Labor Standards – Finals Transcript
AY 2013-2014
Labor Standards – Finals Transcription
(AY 2013-2014)
Atty. Jefferson Marquez
NOTE: These questions are the relevant issues sa
Recordings. Wala na nko gi-apil ang uban kay kapoy 
September 3, 2013
TOPIC 14: OTHER IMPORTANT LABOR
PROVISIONS
A. CONTRACTING ARRANGEMENT
Atty’s Discussion:
Contracting Arrangements is governed by the Labor Code of the
Philippines under Art 106, 107, 108, 109.
The implementing Rules and Regulations applicable is DO No 18-A,
Series 2011 dated Nov. 14, 2011.
Q: What is the concept of a Contracting Arrangement?
A: The principal farms out the performance of a SPECIFIC job, work
or service within a definite period of time regardless of where the
performance of the job, work or service will take place.
Q: Who are the parties of a Contracting Arrangement?
1. "Principal" refers to any employer who puts out or farms out
a job, service or work to a contractor or subcontractor;
2. "Contractor or subcontractor" refers to any person or entity
engaged in a legitimate contracting or subcontracting
arrangement;
3. "Contractors’ employee" includes one employed by a
contractor or subcontractor to perform or complete a job,
work or service pursuant to an arrangement between the
latter and a principal.
Atty’s Situation:
USC is involved in providing education to students. USC can require
their teachers to provide security or clean the campus, but it will
distract the main purpose of the teachers which is teaching. So what
USC does is it hires security guards and janitors for a definite period
of time, to ensure security and to do the cleaning. When USC hires
security guards and janitors there is a Contracting Arrangement.
Whether it’s a Job-Contracting or a Labor-Only contracting will
depend on the circumstances.
NOTE: SPECIFIC job, work or service. Security guards does a specific
job/work/service which is to provide security.
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Atty’s Discussion:
In a contracting arrangement, there exists a trilateral relationship.
Q: If USC does not hire a Security Agency but preferred the
teachers to perform security services, how many parties are there?
A: 2, (1) Employer & (2) Employee; there is no trilateral relationship.
Atty’s Discussion:
In the situation, USC is the Principal; Security Agency is the
Contractor or Subcontractor; and the Security guards are the
Contractors’ Employees.
For the reason of expertise, USC would hire Security guards for
security services. Another reason would be economy, instead of
directly hiring security guards or janitors where USC would be
obliged to pay the minimum wage and etc, USC would prefer to hire
contractors to be the direct employer of the guards and janitors.
Q: How is the agreement between USC the Contractor referred to
under the implementing rules?
A: Referred to as a “Service Agreement”, it involves the
performance or completion of a specific job, work or service, that’s
why it’s called a service agreement. It is not selling goods, it is selling
or providing services.
The subject of a Service Agreement is the performance of a SPECIFIC
job, work, or service.
It should not be a supplier of services nor a supplier of manpower
services, it must be a performer of a specific job work or service.
(NOTE: Emphasis on SPECIFIC)
Specific job, work or service – must be provided by one that
specializes on that kind of job work or service. It must be an expert
in that field that performs or completes a job, work or service.
When you choose a contractor or subcontractor, you must choose
one who specializes in performing/completing that job, work or
service.
It must not be just any contractor that provides any Tom, Dick, or
Harry that knows nothing, otherwise he would not qualify as a
bonafide job contractor.
In case of Security Guards, it requires a specialty or specialization in
providing security services.
Q: What should be written in a Service Agreement? (Relating the
law to sir’s example of USC hiring a security agency for security
services)
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DO 18-A
Section 9. Required contracts under these Rules:
XXX
(b) Service Agreement between the principal and the contractor.
The Service Agreement shall include the following:
1. The specific description of the job, work or service being
subcontracted.
NOTE: it does not provide manpower; it does not provide
security guards nor janitors; IT PROVIDES SECURITY SERVICES,
JANITORIAL SERVICES. It is not providing human bodies, it is
providing services.
(SIR: If magkamali pah kayo dyan tapos kau sa akin! I WILL DRAFT
A CONTRACT AND YOU WILL IDENTIFY THE DEFECTS.)
2. The place of work (USC) and terms and conditions governing
the contracting arrangement, to include the agreed amount
(cost and consideration of the contract) of the services to be
rendered, the standard administrative fee of not less than ten
percent (10%) of the total contract cost.
NOTE: You will pay only the security agency (contractor) with
the agreed amount, not the minimum wage. The contractor
pays the minimum wage.
The contractor decides how many security guards he will
provide because he is the expert; he can send only 1 security
guard (RAMBO) or 1,000 security guards, it would depend on
his ocular inspection, etc.
What you are paying for is the services, not the security guards.
The agreed amount is the amount decided by the principal and
the contractor.
The agreed amount must be written in the service agreement.
Ex. “..in consideration of the security services at USC campus at
P. Del Rosario St, corner of whatever, USC will pay a monthly
service fee of P100,000 to the contractor.”
Standard administrative fee- the security agency has its own
office and its own personnel; it has to pay its expenses. If it is a
bonafide contracting agency it has its own office or is renting its
own office. The parties will have to input the admin fee of not
less than 10%.
A legitimate contractor must be able to pay for its operating
expenses and make a profit/income in providing security
services; the payment is taken from the administrative fees.
The law does not favour a contractor that does not provide
services without profit.
So if P100,000 monthly + 10% (admin fee) = P10,000, so the
principal will have to pay P110,000/month to the contractor.
3. Provisions ensuring compliance with all the rights and benefits
of the employees under the Labor Code and these Rules on:
provision for safe and healthful working conditions; labor
standards such as, service incentive leave, rest days, overtime
pay, 13th month pay and separation pay; retirement benefits;
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contributions and remittance of SSS, Philhealth, PagIbig Fund,
and other welfare benefits; the right to self-organization,
collective bargaining and peaceful concerted action; and the
right to security of tenure.
NOTE: Include this provision in order to protect the contractor’s
employees. Even if they are not a party to the service
agreement, they can derive benefit from the agreement under
this provision. “ensure protection to labor.”
The service agreement must contain in writing that the
contractor’s employees will be provided with the rights and
benefits under labor standards and labor relations.
Q: What is the relationship between the Principal (USC)
and the contractors employees (security guards)?
A: Principal is the INDIRECT EMPLOYER of the contractors
employees.
Q: Who is the Direct employee of the contractors
employees?
A: the contractor or subcontractor (Security Agency)
Q: in what instance where the Principal becomes the
direct employer of the contractors employees?
A: where the contractor is unable to pay the wages of the
contractor’s employees.
4. A provision on the Net Financial Contracting Capacity of the
contractor, which must be equal to the total contract cost.
NOTE: the parties must stipulate the Net Financial Capacity of
the contractor because the Contractor must have sufficient
capital and investment of tools, equipment, machinery, etc
directly used it the operation of the business.
FORMULA: NFCC is current assets (building, machineries, etc)
minus current liabilities (bank loans, etc) multiplied by K, “K”
which stands for contract duration equivalent to: 10 for one
year or less; 15 for more than one (1) year up to two (2) years;
and 20 for more than two (2) years, minus the value of all
outstanding or on-going projects including contracts to be
started (contract with USJR or UC, etc). (Sec. 3 I, DO 18-A)
Under the rules, the NFCC must be more than or equal to the
total contract cost.
Atty’s Situation:
USC agrees to hire the services of a security agency for (1)
year for a service fee of P100,000.
Q: What is the total contract cost in so far as USC is
concerned?
A: P1.2M exclusive of the 10% admin fee. (wala sah labot
ang 10%, for purposes of discussion P1.2M lang sah)
Q: What happens if the Contractor does not pay the
salary/wages of it’s employees?
A: the principal will become the direct employer of the
contractors employees and must pay the salary.
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However, it does not absolve the Contractor of its liability,
the principal will become jointly and severally or solidarily
liable with the contractor, without prejudice to the
principal to be reimbursed by the contractor.
The NFCC gives the employees the assurance that in case the
contractor does not pay them right, they can still run after the
contractor.
Ex. After computing the NFCC and is written in the service
agreement, the total contract cost (TCC) is P1.2M and the NFCC
is P1B = good; if TCC is P1.2M and NFCC is P50 = not good.
If the NFCC is only P50, it would not be able to assure its
workers in case of non-payment of wages and etc.
Q: What is the Capitalization prescribed under DO 18-A for
corporations and partnerships? Single proprietor?
A: Sec 3. (n) Substantial Capital refers to paid-up capital
stocks/shares of at least Three Million Pesos (P3,000,000.00) in the
case of corporations, partnerships and cooperatives; in the case of
single proprietorship, a net worth of at least Three Million Pesos
(P3,000,000.00).
Corporations, Partnership – minimum capitalization of at least 3M,
must be SUBSCRIBED and PAID-UP.
Single Proprietorship – ONLY NET WORTH of at least 3M.
If you do not meet the minimum then it is indicative that you are not
a legitimate contractor.
5. A provision on the issuance of the bond/s as defined in Section
3(m) renewable every year.
Art. 108. Posting of bond. An employer or indirect employer may
require the contractor or subcontractor to furnish a bond equal to
the cost of labor under contract, on condition that the bond will
answer for the wages due the employees should the contractor or
subcontractor, as the case may be, fail to pay the same.
Atty’s Discussion:
If the contractor fails to pay the wages, then the principal will run
after the bond. Because the bond is supposed to answer for the
unpaid wages due to the contractors employees.
The principal may require the contractor to furnish a bond, the
purpose is to answer for any liability arising from the failure of the
contractor to pay the wages of the employees.
The provision provides for protection to workers, this provision
assures the workers what us legally due them.
The principal is also ensured that he can reimbursed from the bond.
Under the service agreement there should be posting of a bond and
the parties can renew the bond after the agreement expires.
6. A contractor or subcontractor shall directly remit monthly the
empolyer’s share and employee’s contribution to the SSS, ECC,
Philhealth and Pagibig.
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SSS – Social Security System (under the Social Secuirty act)
 Every employee, unless expressly excluded, is a member of
the SSS.
 If you are an Employer, you become a member on the
FIRST DAY OF YOUR OPERATION.
 If you are an Employee, you become a member on your
FIRST DAY OF WORK.
ECC – Employee’s Compensation Commission
 For WORK RELATED illness, injuries.
 The contribution comes solely from the EMPLOYER.
Phil Health – under the Phil. Health Insurance Act.
 PAG-IBIG – “PAGTUTULUNGAN SA KINABUKASAN: IKAW,
BANGKO, INDUSTRIA at GOBYERNO”
 (TAKE NOTE!! Ana si Sir iya ni e-multiple choice ang
meaning sa Pag-ibig)
 HDMF – Home Development Mutual Fund
Q: Why does the contractor pay these contributions and not the
principal?
A: because it is the contractor that pays the wages of the employees
and not the principal.
1. The contractor is the direct employer.
2. Being the direct employer, under the law it is his obligation
to deduct from the employee’s wages the corresponding
contributions and to remit the same to these agencies of
agreement.
7. The term or duration of engagement. The Service Agreement
must conform to the DOLE Standard Computation and
Standard Service Agreement, which form part of these
Under the definition of a contracting arrangement, it must be
for a DEFINITE PERIOD or a PRE-DETERMINED PERIOD.
A period is definite if it will come to an end. It cannot be for an
indefinite or endless agreement because it is not allowed by
law.
It is Pre-determined if the period is agreed beforehand, not
after.
In the example, the 1 year service agreement is both a DEFINITE
and PRE-DETERMINED PERIOD.
The Service Agreement must conform to the DOLE Standard
Computation and Standard Service Agreement, which form part of
these Rules as Annex “A” and “B”
 When the parties agree with the cost and consideration of the
services to be rendered, the parties, specifically the contractor,
has to take into account how much to pay his workers.
 Standard Computation:
A. Payable Directly to Servicemen
a. Basic Salary – at daily rate for the equivalent of No. of
days per month
b. Night differential Premium Pay – 10% of basic salary
c. Emergency cost of living allowance
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d. 13th month pay – 1/12 of basic salary
e. Service Incentive Leave Pay – 5 days per year at basic
salary rate
B. Payable to the government Employee Share of:
a. SSS Premiums
b. Philhealth Premiums
c. ECC Insurance Premiums
d. Pag-Ibig Contributions
 The importance of adhering to this standard computation is
to make sure that in coming up with agreed consideration,
you have inputted the labor cost that the contractor would
laterally incur in providing those services.
 While it is the contractor that provides the services, it is the
worker that does the actual services. So you have to pay
them at least the daily minimum wage, etc. for the entire
duration of the agreement.
 It assures to the parties that the workers, who will be made
to perform, are paid what is legally due them under the law.
(Minimum Wage in Region 7 = Php327)
THE (7) REQUIREMENTS TO BE WRITTEN IN THE SERVICE
AGREEMENT ARE THE MINIMUM ALLOWED REQUIREMENTS. The
parties may stipulate any other terms and conditions. They can
stipulate any provision as long as it is consistent with the basic
provisions prescribed by DO 18-A.
You can stipulate any terms and conditions subject to the
condition in the Civil Code, that it is not contrary to law, public
policy, morals, customs, etc..
SO THE ABOVE (7) REQUIREMENTS ARE THE MINIMUM. YOU CAN
ADD MORE BUT YOU CANNOT REDUCE IT.
Q: What is meant by Job Contracting?
A: When the contractor who performs/completes a specific job,
work or service, is engaged in a business separate and distinct from
that of the principal and performs the job, work or service without
the control of the principal as to the means, manner and method,
except as to the results therein.
Q: What is Labor Only Contracting?
A: where the person supplying workers to an (1)employer does not
have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the (2)
workers recruited and placed by such person are performing
activities which are directly related to the principal business of
such employer.
In such cases, the person or intermediary shall be considered merely
as an agent of the employer who shall be responsible to the workers
in the same manner and extent as if the latter were directly
employed by him.
Q: What are the elements that constitute Labor-Only contracting?
ELEMENTS:
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1. Contractor/employer does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises, among others; and
2. the workers recruited and placed by such person are
performing activities which are directly related to the
principal business of such employer.
Labor-only contracting is not allowed by law, only Job-contracting is
the lawful and valid arrangement.
Q: Under DO 18-A, what are the requisites for there to be a
legitimate Job-contracting? (3)
1. The contractor or subcontractor has substantial capital or
investment.
2. The agreement between the principal and contractor or
subcontractor assures the contractual employees to
entitlement to all labor and occupational safety standards, free
exercise of the right to self-organization, security of tenure, and
social and welfare benefits.
3. The contractor must be registered as a legitimate
contractor/subcontractor.
Q: What agency of Government has the authority to register
contractors?
A: DOLE Regional Office in the region where it seeks to
principally operate.
Q: How do you call that agency that is referred to as the
Central Registry of Contractors?
A: Bureau of Working Conditions (BWC)
Q: What are the requirements/document that you need to
submit to apply for registration?
1. A certified true copy of a certificate of registration of firm
or business name from the Securities and Exchange
Commission (SEC), Department of Trade and Industry
(DTI), Cooperative Development Authority (CDA), or from
the DOLE if the applicant is a labor organization;
 If the applicant for registration is a corporation or a
partnership you must be duly registered with SEC; if
you are registered with SEC, definitely you have a
certificate of registration.
 You have to prove that you are a legal entity and a
certificate of registration is proof.
 If the applicant is a single proprietor, he must be duly
registered with the DTI.
2. A certified true copy of the license or business permit
issued by the local government unit or units where the
contractor operates;
 Ex. Mayor’s permit, other licenses
3. A certified listing, with proof of ownership or lease
contract, of facilities, tools, equipment, premises
implements, machineries and work premises, that are
actually and directly used by the contractor in the
performance or completion of the job, work or service
contracted out. In addition, the applicant shall submit a
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photo of the office building and premises where it holds
office;
 You have to CERTIFY that you own or lease the
facilities, tools, equipment, premises implements and
machineries.
 This requirement is important to prove you have
substantial capital.
 Under the rules of evidence use the term “photo” not
picture.
 Take a photo of the building or office space to prove
that you own or you are renting it.
4. A copy of audited financial statements if the applicant is a
corporation, partnership, cooperative or a labor
organization, or copy of the latest Income Tax Return
(ITR) if the applicant is a sole proprietorship;
 You would be able to check the financial statements
and the balance sheets if indeed you have substantial
capital.
 If you are operating, you must submit a copy of your
ITR. In the ITR you write your income and the source
of your income.
5. A sworn disclosure that the registrant, its officers and
owners or principal stockholders or any one of them, has
not been operating or previously operating as a contractor
under a different business name or entity or with pending
cases of violations of these Rules and/or labor standards,
or with a cancelled registration. In case any of the
foregoing has a pending case, a copy of the complaint and
the latest status of the case shall be attached.
 You have to disclose whether prior to your
application for registration you have been operating
as a contractor before and was declared for example
a labor-only contracting or you are operating under a
different name.
 If you misrepresent those documents, you commit
perjury.
 If you have a pending case you must make a
disclosure. You must get a certification from the NLRC
whether you have a pending case and what’s the
status thereof and attach also the complaint.
 If the DOLE finds out you had previous judgement
example from the SC declaring you as labor-only
contracting then DOLE will deny you application.
 These documents are important because a contractor
must be one who is legitimate and bonafide. He must
operate with honesty and follow the law.
Q: How much is the Registration Fee?
A: Php 25,000 (MCQ daw)
Q: If a certificate of registration is issued by the DOLE, it is valid for
how many years?
A: 3 years; it is valid only within the Region where the contractor is
principally operating.
Q: How soon should the contractor apply for a renewal?
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A: 30 days before the expiration; you must also present other
supporting documents.
You do not apply for a renewal after the 3 years has expired because
by then there is nothing to renew.
Q: There is this “REFORTING”  (Reporting) requirement to the
DOLE, is it annually or semi-annually?
A: Semi-Annually
Q: If you apply for Renewal, how much is the registration?
A: Php 25,000 (MCQ nasad daw)
Q: Once you are given a Certificate of Registration, when does it
take effect?
A: upon the issuance of the Certificate of Registration
Q: What about BPO’s and KPO’s, are they covered in DO 18-A?
A: No, DO 18‐A, Series of 2011, clearly speaks of a trilateral
relationship that characterizes the covered contracting
subcontracting arrangement.
Thus, vendor‐vendee relationship for entire business processes
covered by the applicable provisions of the Civil Code on Contracts is
excluded.
 BPO – Business Process Outsourcing
 KPO – Knowledge Process Outsourcing
 There is no trilateral relationship in BPO’s and KPO’s,
what they have is a VENDOR-VENDEE relationship.
Therefore it is not covered under DO 18-A.
DO 18-A covers specific job, work and services. In the case of BPO’s
and KPO’s they sell services and are paid for those services, thus a
VENDOR-VENDEE relationship.
Q: Does DO 18-A also contemplates of cancellation of registration?
A: Yes, DOLE who issues the certificate of registration has the power
to cancel the registration.
Ex. If DOLE Region 7 issued it, then DOLE 7 should be the one to
cancel it.
Q: What are the Grounds for cancellation?
A: Sec 23. Grounds for cancellation
a. Misrepresentation of facts in the application;
b. Submission of a falsified or tampered application or
supporting documents to the application for registration;
 ex. You Photoshop the picture of a building
c. Non‐submission of Service Agreement between the principal
and the contractor when required to do so;
d. Non‐submission of the required semi-annual report as
provided in Section 22 (Semi-annual reporting) hereof;
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e. Findings through arbitration that the contractor has engaged
in labor--‐only contracting and/or the prohibited activities as
provided in Section 7 (Other Prohibitions) hereof;
f. Non‐compliance with labor standards and working
conditions;
g. Findings of violation of Sec 8 (Rights of contractors
employees) or Sec 9 (Required contracts) of these Rules
h. Non-compliance with SSS, the HDMF, Pag‐Ibig, Philhealth,
and ECC laws; and
i. Collecting any fees not authorized by law and other
applicable rules and regulations.
Atty M: you don’t have to enumerate, you just have to know that
there are grounds for the cancellation of the registration.
Q: If there is a complaint for the cancelation of registration, how
many days does the respondent contractor required to answer?
A: 10 days
The decision will have to rendered in a Clarificatory Hearing and the
DOLE will have to render a decision.
Q: Is the decision appealable?
A: Yes, to the SOLE within 10 days.
After the SOLE, there is no more appeal. The only remedy to
question the decision is thru Certiorari to the CA under Rule 65.
Then from CA, next is to the SC under Rule 45.
September 10, 2013
Q: What is the importance of writing the Net Financial Contracting
Capacity (NFCC) of the contractor in the Service Agreement?
A: to determine whether or not that the contractor has substantial
capital to be a legitimate contractor and that in case
Q: Under DO 18-A, how much must the NFCC be?
A: it must be equal to or more than the total contract cost
Q: If there is a 1 year service agreement between USC and the
security agency, what is the term or duration of the employment
of the contractor’s employees?
A: Section 9. Required contracts under these Rules.
Employment contract between the contractor and its employee.
Notwithstanding any oral or written stipulations to the contrary,
the contract between the contractor and its employee shall be
governed by the provisions of Articles 279 and 280 of the Labor
Code, as amended. It shall include the following terms and
conditions:
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iii. 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.
Note: This question was not answered by Atty M, Sec 9 iii is the
most relevant provision sa DO 18-A with regards to whether the
duration of the employment of the contractor’s employees is co-
terminus with the service agreement.
Q: if USC has a service agreement with the Security Agency where
the latter provides Security Services to USC for 1 year, in the last
quarter of the year, there was a wage increase of the minimum
wage from 327 per day to 400. What is the effect of such increase
in the liability of the parties?
A: RA 6727 (Wage Rationalization Act)
Section 6. In the case of contracts for construction projects and for
security, janitorial and similar services, the prescribed increases in
the wage rates of the workers shall be borne by the principals or
clients (USC) of the construction/service contractors and the
contract shall be deemed amended accordingly.
In the event, however, that the principal or client fails to pay the
prescribed wage rates, the construction/service contractor (Security
Agency) shall be jointly and severally liable with his principal or
client.
NOTE: The principal primarily bears the obligation of paying the
contractors employees the prescribed increase in the minimum
wage.
The contractor only becomes jointly and severally liable if the
principal fails to pay. If the contractor pays, he is subject to
reimbursement.
Q: If the Contractor pays the increase of the minimum wage, can
he demand reimbursement from the principal?
A: yes, under RA 6726, the obligation to pay the increase in the
minimum wage is born by the principal (USC), so in the event that
the principal fails to pay the wage increase, the contractor is jointly
and severally liable for the increase and must pay.
If the contractor pays the increase, he can demand reimbursement
from the principal.
Q: If the contractor cannot pay the wage increase, then what is the
remedy for the contractor’s employees?
A: they can ask directly the principal (USC) to pay the wage increase.
Q: Can the principal (USC) demand reimbursement from the
contractor?
A: No, because RA 6727 states that the principal primarily bears the
obligation to pay the wage increase, not the contractor.
The contractor only comes in when the principal fails to pay.
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Q: If the principal cannot pay the wage increase, can the
employees sue the principal or the contractor or both?
A: the contractor becomes jointly and severally liable with the
principal. The contractor’s employees can sue either or both.
Q: In the event that the Security guards sue both the Principal and
the contractor and then judgement was rendered holding them
both jointly and severally liable and the contractor is the one who
paid the whole judgement award. Can the contractor ask for
reimbursement from the principal?
A: Yes, in cases of wage increase it is the principal who should pay
the contractor’s employees.
It is not the obligation of the contractor so he may ask for
reimbursement from the principal.
Q: If the principal was the one who paid the whole judgement, can
he ask reimbursement from the contractor?
A: AGAIN NO! The principal bears it alone because in the first place it
is his sole obligation to pay the wage increase. It is his sole liability.
Q: What if the joint and solidary liability of the contractor and the
principal was for non-payment of overtime pay, can the principal
demand reimbursement from the contractor?
A: Yes, in this case, the contractor bears the liability of the non-
payment of OT because the contractor is the direct employer of the
contractor’s employees, the principal is only the indirect employer.
Q: If the principal does not pay, and the contractor pays the whole
amount, can he demand reimbursement from the principal?
A: No, it is the sole obligation of the contractor to pay OT to the
contractor’s employees. The principal only becomes jointly and
severally liable if the contractor cannot pay but he is subject to
reimbursement from the contractor.
Q: There is a 1 year service agreement with the security agency, in
the middle of the year the principal decides to pre-terminate
(FREE-termination) the contract. What is the legal effect with
regards to the parties under DO 18-A?
A: Section 13. Effect of termination of employment
XXX
In case the termination of the employment is caused by the pre-
termination of the service agreement not due to authorized
causes under Art 283, the right of the contractor’s employee to
unpaid wages and other benefits including unremitted legal and
monetary contributions, eg SSS, Philhealth, Pag-ibig, ECC, shall be
borne by the party at fault, without prejudice to the solidary
liability of the parties to the service agreement.
Where the termination results from the expiration of the service
agreement, or from the completion of the phase of the job, work
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or service for which the employee is engaged, the latter may opt
for payment of separation benefits as may be provided by law or
the Service Agreement, without prejudice to his/her entitlement
to completion bonuses or other emoluments, including
retirement benefits whenever applicable.
This provision contemplates of the following conditions:
1. Pre-termination of the service agreement;
2. Not due to authorized causes under Art 283 of the Labor
Code;
Article 283. Closure of establishment and reduction of
personnel.
 Closure of establishments:
Ex. If USC after 6 months wants to closes the school,
it is an authorized cause. So Sec 13 is not applicable if
the pre-termination is due to closure.
Q: What is the scope of Sec 13?
A: unpaid wages and other benefits
Atty M: During the exam I will be giving you a set of facts and you
have to analyse and determine the liability and who’s liability it is.
Q: How about expiration of the contract under Sec 13, is there an
obligation to pay the contractor’s employees separation pay?
A: No, there is no law yet providing for separation pay to
contractor’s employees in cases where the termination of the
service agreement is due to the expiration of the contract.
DO 18-A says “in accordance with law”, there is no law regarding
this yet.
Q:What are the rights of the contractor’s employees under DO 18-
A?
Section 8. Rights of contractor’s employees
All contractor’s employees, whether deployed or assigned as
reliever seasonal, week-ender, temporary, or promo jobbers, shall
be entitled to all the rights and privileges as provided for in the
Labor Code, as amended, to include the following:
a. Safe and healthful working conditions;
 (right under labor standards)
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
 (right under labor relations)
f. Security of tenure.
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 Employees cannot be dismissed/terminated without
just cause
 Example of just causes:
Article 282. Termination by employer. An employer
may terminate an employment for any of the
following causes:
1. Serious misconduct or willful disobedience by the
employee of the lawful orders of his employer or
representative in connection with his work;
2. Gross and habitual neglect by the employee of his
duties;
3. Fraud or willful breach by the employee of the
trust reposed in him by his employer or duly
authorized representative;
4. Commission of a crime or offense by the employee
against the person of his employer or any
immediate member of his family or his duly
authorized representatives; and
5. Other causes analogous to the foregoing.
If the contractor terminates the employees without just cause or
authorized cause, the contractor may be liable for illegal dismissal.
The effect is that the contractor’s employees under Art 279, is
entitled to reinstatement and the payment of his back wages until
the end of the service agreement.
The principal cannot also pre-terminate the service agreement
unless it is due to authorized causes under Art 283. If not, the
principal would be considered the party at fault and would have to
pay unpaid wages and other benefits of the contractor’s employees.
Atty M: Our topic is to determine the scope and liability of the
parties.
Q: If there is a 1 year service agreement between USC and the
security agency and the agreed consideration is 100,000/month
and the agreement continued until the end of the 1 year term. But
USC still owes 200,000 to the security agency. What is the remedy
of the security agency?
A: there is a breach of contract, the security agency can file a Civil
Case.
The jurisdiction of the Civil Case is with the regular courts not before
the labor arbiter.
Atty’s Situation: The City of Cebu (chartered city) assigns security
guards from the security agency. But the agency failed to pay the
security guards, can they sue the City of Cebu before the labor
arbiter or the DOLE? If yes, which jurisdiction?
A: Yes the government (City of Cebu) can be liable as a principal.
DO 18-A Sec 3. (j) “Principal” - refers to any employer, whether a
person or entity, including government agencies and government-
owned and controlled-corporations, who/which puts out or farms
out a job, service or work to a contractor.
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Labor Code: Article 97. Definitions. As used in this Title:
"Employer" includes any person acting directly or indirectly in the
interest of an employer in relation to an employee and shall
include the government and all its branches, subdivisions and
instrumentalities, all government-owned or controlled
corporations and institutions, as well as non-profit private
institutions, or organizations.
ATTY M: I’M LOOKING AT ESSAY QUESTIONS ON THIS TOPIC ALONE
(Topic 14), SO THAT’S HOW IMPORTANT THIS TOPIC IS. THE REST
ARE MCQ. BUT I’M STILL LOOKING, SO MY MIND WILL CHANGE
FROM TIME TO TIME.
Q: What is meant by Labor-Only contracting?
A: Art 106. There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital
OR investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
such person are performing activities which are directly related to
the principal business of such employer.
Elements:
1. the person supplying workers to an employer does not have
substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others; and
2. the workers recruited and placed by such person are
performing activities which are directly related to the
principal business of such employer.
Q: If there is labor only contracting, what becomes of the
contractor?
A: the contractor becomes a mere agent of the principal, so the
principal becomes the direct employer.
Q: What is this bond contemplated by the Labor Code?
A: Article 108. Posting of bond. An employer or indirect employer
may require the contractor or subcontractor to furnish a bond equal
to the cost of labor under contract, on condition that the bond will
answer for the wages due the employees should the contractor or
subcontractor, as the case may be, fail to pay the same.
Q: How much is the bond?
A: at least equal to the cost of labor under contract
Q: Can the principal ask for a higher bond?
A: it would depend on the agreement between the principal and the
contractor.
If a bond is furnished, it will answer for the wages due the
employees should the contractor or subcontractor, as the case may
be, fail to pay the same.
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Q: If there is no stipulation as to the posting of a bond, does it
make the Service Agreement illegal?
A: No, it is not illegal, the effect would be that if the contractor/sub-
contractor fails to pay the wages of the contractor’s employees,
then the principal being jointly and solidarily liable for the unpaid
wages would have to pay.
If there were a bond, then the principal can just pay the unpaid
wages from the bond if the contractor does not pay the wages.
The principal will use the bond to answer the unpaid wages of the
contractor’s employees.
If the contractor’s employees are not paid their wages, OT, etc.
these are the remedies to follow:
1. first, make a demand for payment from the contractor;
2. if the contractor does not pay, they can sue both the
principal and contractor being jointly and severally liable;
3. if there is judgement award holding both of them jointly
and severally liable;
4. if contractor does not pay, the principal will pay;
5. the principal may run after the bond to pay for judgement
award OR the principal will just pay the judgment award
and then ask reimbursement from the bond.
6. If the bond is not sufficient to answer for the judgement
award, then the principal will pay the remaining deficiency
and then ask reimbursement from the contractor.
B. ATTORNEY’S FEES
Article 111. Attorney’s fees.
In cases of unlawful withholding of wages, the culpable party may
be assessed attorney’s fees equivalent to ten percent of the
amount of wages recovered.
It shall be unlawful for any person to demand or accept, in any
judicial or administrative proceedings for the recovery of wages,
attorney’s fees which exceed ten percent of the amount of wages
recovered.
Q: What are the 2 concepts of attorney’s fees?
A: Ordinary and extraordinary.
In its ordinary concept, an attorney’s fee is the reasonable
compensation paid to a lawyer by his client for the legal services he
has rendered to the latter. The basis of this compensation is the fact
of his employment by and his agreement with his client.
In its extraordinary concept, an attorney’s fee is an indemnity for
damages ordered by the court to be paid by the losing party in
litigation.
Q: When may an award of attorney’s fees be awarded?
A: in cases of unlawful withholding of wages (DON’T FORGET THE
SPELLING OF “WITHHOLDING”)
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Q: When can there be lawful withholding of wages?
A: employer withholds wages for contributions to SSS, Pag-ibig, etc.
Also the employer can withhold wages for debts due by the
employee. (Art. 1706. Withholding of the wages, except for a debt
due, shall not be made by the employer. [Civil Code])
Q: Is an award of attorney’s fees only limited to unlawful
withholding of wages under Art 111?
A: No, also under 2208 of the Civil Code
Art. 2208. In the absence of stipulation, attorney’s fees and
expenses of litigation, other than judicial costs, cannot be recovered
except:
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers;
C. WORKER’S PREFERENCE
(aka “Worker’s Freference” )
Article 110. Worker preference in case of bankruptcy. In the event
of bankruptcy or liquidation of an employer’s business, his workers
shall enjoy first preference as regards their wages and other
monetary claims, any provisions of law to the contrary
notwithstanding. Such unpaid wages and monetary claims shall be
paid in full before claims of the government and other creditors
may be paid. (As amended by Section 1, Republic Act No. 6715,
March 21, 1989)
Q: Does bankruptcy require a judicial proceeding?
A: yes, only a court can declare a company or business as bankrupt
and only the court can institute a liquidation proceeding.
Q: What is the prevailing law on bankruptcy?
A: RA 10142: Financial Rehabilitation and Insolvency Act of 2010
(FRIA)
Q: What is the scope of the worker’s preference?
A: wages and other monetary claims
th
It includes separation pay, 13 month, holiday, etc.
Q: Does Worker’s Preference constitute a lien or a preference of
credit?
A: Preference of credit
Q: What kind of (siopao) credit is it? Ordinary or Special credit?
A: It is an ordinary preferred credit.
Distinction between a preference of credit and a lien
A preference applies only to claims which do not attach to specific
properties.
A lien (ex. Mortgage Credit) creates a charge on a particular
property. It goes wherever the property is.
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The right of first preference as regards unpaid wages recognized by

Article 110 does not constitute a lien on the property of the
insolvent debtor in favor of workers. It is but a preference of credit
in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in
the final distribution of the proceeds of the insolvent's assets. It is a
right to a first preference in the discharge of the funds of the
judgment debtor. (DBP vs. NLRC)
Having preferential credit means that among other creditors, you
have the first preference to be paid by the insolvent employer.
IMPORTANT: The worker’s preference is superior even against
claims of the government for unpaid taxes.
(See Article 110 LC; Article 2244 CC)
Q: What is the reason why a judicial proceeding is needed in a
bankruptcy?
A: in order to give creditors the opportunity to present their claims.
Atty’s Discussion:
There is such a thing as a Secured Creditor and an Unsecured
Creditor.
Example of a Secured Creditor is a Mortgage creditor, the security is
the property. An example of an Unsecured Creditor is if an employer
who owes you money and there is no security.
Both secured and unsecured can present their claims in a
bankruptcy proceeding.

WALA NA NAKO GI-APIL ANG TOPIC 15 KAY KAYA RA KAAU NA

NINYO TUN-AN SA NOTES 
Questions & Answers of Topic 15 will be posted by JP
Copyright 2013 ©

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