Employment Contract

What is an Employment Agreement?

An Employment Agreement is a contract between an employer and an employee in the Philippines. It can be used for different types of employment such as probationary employment, regular employment, project employment, seasonal employment, fixed-term employment, or casual employment.

While the law does not require a written agreement for an employer-employee relationship to arise, the employment contract can be seen to determine this relationship. Namely, if there is a statement in the contract:

• That the employee is being hired,
• That there are payments of salary,
• That the employee can be dismissed due to failure to perform his job or noncompliance with the rules of the employer, and
• That the manner and results of the employee's work are under the control of the employer.

What are the different types of employment?

This Employment Agreement covers the following types of employment:

• Regular Employment. Regular employees are those employed as permanent employees and can only be dismissed for just and authorized causes such as poor performance, misconduct, or redundancy.
• Probationary Employment. In probationary employment, an employee is hired on a probationary basis to allow the employer to evaluate the qualifications or capacity of the employee. The probationary employee must be given the standards upon which he shall be evaluated and said standards must be explained to him. The probationary employment cannot exceed 6 months. If the probationary employee passes his evaluation, he becomes a regular employee.
• Project Employment. A project employee is hired for a specific undertaking or project. His employment ends upon the completion of the project. The date of completion of the project must be determined at the time of engagement of the employee.
• Seasonal Employment. A seasonal employee is hired for a specific period or season of the year.
• Fixed Term Employment. Employment with a fixed period means that the employment is for a fixed period of time that has been voluntarily agreed upon by the parties and is not designed to circumvent labor laws.
• Casual Employment. A casual employee is one doing work that is not usually necessary or desirable to the employer and is not a project, seasonal, or fixed-period employee.

For other types of employment agreements, the following can be used:

• Probationary Employment Agreement. This is a contract between a new employee and an employer where the employee will be hired on a probationary status for a period of 6 months. This should be used if this will be a stand-alone probationary Employment Agreement.
• Domestic Work Agreement. This contract, also known as a Kasambahay Contract, is an agreement whereby an individual called a domestic worker will perform household work in favor of the employer who should also be an individual person.

What is the most common type of Employment Agreement?

The most common type of Employment Agreement is the Probationary Employment Agreement. This is a practice in the Philippines where employers usually want to test or determine the capability of the employee to perform his work usually for a period of 6 months. After this period, then the employee may become a regular permanent employee if he succeeds in meeting the employer's work standards.

What is the difference between an Employment Agreement and a service agreement?

An Employment Agreement and a service agreement are both ways to contract the service of a person.

The main difference lies in the fact that for Employment Agreements, the employee's performance of work is under the control of the employer, not only in the manner by which it is performed but also with its results. With a service agreement, on the other hand, the service provider (also called an independent contractor) has autonomy with the performance of his work, which means he has the authority to work using his own methods and generally on his own time. The following guide will explain this in detail: The Difference Between Independent Contractors and Employees.

Is it mandatory to have an Employment Agreement?

No. A written Employment Agreement is not necessary as the law does not require any form of written Employment Agreement to prove the existence of an employer-employee relationship. However, this is encouraged to help the employee understand the expectations of the employer and to lay down the terms and conditions of the employment. A written Employment Agreement is also easier to prove, thus in case there will be a case brought to the labor courts (i.e. National Labor Relations Commission) regarding the employment, the employment contract may be used as evidence.

What are the rules on work hours in an Employment Agreement?

The standard work hours are 8 hours per day, with a maximum of 48 hours per week. The employee is entitled to an additional 25% of the regular hourly rate if he works overtime or beyond a period of 8 hours unless otherwise permitted by the nature of employment.

Note that the employer can arrange that an employee could work for less than 8 hours as in the case of part-time employment. Note further, that under the law, lunch breaks of 1 hour are not paid as this is excluded from the counting of 8 hours, however, short rest periods are counted as working hours.

What are the rules on minimum wage in an Employment Agreement?

The minimum wage depends on wage orders issued by the Regional Tripartite Wages and Productivity Boards (RTWPBs) of the region where the employer's premises are located. Employers are mandated to pay their employees the minimum wages applicable to their region, but employers may opt to increase the wages beyond the minimum rate. Note that the prevailing minimum wage in Metro Manila is PHP 610 per day (work performed for 8 hours).

How is the payment of the wages done in an Employment Agreement?

Wages should be paid in cash to the employee and should be done at biweekly or once every two weeks, or twice a month, and the intervals of payment of wages should not exceed 16 days.

Note that the employer is not permitted by law to pay wages other than in the form of cash, and the manner of payment may be agreed upon by the employer and employee e.g. bank transfer or check. Thus, if the employer pays the employee merchandise for the work done, this will be considered an illegal payment of wages. Nothing, however, prevents the employer from providing benefits for the employee of things other than cash so long as the employee is paid the minimum wage.

What must an Employment Agreement contain?

An Employment Agreement contains the following information:

• Information concerning the identity of the employer and the employee,
• The duties and responsibilities of the employee if these will be specified,
• The policies or rules and regulations of employment,
• The location where the employment will be performed,
• The compensation for the employment,
• The benefits that will be provided by the employer,
• If desired by the employer, a prohibition on the employee against performing acts that compete with the employer,
• If desired by the employer, a prohibition on the employee against divulging or disclosing information about the employer, and
• The term or duration of the agreement.

What is not allowed in an Employment Agreement?

Employment Agreements are given great importance under the law as compared to other types of contracts which is why they must be compliant with the minimum requirements provided for by law. The law provides for minimum benefits and wages which the employees are entitled and this cannot be denied by the employer. To name a few:

• The employee cannot be denied the proper benefits mandated by law such as SSS, Pag-Ibig, and Philhealth.
• The employee cannot be paid a wage lower than the prevailing minimum wage. (The prevailing minimum wage is PHP610.00)
• The employee cannot be denied the right to humane working conditions, i.e. he should only be permitted to work for 8 hours a day subject to overtime pay if he works beyond 8 hours.
• The employee should be entitled to a night shift differential (10% of the basic pay) in case he will be working at night or within the hours of 10:00 PM and 6:00 AM.
• The employee cannot be dismissed outright by the employer. The employee should only be dismissed for just and authorized causes such as such as poor performance, misconduct, or redundancy.

What are the prerequisites of an Employment Agreement?

If required by the employer, the employee must undergo a pre-employment medical examination to determine the employee's fitness to work.

Further, the employee should obtain a National Bureau of Investigation Clearance before the start of employment. This is the usual requirement among all of the employers in the Philippines.

Who can enter into an Employment Agreement?

The parties to an Employment Agreement will be the employer and the employee. The employer may be an individual or an organization. If the employer is an organization, then the Employment Agreement may be signed by an authorized representative of the same, e.g. Human Resources Manager.

Note that an employee should be at least 18 years of age to be able to work. However, minors may also be employed if they are working under the responsibility of their parents and as long as they do not perform hazardous work.

What is the duration of an Employment Agreement?

The duration of an Employment Agreement depends on the type of employment:

• Regular Employment. Regular employees are permanent employees, thus this can last indefinitely unless the employee is dismissed for just and authorized causes.
• Probationary Employment. In probationary employment, an employee is hired on a probationary basis for a period of 6 months.
• Project Employment. This may last for the duration of the project.
• Seasonal Employment. This may last for a specific period or season of the year.
• Fixed-term Employment. This ends after a fixed period of time.

What has to be done once the Employment Agreement is ready?

At least two original copies Employment Agreement should be printed and signed by both the employer and the employee, and each party should keep their own copies. It is the choice of the parties if they want to acknowledge the agreement before a Notary Public. Acknowledgment will make it easier for the agreement to be enforced against either party.

If the document will be acknowledged before a Notary Public, three original copies must be printed, one for the Notary Public and one for each party. Then the original copies must be presented and signed in front of the Notary Public.

Which documents should be attached to an Employment Agreement?

The following documents may be attached to the Employment Agreement, if applicable:

• The document showing the duties and responsibilities of the employee, such as an employee handbook or a company policy document,
• If the employee is hired on a probationary basis, the document showing the standards for the regularization of a probationary employee may be attached,
• The document listing the benefits that will be provided by the employer,
• The document that lists the policies that will be imposed by the employer, such as leave policies, human resource policies, etc.

Is it necessary to notarize an Employment Agreement for it to be valid?

No. Notarization is not mandatory, but the employer and employee can choose to do so. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

Is it necessary to register the Employment Agreement?

Employment agreements do not require registration before the Department of Labor and Employment if the employment will be done locally. However, if the employee will be an Overseas Filipino Worker (OFW), then registration and requirements needed by the Philippine Overseas Employment Administration, should be obtained.

Note that this Employment Agreement is only applicable to local employment.

What are the costs involved in the finalization of an Employment Agreement?

Notarization fees for an Employment Agreement are typically PHP100 to PHP500.

Which laws are applicable to an Employment Agreement?

The Labor Code of the Philippines is the law that governs employment in the Philippines. The Department of Labor and Employment also issues Department Orders to implement the laws found in the Labor Code and sets the daily minimum wage rates.

The general rules on contracts and obligations found in the Civil Code of the Philippines also apply.

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