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DOLE D.O. No. 174, S. 2017 on Labor Contracting

By: Atty. Valerie Gayle J. Patac

WHEN IS IT PERMISSIBLE?
Took effect n April 3, 2017
CONTRACTOR

- distinct and independent business

- Guiding Principle: Non- permissible forms of contracting
undermine the security of tenure of workers - substantial capital or investment in tools, equipment,
machinery

- free from control and discretion of principal except as

DOLE Dept. Circular No.1 Series of 2017 to results

- Service Agreement ensures compliance with labor

laws
* IT-enabld services NOT APPLICABLE

WHEN IS IT PROHIBITED?
- BPOs
Labor-only Contracting is absolutely prohibited
- Knowledge Process
Outsourcing

- Legal Process Outsourcing - Contractor merely recruits, supplies or places workers to

perform a job or work for a principal
-Hardware and/ or Software
Support

- Medical Transcription Labor-only Contracting

- Back Office Operations/ NO substantial capital or investments in tools,
support
equipment, machinery + Contractors employees activities are
*Construction industry DOLE D.O No.19 s. 1993 DIRECTLY RELATED to main business of principal

DOLE DO no. 13, s, 1998

DOLW-DPWH-DILG-DTI and - Contractor has NO RIGHT TO CONTROL the performance of

PCAB MOA- Joint Admin Order the work of the employees
no. 1 s. 2011

* Private Security Agencies DOLE DO no. 150 s. 2016 SUBSTANTIAL CAPITAL

Except registration
requirements- DOLE DO no. 174
Corporations, Paid-up Capital Stock at
Partnerships and least Php 5million
CONTRACTING/ SUB- CONTRACTING Cooperatives

- Principal farms out to contractor Single Proprietorship Net Worth

- Performance or completion of: At least Php 5million

a SPECIFIC job or work

A definite or pre-determined period

Regardless if within or outside the premisis of the principal Neri v NLRC

TRILATERAL RELATIONSHIP The law does not require both substantial capital and
investment in the form of tools, equipment, machineries, etc.

This is clear from the use of the conjunction or. If the

intention was to require the contractor to prove that he has
 both capital and requisite investment, then the conjunction
and should have been used.
New Golden City Builders v CA (2003)
They failed to appreciate the fact that Nilo Layno Builders
had substantial capitalization for it did not only provide labor
to do the specified project and pay their wages, but it
furnished the materials to be used in the construction
ACTIVITES DIRECTLY RELATED TO THE MAIN BUSINESS OF
PRINCIPAL
- When it is an integral part of the principals line of business
without which the product, goods, or service cannot be completed,
manufactured or rendered, taking into consideration the primary
purpose of the employer based on its SEC, DTI, or CDA registration,
as the case may be.
DIRECTLY-RELATED
Digital Telecommunications Phils, Inc. V Digitel Employees
Union, et al. (2012)
The law and its implementing rules allow contracting
arangements for the performance of specific jobs, works, or
services. Indeed, it is management prerogative to farm out
any of its activities, regardless of whether such activity is
peripheral or core in nature.
RIGHT TO CONTROL
- Refers to the authority of the employer to control the employee,
not only with regard to the result of the work to be done, but also
as to the means and method by which it is to be accomplished
- Acts, reminders or instructions from the principal which merely
serve as guidelines at to attain the desired result, do not
necessarily indicate that the principal is the employer of the
assigned workers.
Badges of Control by principal
-Employees work is monitored by supervisors of the
principal;
- Employee maintained specific work schedules as
determined by the principal and which were strictly observed
under pain of administrative sanction;
-The employee is mandated to obey all rules regulations,
orders and instructions, whether oral or written of the
principal;
- Issuance of memoranda regarding work methods;
- Reporting and monitoring of attendance;
- Although the job contractor ultimately disciplines the
employee, the penalty to be imposed was dictated by the
principal
- Service Agreement prescribes the work activities, work shifts,
and schedules of the contractual employees
- Assigning checkers to report on the contractual workers
whose performance or quality of work was not according to rules
and standards set by the principal, and recommending the
contractor sanctions and penalties for erring contractuals
Almeda v. Asahi Glass Phils
The employees of the contractor followed the work schedule
prepared by Asahi and were required to observe all rules and
regulations of Asahi pertainingto, among other things, the
quality of job performance, regularity of job output, and the
manner and method of accomplishing the jobs.
There was no showing that the contractor established its
employees working procedure and methods, or supervised
them in their work, or that they evaluated their performance
DOLE REGISTRATION
- Mandatory
- Registration Fee- Php 100,000
- With the Regional Office of the DOLE where it principally operates
- Validity - 2yrs; in the region where it is registered
- Failure to register shall give rise to the presumption that the
contractor is engaged in labor-only contracting
- Note that this is a rebuttable presumption
Aklam v. San Miguel Corporation, et al.
The employer-employee relationship between BMA and
petitioners is not tarnished by the absence of registration with
DOLE as an independent job contractor on the part of BMA.
The absence of registration only gives rise to the presumption
that the contractor is engaged in labor-only contracting, a
presumption that respondent BMA ably refuted
 San Miguel Corporation v. Semillano

The DOLE certificate of registration is not conclusive evidence

that an entity is a legitimate contractor. The fact of
registration simply prevents the legal presumption of being a
mere labor-only contractor from arising.

In distinguishing between permissible job contracting and

prohibited labor-only contracting, the totality of facts and
surrounding circumstances are to be considered.

REQUIRED CONTRACTS

- Employment contract between the contractor and its employees

- Service Agreement between the principal and the contractor:

Specific description of the job or work;

Term or duration of the job or work;

Place of work;

Terms and conditions including agreed amount of

contracted job or work;

Standard administrative fee of not less than 10% of total

contract cost

Bond renewable every year

EFFECTS OF LABOR-ONLY CONTRACTING

- Principal is deemed direct employer of contractors employees

- Contractor will be treated as agent of principal

- Principals liability is comprehensive: all liablities under labor laws,

not only to unpaid wages

WHO IS THE RIGHT CONTRACTOR?

- Registered under DOLE DO no. 174, s.2017

- Substantial Capital of P5Million or investment in tools, equipment,

machinery and

- Activities are not directly related

- Exercises control, not only on the results, but also on the means
to achieve such resuls