"Section
1. Guiding Principles. - This Rule is being issued in
recognition
of the following guiding principles:chanroblesvirtuallawlibrary
"(a)
Contracting and subcontracting arrangements are expressly allowed by
law,
but may be subject to regulations consistent wit the promotion of
employment,
protection of workers' welfare and enhancement of industrial peace and
rights of workers to self-organization and collective bargaining; for
this
reason, labor-only contracting as defined herein shall be prohibited.
"(b)
Contractors
and subcontractors as well as their employees, are entitled to all the
rights and privileges, and are subject to all the duties and
responsibilities
which the Labor
Code, as amended, attaches to every employee-employer relationship;
"(c)
Flexibility
for the purpose of increasing efficiency and streamlining operations is
essential for every business to grow in an atmosphere of free
competition;
however, any form of flexibility intended to circumvent or evade
workers'
rights shall in no case be countenanced; and
"(d) The
establishment
of an effective labor market information system is indispensable in the
formulation of policies, strategies and programs for human resource
development
supportive of and responsive to the needs of workers and enterprises.
"Section 2. Coverage.
- This Rule shall apply to all parties of contracting and
subcontracting
arrangements where employee-employer relationship exists.
"Section
3.
Parties.
- A contracting or subcontracting arrangement involves a trilateral
relationship under which there is a contract for a specific job,
service,
or work between the principal and the contractor or subcontractor, and
a contract of employment between the contractor or subcontractor and
its
workers. Therefore, the parties to a contracting or subcontracting
arrangement
shall be the principal, the contractor or subcontractor, and the
workers
engaged by the latter. The principal and the contractor or
subcontractor
may be a natural or juridical person.
"Section
4.
Definition
of Terms. - As used in this Rule, the following shall mean:chanroblesvirtuallawlibrary
"(a)
"Principal"
refers to any employer who puts out or farms out a job, service, or
work
to a contractor or subcontractor, whether or not the arrangement is
covered
by a written contract.
"(b) "Contractor
or subcontractor" refers to any person or entity engaged in a
legitimate
contracting or subcontracting arrangement as defined in paragraph (d)
hereof.
"(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 as defined in paragraph (d) hereof. The term
excludes employees of the contractor or subcontractor engaged to
perform
a job, work or service not within the scope of the contract between the
latter and a principal.
"(d) "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 as
hereinafter
qualified.
"Subject
to
the provisions of Sections 6, 7 and 8 of this Rule, contracting or
subcontracting
shall be legitimate if the following circumstances concur:chanroblesvirtuallawlibrary
"(i)
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;
"(ii)
The contractor
or subcontractor has substantial capital or investment; and
"(iii)
The agreement
between the principal and contractor or subcontractor assures the
contractual
employees' entitlement to all labor and occupational safety and health
standards, free exercise of the right to self-organization, security of
tenure, and social and welfare benefits.
"(e) "Substantial
capital or investment" refers to the adequacy of resources actually
and directly used by the contractor or subcontractor in the performance
or completion of the job, work or service contracted out. It may refer
to capital stocks and subscribed capitalization in the case of
corporations,
tools, equipment, implement, machineries, uniforms, protective gear, or
safety devices actually used in the performance of the job, work or
service
contracted out. It likewise includes operating costs, administrative
costs
such as training and overhead costs, and such expenses as are necessary
to enable the contractor or subcontractor to exercise control,
supervision
or direction over its employees in all aspects of performing or
completing
the job, service or work contracted out. The phrase, however, excludes
all capital and investment the contractor or subcontractor may have
which
are not actually and directly used in the conduct of its business, or
any
gratuitous assistance, financial or otherwise, it may have received
from
the principal.
"(f) "Labor-only
contracting" prohibited under this Rule is an arrangement 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:chanroblesvirtuallawlibrary
"(i)
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
"(ii)
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.
"(g) "In-house
agency" refers to a contractor or subcontractor engaged in the
supply
of labor which;
"(i)
Is owned, managed or controlled by the principal; and
"(ii)
Operates
solely for the principal owning, managing or controlling it.
"(h) "Bureau"
refers
to the Bureau of Local Employment of the Department of Labor and
Employment.
"Regional Office" refers to the offices of the Department
established
in each of the regions.
"Section
5.
Term
or duration of contractual employment. - Subject to the provisions
of sections 6, 7 and 8 hereof, the term or duration of contractual
employment
shall be coextensive with the term or duration of the contract between
the principal and contractor or subcontractor. However, where the
contract
is divisible into phases such that substantially different skills are
required
for each phase, the term or duration of the contractual employment may
be made coextensive with each phase.
"For
purposes
of this Rule, he phrase "substantially different skills" refer
to
those skills the acquisition of which requires specialized knowledge or
training.
"Section
6.
Permissible
contracting or subcontracting. - Subject to the conditions set
forth
in Section 3 (d) and (e) and Section 5 hereof, the principal may engage
the services of a contractor or subcontractor for the performance of
any
of the following;
"(a)
Works or services temporarily or occasionally needed to meet abnormal
increase
in the demand of products or services, provided that the normal
production
capacity or regular workforce of the principal cannot reasonably cope
with
such demands;
"(b)
Works or
services temporarily or occasionally needed by the principal for
undertakings
requiring expert or highly technical personnel to improve the
management
or operations of an enterprise;
"(c)
Services
temporarily needed for the introduction or promotion of new products,
only
for the duration of the introductory or promotional period;
"(d)
Works or
services not directly related or not integral to the main business or
operation
of the principal, including casual work, janitorial, security,
landscaping,
and messengerial services, and work not related to manufacturing
processes
in manufacturing establishments;
"(e)
Services
involving the public display of manufacturers' products which do not
involve
the act of selling or issuance of receipts or invoices;
"(f)
Specialized
works involving the use of some particular, unusual or peculiar skills,
expertise, tools or equipment the performance of which is beyond the
competence
of the regular workforce or production capacity of the principal; and
"(g)
Unless
a reliever system is in place among the regular workforce, substitute
services
for absent regular employees, provided that the period of service shall
be coextensive with the period of absence and the same is made clear to
the substitute employee at the time of engagement. The phrase "absent
regular employees" includes those who are serving suspensions or
other
disciplinary measures not amounting to termination of employment meted
out by the principal, but excludes those on strike where all the formal
requisites for the legality of the strike have been prima facie
complied with based on the records filed with the National Conciliation
and Mediation Board.
"Section 7. Prohibitions.
- The following are hereby declared prohibited for being contrary to
law
or public policy;
"(a)
Labor-only
contracting;
"(b)
Contracting
out of work which will either displace employees of the principal from
their jobs or reduce their regular work hours;
"(c)
Contracting
out of work with a "cabo" as defined in Section 1 (ii), Rule I,
Book V of these Rules;
"(d)
Taking
undue advantage of the economic situation of 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:chanroblesvirtuallawlibrary
"(i)
In addition to this 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;
"(e)
Contracting
out of a job, work or service through an in-house agency as defined
herein;
"(f)
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;
and
"(g)
Contracting
out of job, work or service when not justified by the exigencies of the
business and the same results in the reduction or splitting of the
bargaining
unit.
"Section
8.
Unfair
Labor Practice. - 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 shall be unlawful
and shall constitute unfair labor practice.
"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 shall include
the following terms and conditions:chanroblesvirtuallawlibrary
"(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
between the principal and contractor or 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.
Duty
to produce copy of contract. - The contractor or subcontractor
shall
submit a copy of its contract with the principal to the Regional Office
of the Department of Labor and Employment (DOLE). It shall be
accompanied
by a statement of the number of employees covered by the contract and,
where appropriate, a description of the phases of the contract and the
number of employees covered in each phase. The contractor or
subcontractor
shall be under an obligation to produce the original copy of the same
in
the ordinary course of inspection or when directed to do so by the
Regional
Director or his authorized representative.
"The copy
of
the contract between the contractual employee and the contractor or
subcontractor
need not be filed with DOLE. However, the contractor or subcontractor
shall
make the same available for inspection by the Regional Director or his
authorized representative.
"Further,
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
11.
Rights
of a contractual employee. - The contractual employee shall be
entitled
to all the rights and privileges due a regular employee, including but
not limited to the right to working conditions and standards, service
incentive
leave, rest days, overtimes and holidays, health, safety and social and
welfare benefits, self-organization and collective bargaining and
security
of tenure.
"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 expiration of the contract between
the
principal and the contractor or subcontractor, or whom 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
12.
Employee-employer
relationship. - Except in cases provided for in Sections 13, 14, 15
and 17, the contractor or subcontractor shall be considered the
employer
of the contractual employee for purposes of enforcing the provisions of
the Code.
"Section
13.
When
principal is deemed jointly and severally liable. - When the
contractor
or subcontractor fails to pay the wages of its contractual employees,
the
principal shall be jointly and severally liable with the contractor or
subcontractor to such contractual employees to the extent of the work
performed
under the contract, in the same manner and extent that the principal is
liable to its direct employees.
"Section
14.
When
principal is deemed employer who is solidarily liable. - 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 following cases:chanroblesvirtuallawlibrary
"(a)
When the contractor or subcontractor is not enrolled in the registry of
the Regional Office of the Bureau, or it has been delisted therefrom,
or
its contract with the principal has not been renewed;
"(b)
When the
contractor or subcontractor is found committing any of the prohibited
activities
enumerated in Section 7 of this Rule;
"(c)
When the
contractor or subcontractor is declared guilty of unfair labor practice
as specified in Section 8 of this Rule; and
"(d)
When a
violation of the relevant provisions of the Code
has been established by the Regional Director in the exercise of his
enforcement
powers.
"Section 15. Other
instances of solidary liability. - In cases not covered by the last
two preceding sections, the principal shall also be deemed solidarily
liable
with the contractor or subcontractor to the extent of accrued claims
and
benefits which the latter may owe to its contractual employees in the
following
instances:chanroblesvirtuallawlibrary
"(a)
When the certificate of registration, license or business permit of the
contractor or subcontractor is cancelled, revoked or not renewed by the
competent authority; or
"(b)
When the
contract between the principal and the contractor or subcontractor is
preterminated
for reasons nor attributable to the fault of the contractor or
subcontractor.
"Section 16. Enforcement
against performance bond. - In enforcing the provisions of Sections
13, 14 and 15, the Regional Director shall first proceed against the
performance
bond, if any has been put up by the contractor or subcontractor, to the
extent that such bond may cover claims of the contractual employee. In
case the bond is insufficient, the Regional Director shall proceed
directly
against the principal.
"Nothing
herein
shall restrict the right of the principal from filing an action for
reimbursement
or damages against the contractor or subcontractor in the appropriate
courts.
"Section
17.
Effect
of existence of labor-only contracting. - In case of declaration by
the competent authority that a contractual employee is covered by a
labor-only
contracting arrangement, he shall be considered part of the bargaining
unit of the principal.
"Section
18.
Effect
of expiration of contract; manpower pool. - Where the contract
between
the principal and the contractor or subcontractor has expired, and the
latter remains in business as a contractor or subcontractor, the
employee-employer
relationship between the latter and its contractual employees shall not
be automatically terminated, but shall remain suspended for a period of
six months, unless a longer period is set by the contractor or
subcontractor.
During this period, such employees shall become part of a manpower pool
of the contractor or subcontractor. If the contractor or subcontractor
is unable to renew the original contract or enter into a new and
similar
contract requiring the skills of the employees in the pool within the
six-month
period, or if the contractual employee subsequently finds employment
elsewhere,
the employee-employer relationship shall be deemed terminated and the
employee
concerned shall be taken out of the pool.
"The
foregoing
paragraph shall also apply where the contract between the contractor or
subcontractor and the contractual employee has expired by reason of the
completion of the phase of the contract for which the latter was
engaged.
"It shall
be
understood, however, that all rights and privileges which the employee
may derived out of the employer-employee relationship shall be
suspended
while he is part of the pool.
"Section
19.
Registry
of contractors or subcontractors. - There is hereby established a
registry
of contractors and subcontractors in the Regional Offices and in the
Bureau,
for purposes of establishing an effective labor market information and
monitoring system on activities which are subject to contracting or
subcontracting
arrangements. Registration under this section shall not be synonymous
with
licensing, the latter being a precondition for acquiring legal
personality
or engaging in business.
"Section
20.
Requirements
for registration. - A contractor or subcontractor shall be enrolled
in the registry of contractors and subcontractors upon completion of an
application form to be provided by the DOLE. The application shall
state:chanroblesvirtuallawlibrary
"(a)
The name and business address of the applicant and the area or areas
where
it seeks to operation;
"(b) The
names
and addresses of its officers, if the applicant is a corporation or
partnership;
"(c) The
nature
of the applicant's business and the industry or industries where the
applicant
seeks to operate;
"(d) The
list
of actual contracts, if any; and
"(e) The
capitalization
and other assets of the applicants which are actually and directly used
in its operations.
"The
application
shall be supported by:chanroblesvirtuallawlibrary
"(a)
A certified copy of the certificate of registration of firm or business
name from the Securities and Exchange Commission (SEC) or Department of
Trade and Industry (DTI) 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
21.
Filing
and processing of applications. - The application and its
supporting
documents shall be filed in triplicate in the Regional Office 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 One hundred pesos (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.
In case of inaction of the Regional Office beyond this period, the
application
shall be deemed provisionally approved subject, however, to the payment
of the registration fee.
"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. The Bureau shall devise the necessary
forms
for the expeditious processing of all applications for registration.
"Section
22.
Annual
reporting. - The contractor or subcontractor shall submit in
triplicate
its annual report in such forms as may be prescribed by the DOLE to the
appropriate Regional Office. The report shall include:chanroblesvirtuallawlibrary
"(a)
A list of contracts entered into during the subject reporting period;
and
"(b) A
certification
from the Social Security System (SSS) and the Home Development Mutual
Fund
(HDMF) that the contractor or subcontractor has been making the monthly
remittances due its contractual employees during the subject reporting
period.
"The
obligation
to submit an annual report shall coincide with the anniversary date of
registration of the contractor or subcontractor. 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
within five (5) days from receipt thereof.
"Section
23.
Delisting
of registered contractor or subcontractor. - The Regional Director
shall, upon due notice, motu proprio cancel the registration of
a contractor or subcontractor if it fails to comply with the reporting
requirements for three consecutive years, or upon the cessation of a
business
of the latter.
"Subject
to
administrative due process, the contractor or subcontractor shall be
delisted
from the registry if it is found to have committed the prohibited
activities
or has been declared guilty of unfair labor practice as enumerated in
Sections
7 and 8 hereof, or has falsified the requirements for registration it
submitted
to the Regional Office.
"Section
24.
All existing contractors or subcontractors as defined herein shall
register
with the Regional Office within one hundred twenty (120) days from the
effectivity of this Rule. In case of failure to register within this
prescribed
period, the provisions of this Rule shall apply.
"Section
25.
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, however,
shall
continue to be governed by Department Order No. 19, series of 1993, as
well as the applicable provisions of this Rule."