Rules on Labor Contracting and Subcontracting

Applies to all contracting/subcontracting relations with employer-employee relationships.
Private recruitment and placement agencies under Articles 26-39 of the Labor Code are excluded.

Consists of three parties: principal (who farms out the job), contractor/subcontractor (who undertakes the job), and contractual workers (who perform the job).

Contracting/Subcontracting: arrangement for performance/completion of specific work for a set period.
Contractor/Subcontractor: person/entity engaged in legitimate contracting.
Contractual Employee: hired by contractor/subcontractor per agreement with principal.
Principal: employer who farms out work to contractor/subcontractor.

Labor-only contracting is banned; it occurs where contractor merely supplies workers without substantial capital/investment or control over employee work.
"Substantial capital" means actual tools, equipment, premises relevant to the work.
"Right to control" refers to the ability to dictate means and manner of work performance.

Contracting out work without good faith causing regular employee termination or bargaining unit reduction.
Use of "cabo" or sham labor groups supplying workers disguised as labor-organizations.
Exploitation of contractual employees by requiring them to perform regular employee tasks or sign unfair documents.
Contracting out via in-house agencies owned/controlled by principal.
Contracting related to strikes/lockouts.
Contracting work performed by union members that interferes with their rights.

Contractor/subcontractor is the employer of contractual workers for labor law enforcement.
Principal is solidarily liable with contractor for violations and wage payment.
Principal deemed employer in cases of labor-only contracting or prohibited arrangements.

Entitled to safe working conditions, labor standards (leave, overtime, holiday, 13th month pay), social security benefits, self-organization, collective bargaining, and security of tenure.

Must be written.
Include specific job description, place of work, wage terms, duration matching principal-contractor contract or job phase.
Terms disclosed on first day of employment.

If employment terminated before contract ends, separation pay and benefits apply as per law/jurisprudence.
No separation pay if termination follows contract expiration unless otherwise provided (e.g., completion bonuses).

Registration with DOLE Regional Offices required to monitor contracting activities.
Failure to register creates presumption of labor-only contracting.

Application includes business details, officers, nature of business, clients, number of workers, financial statements/ITR.
Must submit certificates of business registration and local permits.
Application to comply with applicable labor laws.

Filed in triplicate to Regional Offices.
Payment of registration fee (P100.00).
Processing takes 7 working days.
Copies distributed to applicant, Regional Office files, and Bureau of Local Employment.

Principal and contractor must produce principal-contractor contract upon inspection.
Contractor must also produce contract of employment with worker if ordered.
Certified bargaining agents entitled to copies.

Contractors submit annual reports listing contracts, worker numbers, and social security contributions.
Reports submitted by January 15 each year.
Copies filed with Regional Office and Bureau of Local Employment.

Grounds for delisting include failure to submit contracts/reports, labor-only contracting findings, and labor standards violations.
Due process required.

Every three years.
Tripartite Industrial Peace Council oversees compliance and allowable activities.

Regional Directors and authorized officers have the power to inspect premises and records anytime work is done.
Authority to investigate violations and issue compliance orders.
Findings shared with collective bargaining agents.

Principal jointly liable with contractor for contractual workers' claims including labor-only contracting and prohibited acts.
Also liable if contract is prematurely terminated not due to contractor/subcontractor fault.

This Order supersedes inconsistent rules.
Construction industry contracting governed separately under DOLE Order No. 19, series 1993, excluding shipbuilding.