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o DOLE Bureaus
o
clarify and quantify substantial capital, which has been the source
of litigation (the amount is the high-end of DTI capitalization
category for SMEs)
deter fly-by night and unscrupulous contractors from engaging in
subcontracting and profiteering through underpayment of wages,
non-remittance of collected SSS, Philhealth, or PagIBIG
contributions, non-payment of other labor standards benefits such
as overtime pay, and non-observance of occupational health and
safety standards resulting to workplace accidents (to protect the
principal or user enterprises and the workers)
o
Approximately, 200,000 workers under 2,624 registered
subcontractors will be covered (data as of Oct. 2011)
It also covers manpower cooperatives or cooperatives that engage
in subcontracting
1.
1.
1. Requiring an employment contract and Service Agreement.
2. Prescribing a standard form for Service Agreement (will be
checked through seal of Good Housekeeping)
3. Setting a standard administrative fee of at least ten (10) percent to
prevent the “race to the bottom” competition to the detriment of
workers.
4. Inclusion of cooperatives to observe the regulations on
subcontracting and the required registration with DOLE Regional
Offices to ensure their compliance to labor standards and
regulations.
5. Validity of registration is limited to the region where it is
registered. In case of Service Agreement outside the region where
registered, the subcon should submit a DOLE certified copy of its
registration to the region where it seeks to operate for registration
& monitoring purposes.
6. Development of co-regulation schemes with the tripartite
stakeholders.
7. Prohibition of repeated hiring of employees under an employment
contract of short duration (5-month employment contract) or
under a Service Agreement of short duration with the same or
different contractors.
8. 8.Underscoring observance of security of tenure by requiring
compliance with the clear standards of due process in termination
cases.
YES.
Subcontractor directly undertakes a specific job or service for a principal, and for this
purpose, employs its own workers.The PRPA merely recruits workers for the purpose
of placing them with an employer or company. It is not the employer of the workers it
recruited and placed. It is an agent of the employer.In subcontracting, the four-fold
test of E-E relationship should be satisfied by the subcontractor in relation to the
employees it engages to accomplish the subcontracted job or service. In such cases,
the subcontractor is also referred to as independent contractor. If the four-fold test is
satisfied by the principal, the principal becomes the employer of the employees
engaged by the subcontractor to accomplish the job or service. What exists is not
subcontracting but a direct employer-employee relationship between the principal and
the employees.
YES.
In an ordinary ER-EE relationship, there are only two parties involved - the employer,
who directly hires the employee, and the employee. Jurisprudence is well-settled that
to ascertain the existence of an E-E relationship, the four-fold test is applied.In
subcontracting, there are three parties involved: the principal, the subcontractor, and
the employees. The four-fold test is satisfied by the contractor/subcontractor.
c)The contractor does not exercise the right to control over the performance of the
work of the employees.
The Constitution, which mandates that the State shall protect labor and promote its
welfare, and shall guarantee basic labor rights including just and humane terms and
conditions of employment and the right to self-organization.
Article 106 of the Labor Code, which allows the Secretary of Labor to distinguish
between labor-only contracting and job contracting to prevent any violation or
circumvention of the Labor Code.
1.
1.
1. The subcontractor will be treated as the agent of the principal.
Since the act of an agent is the act of the principal, representations
made by the subcontractor to the employees will bind the
principal.
2. The principal will become the employer as if it directly employed
the workers engaged to undertake the subcontracted job or
service. It will be responsible to them for all their entitlements and
benefits under the labor laws.
3. The principal and the subcontractor will be solidarily treated as
the employer. 4.The employees will become employees of the
principal, subject to the classifications of employees under Article
280 of the Labor Code.
9. If the legitimate Subcontractor cannot pay the wages of the employees it
engaged to perform the job or service, will the principal automatically become
the employer of such employees?
NO.
Under Article 106 of the Labor Code, a principal has two types of liability in relation
to the employees of the subcontractor. The first type of liability is limited, and is
governed by the first two paragraphs of Article 106. Thus, mere inability of the
subcontractor to pay wages will not automatically make the principal the direct
employer. It will only make the principal jointly and severally liable with the
subcontractor for payment of the employees' wages to the extent of the work
performed under the contract.
The second type of liability, which arises from the third and fourth paragraphs of
Article 106, is absolute and direct. This liability arises when there is labor-only
contracting as defined in Section 6 of the new DO. In such cases, the principal shall be
responsible to the workers in the same manner and extent as if it directly employed
these workers.
YES.
The “5-5-5” or “endo” workers refers to the hiring practice that is deliberately
resorted to prevent workers from acquiring regular status by reason of length of
service of at least 6 months and one day. Under a subcontracting arrangement, this is
done through:
(a) repeated short-term arrangements (e.g., “5 months, 5 months”, “5-5-5”, or less) by
one principal through the same contractor, or under different contractors, or
On the other hand, the 5-5-5 working arrangement that is not repeated has been
declared by the SC in the Purefoods Case in General Santos, as in violation of public
policy as it has been shown to have been resorted to prevent regular employment.
12. Will DO 18-A S. 2011, be able to address the issue of declining union
membership which has been attributed by labor groups to indirect employment
schemes such as subcontracting?
Section 8 provides that all contractor’s employees are entitled to all the rights and
privileges provided in the Labor Code, and set out in subparagraph (e) the right to
self-organization, collective bargaining and peaceful concerted activities
13. Will it address the issue of violation of labor standards and occupational
health and safety standards by the subcontractors?
The new DO has improved on the existing enforcement and compliance mechanism.
The new DO also provides for an “opt-out” enforcement and compliance scheme.
Section 35, the principal and subcontractors may opt to enroll and participate in
DOLE programs on improving compliance with labor standards and OSH such as the
Kapatiran-WISE-TAV Program and Incentivizing Compliance Program (ICP)
YES.
15. What will happen to the workers, either the regular employees who are
terminated due to company's resort to contracting/subcontracting or the workers
employed by the subcontractor after the expiration of the Service Agreement?
For the contractor’s employees, DO 18-A provides that the E-E relationship is with
the contractor.
NO.
17. What does non-impairment of existing contracts mean and why is this
necessary?
Section 38 of DO18-A provides that rights or benefits being enjoyed by the parties to
existing contracting and subcontracting arrangements shall not be impaired.
Contracts referred to are those contracts executed and already being implemented
before the effectivity of DO18-A. Obligations, rights and benefits of parties to any
subcontracting arrangement prior to the effectivity of DO18-A shall not be
diminished.
Service Agreements entered into upon the effectivity of DO18-A (on 5 Dec. 2011)
and onwards will have to observe the requirements of the Rules on standard contracts.
DOLE registry of subcontractors that was established under DO 18, s. 2002, shall be
respected until the expiration of the Certificates issued in accordance thereto.
New subcontractors or those who will renew their registration shall be covered by the
requirements of the DO18-A. The requirements for registration includes full
disclosure and payment of P25,000.00 registration or renewal fee.
1.
1.
1. Minimum capitalization requirement of at least P3 Million fully
paid up capital for all subcontractors whether corporation,
partnership and cooperative; and a net worth of at least P3 Million
for single proprietorship
2. Proof of ownership or lease agreement on tools, equipment,
machineries and work premises
3. Payment of P25,000.00 registration fee
4. Proof of financial capacity to pay the wages and benefits of the
workers in every service contract using the Net Financial
Contracting Capacity (NFCC) formula in government
procurement
5. Control over the performance of the work of the employee
deployed or assigned to render the contracted work or services.
6. Not engaged in labor-only contracting arrangement as provided in
Section 6
7. Not engaged in prohibited activities enumerated in Section 7
8. Observes the rights of the workers as provided in Section 89)
Observes the required contracts under Section 9
9. Not delisted from the registry of legitimate
contractor/subcontractor
YES.
NO.
Job Order employees directly hired by the government are receiving above the
minimum standards or 20% more, which is similar to the casual loading concept in
Australia. Employees of janitorial and security agencies are covered. YES, cabo
system is covered and it is clearly prohibited.
22. What about the workers in the media of broadcast industry, are they
covered?
NO.
The NCR Broadcast Industry Tripartite Council have a draft guidelines on the
engagement through the “talent system”. However if they are hired through a third
party or there is a middle man that negotiates and deploy them to the network, such
arrangement may fall under the subcontracting arrangement.
23. What is the extent of the security of tenure of a contractual employee under a
subcontracting arrangement?
A contractual employee works for the duration of the Service Agreement between the
principal and the contractor, unless the arrangement is divisible into phases for which
substantially different skills are required and this is made known to the employee at
the time of engagement.
24. What are the rights of a contractual employee? Is there a difference between
a regular employees and a contractual employee?
(b) labor standards such as 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 are
any;
(e) self-organization, collective bargaining and peaceful concerted activities; and (f)
security of tenure.
25. Is the separation benefits available to direct contractual workers of the
principal? what about the retirement benefits?
YES.
YES.
Direct contractual workers of the principal are entitled to retirement benefits under the
SSS scheme unless the employer has a better retirement package.
YES.
Wage rates and “top of” benefits are different as regular employees observed the
company pay scale while contractual engagement may or may not be based on the
company pay scale. However it should not be below the minimum standards.
YES.
Wage rates and “top of” benefits are different as regular employees observed the
company pay scale while contractual engagement may or may not be based on the
company pay scale. However it should not be below the minimum standards.
28. What is the remedy of the worker against a subcontractor or principal who
violate the provisions of DO 18-A?
They can file a complaint for cancellation of the contractor’s registration before the
DOLE Regional Office. DO18-A provides for:
Grounds for cancellation of contractor’s certificate of registration
Requires the principal, as the indirect employer or the user of the services of the
contractor, to observe the provisions of the Rules.
5 December 2011
(15 days after its publication in the Philippine Star on 19 November 2011)
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