Elements of Labor-Only Contracting
ARTICLE 106 of Labor Code of
the Philippines, (last paragraph)
a. The person supplies
workers to an employer;
Such person does not have
substantial capital or
investment in the form of
tools, equipment,
machineries, work
premises, among others;
and
Workers recruited and
placed by such person are
performing activities which
are directly related to the
principal business of such
employer.
Department Order No. 18-A, Series of
2011, Section 6(a)
a. The contractor does not have
substantial capital or investment in
the form of tools, equipment,
machineries, work premises, among
others; and
(Under Section 3(l), substantial capital
refers to paid-up capital stocks/shares of at
least Three Million Pesos (P 3,000,000.00)
in the case of corporations, partnerships
and cooperatives; in the case of single
proprietorship, a net worth of at least Three
Million Pesos (P 3,000,000.00).)
Employees recruited and placed are
performing activities which are usually
necessary or desirable to the operation of
the company or directly related to the
main business of the principal within a
definite or predetermined period,
regardless of whether such job, work or
service is to be completed within or
outside the premises of the principal, or
Department Order No. 174-2017, Section 5
a. i. The contractor or subcontractor
does not have substantial capital, or
ii. the contractor or subcontractor does
not have investments in the form of
tools, equipment, machineries, work
premises, among others, and
(Under Section 3(l), substantial capital refers
to paid-up capital stocks/shares of at least Five
Million Pesos (P 5,000,000.00) in the case of
corporations, partnerships and cooperatives;
in the case of single proprietorship, a net worth
of at least Five Million Pesos (P
5,000,000.00).)
The contractor’s or subcontractor’s
employees recruited and placed are
performing activities which are directly
related to the main business operation
of the principal, or
b.The contractor or subcontractor does
 b. The contractor does not exercise the not exercise the right to control over the
right to control over the performance performance of the work of the
of the work of the employee. employee

Cases related to Labor-Only Contracting:

In Teng v. Pahagac, the maestros did not have any substantial capital or investment. Petitioner Teng admitted that he solely provided
the capital and equipment, while the maestros supplied the workers. The power of control over the respondent workers was lodged not
with the maestros but with petitioner Teng. As checkers, the respondent workers main tasks were to count and classify the fish caught
and report them to Teng. They performed tasks that were necessary and desirable in Teng’s fishing business. Taken together, these
incidents confirm the existence of a labor-only contracting which is prohibited in our jurisdiction, as it is considered to be the
employers attempt to evade obligations afforded by law to employees.

In Aliviado v. Procter and Gamble, respondent Promm-Gem cannot be considered as a labor-only contractor. Under the circumstances,
respondent Promm-Gem has substantial investment which relates to the work to be performed. These factors negate the existence of
the element specified in Section 5(i) of DOLE Department Order No. 18-02. The records also show that respondent Promm-Gem
supplied its complainant-workers with the relevant materials, such as markers, tapes, liners and cutters, necessary for them to perform
their work. Promm-Gem also issued uniforms to them. It is also relevant to mention that Promm-Gem already considered the
complainants working under it as its regular, not merely contractual or project, employees. This circumstance negates the existence of
element (ii) as stated in Section 5 of DOLE Department Order No. 18-02, which speaks of contractual employees.