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I. Coverage (Sec. 2)
Note: DO 174-17 applies to all establishments, whether or not they are engaged in
contracting or subcontracting arrangements. This is also apparent from the fact that DO
174-17 deleted the provision on trilateral relationship which characterizes contracting
or subcontracting arrangements.
(b) The contractor or subcontractor does not exercise the right of control over
the performance of the work of the employee.
Note: Under DO 174-17, once it has been established that the contractor or
subcontractor has substantial capital, there is no need to prove that it made
investments in the form of tools, equipment, machineries, work premises, among
others. (Neri and Cabelin v. NLRC, et al.; G.R. Nos. 97008-09; 23 July 1993)
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Further, under the old policy (i.e., DO 18-A), labor-only contracting includes
arrangement where the workers recruited and placed by the labor-only contractor are
performing activities which are necessary and desirable to the business of the
principal. Under DO 174-17, what is considered as an element of labor-only
contracting is the performance of work which is directly related to the main business
operation of the principal.
DO 174-17 also omitted the phrase regardless of whether such job, work or service is
to be performed or completed within or outside the premises of the principal which
forms part of the original first requirement.
Works or services not directly related to the main business or operation of the principal
includes casual work, janitorial, security, landscaping, and messengerial services, and
work not related to manufacturing processes in manufacturing establishments. (Alilin, et
al. v. Petron Corporation; G.R. No. 177592; 9 June 2014 citing DOLE Department Order
No. 10, series of 1997)
1. It is not merely deploying warm bodies to the project site of its principal
How?
o Provide training to the employees it will deploy
o Provide the materials, tools and equipment necessary to perform the
functions of its employees
2. The outsourced service involves the performance of work which is NOT directly
related to the main business or operation of the principal
How?
o Check the primary purpose of the principal as reflected in its latest Articles
of Incorporation
3. It has control over the performance of the work of the employees deployed
How?
o CFS should have direct supervision of its employees
Note: Under the cabo system, (i) the union is the independent contractor that
engages the services of its members who are seconded to the principal; (ii) the
charges against the principal are made by the Union; and (iii) the workers are paid
on union payroll without intervention of the principal.
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(c) Contracting out of job or work through an in-house cooperative which merely
supplies workers to the principal*
(d) Contracting out of a job or work by reason of a strike or lockout whether actual or
imminent*
Note: In DO 18-A, the job, work or service contracted out should be necessary or
desirable or directly related to the business or operation of the principal. In DO 174-
17, it is prohibited to contract out a job, work or service by reason of a strike or
lockout whether actual or imminent regardless whether or not the same is
necessary or desirable or directly related to the business or operation of the
principal.
(e) Contracting out of a job or work being performed by union members and such will
interfere with, restrain or coerce employees in the exercise of their rights to self-
organization as provided in Article 259 of the Labor Code, as amended
NOTE: CFS should check whether the principal has an existing union to avoid any
possible issues arising from deployment of CFS employees
Note: In DO 18-A, subparagraphs (f) and (g) are instances to prove that the
employer took undue advantage of the economic situation or lack of bargaining
strength of the contractor's employees, or undermining their security of tenure or
basic rights, or circumventing the provisions of regular employment. In DO 174-17,
there is no need to prove the same.
Note:
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3. However, please be advised that once a project or work pool employee has
been: (1) continuously, as opposed to intermittently, rehired by the same
employer for the same tasks or nature of tasks; and (2) these tasks are vital,
necessary and indispensable to the usual business or trade of the employer,
then the employee must be deemed a regular employee.
Although it is true that the length of time of the employees service is not a
controlling determinant of project employment, it is vital in determining
whether he was hired for a specific undertaking or in fact tasked to perform
functions vital, necessary and indispensable to the usual business or trade
of the employer. (Manalo, et al. v. TNS Philippines Inc. and Gary Ocampo,
G.R. No. 208567, 26 November 2014)
Note:
Please note that Article 295 of the Labor Code recognizes regular
employment as well as fixed-term, seasonal and casual employment. Thus,
DO 174-17 does not prohibit these kinds of employment.
Please note that under DO 18-A, the term or duration of employment which
must be co-extensive with the Service Agreement or with the specific phase
of work for which the employee is engaged shall also be included in the
employment contract. However, though this was deleted in DO 174-17,
Section 6(i) thereof prohibits "requiring employees under a
contracting/subcontracting arrangement to sign a contract fixing the period
of employment to a term shorter than the term of the Service Agreement,
unless the 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."
(b) Service Agreement between the principal and the contractor, which shall include
the following:
1. Specific description of the job or work being subcontracted, including its
term or duration;
2. Place of work and terms and conditions governing the contracting
arrangement, to include the agreed amount of the contracted job or work
[Note: It shall include the standard administrative fee of not less than ten
percent (10%) of the total contract cost]; and
3. Provision on the issuance of the bond/s as defined in Section 3(a) renewable
every year. (Note: Under DO 174-17, bond only refers to the bond under
Article 108 of the Labor Code that the principal may require from the
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contractor to be posted equal to the cost of labor under the contract. This
new rule deleted the bond that may be posted by the principal as a security
or guarantee for the payment of the services of the contractors or
subcontractors under the Service Agreement.)
Shall be governed by Articles 297 (just causes for termination), 298 and 299
of the Labor Code (authorized causes for termination)
Employee may opt to wait for re-employment within three (3) months to
resign and transfer to another contractor-employer.
Note: This creates an obligation on the part of the CFS to provide new
employment to their employees even after expiration of the Service Agreement
with its principal. However, in the case of CFSs regular employees, CFS cannot
terminate the employment on the ground of expiration of Service Agreement.
These employees can only be terminated on just or authorized causes under the
Labor Code.
Moreover, for CFSs regular employees, DO 174-17 does not allow co-terminus
employment contract with the Service Agreement.
(a) Canvassing
(b) Enlisting
(c) Contracting
(d) Transporting
(e) Utilizing
(f) Hiring or procuring workers
(g) Referrals
(h) Contract services
(i) Promising or advertising for employment, whether locally or abroad
II. Findings of violation of the rights of contractors employees and required contracts
Contractor Ground for cancellation of registration [Sec. 23(g)]
Principal Shall be rendered as the direct employer of the employees of the
contractor or subcontractor (Sec. 12)
Employees May directly sue the principal for the full payment of their monetary
claims
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