Question & AnswerQ&A (DEPARTMENT ORDER NO. 18-02, FEBRUARY 21, 2002)
The Rules apply to all parties involved in contracting and subcontracting arrangements where an employer-employee relationship exists, excluding placement activities through private recruitment and placement agencies governed by Articles 26 to 39 of the Labor Code.
Labor-only contracting refers to arrangements where the contractor or subcontractor merely recruits or supplies workers to perform a job for a principal without having substantial capital or investment related to the job, and where the workers perform activities directly related to the principal's main business, or where the contractor does not exercise control over the workers' performance.
The three parties are: the principal who farms out the job; the contractor or subcontractor who independently undertakes the work; and the contractual workers employed by the contractor or subcontractor.
The 'right to control' refers to the employer's right to determine not only the outcome but also the manner and means by which work is accomplished. Its absence may indicate labor-only contracting.
Prohibited acts include: (a) contracting out work not done in good faith resulting in termination or reduction of regular employees; (b) contracting out through a 'cabo' which is a group or person posing as a labor organization supplying workers; (c) exploiting contractual employees by requiring them to perform functions of regular employees or sign unfair documents.
Contractual employees have rights to safe and healthful working conditions, labor standards like rest days, overtime and separation pay, social security and welfare benefits, self-organization and collective bargaining, and security of tenure.
The contractor or subcontractor is considered the employer, but the principal is solidarily liable for violations of the Labor Code, particularly in cases of labor-only contracting or prohibited contracting arrangements.
The contract must be in writing and include a job description, place of work, terms and conditions of employment including wage rate, and duration of employment coextensive with the contract with the principal or for a specific phase of work.
Termination prior to expiration entitles the contractual employee to separation pay or other benefits under applicable law. However, if the contract ends due to expiration or completion of a phase, the employee is not entitled to separation pay but may receive bonuses or retirement pay as provided.
The registration system aims to monitor and regulate contracting arrangements, establish labor market information, and prevent labor-only contracting by requiring contractors to submit applications and reports subject to inspection and enforcement.
Delisting may occur due to non-submission of contracts or reports, findings through arbitration of labor-only contracting or prohibited activities, and non-compliance with labor standards and working conditions.
Solidary liability means the principal is directly liable together with the contractor or subcontractor for monetary claims by contractual employees arising from violations concerning labor-only contracting, prohibited acts, contractual employee rights, and contract pretermination not attributable to the contractor's fault.
The Regional Director and representatives may conduct inspections anytime work is performed, access premises and records, question employees, and issue compliance orders to enforce the Labor Code and related regulations.
It became effective fifteen days after its publication in two newspapers of general circulation, following its adoption on February 21, 2002.