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Part I: Can you run a business in the Philippines without hiring an employee?
As its dictionary meaning goes, to hire is to employ, to engage, to appoint, to enlist, to sign up or to secure the services of someone. Hiring refers to the process of engaging somebody for his service. Whatever relationship will result from that hiring will depend on the agreement and its execution. Any businessman can definitely run a business without hiring anyone. It is a given that he and his partners can do everything on their own if they choose to.
But can the businessman run his business with the help of another without having to be an employer? Still definitely yes.
Hiring somebody in running your business does not necessarily have to be hiring him as an employee. Indeed, the businessman has the prerogative of hiring the services of freelancers and consultants, without having to shoulder the obligations of an employer under the Labor Code. While the relationship between an employer and an employee is specifically governed by the Labor Code, engaging freelancers and consultants should be subject to the provisions of contract law in general.
The only concern is this. How can you tell if the person you are hiring will not be considered by law as an employee? How can you be so sure that he will not come to you later and invoke his rights to labor benefits and to security of tenure?
Employee or not, the person you are hiring, of course, has rights. The only difference is that, in simple terms, the rights of an employee are defined by the Labor Code while the rights of a non- employee are defined by the terms of his contract. In general, we can say that an employment relationship is more restrictive in nature while a consultancy or freelance agreement has more leeway.
Control is the single most important factor in determining whether the person you hired is an employee. This pertains to control over the means and methods of doing the work. Generally, the employee's work performance is subject to your control while a consultant's service is not, except only as to the desired result. While the employee does his work under your supervision, the consultant renders service using his own means, styles and methods, free from your control; your only concern is the delivery of the result. To otherwise ensure which kind of relationship you are getting into, it is important to define everything under a written contract, especially if your intention is to enter into a consultancy agreement. Not only that, you have to make sure that the actual execution is consistent with what is written.
Part II: Employee or consultant?
To hire someone as an employee or a consultant will depend on three important factors.
First is control. An employee is someone you supervise from the get go, from the processing of the work all the way up to the delivery of the output. A consultant is someone you control only with respect to the output. An employee reports in your office on a regular basis, say for at least 8 hours, and is subject to your company policy including rules on attendance and punctuality. A consultant is not required to report at your office on a regular basis. He may have his own office and may service other clients. So deciding whether to hire an employee or to engage the services of a consultant depends on how much control you want to exercise.
Second is professional expertise. A consultant is generally perceived to be an expert in a particular area. He is usually a professional with vast experience in his field of expertise, like a lawyer, an accountant, an engineer, etc. While this may also be true with respect to an employee, an employee is usually someone who needs further guidance, training and close supervision.
Third is your hiring goal. What type of service do you want to get by hiring? What particular need do you want to address? If you need someone on a regular basis for at least 8 hours a day under your close supervision, then hire an employee. But if you need someone for his known expertise, without necessarily having to be supervised, then engage a consultant.
Part III: Employment options: regular, probationary or project
A regular employment is an arrangement where the employee has been engaged to perform work which is usually necessary in the business of the employer. If the work is usually necessary in the business of the employer, the presumption is that the employment is one of regular employment, unless there is an arrangement to the contrary, like that of a probationary employment or that of a project employment.
A probationary employment is that where the employee is on a trial basis, during which he has to meet the reasonable standards made known to him at the time of hiring, in order to qualify for regularization. A project employment is that where the employee is engaged for a specific project, the completion or termination of which has been determined at the time of hiring. While a probationary employment should not exceed a period of 6 months, a project employment is coterminous with the duration or completion of the project.
In a probationary employment, the employer, before or upon the end of the probation, has to make a decision whether or not to regularize the probationary employee based on the former’s assessment of the latter’s performance. In a project employment, the completion of the project shall bring about the end of the project employment.
Indeed, consistent with the employer’s prerogative to select whom to hire, the employer has the discretion to put a new employee under probation first before giving him regular status. In certain cases, the employer is also allowed to hire an employee on a temporary basis, such as for a particular project or a limited undertaking.
To be clear, the employer should specifically spell out the employment status at the time of hiring, especially when the arrangement is one for probation or for project, and then see to it that the terms of the arrangement are being observed from the time of hiring up to the end of the contract or employment. In the end, the validity of the arrangement shall be tested based on its consistency with our labor laws.
Walk-in Settlement: a better mode of executing a labor settlement
The preferential use of voluntary modes in settling disputes between workers and employers for the promotion of industrial peace is well recognized in the Constitution and the labor laws.
Any labor issue may be settled by the company and the employee between themselves. They can do the settlement right at the workplace, often times with the assistance of a notary public to make the agreement under oath. The only concern here is that there are instances where an employee still files a labor case, even after the settlement to question its validity by raising issues on voluntariness of the settlement, sufficiency of the consideration, etc. Once a labor case is filed, the Labor Arbiter cannot just dismiss the case by reason of the previous settlement signed before a notary public, as he is still mandated to look into the complaint and evaluate its merits, unless the complainant withdraws the case.
This is where the process of “walk-in settlement” at the National Labor Relations Commission comes in. This can be completed on the same day that it is initiated. If the company and the employee have already decided to settle, it may not be enough to execute the settlement before a notary public. Just to put aside the possibility that the employee will still file a case after signing a quitclaim, the company has the option of presenting the settlement agreement to the Labor Arbiter’s Office right away precisely for the purpose of executing the settlement there and asking the Labor Arbiter to approve it. The parties need only to go to the NLRC, where the employee will fill out the usual complaint form but with the note that it is for “walk-in settlement”.
After accomplishing the complaint form, the matter will be raffled off to a Labor Arbiter, who shall then meet the parties, ask questions to confirm that the complainant is entering into a settlement voluntarily and that he understands the terms of the settlement, including the effect of receiving any compromise amount from the company. Once the Labor Arbiter is satisfied that the settlement is voluntary, reasonable and valid, he will ask the complainant to sign a quitclaim in favor of the company, waiving all his rights in relation to the complaint. The quitclaim will then be the basis for the Labor Arbiter to issue an Order recognizing and approving the settlement. This Order shall be binding on the parties and shall be considered as “with prejudice”, which serves to prevent the complainant from pursuing any further action against the company with respect to the issues raised in the complaint.
Indeed, while a settlement between the company and the employee before a notary public is always welcome, if given a choice, there is nothing better than having the settlement executed right before the Labor Arbiter if only to remove any chance that the issue that has been settled will only be raised again in a labor complaint.
In essence, a “walk-in settlement” has the same effect as any other settlement of labor complaints executed before the Labor Arbiter. The only difference is that in a “walk-in settlement”, the complainant has already decided to enter into a settlement at the time that he is filing the complaint and he, along with the company, would merely want the Labor Arbiter to sign off on it. This cannot be said of the usual labor complaints where the complainant and the company have yet to explore the possibility of settlement.
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