machineries, work premises, among
ART. 106. CONTRACTOR OR
SUBCONTRACTOR.
Whenever an employer enters into a
contract with another person for the
performance of the former’s work, the
employees of the contractor and of
the latter’s subcontractor, if any, shall
be paid in accordance with the
provisions of this Code.
In the event that the contractor or
subcontractor fails to pay the wages
of his employees in accordance with
this Code, the employer shall be
jointly and severally liable with his
contractor or subcontractor to such
employees to the extent of the work
performed under the contract, in the
same manner and extent that he is
liable to employees directly employed
by him.
The Secretary of Labor and
Employment may, by appropriate
regulations, restrict or prohibit the
contracting-out of labor to protect the
rights of workers established under
this Code. In so prohibiting or
restricting, he may make appropriate
distinctions between labor-only
contracting and job contracting as
well as differentiations within these
types of contracting and determine
who among the parties involved shall
be considered the employer for
purposes of this Code, to prevent any
violation or circumvention of any
provision of this Code.
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,
others, and the 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.
Department Order No. 174 provides the
rules in implementing Art. 106 and 109.
There are 2 types of contractors
discussed in Art 106, 109 and D.O 174:
 Labor Only Contractors/ Labor- Only
Contracting
 Legitimate Job Contractors/ Job
Contracting
Contracting, per se, is not illegal provided
you have the necessary permits from the
Department of Labor that you are a
legitimate contractor. However, in the case
we have discussed (BABAS CASE vs.
LORENZO SHIPPING), the Lorenzo
Shipping leased some of its tools and
tractors to BMSI, the contractor. This
shows that BMSI did not have enough tools
and equipment’s. Those are indication that
BMSI is not a legitimate job contractor.
The contractor is just used as an agent of
the principal para mag hire ug tao.
Companies want to engage with the
manpower agency:
the persons that will be assigned in
the company will not be an
employee of the principal.
Scenario:
PRINCIPAL and MANPOWER AGENCY -
SERVICE AGREEMENT
(relationship is government by the Civil
Code)

MANPOWER AGENCY and WORKER –

EMPLOYMENT CONTRACT
(relationship is government by the Labor
Code)

Q: Is there an instance the Principle is

liable to the Workers under the Labor
Code?

A: YES. If the workers are underpaid by the

Manpower Agency, the principle, under the
law, becomes solidarily liable for the
underpayment of wages. The principal
becomes an Indirect Employer of the
worker.

Q: Can the principal say “Dong, di na ko

mubayad”

A: No. The law says, in so far us

underpayment of wages, the principal is an
indirect employer of the workers and is
solidarily liable.

Q: If the workers are entitled to

separation pay and back wages?

A: No. Principle is not liable