ARTICLE 106-109 which are directly related to the principal business of
such employer.
What is job contracting?
Is an arrangement whereby a principal agrees to farm
out to a contractor or sub-contractor the performance or
completion of specific job, work or service with a definite
or predetermined period regardless of whether such job,
work or service is to be performed or completed within
or outside the premises of the principal.
Is it allowed by law?
Yes. The court has already taken judicial notice of the
general practices adopted in several gov’t and private
institutions and industries of hiring independent
contractors to perform special services or specific
services. These services range from janitorial, security
and even technical or other specific services.
Requisites of a valid job contracting.
The contractor or subcontractor must carry a distinct
and independent business and undertakes to perform
the job, work or service on its own account and under its
own responsibilities.
What is labor-only contracting?
1) Refers to an arrangement where the
CON/SUBCON merely recruits, supplies or place workers
to a job, work or service for a principal or any of the
following elements are present:
a) The CON/SUBCON does not have substantial
capital OR investment in the form of tools and
trade which relates to the job, work or service
to be performed and the employees recruited
is supplied or placed to a CON/SUBCON that are
performing activities directly related to the
main business of the principal;
b) Substantial capital need not be coupled with
equipment ; c) The CON does not control over
the performance of the work of contractual
employees
When is there “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
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.
Requisites of a valid labor-only contracting
a. Person supplying workers to an ER does not have
substantial capital or investment in the form of
tools, equipment, machineries, work premises,
among others; and
b. The workers recruited and placed by such person
are performing activities which are directly
related to the principal business of the ER.
What are permissible job contracting or subcontracting
arrangements?
Refer to section 8 of D.O. 172-17 There exist a trilateral
relationship under which there is a contract for specific
job, work or service between the P and CON/SUBCON
and a contract of employment between the
CON/SUBCON and its workers.
There are three parties involved:
1) Principal – (refer definition under the IRR) One
who decides to farm out a job or service to a
CON/SUBCON. (other definition) It refers to a natural or
a juridical entity whether an employer or not who puts
out or farms out a
job or work to a contractor
2) Contractor/Subcontractor – has the capacity to
independently undertake the performance of the job,
work or service In IRR – defined as the person or entity
engaged in legitimate contracting or subcontracting
arrangement providing services for a specific job. (under
a service agreement – a contract entered into or signed
between the principal and the contractor)
3) The contractual workers engaged by the
CON/SUBCON to accomplish the job, work or service
pursuant to the service agreement
Is it necessary that the contractor/contractor must be
registered?
Under IRR, the CON/SUBCON must be
registered. If not, presumption is labor-only contractor.
It has the burden of evidence to establish that it is a
legitimate contractor.
Principal must have Service Agreement.
The principal must have a written contract for a
specific job, work or service (service agreement). I
t must stipulate that the contractor must comply
with the labor standard benefits to its employees
otherwise it will be a ground for the pre-termination of
the contract.
The CON in return must have a written contract with its
contractual employees which shall include the
following terms and conditions:
The terms that must be embodied by the contract is in
Section 11 of IRR.
a) Specific description of the job, work or service to be
performed by the contractual employees
b) The place of work and terms of conditions of
employment, including a statement of the wage rates
applicable to the individual employee
c) Term or duration of the employment shall be extensive
with the contract of the principal and the contractor
d) The contractor shall inform the contractual employees
of the terms and conditions on or before the 1st day of
employment.
Is there an ER-EE relationship between the principal
and the employees of the job contractor?
GR: No ER-EE relationship between the principal and
the employees of the job contractor.
The ER-EE rel only exist between the CON and their
employees. It is the contractor which controls the means
and methods of achieving the desired result.
When is job contracting considered illegal?
a) When it is a labor-only contracting;
b) Contracting out of a job, work or service when the
same results in the termination or reduction of regular
EEs and reduction of work hours or reduction or
splitting of the bargaining unit;
c) Principal farms out work to a “cabo”;
d) Contracting out through an in-house agency;
e) Contracting out job, work or service that is necessary
or desirable or directly related to the business or
operation of the principal by reason of a strike or
lockout whether actual or imminent;
f) Contracting those being performed by union
members when such will interfere with, restrain or
coerce EEs in the exercise of their right to self-
organization;
g) Repeated hiring of EEs under an employment contract
of short duration or under a Service Agreement of
short duration with the same or different contractors,
which circumvents the LC provisions on security of
tenure;
h) Requiring EEs under a subcontracting arrangement to
sign a contract fixing the period of employment to a
tern shorter than the term of the Service Agreement,
unless the contract is divisible into phases for which
substantial different skills are required and this is
made known to the
EE at the time of engagement;
i) Refusal to provide a copy of the Service
Agreement and the employment contracts between the
contractor and EEs deployed to work in the bargaining
unit of the principal’s bargaining agent to the sole and
exclusive agent (SEBA);
j) Engaging or maintaining by the principal of
subcontracted EEs in excess of those provided for in the
applicable CBA or as set by the Industry Tripartite
Council.

Ang concern sa principal is only the result. The means

and method of how these results are accomplished, it’s
the CON/SUBCON who controls the same.

EXPN: When there is a labor-only contracting

Is there an ER-EE relationship between principal and
employees sa CON?
GR: No ER-EE relationship between principal and
employees sa CON
EXPN: If there is labor-only contracting or other forms
of illicit employment arrangement, automatic the
principal becomes the employer
What is the consequence if the contractor does not pay
the wages of its employees?
The principal is solidarily liable with the
contractor.
What if the principal is the government? (which cannot
be sued without its consent) Pwede ba siya mahimo
nga solidarily liable?
Yes. Because in job contracting, the gov’t as the
principal shall be classified as employer coming under
the private sector.
The reference to it as belonging to the public sector
related only to its direct employees for purposes of the
employee’s compensation program and not to its
indirect employees coming from the private sector.
Liability is not dependent upon insolvency or
unwillingness to pay on the part of the contractor. If the
indirect employer, this pertains to the payment of wages
or even sa violation sa section 10, be constrained to pay
the workers it can recover whatever amount it paid in
accordance with the terms of the service contract with
itself and the contractor.
Termination of the employment of the CON/SUBCON
employees prior to the expiration of service agreement
It must be in accordance with Art. 297-299 which means
there must be just or authorized causes.
Termination of employment is caused by the pre-
termination of the service agreement not due to
authorized causes
The right of the CON/SUBCON’s employee to unpaid
wages and unpaid benefits shall be borne by the party at
fault without prejudice to the solidary liable of the
parties to the service agreement.
PRE-TERMINATION OF THE SERVICE AGREEMENT
(Between the principal and the CON)
The obligation to pay the wages corresponding to the
contract as well as the benefits shall be borne by the
party at fault.
Payment of Backwages
For example, there is an illegal dismissal, and the
employee is entitled to backwages. Who is liable?
Liability is only with the contractor in the
absence of proof that the principal conspired with the
contractor in the commission of the illegal dismissal.
The Labor Arbiter has jurisdiction over claim of
non-payment or underpayment of wages even if the
same is against the government.
The government cannot interpose the defense
that it cannot be sued without its consent
Enumerate other illicit forms of employment
arrangement.
Under DO-174, the following are prohibited for being
contrary to law or public policy:
1. When the principal farms out work to a “Cabo”;
2. Contracting out of job or work through an in-
house agency;
3. Contracting out of job or work though an in-
house cooperative which merely supplies
workers to the principal;
4. Contracting out of a job or work by reason of a
strike or lockout whether actual or imminent;
5. Contracting out of a job or work being
performed by union members and such will
interfere with, restrain or coerce employees in
the exercise of their rights to self-organization as
 provided in Article 259 of the Labor Code, as 3) Another difference, job contracting is allowed by law
amended; while labor-only contracting is not allowed.

4) In job contracting, the principal has substantial capital

6. Requiring the contractor’s/subcontractor’s
or investment in the form of tools and equipment. There
employees to perform functions which are
is none in labor-only contracting as a general rule.
currently being performed by the regular
employees of the principal. 5) In job contracting, the job CON provides specific
services while in labor-only contracting as a general rule
7. Requiring the contractor’s/subcontractor’s the CON only provides manpower services
employees to sign, as a precondition to
employment or continued employment, an
antedated resignation letter; a blank payroll; a
waiver of labor standards including minimum
wages and social or welfare benefits; or a
quitclaim releasing the principal or contractor
from liability as to the payment of future claims;
or require the employee to become member of
a cooperative;

8. Repeated hiring by the

contractor/subcontractor of employees under
an employment contract of short duration;

9. Requiring employees under a

contracting/subcontracting arrangement to sign
a contract fixing the period of employment to a
term shorter than the term of the Service
Agreement, unless the contract is divisible into
phases for which substantially different skills are
required and this is made known to the
employee at the time of the engagement.

10. Such other practices, schemes or employment

arrangements designed to circumvent the right
of workers to security of tenure.

Difference between job contracting and labor-only

contracting.

1) In legitimate job contracting, the principal is the

indirect employer. There is no ER-EE rel. between the
principal and the employees of the CON/SUBCON.
Whereas in labor-only contracting, there is an ER-EE rel.
between the principal and the employees of the
CON/SUBCON.

2) In job contracting, the principal shall be solidarily liable

in case there is non-payment of wages but in labor-only
contracting, the principal shall be liable not only with the
payment of wages but also to other benefits under the
LC.