CONTRACTING OUT PERFORMANCE OF WORK OR SERVICE

CONTRACTING OUT OF SERVICES IS AN EXERCISE OF BUSINESS

MANAGEMENT EXCEPT WHEN:
1. Management acted in a malicious
2. or arbitrary manner

! AN INDEPENDENT/JOB CONTRACTOR IS NOT AN EMPLOYEE

THERE IS SOLIDARY LIABILITY ONLY:

1. when the obligation expressly so states or
2. when the law or the nature of the obligation requires solidarity

WHY BUSINESSMEN RESORT TO HIRING CONTRACTORS:

1. Economy, Expertise, Efficiency
2. to spare the principal from liabilities and problems on labor relations arising out of
employer-employee relationship

KINDS/TYPES OF CONTRACTORS:
1. Job Contracting
2. Labor-Only Contracting (prohibited)

CONDITIONS IN LEGITIMATE JOB CONTRACTING:

1. the contractor carries on a distinct and independent business and undertakes to perform
the job, work or service on its own account and under its own responsibility, according to
its own manner and method and free from the control and direction of the principal in all
matters connected with the performance of the work
2. the contractor has substantial capital or investment
3. the agreement between the principal and the contractor assures the contractual
employees entitled to all labor and occupational safety and health standards, free exercise
of the right to self-organization, security of tenure, and social and welfare benefits

* Labor-Only Contracting (prohibited) – an arrangement where the contractor merely

recruits, supplies or places workers to perform a job, work or service for a principal and
the following elements are present:
a. contractor has no substantial capital or investment in the form of tools,
equipments, machineries, work premises and work materials necessary for the
conduct of the business
b. the employees recruited, supplied or placed by such contractor performed
activities directly related to the main business of the principal

LIABILITY OF AN EMPLOYER WHO ENGAGES THE SERVICES OF A JOB

CONTRACTOR DISTINGUISHED FROM ONE WHO IS A LABOR-ONLY
CONTRACTOR:
1. An employer who enters into a job contract with a job contractor is under obligation to
pay the employees of the contractor in accordance with the Labor Code. Said contract
does not however, create an employer-employee relationship between the principal and
the employees of the contractor. However, if the contractor fails to pay the wages of his
employees, the principal becomes jointly and severally liable with the contractor.
Liability is limited to wages, wage-related matters and other labor standard benefits
2. Where the contractor engaged is labor-only, the contractor is deemed the agent of the
principal. The liability of the principal is comprehensive; it is not limited to payment of
wages and wage-related matters but extends to all other provision of the LC including
labor relation concerns. Where there is finding of labor-only contracting, there is deemed
existing an employer-employee relationship between the principal and the labor-only
contractor including the latter’s workers. The relationship is attributed by the law itself

LEGITIMATE JOB/INDEPENDENT CONTRACTOR DISTINGUISHED FROM

LABOR-ONLY CONTRACTOR
1. Legitimate job contracting – no employer-employee relationship exists between the
employees of the job contractor and the principal employer. However, since the principal
employer is considered the indirect employer, he becomes jointly and severally liable
when the job contractor for a limited purpose.
2. Labor- only contractor – an employer-employee relationship is created by law between
the principal employer and the employees of the labor-only contractor. The contractor
here is considered only as the agent of the principal employer who is responsible to his
employees of the contractor as if such employees had been directly employed by the
principal employer. The principal employer is jointly and severally liable with the labor-
only contractor. Principal employer’s liability is comprehensive

THE PRINCIPAL MAY ENGAGE THE SERVICES OF A CONTRACTOR /

SUBCONTRACTOR FOR THE PERFORMANCE OF ANY OF THE FF:
1. works/services temporarily or occasionally needed to meet abnormal increase in the
demand of the products or service. Provided the normal production capacity of regular
workforce of the principal cannot reasonably cope with such demands
2. work/services temporarily or occasionally needed by the principal for undertaking that
required expert or highly technical personnel to improve the management or operation of
the enterprise
3. work/services temporarily or occasionally needed for the introduction or promotion of
new products but only for the duration of the introductory or promotional period
4. work/services not directly related or not integral to the main business or operation of
principal including casual work, janitorial security, landscaping and messengerial
services and work not related to manufacturing processes in the manufacturing
establishments
5. services involving the public display of manufacturer’s products which does not
involve the act of selling or issuance of receipts or invoices
6. specialized works involving use of some particular, usual or peculiar skills, expertise,
tolls or equipment, the performance of which is beyond the competence of the regular
workforce or production capacity of the principal
7. unless a reliever system is in place among the regular workforce, substitute services for
absent regular employees. Provided that the period of service shall be coextensive with
the period of absence and the same is made clear to the substitute employee at the time of
the engagement.

APPLICATION FOR REGISTRATION OF CONTRACTOR/SUBCONTRACTOR IN

THE DOLE REGIONAL OFFICES & BUREAU OF LOCAL EMPLOYMENT:
1. name and business address of applicant and area where it seeks to operate
2. name and address of its officers in the case of applicant corporation or partner
3. nature of applicant’s business and industry where application seeks to operate
4. list of actual contracts
5. capitalization and other assets of applicant which are actually and directly used in its
operations

ANNUAL REPORT OF CONTRACTOR TO DOLE INCLUDES:

1. lists of contracts entered into during the subject reporting period
2. certification from the SSS, HDMF that the contractor or subcontractor has been
making monthly remittances due its contractual employees during subject reporting
period

WHEN THERE IS SOLIDARY LIABILITY:

1. when there is a contractual stipulation that the obligation is solidary
2. when the nature of the obligation requires the liability to be solidary
3. when the law declares the obligation to be solidary

TRILATERAL RELATIONSHIP IN LEGITIMATE CONTRACTING:

1. the Principal – farms out a job, work or service to a contractor/subcontractor
2. the Contractor/Subcontractor – which has the capacity to independently undertake
performance of the job, work or service
3. Contractual Employees – worker engaged by the contractor/subcontractor

CONSEQUENCES WHERE THE CONTRACTOR IS FOUND TO BE LABOR-ONLY:

1. labor-only contractor is deemed only as the agent of the principal and therefore, its act
of hiring its contractual employees is deemed the act of the principal
2. employees hired by the labor-only contractor become the employees of the principal
as if they were directly hired by the principal itself
3. The principal is considered under the law as the employer for a comprehensive purpose
covering both labor standards and labor relations concerns and other labor law violations
4. liability of the principal versus claims of employees of the labor-only contractor is not
only solidary but also direct

PROHIBITED/DISALLOWED ACTS:
1. Contracting out job, work or service when not done in good faith and not justified by
the exigencies of the business which results in termination of regular employees and
reduction of work hours or reduction or splitting of the bargaining unit
2. Contracting out of work to a CABO (a labor group or group of persons which, in the
guise of a labor organization, supplies the worker to an employer)
3. Taking advantage of the economic situation or the lack of bargaining strength or
undermining his security of tenure or basic rights or circumventing the provisions of
regular employment in:
a. requiring to perform functions currently being performed by regular employees of
the principal or of the contractor/subcontractor
b. requiring to sign as precondition of employment or continued employment,
antedated resignation letter, waiver of labor standards including minimum wage,
social and welfare benefits or a quitclaim releasing the principal, contractor or
subcontractor from liability as to payment of future claims
c. requiring to sign a contract fixing the period of employment to a shorter term than
the term of the contract between the principal and the contractor unless the
contract is divisible into phases for which substantially different skills are
required and this is made know to the employee at the time of his engagement
4. Contracting/subcontracting through an in-house agency
5. By reason or occasion of a strike or lockout, contracting/subcontracting a job, work or
services directly related to the principal’s business or operation
6. Contracting/subcontracting of a job, work or services being performed by union
members when such will interfere with, restrain or coerce employees in the exercise of
their right to self-organization

RIGHTS OF CONTRACTUAL EMPLOYEES (EMPLOYEES OF

CONTRACTOR/SUBCONTRACTOR):
1. Generally, all the rights of regular employees
2. Specifically: safe and healthful working conditions
3. Labor standards benefits such as SIL, Rest Day, Overtime Pay, Holiday Pay, 13th
Month Pay and Separation Pay in proper cases
4. Social security and welfare benefits
5. Self-organization (unionism) and collective bargaining as well as peaceful concerthed
actions
6. security of tenure

EFFECT OF TERMINATION OF EMPLOYMENT OF CONTRACTUAL

EMPLOYEES:
1. Separation pay or other related benefits governed by the LC and existing jurisprudence
on termination of employment (if prior to expiration of contract bet. Principal and
con/subcontractor unless divisible into phases and worker was hired for a particular
phase)
2. Not entitled to separation pay if termination results from
a. expiration of contract between principal and con/subcontractor
b. completion of the phase of the job, work or service for which the contractual
employee was engaged

TERMS & CONDITIONS OF CONTRACT BETWEEN CON/SUBCONTTRACTOR

AND CONTRACTUAL EMPLOYEE:
1. in writing and includes specific description of job, work or service
2. place of work and terms and conditions of employment, wage rate and term and
duration of employment which shall be coextensive with the contract of the principal or
with the specific phase for which the worker was engaged

GROUNDS FOR DELISTING OF CONTRACTOR/SUBCONTRACTOR:

1. Non-submission of contract between principal and con/subcontractor when required to
do so during labor inspection by the DOLE
2. Non-submission of Annual Report
3. Finding that con/subcontractor is engaged in labor-only contracting, any of the
prohibited acts under Sec. 6
4. Non-compliance with labor standards and working conditions

DUTIES OF CONTRACTOR AND PRINCIPAL:

1. To produce copy of the contract between principal and contractor during labor
inspection by the DOLE, copy of the contract of contractual worker when directed to do
so by the DOLE RD or his authorized representative
2. Furnish bargaining agent (labor union) copy of the contract between contractual
employee and contractor
3. Contractor to submit Annual Report