond positively and firm up their local policies to make it easier to protect employee rights under the newer work arrangements. It remains to be seen how effective ILO standards can be, or how willing ratifying countries are to enforce the standards, in an increasingly globalized business environment. Locally, there are strong reasons why outsource companies should take care of protecting worker rights to decent work. The employees tend to be young and relatively unsophisticated, and thus vulnerable, about matters pertaining to rights at work. Secondly, turnover rates are extremely high, especially in the call center industry. Any improvement in employee treatment can only reduce such turnover and lead to improved efficiencies and service quality.

During the open forum, Mr. Ghosh was asked whether the protection of labor rights intended by the ILO recommendation is still relevant given the rigors of the globalized environment. He explained that the recommendation is based on the principle that labor is “not a commodity”. And here lies the root of the issue. Globalization pressures companies to precisely treat labor as a commodity in their pursuit of efficiency. Economic models on which company strategies are based assume that labor is a commodity.

There is little doubt that freer trade and the outsourcing trend in particular has become an economic boon for many in the country. It is gratifying that many of our educated young who are computer-savvy and fluent in English can gross P15,000 a month in their first job. It is encouraging that the local outsourcing industry leaders are taking initiatives to improve the working conditions of employees. It must be emphasized, however, that economics should never trump justice and the requirements of decent work. And one way to ensure this is by reminding employees and employers that they have a relationship which carries with it certain mutual obligations at all times.