Labor Rev
COMMON PROVISIONS
Contracting Refers to an arrangement whereby a principal agrees to put out or farm out with a contractor the performance or
Definition completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job,
work or service is to be performed or completed within or outside the premises of the principal.
Mandatory Mandatory Registration and Registry of Legitimate Contractors. Consistent with the authority of the Secretary of Labor
Registration and Employment to restrict or prohibit the contracting out of labor to protect the rights of workers, it shall be mandatory
for all persons or entities, including cooperatives, acting as contractors to register with the Regional Office of the
Department of Labor and Employment (DOLE) where it principally operates. Failure to register shall give rise to the
presumption that the contractor is engaged in labor-only contracting.
Construction DOLE, through its regional offices, shall not require contractors licensed by PCAB in the Construction Industry to
Industry not register under D.O. 18-A, Series of 2011. Moreover, findings of violation/s on labor standards and occupational health
mandated to and safety standards shall be coordinated with PCAB for its appropriate action, including the possible
register cancellation/suspension of the contractor’s license.
DIFFERENT PROVISIONS
Regulating Contracting and subcontracting arrangements are Non-permissible forms of contracting and subcontracting
Contracting expressly allowed by law and are subject to regulations arrangements undermine the Constitutional and statutory
for the promotion of employment and the observance of right to security of tenure of workers.
the rights of workers to just and humane conditions of
work, security of tenure, self-organization and collective
bargaining. Labor-only contracting as defined herein
shall be prohibited.
Trilateral Sec. 3. Sec. 9.
Relationship and
Solidarity In legitimate contracting or subcontracting arrangement In the event of violation of any provision of the LC, including
there exists: failure to pay wages, there exists solidary liability on the part
(a) An employer-employee relationship between the of the principal and the contractor for purposes of the
contractor and the employees it engaged to perform provisions of the LC and other social legislations, to the
the specific job, work or service being contracted; extent of the work performed under the employment
and contract.
(b) A contractual relationship between the principal
and the contractor as governed by the provisions of
Diploma
Labor Rev
(b) The contractor has substantial capital and/or his account, manner and method, investment in the
investment; and form of tools, equipment, machinery and supervision;
(c) The Service Agreement ensures compliance with
all the c) In performing the work farmed out, the contractor or
rights and benefits under Labor Laws. subcontractor is free from the control and/or direction of
the principal in all matters connected with the
performance of the work except as to the result hereto;
and
Labor-only contracting is hereby declared prohibited. Labor-only contracting, which is totally prohibited refers to
For this purpose, labor only contracting shall refer to an an arrangement where:
arrangement where:
a)
(a) The contractor does not have substantial capital i. The contractor or subcontractor does not have
or investments in the form of tools, equipment, substantial capital, or
machineries, work premises, among others, and
the employees recruited and placed are ii. The contractor or subcontractor does not have
performing activities which are usually investments in the form of tools, equipment,
necessary or desirable to the operation of the machineries, supervision, work premises, among
company, or directly related to the main others,
business of the principal within a definite or
predetermined period, regardless of whether iii. The contractor’s or subcontractor’s employees
such job, work or service is to be performed or recruited and placed are performing activities which are
completed within or outside the premises of the directly related to the main business operation of the
principal; or principal; or
(b) The contractor does not exercise the right to b) The contractor or subcontractor does not exercise the
Diploma
Labor Rev
control over the performance of the work of the right to control over the performance of the work of the
employee. employee.
Right to Control Refers to the right reserved to the person for whom the N/A
services of the contractual workers are performed, to
determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.
Violations of the Sec. In the event of any violation of any provision of the
Rules Labor Code, including the failure to pay wages, there
exists a solidary liability on the part of the principal and
the contractor for purposes of enforcing the provisions
of the Labor Code and other social legislation, to the
extent of the work performed under the employment
contract.
Termination of Where the termination results from the expiration of the Where the termination results from the expiration of the
Employment service agreement, or from the completion of the phase Service Agreement, or from the completion of the phase of
of the job, work or service for which the employee is the job or work for which the employee is engaged, the
engaged, the latter may opt for payment of separation latter may opt to wait for re- employment within three (3)
benefits as may be provided by law or the Service months to resign and transfer to another contractor-
Agreement, without prejudice to his/her entitlement to employer.
the completion bonuses or other emoluments, including
retirement benefits whenever applicable. Failure of the contractor to provide new employment for the
employee shall entitle the latter to payment of separation
benefits as may be provided by law or the Service
Agreement, whichever is higher, without prejudice to his/her
entitlement to completion bonuses or other emoluments,
including retirement benefits whenever applicable. The
mere expiration of the Service Agreement shall not be
deemed as a termination of employment of the
contractor’s/subcontractor’s employees who are regular
employees of the latter.
Required (a) Employment contract between the contractor and its a) Employment contract between the
Contracts employee. Notwithstanding any oral or written contractor/subcontractor and its employees.
stipulations to the contrary, the contract between the
contractor and its employee shall be governed by the Notwithstanding any oral or written stipulations to the
provisions of Articles 279 and 280 of the Labor Code, contrary, the contract between the contractor/subcontractor
as amended. It shall include the following terms and and its employees shall be governed by the provisions of
conditions: Articles 294 and 295 of the Labor Code, as amended,
i. The specific description of the job, work or service including the provisions on general labor standards. It shall
to be performed by the employee; include the following stipulations:
ii. The place of work and terms and conditions of i. The specific description of the job or work to be
employment, including a statement of the wage rate performed by the employee; and
applicable to the individual employee; and Ii. The place of work and terms and condition of
iii. The term or duration of employment that must be employment, including a statement of the wage rate
co-extensive with the Service Agreement or with the applicable to the individual employee.
specific phase of work for which the employee is
engaged. The contractor/subcontractor shall inform the employee of
the foregoing stipulations in writing on or before the first day
of his/her employment.
following:
i.The specific description of the job or work being
subcontracted, including its term or duration;
ii.The place or work and terms and conditions governing
the contracting arrangement, to include the agreed
amount of the contracted job or work as well as the
standard administrative fee of not less than ten
percent (10%) of the total contract cost; and
iii.A provision on the issuance of the bond/s as defined in
Section 3(a) renewable every year.
BPO’s not (V)endor-vendee relationship for entire business DO only applies only to trilateralrelationship which
covered processes covered by the applicable provisions of the characterizes contracting or subcontracting arrangement. It
Civil Code on Contracts is excluded. does not contemplate to cover information technology-
enabled services involving an entire business process such
- Contemplates generic or focused singular activity in as:
one contract between the principal and the contractor • Business Process outsourcing
(for example, janitorial, security, merchandising, specific • Knowledge Process Outsourcing
production work) and does not contemplate information • Legal Process Outsourcing
technology-enabled services involving an entire • Application development
business processes (for example, business process • Hardware and/or Software Support
outsourcing, hardware and/or software support, medical • Medical Transcription
transcription, animation services, back office • Animation Services
operations/support
• Back Office Support