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DOLE DO 18-02 Republic of the Philippines DEPARTMENT OF LABOR AND EMPLO MENT !

nt"#$u"os% M#nil# DEPARTMENT ORDER NO& 18 - 02 '(e"ies of 2002) R*LE( !MPLEMENT!N+ ART!,LE( 10- TO 10. OF T/E LABOR ,ODE% A( AMENDED By virtue of the power vested in the Secretary of Labor and Employment under Articles 5 (Rule-makin ! and "#$ (%ontractor or Subcontractor! of the Labor %ode of the &hilippines' as amended' the followin re ulations overnin contractin and subcontractin arran ements are hereby issued(

(ection 1& +ui0in1 p"inciples& - %ontractin and subcontractin arran ements are e)pressly allowed by law and are sub*ect to re ulation for the promotion of employment and the observance of the ri hts of workers to *ust and humane conditions of work' security of tenure' self-or ani+ation' and collective bar ainin , Labor-only contractin as defined herein shall be prohibited, (ection 2 & ,o2e"#1e& - -hese Rules shall apply to all parties of contractin and subcontractin arran ements where employeremployee relationship e)ists, &lacement activities throu h private recruitment and placement a encies as overned by Articles .5 to /0 of the Labor %ode are not covered by these Rules, (ection 3& T"il#te"#l Rel#tionship in ,ont"#ctin1 A""#n1e$ents& 1n le itimate contractin ' there e)ists a trilateral relationship under which there is a contract for a specific *ob' work or service between the principal and the contractor or subcontractor' and a contract of employment between the contractor or subcontractor and its workers, 2ence' there are three parties involved in these

arran ements' the principal which decides to farm out a *ob or service to a contractor or subcontractor' the contractor or subcontractor which has the capacity to independently undertake the performance of the *ob' work or service' and the contractual workers en a ed by the contractor or subcontractor to accomplish the *ob work or service,

(ection 4& Definition of B#sic Te"$s& - -he followin terms as used in these Rules' shall mean( a,3%ontractin 3 or 3subcontractin 3 refers to an arran ement whereby a principal a rees to put out or farm out with a contractor or subcontractor the performance or completion of a specific *ob' work or service within a definite or predetermined period' re ardless of whether such *ob' work or service is to be performed or completed within or outside the premises of the principal, b,3%ontractor or subcontractor3 refers to any person or entity en a ed in a le itimate contractin or subcontractin arran ement, c,3%ontractual employee3 includes one employed by a contractor or subcontractor to perform or complete a *ob' work or service pursuant to an arran ement between the latter and a principal, d,3&rincipal3 refers to any employer who puts out or farms out a *ob' service or work to a contractor or subcontractor, (ection 5& P"ohibition #1#inst l#bo"-onl6 cont"#ctin1& Laboronly contractin is hereby declared prohibited, 4or this purpose' labor-only contractin shall refer to an arran ement where the contractor or subcontractor merely recruits' supplies or places workers to perform a *ob' work or service for a principal' and any of the followin elements are present( i, -he contractor or subcontractor does not have substantial capital or investment which relates to the *ob' work or service to be performed and the employees recruited' supplied or placed by

such contractor or subcontractor are performin activities which are directly related to the main business of the principal5 or ii,the contractor does not e)ercise the ri ht to control over the performance of the work of the contractual employee, -he fore oin provisions shall be without pre*udice to the application of Article .67 (% ! of the Labor %ode' as amended, 3Substantial capital or investment3 refers to capital stocks and subscribed capitali+ation in the case of corporations' tools' e8uipment' implements' machineries and work premises' actually and directly used by the contractor or subcontractor in the performance or completion of the *ob' work or service contracted out, -he 3ri ht to control3 shall refer to the ri ht reserved to the person for whom the 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 reachin that end,

(ection -& P"ohibitions& 9otwithstandin Section 5 of these Rules' the followin are hereby declared prohibited for bein contrary to law or public policy( a,%ontractin out of a *ob' work or service when not done in ood faith and not *ustified by the e)i encies of the business and the same results in the termination of re ular employees and reduction of work hours or reduction or splittin of the bar ainin unit5 b,%ontractin out of work with a 3cabo3 as defined in Section " (ii!' Rule 1' Book : of these Rules, 3%abo3 refers to a person or roup of persons or to a labor roup which' in the uise of a labor or ani+ation' supplies workers to an employer' with or without any monetary or other consideration whether in the capacity of an a ent of the employer or as an ostensible independent contractor5

c,-akin undue advanta e of the economic situation or lack of bar ainin stren th of the contractual employee' or underminin his security of tenure or basic ri hts' or circumventin the provisions of re ular employment' in any of the followin instances( i, 1n addition to his assi ned functions' re8uirin the contractual employee to perform functions which are currently bein performed by the re ular employees of the principal or of the contractor or subcontractor5 ii,Re8uirin him to si n' as a precondition to employment or continued employment' an antedated resi nation letter5 a blank payroll5 a waiver of labor standards includin minimum wa es and social or welfare benefits5 or a 8uitclaim releasin the principal' contractor or subcontractor from any liability as to payment of future claims5 and iii,Re8uirin him to si n a contract fi)in the period of employment to a term shorter than the term of the contract between the principal and the contractor or subcontractor' unless the latter contract is divisible into phases for which substantially different skills are re8uired and this is made known to the employee at the time of en a ement5 d,%ontractin out of a *ob' work or service throu h an in-house a ency which refers to a contractor or subcontractor en a ed in the supply of labor which is owned' mana ed or controlled by the principal and which operates solely for the principal5 e,%ontractin out of a *ob' work or service directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent5 f, %ontractin out of a *ob' work or service bein performed by union members when such will interfere with' restrain or coerce employees in the e)ercise of their ri hts to self or ani+ation as provided in Art, .67 (c! of the Labor %ode' as amended,

(ection 7& E8istence of #n e$plo6e"-e$plo6ee "el#tionship& -he contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcin the provisions of the Labor %ode and other social le islation, -he principal' however' shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor %ode' includin the failure to pay wa es, -he principal shall be deemed the employer of the contractual employee in any of the followin cases' as declared by a competent authority( a,where there is labor-only contractin 5 or b,where the contractin arran ement falls within the prohibitions provided in Section $ (&rohibitions! hereof, (ection 8& Ri1hts of ,ont"#ctu#l E$plo6ees& %onsistent with Section ; of these Rules' the contractual employee shall be entitled to all the ri hts and privile es due a re ular employee as provided for in the Labor %ode' as amended' to include the followin ( a,Safe and healthful workin conditions5 b,Labor standards such as service incentive leave' rest days' overtime pay' holiday pay' "/th month pay and separation pay5 c,Social security and welfare benefits5 d,Self-or ani+ation' collective bar ainin and peaceful concerted action5 and e,Security of tenure, (ection .& ,ont"#ct bet9een cont"#cto" o" subcont"#cto" #n0 cont"#ctu#l e$plo6ee& 9otwithstandin oral or written stipulations to the contrary' the contract between the contractor or subcontractor and the contractual employee' which shall be in writin ' shall include the followin terms and conditions( a,-he specific description of the *ob' work or service to be performed by the contractual employee5

b,-he place of work and terms and conditions of employment' includin a statement of the wa e rate applicable to the individual contractual employee5 and c,-he term or duration of employment' which shall be coe)tensive with the contract of the principal and subcontractor' or with the specific phase for which the contractual employee is en a ed' as the case may be, -he contractor or subcontractor shall inform the contractual employee of the fore oin terms and conditions on or before the first day of his employment,

(ection 10& Effect of Te"$in#tion of ,ont"#ctu#l E$plo6$ent& 1n cases of termination of employment prior to the e)piration of the contract between the principal and the contractor or subcontractor' the ri ht of the contractual employee to separation pay or other related benefits shall be overned by the applicable laws and *urisprudence on termination of employment, <here the termination results from the e)piration of the contract between the principal and the contractor or subcontractor' or from the completion of the phase of the *ob' work or service for which the contractual employee is en a ed' the latter shall not be entitled to separation pay, 2owever' this shall be without pre*udice to completion bonuses or other emoluments' includin retirement pay as may be provided by law or in the contract between the principal and the contractor or subcontractor, (ection 11& Re1ist"#tion of ,ont"#cto"s o" (ubcont"#cto"s& %onsistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contractin out of labor throu h appropriate re ulations' a re istration system to overn contractin arran ements and to be implemented by the Re ional =ffices is hereby established,

-he re istration of contractors and subcontractors shall be necessary for purposes of establishin an effective labor market information and monitorin , 4ailure to re ister shall ive rise to the presumption that the contractor is en a ed in labor-only contractin ,

(ection 12& Re:ui"e$ents fo" "e1ist"#tion& A contractor or subcontractor shall be listed in the re istry of contractors and subcontractors upon completion of an application form to be provided by the >=LE, -he applicant contractor or subcontractor shall provide in the application form the followin information( a,-he name and business address of the applicant and the area or areas where it seeks to operate5 b,-he names and addresses of officers' if the applicant is a corporation' partnership' cooperative or union5 c,-he nature of the applicant?s business and the industry or industries where the applicant seeks to operate5 d,-he number of re ular workers5 the list of clients' if any5 the number of personnel assi ned to each client' if any and the services provided to the client5 e,-he description of the phases of the contract and the number of employees covered in each phase' where appropriate5 and f, A copy of audited financial statements if the applicant is a corporation' partnership' cooperative or a union' or copy of the latest 1-R if the applicant is a sole proprietorship, -he application shall be supported by( a,A certified copy of a certificate of re istration of firm or business name from the Securities and E)chan e %ommission (SE%!' >epartment of -rade and 1ndustry (>-1!' %ooperative >evelopment Authority (%>A!' or from the >=LE if the applicant is a union5 and

b,A certified copy of the license or business permit issued by the local overnment unit or units where the contractor or subcontractor operates, -he application shall be verified and shall include an undertakin that the contractor or subcontractor shall abide by all applicable labor laws and re ulations,

(ection 13& Filin1 #n0 p"ocessin1 of #pplic#tions& -he application and its supportin documents shall be filed in triplicate in the Re ional =ffices where the applicant principally operates, 9o application for re istration shall be accepted unless all the fore oin re8uirements are complied with, -he contractor or subcontractor shall be deemed re istered upon payment of a re istration fee of &"##,## to the Re ional =ffice, <here all the supportin documents have been submitted' the Re ional =ffice shall deny or approve the application within seven (;! workin days after its filin , @pon re istration' the Re ional =ffice shall return one set of the dulystamped application documents to the applicant' retain one set for its file' and transmit the remainin set to the Bureau of Local Employment, -he Bureau shall devise the necessary forms for the e)peditious processin of all applications for re istration, (ection 14& Dut6 to p"o0uce cop6 of cont"#ct bet9een the p"incip#l #n0 the cont"#cto" o" subcont"#cto"& -he principal or the contractor or subcontractor shall be under an obli ation to produce a copy of the contract between the principal and the contractor in the ordinary course of inspection, -he contractor shall likewise be under an obli ation to produce a copy of the contract of employment of the contractual worker when directed to do so by the Re ional >irector or his authori+ed representative,

A copy of the contract between the contractual employee and the contractor or subcontractor shall be furnished the certified bar ainin a ent' if there is any,

(ection 15& Annu#l Repo"tin1 of Re1iste"e0 ,ont"#cto"s& -he contractor or subcontractor shall submit in triplicate its annual report usin a prescribed form to the appropriate Re ional =ffice not later than the "5th of Aanuary of the followin year, -he report shall include( a,A list of contracts entered with the principal durin the sub*ect reportin period5 b,-he number of workers covered by each contract with the principal5 c,A sworn undertakin that the benefits from the Social Security System (SSS!' the 2ome >evelopment Butual 4und (2>B4!' &hil2ealth' Employees %ompensation %ommission (E%%!' and remittances to the Bureau of 1nternal Revenue (B1R! due its contractual employees have been made durin the sub*ect reportin period, -he Re ional =ffice shall return one set of the duly-stamped report to the contractor or subcontractor' retain one set for its file' and transmit the remainin set to the Bureau of Local Employment within five (5! days from receipt thereof, (ection 1-& Delistin1 of cont"#cto"s o" subcont"#cto"s& Sub*ect to due process' the Re ional >irector shall cancel the re istration of contractors or subcontractors based on any of the followin rounds( a,9on-submission of contracts between the principal and the contractor or subcontractor when re8uired to do so5 b,9on-submission of annual report5 c,4indin s throu h arbitration that the contractor or subcontractor has en a ed in labor-only contractin and the prohibited activities as provided in Section $ (&rohibitions! hereof5 and

d,9on-compliance with labor standards and workin conditions,

(ection 17& Rene9#l of "e1ist"#tion of cont"#cto"s o" subcont"#cto"s& All re istered contractors or subcontractors may apply for renewal of re istration every three years, 4or this purpose' the -ripartite 1ndustrial &eace %ouncil (-1&%! as created under E)ecutive =rder 9o, 60' shall serve as the oversi ht committee to verify and monitor the followin ( a,En a in in allowable contractin activities5 and b,%ompliance with administrative reportin re8uirements, (ection 18& Enfo"ce$ent of L#bo" (t#n0#"0s #n0 ;o"<in1 ,on0itions& %onsistent with Article ".7 (:isitorial and Enforcement &ower! of the Labor %ode' as amended' the Re ional >irector throu h his duly authori+ed representatives' includin labor re ulation officers shall have the authority to conduct routine inspection of establishments en a ed in contractin or subcontractin and shall have access to employer?s records and premises at any time of the day or ni ht whenever work is bein undertaken therein' and the ri ht to copy therefrom' to 8uestion any employee and investi ate any fact' condition or matter which may be necessary to determine violations or which may aid in the enforcement of the Labor %ode and of any labor law' wa e order' or rules and re ulations issued pursuant thereto, -he findin s of the duly authori+ed representative shall be referred to the Re ional >irector for appropriate action as provided for in Article ".7' and shall be furnished the collective bar ainin a ent' if any, Based on the visitorial and enforcement power of the Secretary of Labor and Employment in Article ".7 (a!' (b!' (c! and (d!' the Re ional >irector shall issue compliance orders to ive effect to the labor standards provisions of the Labor %ode' other labor le islation and these uidelines,

(ection 1.& (oli0#"6 li#bilit6& -he principal shall be deemed as the direct employer of the contractual employees and therefore' solidarily liable with the contractor or subcontractor for whatever monetary claims the contractual employees may have a ainst the former in the case of violations as provided for in Sections 5 (Labor-=nly contractin !' $ (&rohibitions!' 7 (Ri hts of %ontractual Employees! and "$ (>elistin ! of these Rules, 1n addition' the principal shall also be solidarily liable in case the contract between the principal and contractor or subcontractor is preterminated for reasons not attributable to the fault of the contractor or subcontractor, (ection 20& (upe"session& All rules and re ulations issued by the Secretary of Labor and Employment inconsistent with the provisions of this Rule are hereby superseded, %ontractin or subcontractin arran ements in the construction industry' under the licensin covera e of the &%AB and shall not include shipbuildin and ship repairin works' however' shall continue to be overned by >epartment =rder 9o, "0' series of "00/, (ection 21& Effecti2it6& -his =rder shall be effective fifteen ("5! days after completion of its publication in two (.! newspapers of eneral circulation, Banila' &hilippines' ." 4ebruary .##., (=ri inal Si ned! &A-R1%1A A, S-=, -=BAS Secretary