Labor Provisions 1 - 19

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I. INTRODUCTION TO LABOR LAW1. LABOR: CONCEPT

A. In its general senseB. In its technical senseLabor Code (LC), Art. 13 (a)

2. LABOR LAW:A. DefinitionB. 1. Justification: Social JusticeConst., Art. II, Sec. 10; Art. XIII, Secs. 1-3

Constitution: Art. II, Sec. 10

Section 10.The State shall promote social justice in all phases of national development.

Constitution: Art. XIII, Sec. 1-3

ARTICLE XIIISOCIAL JUSTICE AND HUMAN RIGHTS

Section 1.The Congress shall give highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity, reduce social,economic, and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good.

To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.

Section 2.The promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance.LABOR

Section 3.The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employmentopportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to

strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-

making processes affecting their rights and benefits as may be provided by law.The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes,

including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of

enterprises to reasonable returns to investments, and to expansion and growth.

2. Foundation or basis: Police Power of the State3. Ultimate goal: Industrial PeaceConst., Art. XIII, Sec. 3, par. 3

LABOR CODE: Art. 13 (a)

TITLE I: RECRUITMENT AND PLACEMENT OF WORKERSChapter I: General Provisions

Art. 13. Definitions.a. Workermeans any member of the labor force, whether employed or unemployed.

Constitution: Art. XIII, Sec. 3, par. 3

Section 3. par. 3 The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settlingdisputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.


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4. Management prerogative/ state regulationConst., Art. II, Sec.20; Art XIII, Sec. 3, pars. 3 and 4Constitution: Art. II, Sec. 20

Section 20.The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments.

Constitution: Art. XIII, Sec. 3 pars. 3 & 4

Section 3 par. 3 & 4 The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settlingdisputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and

the right of enterprises to reasonable returns to investments, and to expansion and growth.

5. Social Justice vis--vis Management prerogative6. Balancing of InterestsConst., Art. XIII, Sec. 3, pars. 3 & 4 ( Supra)

3. CLASSIFICATIONA. Labor StandardsB. Labor Relations

C.

Welfare Legislation4. BASIS

A. Economic BasisB.

Legal Basis1. 1987 ConstitutionArt. II, Secs. 5, 9, 10, 11, 13, 14, 18, 20; Art. III, Sec. 1, 4, 8, 18 (2); Art. XIII, Secs. 1, 2, 3, 14; See also: 1935 Const., Art. XIV, Sec. 6;

1973 Const., Art. II, Secs. 6, 9

Constitution: Art. II, Sec. 5, 9, 10, 11, 13, 14, 18, 20

Section 5.The maintenance of peace and order, the protection of life, liberty, and property, and promotion of the general welfare are essential for the enjoyment by allthe people of the blessings of democracy.

STATE POLICIES

Section 9.The State shall promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from povertythrough policies that provide adequate social services, promote full employment, a rising standard of living, and an improved quality of life for all.

Section 10.The State shall promote social justice in all phases of national development.Section 11.The State values the dignity of every human person and guarantees full respect for human rights.Section 13.The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in public and civic affairs.

Section 14.The State recognizes the role of women in nation-building, and shall ensure the fundamental equality before the law of women and men.Section 18.The State affirms labor as a primary social economic force. It shall protect the rights of workers and pr omote their welfare.


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Constitution: Art. III, Sec. 1, 4, 8, 18(2)

Section 1.No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

Section 4.No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition thegovernment for redress of grievances.

Section 8.The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to lawshall not be abridged.

Section 18.(2)No involuntary servitude in any form shall exist except as a punishment for a crime whereof the party shall have been duly convicted.

Constitution: Art. XIII, Sec. 1, 2, 3, 14

ARTICLE XIIISOCIAL JUSTICE AND HUMAN RIGHTS

Section 1.The Congress shall give highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity, reduce social,economic, and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good.

To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.

Section 2.The promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance.LABOR

Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employmentopportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to

strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-

making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes,

including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.The State shall regulate the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of

enterprises to reasonable returns to investments, and to expansion and growth.

WOMENSection 14.The State shall protect working women by providing safe and healthful working conditions, taking into account their maternal functions, and such facilities andopportunities that will enhance their welfare and enable them to realize their full potential in the service of the nation.

1935 Constitution: Art. XIV, Sec. 6

Section 6.The State shall afford protection to labor, especially to working women, and minors, and shall regulate the relations between the landowner and tenant, andbetween labor and capital in industry and in agriculture. The State may provide for compulsory arbitration.


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1973 Constitution: Art. II, Sec. 6, 9

Section 6. The State shall promote social justice to ensure the dignity, welfare, and security of all the people. Towards this end, the State shall regulate the acquisition,ownership, use, enjoyment, and disposition of private property, and equitably diffuse property ownership and profits.

Section 9. The State shall afford protection to labor, promote full employment and equality in employment, ensure equal work opportunities regardless of sex, race, orcreed, and regulate the relation between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining, security of tenure,

and just and humane conditions of work. The State may provide for compulsory arbitration.

1. a. Right to Security of TenureLC, Art. 3; Const., Art. XIII, Sec. 3, par. 2

LABOR CODE: Art. 3

Art. 3. Declaration of basic policy. The State shall afford protection to labor, promote full employment, ensure equal work opportunities regardless of sex, race or creedand regulate the relations between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining, security of tenure, and

just and humane conditions of work.

CONSTITUTION: Art. XIII, Sec. 3, par. 2

Section 3.par. 2 It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the rightto strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and

decision-making processes affecting their rights and benefits as may be provided by law.

1. b. Right to Humane Conditions of WorkLC, Art. 3; Const., Art. XIII, Sec. 3, par. 2 (Supra)2. Civil Code (CC)Arts. 19-21; 1700-1701

CIVIL CODE: Arts. 19-21; 1700-1701

Chapter 2: Human RelationsArticle 19.Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.Article 20.Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.Article 21.Any person who wilfully causes loss or injury to another in manner that is contrary to morals, good customs or public policy shall compensate the latter for thedamage.

Contract of Labor

Article 1700.The relations between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must yield to the commongood. Therefore, such contracts are subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours oflabor and similar subjects.Article 1701.Neither capital nor labor shall act oppressively against the other, or impair the interest or convenience of the public.

3. Labor Code and Omnibus Rules Implementing the Labor Code (ORLC)4. International Conventions, RecommendationsConst., Art. II, Sec. 2

CONSTITUTION: Art. II, Sec. 2

Section 2.The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land andadheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations.


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5. THE LABOR CODE OF THE PHILIPPINESa. Brief Historyb. Name of DecreeArt. 1

LABOR CODE: Art. 1

Art. 1. Name of Decree. This Decree shall be known as the "Labor Code of the Philippines"

c. Date of EffectivityArt. 2

LABOR CODE: Art. 2

Art. 2. Date of effectivity. This Code shall take effect six (6) months after its promulgation.

d. Declaration of Basic PolicyArt. 3

LABOR CODE: Art. 3

Art. 3. Declaration of basic policy. The State shall afford protection to labor, promote full employment, ensure equal work opportunities regardless of sex, race or creedand regulate the relations between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining, security of tenure, and

just and humane conditions of work.

e. Construction in favor of LaborArt. 4; CC, Art. 1702

LABOR CODE: Art. 4

Art. 4. Construction in favor of labor. All doubts in the implementation and interpretation of the provisions of this Code, including its implementing rules and regulations,shall be resolved in favor of labor.

CIVIL CODE: Art.1702

Article 1702.In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.

f. Labor Arbiters Jurisdiction over labor cases Art. 217

LABOR CODE: Art. 217

Chapter II : POWERS AND DUTIES

Art. 217. Jurisdiction of the Labor Arbiters and the Commission.a. Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days afterthe submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether

agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of

employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including


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those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim

for reinstatement.

b. The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

c. Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company

personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said

agreements. (As amended by Section 9, Republic Act No. 6715, March 21, 1989)

g. Technical rules, not bindingArt. 221

LABOR CODE: Art. 221

Art. 221. Technical rules not binding and prior resort to amicable settlement. In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidenceprevailing in courts of law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall

use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of

due process. In any proceeding before the Commission or any Labor A rbiter, the parties may be represented by legal counsel but it shall be the duty of the Chairman, any

Presiding Commissioner or Commissioner or any Labor Arbiter to exercise complete control of the proceedings at all stages.

Any provision of law to the contrary notwithstanding, the Labor Arbiter shall exert all efforts towards the amicable settlement of a labor dispute within his

jurisdiction on or before the first hearing. The same rule shall apply to the Commission in the exercise of its original jurisdiction. (As amended by Section 11, Republic Act

No. 6715, March 21, 1989)g. i. Liberality in application of rulesg. ii. Substantial compliance with the rules

h. Rule-making/ LimitationArt. 5

LABOR CODE: Art. 5

Art. 5. Rules and regulations. The Department of Labor and other government agencies charged with the administration and enforcement of this Code or any of its partsshall promulgate the necessary implementing rules and regulations. Such rules and regulations shall become effective fifteen (15) days after announcement of their

adoption in newspapers of general circulation.

i. ApplicabilityArt. 6, 276; Consti., Art. IX-B, Sec. 2(1)

LABOR CODE: Art. 6

Art. 6. Applicability. All rights and benefits granted to workers under this Code shall, except as may otherwise be provided herein, apply alike to all workers, whetheragricultural or non-agricultural. (As amended by Presidential Decree No. 570-A, November 1, 1974)

CONSTITUTION: Art. IX-B, Sec. 2 (1)

Section 2.(1) The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with

original charters

j. Enforcement and SanctionsArt. 217 (a) (2), (3), (4), (6); 128-129; 288-292; Consti., Art. III, Secs. 11 and 16


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LABOR CODE: Art. 217 (a) (2), (3), (4), (6)

Art. 217. Jurisdiction of the Labor Arbiters and the Commission.a. Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after

the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether

agricultural or non-agricultural:

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of

employment;4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including

those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim

for reinstatement.

LABOR CODE: Art. 128-129

Art. 128. Visitorial and enforcement power.a. The Secretary of Labor and Employment or his duly authorized representatives, including labor regulation officers, shall have access to employers records and premises

at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition

or matter which may be necessary to determine violations or which may aid in the enforcement of this Code and of any labor law, wage order or rules and regulations

issued pursuant thereto.

b. Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the relationship of employer-employee still exists, the Secretary

of Labor and Employment or his duly authorized representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this

Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial safety engineers made in the course of inspection. The

Secretary or his duly authorized representatives shall issue writs of execution to the appropriate authority for the enforcement of their orders, except in cases wherethe

employer contests the findings of the labor employment and enforcement officer and raises issues supported by documentary proofs which were not considered in the

course of inspection.

An order issued by the duly authorized representative of the Secretary of Labor and Employment under this Article may be appealed to the latter. In case said order

involves a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by reputable bonding company duly

accredited by the Secretary of Labor and Employment in the amount equivalent to the monetary award in the order appealed from. (As amended by Republic Act No. 7730,

June 2, 1994)

c. The Secretary of Labor and Employment may likewise order stoppage of work or suspension of operations of any unit or department of an establishment when non-

compliance with the law or implementing rules and regulations poses grave and imminent danger to the health and safety of workers in the workplace. Within twenty-four

hours, a hearing shall be conducted to determine whether an order for the stoppage of work or suspension of operations shall be lifted or not. In case the violation is

attributable to the fault of the employer, he shall pay the employees concerned their salaries or wages during the period of such stoppage of work or suspension of

operation.

d. It shall be unlawful for any person or entity to obstruct, impede, delay or otherwise render ineffective the orders of the Secretary of Labor and Employment or his duly

authorized representatives issued pursuant to the authority granted under this Article, and no inferior court or entity shall issue temporary or permanent injunction or

restraining order or otherwise assume jurisdiction over any case involving the enforcement orders issued in accordance with this Article.


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e. Any government employee found guilty of violation of, or abuse of authority, under this Article shall, after appropriate administrative investigation, be subject to

summary dismissal from the service.

f. The Secretary of Labor and Employment may, by appropriate regulations, require employers to keep and maintain such employment records as may be necessary in aid

of his visitorial and enforcement powers under this Code.

Art. 129. Recovery of wages,simple money claims and other benefits. Upon complaint of any interested party, the Regional Director of the Department of Labor andEmployment or any of the duly authorized hearing officers of the Department is empowered, through summary proceeding and after due notice, to hear and decide any

matter involving the recovery of wages and other monetary claims and benefits, including legal interest, owing to an employee or person employed in domestic or

household service or househelper under this Code, arising from employer-employee relations: Provided, That such complaint does not include a claim for reinstatement:

Provided further, That the aggregate money claims of each employee or househelper does not exceed Five thousand pesos (P5,000.00). The Regional Director or hearing

officer shall decide or resolve the complaint within thirty (30) calendar days from the date of the filing of the same. Any sum thus recovered on behalf of any employee or

househelper pursuant to this Article shall be held in a special deposit account by, and shall be paid on order of, the Secretary of Labor and Employment or the Regional

Director directly to the employee or househelper concerned. Any such sum not paid to the employee or househelper because hecannot be located after diligent and

reasonable effort to locate him within a period of three (3) years, shall be held as a special fund of the Department of Labor and Employment to be used exclusively for the

amelioration and benefit of workers.

Any decision or resolution of the Regional Director or hearing officer pursuant to this provision may be appealed on the same grounds provided in Article 223 of this

Code, within five (5) calendar days from receipt of a copy of said decision or resolution, to the National Labor Relations Commission which shall resolve the appeal withinten (10) calendar days from the submission of the last pleading required or allowed under its rules.

The Secretary of Labor and Employment or his duly authorized representative may supervise the payment of unpaid wages and other monetary claims and benefits,

including legal interest, found owing to any employee or househelper under this Code. (As amended by Section 2, Republic Act No. 6715, March 21, 1989)


TITLE I: PENAL PROVISIONS & LIABILITIESArt. 288. Penalties. Except as otherwise provided in this Code, or unless the acts complained of hinge on a question of interpretation or implementation of ambiguousprovisions of an existing collective bargaining agreement, any violation of the provisions of this Code declared to be unlawful or penal in nature shall be punished with a

fine of not less than One Thousand Pesos (P1,000.00) nor more than Ten Thousand Pesos (P10,000.00) or imprisonment of not less than three months nor more than three

years, or both such fine and imprisonment at the discretion of the court.

In addition to such penalty, any alien found guilty shall be summarily deported upon completion of service of sentence.

Any provision of law to the contrary notwithstanding, any criminal offense punished in this Code, shall be under the concurrent jurisdiction of the Municipal or City

Courts and the Courts of First Instance. (As amended by Section 3, Batas Pambansa Bilang 70)

Art. 289. Who are liable when committed by other than natural person. If the offense is committed by a corporation, trust, firm, partnership, association or any otherentity, the penalty shall be imposed upon the guilty officer or officers of such corporation, trust, firm, partnership, association or entity.

Title II: PRESCRIPTION OF OFFENSES AND CLAIMS

Art. 290. Offenses. Offenses penalized under this Code and the rules and regulations issued pursuant thereto shall prescribe in three (3) years.All unfair labor practice arising from Book V shall be filed with the appropriate agency within one (1) year from accrual of such unfair labor practice; otherwise, they


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shall be forever barred.

Art. 291. Money claims. All money claims arising from employer-employee relations accruing during the effectivity of this Code shall be filed within three (3) years from thetime the cause of action accrued; otherwise they shall be forever barred.

All money claims accruing prior to the effectivity of this Code shall be filed with the appropriate entities established under this Code within one (1) year from the date

of effectivity, and shall be processed or determined in accordance with the implementing rules and regulations of the Code; o therwise, they shall be forever barred.

Workmens compensation claims accruing prior to the effectivity of this Code and during the period from November 1, 1974 up to December 31, 1974, shall be filed

with the appropriate regional offices of the Department of Labor not later than March 31, 1975; otherwise, they shall forever be barred. The claims shall be processed andadjudicated in accordance with the law and rules at the time their causes of action accrued.

Art. 292. Institution of money claims. Money claims specified in the immediately preceding Article shall be filed before the appropriate entity independently of thecriminal action that may be instituted in the proper courts.

Pending the final determination of the merits of money claims filed with the appropriate entity, no civil action arising from the same cause of action shall be filed with

any court. This provision shall not apply to employees compensation case which shall be processed and determined strictly in accordance with the pertinent provisions of

this Code.

CONSTITUTION: Art. III, Secs. 11 and 16

Section 11.Free access to the courts and quasi-judicial bodies and adequate legal assistance shall not be denied to any person by reason of poverty

Section 16.All persons shall have the right to a speedy disposition of their cases before all judicial, quasi-judicial, or administrative bodies.

6. WORK RELATIONSHIPa. Definition: Employer and Employee. 97 (a), (b), (c); 167 (f), (g), (h); 212 (e), (f)

LABOR CODE: Art. 97 (a), (b), (c)

Art. 97. Definitions. As used in this Title:a. "Person" means an individual, partnership, association, corporation, business trust, legal representatives, or any organized group of persons.

b. "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 nonprofit private institutions, or organizations.

c. "Employee" includes any individual employed by an employer.

LABOR CODE: Art. 167 (f), (g), (h)

Art. 167. Definition of terms. As used in this Title, unless the context indicates otherwise: f. "Employer" means any person, natural or juridical, employing the services of the employee.

g. "Employee" means any person compulsorily covered by the GSIS under Commonwealth Act Numbered One hundred eighty-six, as amended, including the members of

the Armed Forces of the Philippines, and any person employed as casual, emergency, temporary, substitute or contractual, or any person compulsorily covered by the SSS

under Republic Act Numbered Eleven hundred sixty-one, as amended.

h. "Person" means any individual, partnership, firm, association, trust, corporation or legal representative thereof.

LABOR CODE: Art. 212 (e), (f)


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Art. 212. Definitions.e. "Employer" includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or

agents except when acting as employer.

f. "Employee" includes any person in the employ of an employer. The term shall not be limited to the employees of a particular employer, unless the Code so explicitly

states. It shall include any individual whose work has ceased as a result of or in connection with any current labor dispute or because of any unfair labor practice if he has

not obtained any other substantially equivalent and regular employment.

b.

Employer- Employee Relationship1. Factors/Tests

1. a. Control test v. Economic reality test2. Burden of proving employer- employee relationship3. Piercing the corporate veil

c. Independent Contractor and Labor-only ContractorArt. 106-109; D.O. No. 10, 1997 incorp. In Rule VIII-A, Bk. III, Omnibus Rules; D.O. No. 3, S. May2001; D.O. No. 18-02, S 2002; D.O. No. 14 December 18, 2001 (Re: Employment of Security Guards), Sec. 8; D.O. No. 18-A (November 14, 2011)


Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the formers work, the employees of th econtractor and of the latters 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 toemployees 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,

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. 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.

Art. 107. Indirect employer. The provisions of the immediately preceding article shall likewise apply to any person, partnership, association or corporation which, not beingan employer, contracts with an independent contractor for the performance of any work, task, job or project.

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, oncondition 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.

Art. 109. Solidary liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with hiscontractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be

considered as direct employers.

D.O. No. 10, 1997 incorporated in Rule VII-A, Book 3, Omnibus Rules (revoked by D.O No. 3 , Series of May 2001)


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DEPARTMENT ORDER NO. 10(Series of 1997)

AMENDING THE RULES IMPLEMENTING BOOKS III AND VIOF THELABOR CODE, AS AMENDED

ARTICLE I.There is hereby issued a new Rule implementing Articles 106 to 109 of Book II I of theLabor Code,to be known as Rule VIII-A, Book III of the Implementing Rules,

as follows:"Rule VIII-A

"Section 1. Guiding Principles. - This Rule is being issued in recognition of the following guiding principles:

"(a) Contracting and subcontracting arrangements are expressly allowed by law, but may be subject to regulations consistent wit the promotion of employment, protection

of workers' welfare and enhancement of industrial peace and rights of workers to self-organization and collective bargaining; for this reason, labor-only contracting as

defined herein shall be prohibited.

"(b) Contractors and subcontractors as well as their employees, are entitled to all the rights and privileges, and are subject to all the duties and responsibilities which

theLabor Code, as amended,attaches to every employee-employer relationship;

"(c) Flexibility for the purpose of increasing efficiency and streamlining operations is essential for every business to grow in an atmosphere of free competition; however,

any form of flexibility intended to circumvent or evade workers' rights shall in no case be countenanced; and

"(d) The establishment of an effective labor market information system is indispensable in the formulation of policies, strategies and programs for human resource

development supportive of and responsive to the needs of workers and enterprises.

"Section 2. Coverage. - This Rule shall apply to all parties of contracting and subcontracting arrangements where employee-employer relationship exists.

"Section 3. Parties. -A contracting or subcontracting arrangement involves a trilateral relationship under which there is a contract for a specific job, service, or work

between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Therefore, the parties

to a contracting or subcontracting arrangement shall be the principal, the contractor or subcontractor, and the workers engaged by the latter. The principal and the

contractor or subcontractor may be a natural or juridical person.

"Section 4. Definition of Terms. -As used in this Rule, the following shall mean:

"(a) "Principal"refers to any employer who puts out or farms out a job, service, or work to a contractor or subcontractor, whether or not the arrangement is covered by a

written contract.

"(b) "Contractor or subcontractor"refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement as defined in paragraph (d) hereof.

"(c) "Contractual 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 as defined in paragraph (d) hereof. The term excludes employees of the contractor or subcontractor engaged to perform a job, work or service not

within the scope of the contract between the latter and a principal."(d) "Contracting" or "subcontracting"refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or

completion of a specific job, work or service within 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 as hereinafter qualified.

"Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or subcontracting shall be legitimate if the following circumstances concur:

"(i) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its

own responsibility, according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the

work except as to the results thereof;

"(ii) The contractor or subcontractor has substantial capital or investment; and

"(iii) The agreement between the principal and contractor or subcontractor assures the contractual employees' entitlement to all labor and occupational safety and health
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standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.

"(e) "Substantial capital or investment"refers to the adequacy of resources actually and directly used by the contractor or subcontractor in the performance or completion

of the job, work or service contracted out. It may refer to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implement,

machineries, uniforms, protective gear, or safety devices actually used in the performance of the job, work or service contracted out. It likewise includes operating costs,

administrative costs such as training and overhead costs, and such expenses as are necessary to enable the contractor or subcontractor to exercise control, supervision or

direction over its employees in all aspects of performing or completing the job, service or work contracted out. The phrase, however, excludes all capital and investment

the contractor or subcontractor may have which are not actually and directly used in the conduct of its business, or any gratuitous assistance, financial or otherwise, it may

have received from the principal."(f) "Labor-only contracting"prohibited under this Rule is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a

job, work or service for a principal and the following elements are present:

"(i) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility;

and

"(ii) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the

principal.

"(g) "In-house agency"refers to a contractor or subcontractor engaged in the supply of labor which;

"(i) Is owned, managed or controlled by the principal; and

"(ii) Operates solely for the principal owning, managing or controlling it.

"(h) "Bureau" refers to the Bureau of Local Employment of the Department of Labor and Employment."Regional Office"refers to the offices of the Department established

in each of the regions.

"Section 5. Term or duration of contractual employment. - Subject to the provisions of sections 6, 7 and 8 hereof, the term or duration of contractual employment shall be

coextensive with the term or duration of the contract between the principal and contractor or subcontractor. However, where the contract is divisible into phases such

that substantially different skills are required for each phase, the term or duration of the contractual employment may be made coextensive with each phase.

"For purposes of this Rule, he phrase "substantially different skills"refer to those skills the acquisition of which requires specialized knowledge or training.

"Section 6. Permissible contracting or subcontracting. - Subject to the conditions set forth in Section 3 (d) and (e) and Section 5 hereof, the principal may engage the

services of a contractor or subcontractor for the performance of any of the following;

"(a) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or services, provided that the normal production capacity

or regular workforce of the principal cannot reasonably cope with such demands;

"(b) Works or services temporarily or occasionally needed by the principal for undertakings requiring expert or highly technical personnel to improve the management or

operations of an enterprise;

"(c) Services temporarily needed for the introduction or promotion of new products, only for the duration of the introductory or promotional period;

"(d) Works or services not directly related or not integral to the main business or operation of the principal, including casual work, janitorial, security, landscaping, andmessengerial services, and work not related to manufacturing processes in manufacturing establishments;

"(e) Services involving the public display of manufacturers' products which do not involve the act of selling or issuance of receipts or invoices;

"(f) Specialized works involving the use of some particular, unusual or peculiar skills, expertise, tools or equipment the performance of which is beyond the competence of

the regular workforce or production capacity of the principal; and

"(g) Unless a reliever system is in place among the regular workforce, substitute services for absent regular employees, provided that the period of service shall be

coextensive with the period of absence and the same is made clear to the substitute employee at the time of engagement. The phrase "absent regular employees"includes

those who are serving suspensions or other disciplinary measures not amounting to termination of employment meted out by the principal, but excludes those on strike

where all the formal requisites for the legality of the strike have beenprima facie complied with based on the records filed with the National Conciliation and Mediation

Board.


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"Section 7. Prohibitions. - The following are hereby declared prohibited for being contrary to law or public policy;

"(a) Labor-only contracting;

"(b) Contracting out of work which will either displace employees of the principal from their jobs or reduce their regular work hours;

"(c) Contracting out of work with a "cabo"as defined in Section 1 (ii), Rule I, Book V of these Rules;

"(d) Taking undue advantage of the economic situation of lack of bargaining strength of the contractual employee, or undermining his security of tenure or basic rights, or

circumventing the provisions of regular employment, in any of the following instances:

"(i) In addition to this assigned functions, requiring the contractual employee to perform functions which are currently being performed by the regular employees of the

principal or of the contractor or subcontractor;"(ii) Requiring him 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, contractor or subcontractor from any liability as to payment of future

claims; and

"(iii) Requiring him to sign a contract fixing 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 required and this is made known to the employee at the time of

engagement;

"(e) Contracting out of a job, work or service through an in-house agency as defined herein;

"(f) Contracting out of a job, work or service directly related to the business or operation of the principal by reason of a strike or lockout whether actual or imminent; and

"(g) Contracting out of job, work or service when not justified by the exigencies of the business and the same results in the reduction or splitting of the bargaining unit.

"Section 8. Unfair Labor Practice. - Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or coerce employees

in the exercise of their rights to self-organization shall be unlawful and shall constitute unfair labor practice.

"Section 9. Contract between contractor or subcontractor and contractual employee . - Notwithstanding oral or written stipulations to the contrary, the contract between

the contractor or subcontractor and the contractual employee shall include the following terms and conditions:

"(a) The specific description of the job, work or service to be performed by the contractual employee;

"(b) The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual contractual employee; and

"(c) The term or duration of employment, which shall be coextensive with the contract between the principal and contractor or subcontractor, or with the specific phase

for which the contractual employee is engaged, as the case may be.

The contractor or subcontractor shall inform the contractual employee of the foregoing terms and conditions on or before the first day of his employment.

"Section 10. Duty to produce copy of contract. - The contractor or subcontractor shall submit a copy of its contract with the principal to the Regional Office of the

Department of Labor and Employment (DOLE). It shall be accompanied by a statement of the number of employees covered by the contract and, where appropriate, a

description of the phases of the contract and the number of employees covered in each phase. The contractor or subcontractor shall be under an obligation to produce the

original copy of the same in the ordinary course of inspection or when directed to do so by the Regional Director or his authorized representative.

"The copy of the contract between the contractual employee and the contractor or subcontractor need not be filed with DOLE. However, the contractor or subcontractorshall make the same available for inspection by the Regional Director or his authorized representative.

"Further, a copy of the contract between the contractual employee and the contractor or subcontractor shall be furnished the certified bargaining agent, if there is any.

"Section 11. Rights of a contractual employee. - The contractual employee shall be entitled to all the rights and privileges due a regular employee, including but not limited

to the right to working conditions and standards, service incentive l eave, rest days, overtimes and holidays, health, safety and social and welfare benefits, self -organization

and collective bargaining and security of tenure.

"In cases of termination of employment prior to the expiration of the contract between the principal and the contractor or subcontractor, the right of the contractual

employee to separation pay or other related benefits shall be governed by the applicable laws and jurisprudence on termination of employment. Where the termination

results from expiration of the contract between the principal and the contractor or subcontractor, or whom the completion of the phase of the job, work or service for

which the contractual employee is engaged, the latter shall not be entitled to separation pay. However, this shall be without prejudice to completion bonuses or other


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emoluments, including retirement pay as may be provided by law or in the contract between the principal and the contractor or subcontractor.

"Section 12. Employee-employer relationship. -Except in cases provided for in Sections 13, 14, 15 and 17, the contractor or subcontractor shall be considered the employer

of the contractual employee for purposes of enforcing the provisions of theCode.

"Section 13. When principal is deemed jointly and severally liable . - When the contractor or subcontractor fails to pay the wages of its contractual employees, the principal

shall be jointly and severally liable with the contractor or subcontractor to such contractual employees to the extent of the work performed under the contract, in the same

manner and extent that the principal is liable to its direct employees.

"Section 14. When principal is deemed employer who is solidarily liable. -The 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 against the former, in the following cases:"(a) When the contractor or subcontractor is not enrolled in the registry of the Regional Office of the Bureau, or it has been delisted therefrom, or its contract with the

principal has not been renewed;

"(b) When the contractor or subcontractor is found committing any of the prohibited activities enumerated in Section 7 of this Rule;

"(c) When the contractor or subcontractor is declared guilty of unfair labor practice as specified in Section 8 of this Rule; and

"(d) When a violation of the relevant provisions of theCode has been established by the Regional Director in the exercise of his enforcement powers.

"Section 15. Other instances of solidary liability. - In cases not covered by the last two preceding sections, the principal shall also be deemed solidarily liable with the

contractor or subcontractor to the extent of accrued claims and benefits which the latter may owe to its contractual employees in the following instances:

"(a) When the certificate of registration, license or business permit of the contractor or subcontractor is cancelled, revoked or not renewed by the competent authority; or

"(b) When the contract between the principal and the contractor or subcontractor is preterminated for reasons nor attributable to the fault of the contractor or

subcontractor.

"Section 16. Enforcement against performance bond. - In enforcing the provisions of Sections 13, 14 and 15, the Regional Director shall first proceed against the

performance bond, if any has been put up by the contractor or subcontractor, to the extent that such bond may cover claims of the contractual employee. In case the bond

is insufficient, the Regional Director shall proceed directly against the principal.

"Nothing herein shall restrict the right of the principal from filing an action for reimbursement or damages against the contractor or subcontractor in the appropriate

courts.

"Section 17. Effect of existence of labor-only contracting. - In case of declaration by the competent authority that a contractual employee is covered by a labor-only

contracting arrangement, he shall be considered part of the bargaining unit of the principal.

"Section 18. Effect of expiration of contract; manpower pool. - Where the contract between the principal and the contractor or subcontractor has expired, and the latter

remains in business as a contractor or subcontractor, the employee-employer relationship between the latter and its contractual employees shall not be automatically

terminated, but shall remain suspended for a period of six months, unless a longer period is set by the contractor or subcontractor. During this period, such employees

shall become part of a manpower pool of the contractor or subcontractor. If the contractor or subcontractor is unable to renew the original contract or enter into a new

and similar contract requiring the skills of the employees in the pool within the six-month period, or if the contractual employee subsequently finds employment

elsewhere, the employee-employer relationship shall be deemed terminated and the employee concerned shall be taken out of the pool."The foregoing paragraph shall also apply where the contract between the contractor or subcontractor and the contractual employee has expired by reason of the

completion of the phase of the contract for which the latter was engaged.

"It shall be understood, however, that all rights and privileges which the employee may derived out of the employer-employee relationship shall be suspended while he is

part of the pool.

"Section 19. Registry of contractors or subcontractors.- There is hereby established a registry of contractors and subcontractors in the Regional Offices and in the Bureau,

for purposes of establishing an effective labor market information and monitoring system on activities which are subject to contracting or subcontracting arrangements.

Registration under this section shall not be synonymous with licensing, the latter being a precondition for acquiring legal personality or engaging in business.

"Section 20. Requirements for registration. - A contractor or subcontractor shall be enrolled in the registry of contractors and subcontractors upon completion of an

application form to be provided by the DOLE. The application shall state:
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"(a) The name and business address of the applicant and the area or areas where it seeks to operation;

"(b) The names and addresses of its officers, if the applicant is a corporation or partnership;

"(c) The nature of the applicant's business and the industry or industries where the applicant seeks to operate;

"(d) The list of actual contracts, if any; and

"(e) The capitalization and other assets of the applicants which are actually and directly used in its operations.

"The application shall be supported by:

"(a) A certified copy of the certificate of registration of firm or business name from the Securities and Exchange Commission (SEC) or Department of Trade and Industry

(DTI) or from the DOLE if the applicant is a union; and"(b) A certified copy of the license or business permit issued by the local government unit or units where the contractor or subcontractor operates.

"The application shall be verified and shall include an undertaking that the contractor or subcontractor shall abide by all applicable labor laws and regulations.

"Section 21. Filing and processing of applications. - The application and its supporting documents shall be filed in triplicate in the Regional Office where the applicant

principally operates. No application for registration shall be accepted unless all the foregoing requirements are complied with. The contractor or subcontractor shall be

deemed registered upon payment of a registration fee of One hundred pesos (P100.00) to the Regional Office.

"Where all the supporting documents have been submitted, the Regional Office shall deny or approve the application within seven (7) working days after its filing. In case

of inaction of the Regional Office beyond this period, the application shall be deemed provisionally approved subject, however, to the payment of the registration fee.

"Upon registration, the Regional Office shall return one set of the duly-stamped application documents to the applicant, retain one set for its file, and transmit the

remaining set to the Bureau. The Bureau shall devise the necessary forms for the expeditious processing of all applications for registration.

"Section 22.Annual reporting. - The contractor or subcontractor shall submit in triplicate its annual report in such forms as may be prescribed by the DOLE to the

appropriate Regional Office. The report shall include:

"(a) A list of contracts entered into during the subject reporting period; and

"(b) A certification from the Social Security System (SSS) and the Home Development Mutual Fund (HDMF) that the contractor or subcontractor has been making the

monthly remittances due its contractual employees during the subject reporting period.

"The obligation to submit an annual report shall coincide with the anniversary date of registration of the contractor or subcontractor. The Regional Office shall return one

set of the duly-stamped report to the contractor or subcontractor, retain one set for its file, and transmit the remaining set to the Bureau within five (5) days from receipt

thereof.

"Section 23. Delisting of registered contractor or subcontractor. - The Regional Director shall, upon due notice, motu propriocancel the registration of a contractor or

subcontractor if it fails to comply with the reporting requirements for three consecutive years, or upon the cessation of a business of the latter.

"Subject to administrative due process, the contractor or subcontractor shall be delisted from the registry if it is found to have committed the prohibited activities or has

been declared guilty of unfair labor practice as enumerated in Sections 7 and 8 hereof, or has falsified the requirements for registration it submitted to the Regional Office.

"Section 24. All existing contractors or subcontractors as defined herein shall register with the Regional Office within one hundred twenty (120) days from the effectivity of

this Rule. In case of failure to register within this prescribed period, the provisions of this Rule shall apply."Section 25. Supersession. - All rules and regulations issued by the Secretary of Labor and Employment inconsistent with the provisions of this Rule are hereby superseded.

Contracting or subcontracting arrangements in the construction industry, however, shall continue to be governed by Department Order No. 19, series of 1993, as well as

the applicable provisions of this Rule."

ARTICLE II.Sections 7, 8 and 9, Rule VIII, Book III of the Implementing Rules are hereby superseded. Sections 10, 11, 12, 13 and 14 of the same Rule are hereby renumberedas Sections 7, 8, 9, 10 and 11, respectively.

ARTICLE III.Section 2, Rule I, Book VI of the Implementing Rules is hereby amended, to read as follows:"Section 2. Security of tenure. -(a) In cases of regular employment, the employer shall not terminate the services of an employee except for just or authorized causes as


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provided by law, and subject to the requirements of due process.

"(b) The foregoing shall also apply in cases of probationary employment: Provided, however, that in such cases, termination of employment due to failure of the employee

to qualify in accordance with the standards of the employer made known to the former at the time of engagement may also be a ground for termination of employment.

"(c) In cases of employment covered by contracting or subcontracting arrangements, no employee shall be dismissed prior to the expiration of the contract between the

principal and contractor or subcontractor as defined in Rule VIII-A, Book III of these Rules, unless the dismissal is for just or authorized cause, or is brought about by the

completion of the phase of the contract for which the employee was engaged but, in any case, subject to the requirements of due process or prior notice.

"(d) In all cases of termination of employment, the following standards of due process shall be substantially observed:

"For termination of employment based on just cases as defined in Article 282 of theLabor Code:"(i) A written notice served on the employee specifying the ground or grounds for termination, and giving said employee reasonable opportunity within which to explain his

side.

"(ii) A hearing or conference during which the employee concerned, with the assistance of counsel, if he so desires, is given opportunity to respond to the charge, present

his evidence, or rebut the evidence presented against him.

"(iii) A written notice of termination served on the employee, indicating that upon due consideration of all the circumstances, grounds have been established to justify his

termination.

"For termination of employment as defined in Article 283 of theLabor Code,the requirement of due process shall be deemed complied with upon service of a written

notice to the employee and the appropriate Regional Office of the Department of Labor and Employment at least thirty days before effectivity of the termination,

specifying the ground or grounds for termination.

"If the termination is brought about by the completion of a contract or phase thereof, or by failure of an employee to meet the standards of the employer in the case of

probationary employment, it shall be sufficient that a written notice is served the employee within a reasonable time from the effective date of termination."

ARTICLE IV.Section 5, Rule I, Book VI of the Implementing Rules of theLabor Code is hereby amended, to read as follows:"Section 5. (a) Regular employment. -The provisions of written agreements to the contrary notwithstanding and regardless of the oral agreements of the parties,

employment shall be deemed regular for purposes of Book VI of the Labor Code where employee has been engaged to perform activities which are usually necessary or

desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking, the completion or termination

of which has been determined at the time of the engagement of the employee or where the job, work or service to be performed is seasonal in nature and the

employment is for the duration of the season.

"(b) Casual employment.- There is casual employment where an employee is engaged to perform a job, work or service which is merely incidental to the business of the

employer, and such job, work or service is for a definite period made known to the employee at the time of engagement: Provided, that any employee who has rendered at

least one year of service, whether such service is continuous or not, shall be considered a regular employee with respect to the activity in which he is employed and his

employment shall continue while such activity exists.

"Notwithstanding the foregoing distinctions, every employee shall be entitled to the rights and privileges, and shall be subject to the duties and obligations, as may begranted by law to regular employees during the period of their actual employment."

ARTICLE V. Section 6, Rule I, Book VI of the Implementing Rules is hereby amended, to read as follows:"Section 6. Probationary employment. - There is probationary employment where the employee, upon his engagement, is made to undergo a trial period during which the

employer determines his fitness to qualify f or regular employment based on reasonable standards made known to him at the time of engagement.

"Probationary employment shall be governed by the following rules:

"(a) Where the work for which the employee has been engaged is learnable or apprenticeable in accordance with the standards p rescribed by the Department of Labor and

Employment, the period of probationary employment shall be limited to the authorized learnership or apprenticeship period, which is applicable.

"(b) Where the work is neither learnable nor apprenticeable, the period of probationary employment shall not exceed six months reckoned from the date the employee
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actually started working.

"(c) The services of an employee who has been engaged on probationary basis may be terminated only for a just or authorized cause, when he fails to qualify as a regular

employee in accordance with reasonable standards prescribed by the employer.

"(d) In all cases of probationary employment, the employer shall make known to the employee the standards under which he will qualify as a regular employee at the time

of his engagement. Where no standards are made known to the employee at that time, he shall be deemed a regular employee."

ARTICLE VI. Effectivity. - These Rules shall take effect fifteen (15) days after completion of its publication in two (2) newspapers of general circulation.

Manila, Philippines, 30 May 1997

D.O. No. 3, Series of May 2001

DEPARTMENT ORDER NO. 03(Series of 2001)

REVOKING DEPARTMENT ORDER NO. 10, SERIES OF 1997,AND CONTINUING TO PROHIBIT LABOR-ONLY CONTRACTING

Pursuant to Articles 5 and 106 of the Labor Code, as amended, the following are hereby issued:Section 1. Revocation of Department Order No. 10 - Department Order No. 10, Series of 1997, otherwise known as the rules implementing Article 106 to 109 of Book I II of

the Labor Code, is hereby revoked effective immediately.Section 2. Prohibition against labor-only contracting. - Labor-only contracting is hereby declared prohibited. There is labor-only contracting where the contractor orsubcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility;

and

(b) The employees recruited, supplied or placed by such contractor or subcontractor is performing activities, which are directly related to the main business of the

principal.

Section 3. Non-impairment of existing contracts; Non-diminution of benefits. Subject to the provisions of the Civil Code and existing jurisprudence, nothing herein shallimpair the rights or diminish the benefits being enjoyed by parties to existing contracting or subcontracting arrangements.

Section 4. Effectivity. - This Order shall be effective fifteen days after publication in two newspapers of general circulation until a new set of guidelines implementingArticles 106 to 109 of the Labor Code shall have been promulgated. Such new guidelines shall be formulated upon prior consultations with all sectors concerned,

particularly the Tripartite Industrial Peace Council (TIPC) established under Executive Order No. 49, Series of 1998.

Manila, Philippines, 08 May 2001

D.O. No. 18-02, Series of 2002

DEPARTMENT ORDER NO. 18 - 02(Series of 2002)

RULES IMPLEMENTING ARTICLES 106 TO 109OF THE LABOR CODE, AS AMENDED

By virtue of the power vested in the Secretary of Labor and Employment under Articles 5 (Rule-making) and 106 (Contractor or Subcontractor) of the Labor Code of the


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Philippines, as amended, the following regulations governing contracting and subcontracting arrangements are hereby issued:

Section 1. Guiding principles.- Contracting and subcontracting arrangements are expressly allowed by law and are subject to regulation for the promotion of employmentand the observance of the rights of workers to just and humane conditions of work, security of tenure, self-organization, and collective bargaining. Labor-only contracting

as defined herein shall be prohibited.

Section 2. Coverage. - These Rules shall apply to all parties of contracting and subcontracting arrangements where employer-employee relationship exists. Placementactivities through private recruitment and placement agencies as governed by Articles 25 to 39 of the Labor Code are not covered by these Rules.

Section 3. Trilateral Relationship in Contracting Arrangements. - In legitimate contracting, there exists a trilateral relationship under which there is a contract for a specificjob, work or service between the principal and the contractor or subcontractor, and a contract of employment between the contractor or subcontractor and its workers.

Hence, there are three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or subcontractor, the contractor or

subcontractor which has the capacity to independently undertake the performance of the job, work or service, and the contractual workers engaged by the contractor or

subcontractor to accomplish the job work or service.

Section 4. Definition of Basic Terms.- The following terms as used in these Rules, shall mean:(a) "Contracting" or "subcontracting" refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or

completion of a specific job, work or service within 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.

(b) "Contractor or subcontractor" refers to any person or entity engaged in a legitimate contracting or subcontracting arrangement.

(c) "Contractual 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.

(d) "Principal" refers to any employer who puts out or farms out a job, service or work to a contractor or subcontractor.

Section 5. Prohibition against labor-only contracting. - Labor-only contracting is hereby declared prohibited. For this purpose, labor-only contracting shall refer to anarrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and any of the following

elements are present:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited,

supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or

(ii) the contractor does not exercise the right to control over the performance of the work of the contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (C ) of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work

premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service contracted out.

The "right to control" shall refer to the right 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 reaching that end.Section 6. Prohibitions.- Notwithstanding Section 5 of these Rules, the following are hereby declared prohibited for being contrary to law or public policy:(a) Contracting out of a job, work or service when not done in good faith and not justified by the exigencies of the business and the same results in the termination of

regular employees and reduction of work hours or reduction or splitting of the bargaining unit;

(b) Contracting out of work with a "cabo" as defined in Section 1 (ii), Rule I, Book V of these Rules. "Cabo" refers to a person or group of persons or to a labor group which,

in the guise of a labor organization, supplies workers to an employer, with or without any monetary or other consideration whether in the capacity of an agent of the

employer or as an ostensible independent contractor;

(c) Taking undue advantage of the economic situation or lack of bargaining strength of the contractual employee, or undermining his security of tenure or basic rights, or

circumventing the provisions of regular employment, in any of the following instances:

(i) In addition to his assigned functions, requiring the contractual employee to perform functions which are currently being performed by the regular employees of the


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principal or of the contractor or subcontractor;

(ii) Requiring him 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, contractor or subcontractor from any liability as to payment of future claims; and

(iii) Requiring him to sign a contract fixing 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 required and this is made known to the employee at the time of

engagement;

(d) Contracting out of a job, work or service through an in-house agency which refers to a contractor or subcontractor engaged in the supply of labor which is owned,

managed or controlled by the principal and which operates solely for the principal;(e) Contracting out of a job, work or service directly related to the business or operation of the principal by reason of a s trike or lockout whether actual or imminent;

(f) Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to

self organization as provided in Art. 248 (c) of the Labor Code, as amended.

Section 7. Existence of an employer-employee relationship. - The contractor or subcontractor shall be considered the employer of the contractual employee for purposesof enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation

of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following cases as declared by a competent authority:

(a) where there is labor-only contracting; or

(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof.

Section 8. Rights of Contractual Employees.- Consistent with Section 7 of these Rules, the contractual employee shall be entitled to all the rights and privileges due aregular employee as provided for in the Labor Code, as amended, to include the following:

(a) Safe and healthful working conditions;

(b) Labor standards such as service incentive leave, rest days, overtime pay, holiday pay, 13th month pay and separation pay;

(c) Social security and welfare benefits;

(d) Self-organization, collective bargaining and peaceful concerted action; and

(e) Security of tenure.

Section 9. Contract between contractor or subcontractor and contractual employee. - Notwithstanding oral or written stipulations to the contrary, the contract betweenthe contractor or subcontractor and the contractual employee, which shall be in writing, shall include the following terms and conditions:

(a) The specific description of the job, work or service to be performed by the contractual employee;

(b) The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual contractual employee; and

(c) The term or duration of employment, which shall be coextensive with the contract of the principal and subcontractor, or with the specific phase for which the

contractual employee is engaged, as the case may be.

The contractor or subcontractor shall inform the contractual employee of the foregoing terms and conditions on or before the first day of his employment.Section 10. Effect of Termination of Contractual Employment . - In cases of termination of employment prior to the expiration of the contract between the principal andthe contractor or subcontractor, the right of the contractual employee to separation pay or other related benefits shall be governed by the applicable laws and

jurisprudence on termination of employment.

Where the termination results from the expiration of the contract between the principal and the contractor or subcontractor, or from the completion of the phase of the

job, work or service for which the contractual employee is engaged, the latter shall not be entitled to separation pay. However, this shall be without prejudice to

completion bonuses or other emoluments, including retirement pay as may be provided by law or in the contract between the principal and the contractor or

subcontractor.

Section 11. Registration of Contractors or Subcontractors.- Consistent with the authority of the Secretary of Labor and Employment to restrict or prohibit the contractingout of labor through appropriate regulations, a registration system to govern contracting arrangements and to be implemented by the Regional Offices is hereby


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established.

The registration of contractors and subcontractors shall be necessary for purposes of establishing an effective labor market information and monitoring.

Failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting.

Section 12. Requirements for registration. - A contractor or subcontractor shall be listed in the registry of contractors and subcontractors upon completion of anapplication form to be provided by the DOLE. The applicant contractor or subcontractor shall provide in the application form the following information:

(a) The name and business address of the applicant and the area or areas where it seeks to operate;

(b) The names and addresses of officers, if the applicant is a corporation, partnership, cooperative or union;

(c) The nature of the applicant's business and the industry or industries where the applicant seeks to operate;(d) The number of regular workers; the list of clients, if any; the number of personnel assigned to each client, if any and the services provided to the client;

(e) The description of the phases of the contract and the number of employees covered in each phase, where appropriate; and

(f) A copy of audited financial statements if the applicant is a corporation, partnership, cooperative or a union, or copy of the latest ITR if the applicant is a sole

proprietorship.

The application shall be supported by:

(a) A certified 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 union; and

(b) A certified copy of the license or business permit issued by the local government unit or units where the contractor or subcontractor operates.

The application shall be verified and shall include an undertaking that the contractor or subcontractor shall abide by all applicable labor laws and regulations.

Section 13. Filing and processing of applications. - The application and its supporting documents shall be filed in triplicate in the Regional Offices where the applicantprincipally operates. No application for registration shall be accepted unless all the foregoing requirements are complied with. The contractor or subcontractor shall be

deemed registered upon payment of a registration fee of P100.00 to the Regional Office.

Where all the supporting documents have been submitted, the Regional Office shall deny or approve the application within seven (7) working days after its filing.

Upon registration, the Regional Office shall return one set of the duly-stamped application documents to the applicant, retain one set for its file, and transmit the

remaining set to the Bureau of Local Employment. The Bureau shall devise the necessary forms for the expeditious processing of all applications for registration.

Section 14. Duty to produce copy of contract between the principal and the contractor or subcontractor.- The principal or the contractor or subcontractor shall be underan obligation to produce a copy of the contract between the principal and the contractor in the ordinary course of inspection. The contractor shall likewise be under an

obligation to produce a copy of the contract of employment of the contractual worker when directed to do so by the Regional Director or his authorized representative.

A copy of the contract between the contractual employee and the contractor or subcontractor shall be furnished the certified bargaining agent, if there is any.

Section 15. Annual Reporting of Registered Contractors . - The contractor or subcontractor shall submit in triplicate its annual report using a prescribed form to theappropriate Regional Office not later than the 15th of January of the following year. The report shall include:

(a) A list of contracts entered with the principal during the subject reporting period;

(b) The number of workers covered by each contract with the principal;(c) A sworn undertaking that the benefits from the Social Security System (SSS), the Home Development Mutual Fund (HDMF), PhilHealth, Employees Compensation

Commission (ECC), and remittances to the Bureau of Internal Revenue (BIR) due its contractual employees have been made during the subject reporting period.

The Regional Office shall return one set of the duly-stamped report to the contractor or subcontractor, retain one set for its file, and transmit the remaining set to the

Bureau of Local Employment within five (5) days from receipt thereof.

Section 16. Delisting of contractors or subcontractors. - Subject to due process, the Regional Director shall cancel the registration of contractors or subcontractors basedon any of the following grounds:

(a) Non-submission of contracts between the principal and the contractor or subcontractor when required to do so;

(b) Non-submission of annual report;

(c) Findings through arbitration that the contractor or subcontractor has engaged in labor-only contracting and the prohibited activities as provided in Section 6


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(Prohibitions) hereof; and

(d) Non-compliance with labor standards and working conditions.

Section 17. Renewal of registration of contractors or subcontractors.- All registered contractors or subcontractors may apply for renewal of registration every three years.For this purpose, the Tripartite Industrial Peace Council (TIPC) as created under Executive Order No. 49, shall serve as the oversight committee to verify and monitor the

following:

(a) Engaging in allowable contracting activities; and

(b) Compliance with administrative reporting requirements.

Section 18. Enforcement of Labor Standards and Working Conditions.- Consistent with Article 128 (Visitorial and Enforcement Power) of the Labor Code, as amended, theRegional Director through his duly authorized representatives, including labor regulation officers shall have the authority to conduct routine inspection of establishments

engaged in contracting or subcontracting and shall have access to employer's records and premises at any time of the day or night whenever work is be

Documents

Labor Provisions 1 - 19