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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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: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
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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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:chanroblesvirtuallawlibrary
(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.
Section
21.
Effectivity.
- This Order shall be effective fifteen (15) days after completion of
its
publication in two (2) newspapers of general circulation.