1.

Yes,
2. Endo meaning
3. Project employment in the Philippines
4. Recommendation to spi
“ENDO” IS not just a shortcut for “end of contract,” a term applied to the time when short-term
employment comes to an end (usually at five months). It is also the title of an indie movie about
the love affair of a saleslady and a temporary worker who, like his employment status, is unsure
and uncommitted, unwilling to submit to a long-term relationship and breaking the heart of the
woman he loves.

The movie was released some years back, but I am surprised that the term “endo” has come back
in fashion. As if labor groups, workers and presidential candidates only discovered the term now.

How long does it take before a practice and a policy becomes so firmly entrenched in society that
a term for it is invented? That “endo” has emerged and become so popular that when presidential
candidates mouthed the term at the last televised debate, almost all viewers knew what they were
talking about, seems to me an indication of how common and, well, accepted the practice of
contractualization has become.

Well, labor unions and even officials of the Department of Labor and Employment have not truly
“accepted” the practice. Complaints have been aired periodically, and the DOLE has not been
remiss in reminding employers that the practice is illegal. But employers go on their merry way,
and young workers seeking jobs in an uncertain (even if improving) economy and job market
have little choice but to accede to the onerous conditions.

The reality is that the DOLE just doesn’t have enough personnel to fully monitor employers,
while workers would settle for finding a job—any job that pays a wage even if only for a few
months at a time—rather than risk continued joblessness.

***

AT the final presidential debate, almost all the candidates promised to bring an end to the days of
“endo,” even if some of them are government officials who could certainly have done something
about it in all their years in public service.

As expected, during the May 1 Labor Day rallies, workers’ groups echoed the calls for an end to
“endo.” But it seems security of tenure takes a back seat to security of living, when workers are
willing to put everything aside, even their rights and entitlements, in exchange for a steady wage
that would assure them of a steady income, even if this comes only in five-month spurts.

Business people argue that in uncertain times, one of the factors that they seek to control is their
labor costs, keeping wages down by limiting workers’ salaries and privileges and ensuring that
most remain at entry level.

Which is how businesses have come up with creative means to keep workers and employees on a
short lease without committing to any long-term career planning or development. Many resort to
hiring on a “per project” basis, even if it’s pretty obvious that most of the projects come to an
end in five months’ time. Others argue that those hired on a contractual basis do work that is not
essential to the business, which is why they are hired through an outside agency. But, to take one
example, how can, say, camera operators of a TV network be considered “nonessential” when
without them no material can be aired?

***

TRUE, “endo” is an issue whose time has come—if it is not in fact long overdue. Whoever
emerges the winner in the presidential race may have to take the issue seriously, even if putting
an end to contractualization—or its worst manifestations—may tarnish rosy employment
statistics or court the ire of big businesses and even lead to the closure of smaller enterprises.

But there IS a law against labor-only contracting, and the first step that should be taken is to
simply enforce the law, which means committing the budget to hire more inspectors and beef up
the necessary legal machinery to pursue offenders and fix the system.

Plus, of course, finding the proverbial “political will” to go after erring employers, who sap the
young members of the work force of any hope for a brighter future with the steady, soul-draining
cycle of finding-then-losing-employment, with hardly any training or human resource
development undertaken.

***

“ENDO” the movie, if I remember right, ends on a hopeful note when our young male
protagonist decides it is time to bring an end to his prevarication and denial and finally commits
to a long-term relationship with his girlfriend.

In the real-life “endo,” the commitment-phobe is not the worker but the employer, and, in a way,
also the government. I have argued in this corner many times that the gains to be made from
ensuring security of tenure for workers far outweigh any short-term advantages from the
revolving-door employment policy.

For one thing, a secure employee is a loyal employee, who ties his or her welfare and future to
the welfare and future of the company where he or she works. Of course, there will always be the
few who take advantage and begin slacking off the minute they make “permanent” status. But far
more will realize that their long-term advantage rests on investing their time, talent and loyalty to
a single employer for whom the workers’ good redounds to the good of the enterprise as well.

Read more: http://opinion.inquirer.net/94566/talking-about-endo#ixzz4LcijINf7

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 DOLE PRIMER ON CONTRACTING AND SUBCONTRACTING
Effects of Department Order No. 3, Series of 2001

There is contracting or subcontracting when an employer,

referred to as the principal, farms out the performance of a part of
its business to another, referred to as the contractor or
subcontractor. For the purpose of undertaking the principal's
business that is farmed out, the contractor or subcontractor then
employs its own employees.

Contracting and subcontracting are synonymous under Philippine

labor law. The term that is more commonly used is subcontracting.

In an ordinary employer-employee relationship, there are only

two parties involved - the employer and the employee. This
relationship is established through a four-fold test, under which the
employer: chanroblesvirtu allawlibrar y

a. Directly exercises control and supervision over the employee not

only as to the results of the work but also as to the means employed
to attain this result;

b. Has the power to select and hire the employee;

c. Has the obligation to pay the employees his or her wages and
other benefits.

The power of control is the most important factor in determining the

existence of an employer-employee relationship. The employer need
not actually exercise this power. It is enough that the employer
retains the right to exercise this power. It is enough that the
employer retains the right to exercise it as it may deem necessary or
appropriate.

In subcontracting, there are three parties involved: chanrobles virtual lawlibrary

a. The principal which decides to farm out a job or service to a

subcontractor;

b. The subcontractor which has the capacity to independently

undertake the performance of the job or service; and

c. The employees engaged by the subcontractor to accomplish the

job or service.
 In subcontracting, the four-fold test of employer-employee
relationship should be satisfied by the subcontractor in relation to
the employees it engages to accomplish the subcontracted job or
service. In such cases, the subcontractor is also referred to as
independent contractor.

ANSWER If the four-fold test is satisfied not by the

subcontractor but by the principal, the principal then becomes the
employer of the employees engaged to accomplish the job or
service. What exists is not subcontracting but a direct employer-
employee relationship between the principal and the employees.

3. IS THERE A DIFFERENCE BETWEEN A SUBCONTRACTOR AND A

PRIVATE RECRUITMENT AND PLACEMENT AGENCY (PRPA)?
Yes.

A subcontractor directly undertakes a specific job or service for a

principal, and for this purpose, employs its own workers. A PRPA
cannot be a subcontractor. It simply recruits workers for the
purpose of placing them with another employer so that the workers
recruited will not become the PRPA's employees.

A subcontractor is governed by the laws and rules enumerated under

Question # 4 below. A PRPA is governed by Articles 25 to 39 of the
Labor Code and the rules implementing these articles.

A subcontractor does not need authority from the Department of

Labor and Employment (DOLE) to undertake a subcontracted job or
service. A PRPA needs an authority or license from DOLE to legally
undertake a recruitment and placement activities.

4. WHAT LAW OR RULES GOVERN SUBCONTRACTING?

The basic law governing subcontracting is the Labor Code,
particularly Articles 106 to 109. These provisions prescribe the
conditions for regulating subcontracting and the rights and
obligations of parties to this arrangement. There was also a set of
rules implementing Articles 106 to 109, known as Department Order
No. 10, issued by DOLE in 1997. However, D. O. No. 10 was revoked
by DOLE on 08 May 2001 through another order, D. O. No. 3, Series
of 2001. D. O. No. 3 took effect on 29 May 2001.

With the revocation of D. O. No. 10, the following laws and rules will
apply in addition to Articles 106 to 109 of the Labor Code:
chanroblesvirtu allawlibrar y
a. Article 248 (c) which disallows contracting out of services or
functions being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their
rights to self-organization;

b. Article 280. which classifies employees into regular, project or

seasonal employees;

c. Article 2180 of the Civil Code, under which the principal, in a civil
suit for damages instituted by an injured person, can be held liable
for any negligent acts of the employees of a labor-only contractor;

d. Republic Act No. 5487 and its implementing rules, which regulate
the operation of security agencies;

e. Jurisprudence interpreting the foregoing laws;

f. D. O. No. 3;

g. D. O. No. 19, Series of 1993, for subcontracting arrangements in

the construction industry; and

h. Contractual stipulations provided these are not in conflict with

Labor Code provisions, jurisprudence, and D. O. Nos. 3 and 19.

5. ASIDE FROM REVOKING D. O. NO. 10, WHAT ARE THE IMPORTANT

FEATURES OF D. O. NO. 3?
The following are the important features of D. O. No. 3.
a. It prohibits labor-only contracting;

b. It recognizes the continuing validity of contracts entered into

when D. O. No. 10 was still in force;

c. It is a temporary measure;

d. It sets the process and mechanism, which is through

consultations through the Tripartite Industrial Peace Council, by
which a new set of rules shall be formulated.

6. DOES D. O. NO. 3 RENDER SUBCONTRACTING ILLEGAL?

No, provided the requirements for legitimate subcontracting are
satisfied and the prohibition against labor-only subcontracting is
observed.
7. WHAT IS LEGITIMATE SUBCONTRACTING?
Neither the Labor Code nor D. O. No. 3 has a definition of legitimate
subcontracting.

However, while D. O. No. 3 rendered D. O. No. 10 ineffective,

existing jurisprudence still provides definitive guidance. In two
recent cases decided by the Supreme Court (Vinoy v. National Labor
Relations Commission, G.R. No. 126586, 02 February 2000, and Lim
v. National Labor Relations Commission, G.R. No. 124630, 19
February 1999), the definition of legitimate subcontracting in D. O.
No. 10 is favorably cited as follows:
c hanroblesvirtuallawlibrary

Contracting shall be legitimate if the following conditions concur: chanroblesvirtuall awlibrar y

a. 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;

b. the contractor or subcontractor has substantial capital or

investment;

c. The agreement between the principal and the contractor or

subcontractor assures the contractual employees entitlement to all
occupational safety and health standards, free exercise of the right
to self organization, security of tenure, and social and welfare
benefits.

8. WHAT IS SUBSTANTIAL CAPITAL? IS SUBSTANTIAL CAPITAL

SUFFICIENT TO ESTABLISH LEGITIMATE SUBCONTRACTING?
Substantial capital refers to such investment, whether in the form of
money, facilities, tools, equipment, machineries, work premises, or
subscribed capital stock that would indicate the subcontractor's
capacity to undertake the subcontracted work or service
independently. For example, a subcontractor with a capital stock of
P1 Million which is fully subscribed and paid for has been deemed by
the Supreme Court to be a highly capitalized venture which satisfies
the requirement of substantial capital.

Where a subcontractor is highly capitalized, the Supreme Court has

held that it need not show evidence that it has investment in the
form of tools, equipment, machineries, work premises, among
others, to be considered legitimate. However, it is still necessary for
it to show that it has the capacity to be an independent contractor,
That is, it can undertake the performance of the contract according
to its own manner and method, free from the supervision of the
principal in all matters except as to the results of the work.

9. IS LEGITIMATE SUBCONTRACTING DIFFERENT FROM LABOR-ONLY

CONTRACTING? HOW IS LABOR-ONLY CONTRACTING DEFINED?
Yes, legitimate subcontracting is different from labor-only
contracting because the former is allowed and the latter is illegal
and prohibited.

Section 2 of D. O. No. 3 states that there is labor-only contracting

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: chanroblesvirtuallawlibr ary

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

subcontractors are performing activities directly related to the main
business of the principal.

10. WHAT IS THE BASIS OF THE STATE IN PROHIBITING LABOR-

ONLY CONTRACTING? WHAT IS THE OBJECTIVE OF THE
PROHIBITION?
The bases of the State in prohibiting labor-only contracting are: chanroblesvirtuallawlibr ary

a. The Constitution, which mandates that the State shall protect

labor and promote its welfare, and shall guarantee basic labor rights
including just and humane terms and conditions of employment and
the right to self-organization.

b. Article 106 of the Labor Code, which allows the Secretary of Labor
to distinguish between labor-only contracting and job contracting to
prevent any violation or circumvention of the Labor Code.

The objective of the State in prohibiting labor-only contracting is to

ensure that labor laws are followed and to prevent exploitation of
workers. A labor-only contractor is one which presents itself as an
employer even if it does not have capital to run a business or
capacity to ensure that its workers are paid their wages and other
benefits as prescribed by law. As such, it cannot independently
undertake to perform a subcontracted job or service. To allow a
labor-only contractor to operate is to give it an opportunity to
circumvent the law and to exploit workers.

D. O. No. 3 is not the first regulation to prohibit labor-only

contracting. The prohibition was embodied in the original rules
implementing Articles 106 to 109 issued right after the Labor Code
took effect in 1974. D. O. No. 10 also contained a similar prohibition.
D. O. No. 3 merely reiterates the prohibition.

11. D. O. NO. 10 ENUMERATED ACTIVITIES PERMITTED FOR

SUBCONTRACTING. NOW THAT IT HAS BEEN REVOKED, DOES THIS
MEAN THAT SUCH ACTIVITIES MAY NO LONGER BE
SUBCONTRACTED?
Not necessarily. These activities may still be subcontracted provided
(a) the laws and rules under Question # 4 are observed; and (b) the
conditions for legitimate contracting under Question # 7 and the
prohibition against labor-only contracting under Question # 9 are
met.
12. D. O. NO. 10 ENUMERATED PROHIBITED ACTIVITIES. NOW THAT
IT HAS BEEN REVOKED, ARE THERE STILL ANY PROHIBITED
SUBCONTRACTING ARRANGEMENTS?
Yes. Expressly prohibited are (a) labor-only contracting as defined in
D. O. No. 3; and (b) contracting out of services being performed by
union members when such will interfere with, restrain or coerce
employees in the exercise of their right to self-organization under
Article 248 (c) of the Labor Code.
13. WHAT WILL BE THE EFFECT OF A LABOR-ONLY CONTRACTING
ARRANGEMENT?
The following are the effects:chanroblesvirtu allawlibrary

a. The subcontractor will be treated as the agent of the principal.

Since the act of an agent is the act of the principal, representations
made by the subcontractor to the employees will bind the principal.

b. The principal will become the employer as if it directly employed

the workers engaged to undertake the subcontracted job or service.
It will be responsible to them for all their entitlements and benefits
under the labor laws.

c. The principal and the subcontractor will be solidarily treated as

the employer.

d. The employees will become employees of the principal, subject to

the classifications of employees under Article 28 of the Labor Code.
If the labor-only contracting activity is undertaken by a legitimate
labor organization, a petition for cancellation of union registration
may be filed against it, pursuant to Article 239(e).
14. IF A LEGITIMATE SUBCONTRACTOR CANNOT PAY THE WAGES OF
THE EMPLOYEES IT ENGAGED TO PERFORM THE JOB OR SERVICE,
WILL THE PRINCIPAL AUTOMATICALLY BECOME THE EMPLOYER OF
SUCH EMPLOYEES?
No.

Under Article 106, a principal has two types of liability in relation to

the employees of the subcontractor. The first type of liability is
limited, and is governed by the first two paragraphs of Article 106.
Thus, mere inability of the subcontractor to pay wages will not
automatically make the principal the direct employer. It will only
make the principal jointly and severally liable with the subcontractor
for payment of the employees' wages to the extent of the work
performed under the contract.

The second type of liability, which arises from the third and fourth
paragraphs of Article 106, is absolute and direct. This liability arises
when there is labor-only contracting as defined in D. O. No. 3. In
such cases, the principal shall be responsible to the workers in the
same manner and extent as if it directly employed these workers.

15. WHAT DOES NON-IMPAIRMENT OF EXISTING CONTRACTS MEAN

AND WHY IS THIS NECESSARY?
Section 3 of D. O. No. 3 states that rights or benefits enjoyed by
parties in contracts executed prior to D. O. No. 3 shall not be
impaired. The contracts referred to are those contracts executed and
already being implemented before D. O. No. 3 took effect on 29 May
2001. Accordingly, the obligations, rights and benefits or parties to
any subcontracting arrangement prior to the effectivity of D. O. No. 3
shall not be diminished, subject to Articles 106 to 109 of the Labor
Code, and jurisprudence. The non-impairment provision in D. O. No.
3 is derived from the Constitutional principle against non-
impairment of contracts.
16. UNDER D. O. NO. 10, THERE WAS A REGISTRY OF
SUBCONTRACTORS ESTABLISHED IN DOLE. WHAT IS THE EFFECT OF
REVOCATION ON THIS REGISTRY?
D. O. No. 3 abolished the DOLE registry of subcontractors. Thus,
there is no more requirement for subcontractors to register in DOLE.

The purpose of the DOLE registry of subcontractors is specific. If a

subcontractor enrolls in this registry, it enjoys the presumption that
it is engaged in legitimate subcontracting. The burden of proving
that it is an illegitimate or an illegal subcontractor will then be on
the person claiming it. With the revocation, there is no more
difference between DOLE-registered subcontractors and those that
are not.

Abolition of the DOLE registry, however, does not mean that a

subcontractor will no longer register at all. A subcontractor must
still follow the registration or licensing procedures required in other
applicable laws. For example, a corporation or cooperative which
seeks to operate as a subcontractor should still register with the
Securities and Exchange Commission or the Cooperative
Development Authority, as the case may be. Likewise, the abolition
of the DOLE registry does not exempt a subcontractor from the
licensing or permit requirements administered by relevant
regulatory agencies.

17. D. O. NO. 10 CONTAINED PROVISIONS ON SECURITY OF TENURE

AND PROCEDURES FOR DISMISSAL. HAVE THESE BEEN REVOKED BY
D. O. NO. 3?
D. O No. 10 was revoked in its entirety by D. O. No. 3. Thus, D. O. No.
10 itself can no longer be cited as an implementing guideline of the
Labor Code provisions on security of tenure and dismissal of
employees.

However, the provisions of D. O. No. 10 on security of tenure and

dismissal are identical with the provisions of Rule XXIII, D. O. No. 9,
series of 1997. These provisions of D. O. No. 9 are not affected by D.
O. No. 3, and, therefore, remain in force relative to security of tenure
and employee dismissal.

18. AFTER THE REVOCATION OF D. O. NO. 10, ARE THERE PLANS FOR
THE FORMULATION OF NEW GUIDELINES TO IMPLEMENT ARTICLES
106 TO 109?
Yes.

D. O. No. 10 was revoked to give government, workers and

employers an opportunity to formulate a new set of rules that is
more responsive to current employment arrangements and more
acceptable to all concerned. Accordingly, Section 4 of D. O. No. 3
mandates that new guidelines shall be formulated by DOLE upon
prior consultations with all sectors concerned, particularly the
Tripartite Industrial Peace Council (TIPC) established under
Executive Order No. 49, series of 1998.
Business leaders support stopping ‘endo’, but
not legal contracting
Wednesday, August 17, 2016
By
Jeandie O. Galolo

LOCAL and foreign business organizations in the Philippines have vowed to support the
administration’s fight against “endo” or end of contract abuses, but they maintained that
contractualization in itself is “good” and a legitimate practice.

As the Senate hearings on endo started yesterday, Philippine Retailers Association (PRA)
president lawyer Paul A. Santos said the retail sector is supportive of President Rodrigo
Duterte’s stand on labor, but believes that the government should also respect the rights of the
employers.

“What the President is simply saying is for employers in retail, manufacturing, services, etc. to
respect the rights of the all employees, regardless of their employment status,” Santos said, and
that these employees should receive mandatory benefits including social security, maternity
leave and other forms of leave, and 13th month pay whether they are regular, probationary or
term employees.

Endo, Santos said, is the abuse of contractualization. Employees, in this case, are terminated
every five months and then rehired for the same duration, depriving them of mandatory benefits.

On Wednesday, Sen. Joel Villanueva, the Senate committee on labor, employment, and human
resources chair, said they will study the proposed measures filed by some of the senators,
including Sen. Juan Miguel Zubiri who filed a resolution directing the panel to conduct an
inquiry into the practice of contractualization and sub-contractualization.

“The abuse, I am against it. We have evidence of 555 (endo),” said European Chamber of
Commerce of the Philippines (ECCP) vice president Henry Schumacher in a separate interview.

“However, we also have come to realize that as technology moves very fast, we need specialists
who, at a certain time, will fix things and then be released later,” added Schumacher, referring to
project-basis workers or consultants.

Cebu Chamber of Commerce and Industry (CCCI) president Melanie Ng also previously noted
that flexibility or job-switching is becoming the trend where having a long tenure is now “less of
a benefit,” as technology has given workers more options and opportunities.

They reiterated that contractualization in itself is legal.

“What a lot of our members (in the retail business) have expressed concern about is that under
the labor code, employers also have certain rights. Retailers urge the government to respect their
rights as employers under the law. It goes both ways,” Santos said.

Under Labor Code Articles 106 to 109, the government allows contracting and sub-contracting
agreements.

The Department of Labor and Employment, for its part, has also issued Department Order 18-A,
identifying the illegal forms of contractualization, yet did not ban it altogether.

Under the Duterte administration, Labor Secretary Silvestre H. Bello III said Dole will review
the department order, and warned that by 2017, endo and other illegitimate forms of contracting
must be eliminated.

Erring establishments found to have practiced endo, according to Dole, will be closed down, as
stated in directives sent to Dole regional offices.

Workers hired under the endo system may also file cases against their employers before the
National Labor Relations Commission (NLRC).

DEPARTMENT ORDER NO. 18 - 02

(Series of 2002)

RULES IMPLEMENTING ARTICLES 106 TO 109

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

Section 1. Guiding principles. - Contracting and subcontracting

arrangements are expressly allowed by law and are subject to
regulation for the promotion of employment and 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 2Coverage. - These Rules shall apply to all parties of

contracting and subcontracting arrangements where employer-
employee relationship exists. Placement activities 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 specific job, 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:chanroblesvirtu allawlibrar y

(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 an arrangement 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: chanroblesvirtu allawlibrar y

(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:
chanroblesvirtuall awlibrary

(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: chanrobles virtuallawlibr ary

(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 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 strike 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 purposes of 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:chanroblesvirtuallawlibrar y

(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 a regular employee as provided for in the
Labor Code, as amended, to include the following: ch anroblesvirtu allawlibrar y

(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 between the contractor or
subcontractor and the contractual employee, which shall be in
writing, shall include the following terms and conditions: chanroblesvirtu allawlibrar y

(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 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 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 contracting out of labor
through appropriate regulations, a registration system to govern
contracting arrangements and to be implemented by the Regional
Offices is hereby 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 an application form to be
provided by the DOLE. The applicant contractor or subcontractor
shall provide in the application form the following information:
chanroblesvirtuallawlibrar y
(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: chanroblesvirtuall awlibrar y

(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 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
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 under an 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 the appropriate Regional Office not
later than the 15th of January of the following year. The report shall
include:
ch anroblesvirtuall awlibrar y

(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 based on any of the following
grounds:chanroblesvirtuall awlibrar y

(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 (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: chanrobles virtuallawlibr ary

(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, the Regional 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 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 the Labor Code and of any
labor law, wage order, or rules and regulations issued pursuant
thereto.
The findings of the duly authorized representative shall be referred
to the Regional Director for appropriate action as provided for in
Article 128, and shall be furnished the collective bargaining agent, if
any.

Based on the visitorial and enforcement power of the Secretary of

Labor and Employment in Article 128 (a), (b), (c) and (d), the
Regional Director shall issue compliance orders to give effect to the
labor standards provisions of the Labor Code, other labor legislation
and these guidelines.

Section 19. Solidary liability. - 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 case of violations as provided for in Sections 5 (Labor-
Only contracting), 6 (Prohibitions), 8 (Rights of Contractual
Employees) and 16 (Delisting) of these Rules. In addition, the
principal shall also be solidarily liable in case the contract between
the principal and contractor or subcontractor is preterminated for
reasons not attributable to the fault of the contractor or
subcontractor.

Section 20. 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, under the licensing
coverage of the PCAB and shall not include shipbuilding and ship
repairing works, however, shall continue to be governed by
Department Order No. 19, series of 1993.