Employee Rights During Agency Transfers and Contract Signing in the Philippines

(A practitioner-style explainer for workers, HR, and contractors; Philippine context)

This is general information on Philippine labor law. It’s not a substitute for legal advice on a specific case.

1) Why this topic matters

In the Philippines, many companies engage contractors/manpower agencies to supply workers. Sometimes the principal changes contractors (“agency transfer”), or workers are asked to sign new contracts—e.g., when a project ends, an asset sale happens, or a new vendor takes over the account. These transitions are fertile ground for errors that risk illegal dismissal, wage diminution, or benefit gaps. Knowing the baseline rights helps you spot—and prevent—violations.

2) Core legal pillars

Security of tenure Employees can only be dismissed for just or authorized causes using due process. A change of contractor or ownership, by itself, is not a just cause to end employment without the correct separation pay or continuity arrangements.
No diminution of benefits Benefits that are regularly, deliberately, and unconditionally given (by policy, CBA, or long practice) cannot be reduced unilaterally just because a contractor or employer changes.
Equal pay for equal work / Non-discrimination Where workers perform substantially similar work under similar conditions, paying them markedly less solely because they’re “agency” or “absorbed” employees risks a discrimination or ULP (unfair labor practice) issue.
Contracting and subcontracting rules
- Legitimate job contracting is allowed if the contractor has substantial capital/investment, exercises control over its employees, and assumes the risks of business.
- Labor-only contracting is prohibited. If found to exist, the principal can be deemed the employer, making workers regular with the principal, with all attendant rights.
- Principals are solidarily liable with legitimate contractors for wage and benefit claims of deployed workers.
Successorship & business transfers Effects on employees differ based on how the business changes hands:
- Stock sale / share transfer: The employer (corporation) remains the same legal entity. Employment continues; no termination or separation pay due solely to the sale.
- Asset sale / outsourcing / contract turnover: The original employer may lawfully end employment for an authorized cause (closure, redundancy), with separation pay and notices, while the buyer/new contractor may offer re-employment. There is no automatic duty to absorb, but refusing absorption to defeat tenure can be struck down.
Due process and notices
- Just causes (e.g., serious misconduct): twin-notice, hearing, and written decision.
- Authorized causes (redundancy, closure, retrenchment): 30-day prior written notice to both employee and DOLE, plus separation pay at statutory rates and payment of all accrued benefits.
Freedom of contract vs. anti-circumvention Fixed-term and project contracts are lawful when truly voluntary and not used to defeat tenure. Clauses that reset probation or insert waivers of statutory rights are unenforceable.

3) Agency transfers: what changes, what cannot

A. If the principal changes contractors (e.g., from Agency A to Agency B)

Who is your employer? Generally, the agency (contractor), not the principal. On a change of contractor, two common paths arise:
1. Absorption by the new contractor
  - Often arranged by the principal to ensure continuity.
  - Continuity of service: In practice, many principals require the incoming contractor to absorb incumbent workers performing the same functions. When service is seamless and the job is the same, tenure and wage levels should not be reset or diminished.
  - No “probation reset” just because a different contractor takes over for the same role. Re-probation to dilute tenure is a red flag and may be struck down.
2. Non-absorption / end of assignment
  - Your employment with the outgoing agency can continue if it has other deployments; otherwise, the outgoing agency must either reassign you or lawfully terminate for an authorized cause (e.g., lack of project) with proper notice and separation pay.
  - The incoming contractor may choose to hire fresh workers; however, contract swapping designed to bust tenure or union rights can be invalidated.
Wages and benefits New contracts cannot lawfully cut statutory pay and benefits. For non-statutory allowances/benefits, the non-diminution rule can still apply if those benefits have ripened by consistent, deliberate practice. A new contractor stepping into the same work arrangement should match or honor such benefits, unless there’s a valid, clearly explained basis for changes that do not violate law or existing CBAs.
Backwages, 13th-month, SIL, OT, premium pay These follow the period actually worked and the employer on record, with solidary liability of the principal for unpaid statutory monetary claims during the deployment.
Union and CBA continuity If the bargaining unit and work remain substantially the same, union rights and CBAs cannot be wiped out by merely rotating contractors. Attempts to fracture the unit or dilute membership through contractor changes can constitute ULP.
Personal data transfer Moving to a new contractor involves sharing worker data. Under data privacy principles, the principal/contractor should ensure lawful processing, adequate disclosure, and safeguards when transferring personnel files.

B. If the principal outsources a function for the first time

If regular employees are displaced due to outsourcing, that’s usually redundancy or closure of a department—an authorized cause requiring the 30-day notices and separation pay.
Offering “absorption” by the contractor at lower pay to avoid separation pay is risky. Employees can accept re-employment AND still be entitled to separation pay from their original employer if the latter invoked an authorized cause.

4) Contract signing (new, renewal, or transfer): clauses to watch

Employment status & term
- Regular vs. project/fixed-term: Project or fixed-term must be tied to a genuine project or period and mutually agreed—not imposed to avoid regularization.
- Probationary employment: Max 6 months from start of work, with reasonable standards communicated at hiring. A transfer of contractor performing the same role normally does not restart probation.
Job description & place of work
- Ensure the contract mirrors your actual duties and deployment site. Vague “any task anywhere” clauses that enable arbitrary demotions can be abusive if used to penalize or evade wages.
Wages and benefits
- Itemize basic pay, COLA, allowances, OT rates, night differential, rest day and holiday pay.
- No-diminution: If you previously enjoyed fixed allowances/bonuses by practice, seek express carry-over or a bridging letter.
Hours & schedules
- State regular hours, overtime rules, rest days, and on-call expectations. On-call without pay or unlawful compression can lead to claims.
Leaves & government-mandated benefits
- Service Incentive Leave (SIL) (at least 5 days if eligible), 13th-month pay, SSS/PhilHealth/Pag-IBIG coverage, and relevant special leaves (e.g., solo parent, VAWC leave) must be honored.
Separation & discipline
- Spell out just causes, authorized causes, and due process steps. Any clause waiving statutory separation pay or notices is void.
Non-compete / confidentiality / IP
- Non-compete must be reasonable in time, geography, and scope. Overbroad restraints are unenforceable.
- Confidentiality and IP assignment are generally valid if proportionate to the job.
Arbitration & venue
- Arbitration clauses can be valid, but labor standards/termination disputes remain within DOLE/NLRC jurisdiction. Venue stipulations cannot deprive you of access to statutory fora.
Acknowledgments & waivers
- Be wary of “I received all pay/benefits” or “I waive all claims” upon hiring or transfer; preemptive waivers of statutory rights are invalid.

5) Separation pay, notices, and what you’re owed in transitions

Authorized-cause termination (redundancy, closure, retrenchment, disease, installation of labor-saving devices):
- 30-day notice to employee and DOLE.
- Separation pay: Typically ½ month pay per year of service (closure not due to serious losses, retrenchment) or 1 month per year (redundancy/installation of devices). Use the higher scheme specified by law, CBA, or company policy.
- Proration for fractions of a year is customary.
- Final pay (including pro-rata 13th month, unused SIL, last salary) within timelines consistent with DOLE advisories.
End of project/fixed term (validly agreed):
- No separation pay is due unless required by CBA/company policy or the termination is actually an authorized cause in disguise.
Change of contractor (no authorized cause invoked):
- If work continues with the principal and the role remains, continuity (via absorption or continued employment) is the default expectation; otherwise, the outgoing employer must lawfully separate and pay what is due.

6) Special issues and gray areas

“Contract swapping” Rapid cycling of contractors to keep workers perpetually “new” or “probationary” can be struck down as bad faith and labor-only contracting.
Successor employer practices Even where absorption isn’t legally mandated (e.g., asset sale), courts scrutinize whether the transfer was used to evade obligations. Good-faith buyers aren’t automatically required to absorb, but separation pay and proper notices must have been given by the seller if employees were let go.
Back-to-back fixed terms Successive fixed terms for tasks that are usually necessary and desirable to the principal’s business point to regular employment, despite the labels.
Rebadging to contractor after redundancy Offering immediate re-hire by the contractor at a lower package does not erase the original employer’s duty to pay separation pay if it invoked redundancy.
Health, safety, and site rules New contractors must meet OSH standards. Workers can refuse unsafe work subject to OSH rules without retaliation.
Data privacy in workforce handover Transfer of 201 files and personal data requires a lawful basis, notice, and security measures. Workers can assert rights to access and correction of personal data.

7) Practical playbooks

For employees (checklist before you sign)

Compare your new offer line-by-line with your current package. Watch for hidden diminutions (allowances re-labeled, reduced differentials).
Ask if tenure will be bridged (recognition of past service for leave accruals, retirement eligibility).
Get written confirmation if the new contractor is “absorbing” you without probation.
Keep copies of your pay slips, policies, benefit summaries, and any emails promising retention/absorption.
If asked to sign a quitclaim, ensure full and final pay is accurate; a quitclaim won’t waive statutory rights.

For HR/principals/contractors (to stay compliant)

Bake absorption and non-diminution expectations into the service contract with the incoming contractor.
Run an authorized-cause playbook (30-day notices, separation computations) if positions truly cease.
Conduct and document a contractor legitimacy check (capitalization, tools, control test).
Preserve continuity of benefits or provide a clear, lawful bridging scheme.
Map data flows and issue a privacy notice covering the transfer.

8) Money matters: sample computations

Separation pay (redundancy): Monthly rate × 1.0 × years of service (prorate 6+ months as 1 year by practice).
Separation pay (retrenchment/closure not due to serious losses): Monthly rate × 0.5 × years of service.
13th-month pay: Total basic earnings in the calendar year ÷ 12 (pro-rata if partial year).
Service Incentive Leave payout: Unused SIL days × daily rate (if company allows conversion or upon separation if unused).

(Always check the CBA or policy if they provide better rates.)

9) Red flags that often lead to cases

“Sign this new contract at a lower rate if you want to stay on the same job tomorrow.”
“You’re a new probationary hire because there’s a new contractor.”
“No separation pay—we outsourced.”
“Your benefits reset to Year 0; tenure doesn’t carry over.”
“We can pay later; the principal hasn’t paid us yet.” (Worker pay cannot be delayed on that ground.)
“Sign this quitclaim now, we’ll compute later.” (Never sign without correct figures.)

10) Quick FAQs

Q: Do I automatically become regular with the principal if contractors rotate? A: Not automatically. But if the arrangement is labor-only contracting (contractor lacks capital/independence; principal controls work), you can be deemed a regular employee of the principal.

Q: Can the new contractor put me on probation again? A: Not for the same continuous role performed without a real break and when you were already regular or had completed probation. Re-probation to dilute tenure is suspect.

Q: I was let go due to contract turnover without 30-day notice or separation pay. A: That points to illegal dismissal or defective authorized-cause termination. You can claim reinstatement with backwages or separation pay in lieu, plus monetary claims.

Q: The new contract cuts my night differential/allowance. Allowed? A: Cutting statutory pay is never allowed. Reducing established non-statutory benefits may violate the non-diminution rule if those benefits have ripened by practice or policy.

Q: Who pays me if the agency disappears? A: The principal may be solidarily liable for unpaid statutory monetary claims for work you performed on its account.

11) Documentation you should keep

All employment contracts (old and new), service agreements excerpts (if given), policy manuals, CBAs, pay slips, time records, assignment letters, notice to DOLE/employee for authorized-cause cases, and final pay computations.
Any absorption letters or emails promising continuity of tenure or benefits.

12) Bottom line

An agency transfer or contract turnover cannot be used to reset tenure, erase statutory rights, or justify wage cuts.
If roles continue substantially the same, continuity (either via absorption or uninterrupted employment) and non-diminution are the guideposts.
Where roles genuinely cease, employers must comply strictly with authorized-cause rules: 30-day notices and correct separation pay.
Principals remain a safety net via solidary liability for statutory monetary claims tied to work done for them.

Need a quick review of your incoming contract?

Paste the anonymized terms (pay, allowances, status, probation, hours, separation/discipline, non-compete, venue) and I’ll flag issues and suggest compliant wording.