Question & AnswerQ&A (DOLE DEPARTMENT ORDER NO. 18-02, S. 2002, FEBRUARY 21, 2002)
Contracting and subcontracting arrangements are allowed by law but regulated to promote employment and protect workers' rights to just and humane conditions, security of tenure, self-organization, and collective bargaining. Labor-only contracting is prohibited.
The Order applies to all parties involved in contracting and subcontracting where an employer-employee relationship exists. Placement activities via private recruitment and placement agencies are excluded.
There is a trilateral relationship among the principal who farms out the job, the contractor or subcontractor who undertakes the job, and the contractual workers who perform the work.
Contracting or subcontracting refers to an arrangement where a principal farms out the completion or performance of a specific job, work or service within a definite period to a contractor or subcontractor.
Labor-only contracting is when the contractor merely supplies workers without substantial capital or investment or control over the workers, performing activities directly related to the principal's main business. It is prohibited as it undermines worker protections and employment security.
Prohibitions include contracting out jobs not in good faith causing regular employees' displacement, use of 'cabo' groups, exploiting contractual employees, in-house agencies supplying labor solely for the principal, contracting during strikes or lockouts, and contracting work performed by union members to interfere with self-organization rights.
The contractor or subcontractor is the employer for labor law purposes, but the principal is solidarily liable for any violations and is deemed the employer in cases of labor-only contracting or prohibited arrangements.
Contractual employees are entitled to safe working conditions, labor standards (e.g., service incentive leave, overtime pay), social security and welfare benefits, rights to self-organization and collective bargaining, and security of tenure.
The contract must be in writing and include the job description, place of work, terms and conditions including wage rate, and the duration of employment aligned with the principal-contractor contract or its phases.
If terminated before contract expiration, separation pay or related benefits apply per law and jurisprudence. If terminated due to contract completion or expiration, no separation pay is due, though completion bonuses or retirement pay as per contract or law may apply.
Contractors/subcontractors must register with the DOLE Regional Offices, submitting business details, audited financial statements or ITR, and supporting documents. Failure to register raises presumption of labor-only contracting.
Delisting can occur due to failure to submit contracts or annual reports, findings of labor-only contracting or prohibited acts, and non-compliance with labor standards and working conditions.
Regional Directors and authorized representatives can conduct inspections, access records and premises anytime, question employees, investigate violations, and issue compliance orders to enforce labor laws and the Order's provisions.
The principal is solidarily liable with the contractor/subcontractor for monetary claims of contractual employees in violations, including labor-only contracting and prohibited acts. The principal is also liable if the contract is preterminated without contractor/subcontractor fault.
It took effect 15 days after publication in two newspapers of general circulation, after its adoption on February 21, 2002.