Senator Vicente C. Sotto recently introduced Senate Bill No. 2 entitled “An Act Requiring Employers in the Private Sector to Pay 14th Month Pay”.

The Bill provides for a mandatory payment of 14th month pay to all non-government rank and file employees every year “regardless of their employment status, designation and irrespective of the method by which their wages are paid provided that they have worked at least one month during the calendar year”.

ECOP submits that the business of an individual or a juridical person, entails property rights, and the State cannot force or coerce any person, from doing and ceasing business, subject only to limitations provided for by law. The right to enter into a legitimate business, is a right heavily protected under the Constitution. It includes the exercise the right to own an dispose property. Say for instances where public interest is involved, the state cannot unilaterally deprive any person of the exercise of its right to own or dispose its property.

ECOP further submits that the requirement of the 14th month payment constitutes undue interference in the exercise of management prerogative. Jurisprudence has reiterated time and again that the exercise of management prerogative is not subject to interference so long as it is done in good faith based on exigencies of business and not intended to circumvent the legal rights of labor.

The Bill likewise fails to understand the dynamics of the Philippine labor market. Notably nearly 90% of the establishments belong to the micro, while around 10% belong to the small establishments. As such, it is ECOP’s position that adding a non-productivity based 14th month pay would be the last straw that would break the viability of the micro and small establishments.

It should be emphasized that the cost of labor is one of the major cost factors of production. If the cost of labor as a factor input within the given set of inputs such as the 14th month pay is unduly raised, it would cost more to produce the same quantity of output and thus, the increased cost will eventually be passed on to the market.

Enterprises which could not pass on the said increased cost due to its competitors offering cheaper imports and smuggled goods would have no alternative but to retrench, close shop or go underground.

ECOP submits that the 14th month Bill is bad for business and therefore should not be endorsed.




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