This Q&A is part of the publication designed to provide insights into hiring remote workers in Asia Pacific by members of the Employment Law Alliance (ELA). SyCip Salazar Hernandez & Gatmaitan (SyCipLaw) contributed the guide for the Philippine jurisdiction. You may access the complete publication at the ELA website.
Q. Is it possible for a foreign jurisdiction entity to hire remote workers in your country? What are the basic legal requirements (if any) for hiring remote workers from a foreign jurisdiction (contractor vs. employee; work permits, VISAs, business registration in foreign country; which local laws will apply; benefits and compensation, etc.)?
A. Yes, it is possible for a foreign jurisdiction entity to hire remote workers in the Philippines as contractors without the need to establish a business presence in the country, as opposed to hiring the remote workers as employees, which would require a foreign jurisdiction entity to establish a business presence in the Philippines. The terms of the contracting arrangement, e.g., benefits and compensation, procedure for termination, etc., are left largely to the mutual negotiation and agreement of parties as opposed to the terms of an employment arrangement, which is subject to the terms of the local employment laws and is highly regulated by labor authorities. Foreign nationals seeking to work remotely for a foreign jurisdiction entity from the Philippines may enter the country only under a temporary visitor or other visa arrangement. They are generally not eligible to apply for a work permit or work visa as these applications will require a local sponsoring entity.
Q. What are the common risks involved in hiring cross-border workers (data privacy and security; monitoring productivity and communications; wrongful dismissal; dispute resolution; permanent establishment risk; workplace safety; tax implications, vicarious liability, etc.)?
A. The most common risk involved in hiring cross-border workers in the Philippines is mischaracterizing the working relationship between the parties. In the Philippines, the contractual relationship is defined by law and not by the parties. This means that notwithstanding the agreement of the parties, i.e., notwithstanding that the agreement is captioned as a contractor agreement, a remote worker who is hired as a contractor may be declared an employee by our courts and regulators. In such case, the remote worker may claim protection under local employment laws.
Our courts and regulators use several tests to determine whether an employment relationship exists, but the most important test used in our jurisdiction is the “control test.” The “control test” is based on the extent of control the client exercises over the contractor. Our courts have invariably ruled that an independent contractor should carry on an independent business and undertake the contract work on his own account, under his own responsibility, according to his own manner and method, and free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof. In practical terms, this means that the client should not exercise “day-to-day” control over the contractor. to establish a business presence in the Philippines; employment-related claims from its remote workers, i.e., as an employer, it may be asked to pay minimum statutory benefits and comply with social welfare legislations, etc.; and it may be deemed vicariously liable by third parties for the acts of its remote workers in the Philippines, i.e., in the Philippines, employers are liable for the damages caused by their employees who are acting within the scope of their assigned tasks.
Q. Can the foreign jurisdiction entity impose its foreign law as the governing law on the remote worker’s contract? What are the risks in doing so?
A. In a contracting arrangement, the parties are free to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. In this connection, Philippine courts will uphold a choice of foreign law provided there is substantial connection between any of the parties or the transactions and the country whose laws are chosen as the governing law. Thus, the parties may agree to use the law of the home country of the foreign jurisdiction entity as the governing law of their contract as there would be substantial connection of said law to the parties and the transaction. Notwithstanding the above, however, Philippine law may still apply with respect to certain matters such as those bearing upon the authority and capacity of the contractor to enter into and perform the agreement. If foreign law will be asserted in a Philippine court litigation, such foreign law has to be proved before Philippine courts. Otherwise, such foreign law will be presumed to be the same as Philippine law on the disputed matter.
Q. Can the foreign jurisdiction entity require disputes in the remote worker’s contract to be submitted to its own country’s court (i.e., the dispute forum is foreign to the remote worker)? What are the risks in doing so?
A. In a contracting arrangement, the parties may agree to submit their disputes to the foreign jurisdiction entity’s court. However, such agreement will not oust a Philippine court of its jurisdiction to hear and rule on an action to enforce the agreement in a proper case brought before it. In other words, an agreement as to venue shall be deemed as non-exclusive, such that there is a risk of a conflicting judgment by a Philippine court that may assume jurisdiction over parallel proceedings.
Furthermore, while a foreign judgment obtained against a Philippine resident would generally be recognized and enforced by the courts in the Philippines without re-examination of the issues, there is still a risk of non-enforcement if the oppositor is able to establish that (a) the foreign court did not have jurisdiction in accordance with their jurisdictional rules, (b) the Philippine resident had no notice of the proceedings, (c) such judgment was obtained through collusion or fraud or was based on clear mistake of law or fact, or (d) the foreign judgment is contrary to public policy, which could be made to apply especially to rulings that are violative of labor protection policies, e.g., no “at-will” termination, under Philippine law.
Q. Are there any specific laws and/or best practices which apply to remote workers in your jurisdiction?
A. The hiring of remote workers as contractors is primarily governed by the Philippine Civil Code. In a contracting arrangement, the parties are free to stipulate the terms and conditions of their contract as long as they are not contrary to law, morals, good customs, public order or public policy. Meanwhile, the hiring of remote workers as employees by a foreign jurisdiction entity will trigger the business licensing requirements under the Revised Corporation Code (and other relevant regulatory laws in the Philippines) as it will be deemed to be doing business in the Philippines. The employment relationship between the foreign jurisdiction entity and the remote worker-employee shall be primarily governed by the Labor Code of the Philippines. In an employment arrangement, parties are likewise free to stipulate the terms and conditions of their contract as long as they are not contrary to law, morals, good customs, public order or public policy. For example, the parties may not stipulate that an employee may be paid a salary lower than the government-mandated minimum wage or that an employee may be terminated “at will” because termination of an employee without cause is prohibited under the Labor Code of the Philippines. It would be deemed best practice for the parties to consult their respective counsel to ensure the proper characterization of the working relationship between the parties.
Originally published by Employment Law Alliance.