Rodrigo Duterte vetoed a measure that would have ended companies' practice of hiring workers on short-term contracts on Friday, reneging on a campaign promise that helped put the Philippines President in office.
Filipino law allows employers to hire workers by using contracts that avoids giving employees permanent job status and provide health and other benefits after six months.
"Security Tenure Bill vetoed by the president," spokesman Salvador Panelo said, but did not elaborate why Mr Duterte threw out a bill he had called an urgent matter in September.
Without the veto, the bill would have become law on Saturday. To override Mr Dueterte's veto requires a two-thirds vote of the members of each house of Congress.
Labour groups said Mr Duterte risked losing his political capital for turning away from the workers.
"It really hurts us because this is the president's campaign promise," said Alan Tanjusay, a spokesman of the Associated Labour Unions-Trade Union Congress of the Philippines, the country's biggest such grouping.
"'He said, 'I need a law to address contractualisation', and now that there is a law, he vetoed the bill."
Philippine Congress had overwhelmingly approved the measure, despite warnings by employers' groups and business chambers that it could cause harm to the economy.
Not only will it raise business costs, limiting the number of people they can hired, but they said the bill would drive away investors at a time when Manila seeks to attract foreign capital to boost economic growth and create jobs.
Foreign direct investment of $9.8 billion into the Philippines last year is dwarfed by South-east Asian nations such as Thailand and Indonesia, and the government is eager to boost the figure by slashing red tape and overhauling infrastructure.
"The passage of the bill could have a negative impact to the Philippine economy and to the workers whom the bill aims to protect", more than a dozen business groups, including foreign business chambers, said in a joint statement this month.
"The bill impinges on management prerogatives anchored on the constitution, and it excludes contract workers hired by government agencies."