Law Summary
Coverage and Parties Involved
- This Rule applies to all contracting and subcontracting arrangements with an employee-employer relationship.
- Involves a trilateral relationship: principal, contractor/subcontractor, and workers employed by the latter.
- Both principal and contractor/subcontractor may be natural or juridical persons.
Definitions
- Principal: Employer who farms out a job or service to a contractor/subcontractor.
- Contractor/Subcontractor: Person or entity legally engaged in contracting/subcontracting.
- Contractual Employee: One employed by contractor/subcontractor to perform the job under contract with principal.
- Contracting/Subcontracting: Farmed-out job/service to be performed by contractor on own account within a fixed period.
- Substantial Capital or Investment: Resources directly used by contractor in executing the job, including equipment and operating costs.
- Labor-Only Contracting (Prohibited): Contractor has no substantial capital and employees perform activities directly related to the principal's main business.
- In-House Agency: Contractor owned or controlled by the principal, operating solely for that principal.
Term or Duration of Contractual Employment
- Term of employment is coextensive with the contract period between principal and contractor/subcontractor.
- If contract phases require substantially different skills, employment term may be coextensive with that phase.
Permissible Contracting or Subcontracting
- Contractor may be engaged for temporary/occasional works or services (e.g., abnormal demand, expert services, promotional services).
- Contracting allowed for work not directly related to the principal's main business (e.g., janitorial, security).
- Specialized works beyond regular workforce capacity are permissible.
- Substitute services for absent regular employees allowed if no reliever system exists.
Prohibitions
- Labor-only contracting is prohibited.
- Contracting out that displaces regular employees or reduces work hours is prohibited.
- Contracting with "cabo" (middlemen) as defined is prohibited.
- Undue advantage or circumvention of workers’ rights is illegal.
- In-house agency contracting is prohibited.
- Contracting during strike or lockout is forbidden.
- Contracting not justified by business exigencies that reduce or split bargaining units is prohibited.
Unfair Labor Practice
- Contracting out jobs performed by union members to interfere with self-organization rights constitutes unfair labor practice.
Contract Requirements between Contractor and Contractual Employee
- Must specify job description, place of work, wage rate, terms, and duration matching principal-contractor contract.
- Terms must be provided to the employee on or before first day of employment.
Duty to Submit Contract Copies
- Contractor must file contract with principal and employee count to the DOLE Regional Office.
- Original contract subject to inspection.
- Contract between employee and contractor is not filed but must be available for inspection.
- Certified bargaining agents receive copies if applicable.
Rights of Contractual Employees
- Entitled to all rights and privileges of regular employees, including security of tenure, benefits, and self-organization.
- Separation pay rules apply except when termination is due to contract expiration or phase completion.
- Completion bonuses or retirement pay may also be applicable.
Employee-Employer Relationship and Liabilities
- Contractor/subcontractor considered employer for enforcement purposes.
- Principal jointly and severally liable for unpaid wages if contractor fails to pay.
- Principal deemed direct employer and solidarily liable in cases where contractor is unregistered, commits prohibited acts, or labor violations are found.
- Solidary liability applies if contractor's business license is revoked or contract is preterminated without contractor’s fault.
Enforcement Procedures
- DOLE may enforce claims first against performance bonds posted by contractors.
- Principal can seek reimbursement or damages from contractor.
Effect of Labor-Only Contracting Declaration
- Contractual employees found under labor-only contracting join the principal's bargaining unit.
Effect of Contract Expiration and Manpower Pool
- Employee-employer relationship is suspended, not terminated, for six months after contract expiration while employees are in a manpower pool.
- Rights and privileges suspended during pool period.
- Employment relationship terminates if no new contract within six months or employee finds other employment.
Registry of Contractors and Subcontractors
- Registry established in DOLE Regional Offices and Bureau for labor market monitoring.
- Registration is separate from licensing to operate.
Registration Requirements and Process
- Application must contain business name, officers, nature of business, contracts, capital/resources.
- Must include certificates of business registration and local permits.
- Verified, with commitment to comply with labor laws.
- Registered upon payment of fee and approval within seven days; failure to act deemed provisional approval.
Annual Reporting
- Contractors/subcontractors must submit annual reports of contracts and remittances to SSS and HDMF.
- Reports filed with Regional Office, which processes and forwards copies accordingly.
Delisting of Contractors
- Registration may be canceled for failure to report, cessation of business, prohibited acts, unfair labor practices, or falsification.
- Delisting follows due process.
Transition and Supersession
- Existing contractors must register within 120 days.
- This Rule supersedes inconsistent prior DOLE rules, except construction contracting.
Security of Tenure in Contracting
- Termination only for just or authorized causes, due process required.
- Probationary employment termination governed by fitness standards.
- Contractual employees cannot be dismissed before contract expiration unless for just cause or contract phase completion.
- Due process standards include written notice, hearing, and final termination notice.
Definitions of Employment Types
- Regular employment: Engagement in activities necessary or desirable in the employer’s business, except for fixed-term projects or seasonal work.
- Casual employment: Engagement in incidental jobs for a definite period; year-long service converts to regular status.
- Probationary employment: Trial period to assess suitability with time limits, standards to be communicated at engagement.
Effectivity
- Rules take effect 15 days after publication in two newspapers.
This comprehensive explanation covers the essential provisions, scope, definitions, procedures, prohibitions, employee rights, employer liabilities, registration processes, and enforcement mechanisms of the amended Rules implementing contracting and subcontracting under the Philippine Labor Code.