Contracting and sub-contracting arrangements are commonplace in most business transactions. Instead of hiring their own messengers, janitors and security guards, among others, entrepreneurs have learned the value of outsourcing these services to contractors. Truth be told, contracting out these jobs is actually more cost-efficient in terms of time and money for the usual businessman. However, contracting arrangements are regulated by Philippine labor laws to ensure that these arrangements do not result in the exploitation of contractual employees.

Last 14 November 2011, the Department of Labor & Employment (“DOLE”) issued Department Order No. 18-A, Series of 2011 (“DO 18-A”). Section 4 of DO 18-A states that contracting or subcontracting shall be legitimate if all the following circumstances concur:

(a) The contractor is registered with DOLE and carries a distinct and independent business and undertakes to perform the job, work or service on its own responsibility, according to its own manner and method, and free from control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;

(b) The contractor has substantial capital and/or investment; and

(c) The Service Agreement ensures compliance with all the rights and benefits under Labor Laws.

Furthermore, the contractor’s employees shall be entitled to all the rights and privileges as provided for in the Labor Code to include the following:

(a) Safe and healthful working conditions;
(b) Labor standards such as but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13th month pay, and separation pay as may be provided in the Service Agreement or under the Labor Code;
(c) Retirement benefits under the SSS or retirement plans of the contractor, if there is any;
(d) Social security and welfare benefits;

(e) Self-organization, collective bargaining and peaceful concerted activities; and
(f) Security of tenure.

In fact, it is required that the Employment Contract between the Contractor and Employee include the following terms and conditions:

(a). The specific description of the job, work or service to be performed by the employee;

(b). The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual employee; and

(c). The term or duration of employment that must be co-extensive with the Service Agreement or with the specific phase of work for which the employee is engaged.

A salient feature of DO 18-A is the mandatory registration of all contractors with the DOLE. A Certificate of Registration is good for 3 years. Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting, which is prohibited. Hence, it is strongly advised that contractors register with DOLE, not only in compliance with DO 18-A but also as a preventive measure to avoid problems in the future concerning labor claims and cases filed by employees.

Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392.