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Subcontracting
Consistent with President Rodrigo Dutertes campaign promise to end fixed-term employment,
more commonly known as endo, the Department of Labor and Employment (DOLE)
launched a review of Department Order (D.O.) No. 18-A, the existing implementing rules and
regulations on contracting and subcontracting since 2011. In the interim, prior to the issuance
of a new order, the DOLE released two issuances on 25 July 2016: (1) D.O. No. 162, series of
2016, which suspends the registration of all new applicants as contractors and subcontractors
under D.O. No. 18-A; and (2) Labor Advisory No. 10, series of 2016, which grants to DOLE
Regional Directors visitorial and investigative power under Article 128 of the Labor Code,
including the authority to declare the existence of labor-only contracting between the
contractors and subcontractors.
On 16 March 2017, Secretary of Labor and Employment Hon. Silvestre H. Bello III signed and
issued Department Order No. 174, series of 2017, as the rules and regulations implementing
Article 106 to 109 of the Labor Code on contracting and subcontracting, effectively superseding
D.O. No. 18-A. Among the notable changes are:
First, the requirement of substantial capital in paid-up capital stock or shares for corporations,
partnerships and cooperatives, or in the net worth for single proprietorship has been increased
from Three Million Pesos (Php3,000,000.00) under D.O. No. 18-A to Five Million Pesos
(Php5,000,000.00) under D.O. No. 174.
Second, the elements of Labor-Only Contracting in Section 6 of D.O. No. 18-A have been
substantially retained in Section 5 of D.O. No. 174, which now provides:
a)
ii. The contractor or subcontractor does not have investments in the form of tools, equipment,
machineries, supervision, work premises, among others,
and
iii. The contractors or subcontractors employees recruited and placed are performing activities
which are directly related to the main business operation of the principal;
or
b) The contractor or subcontractor does not exercise the right to control over the performance
of the work of the employee.
Section 5 of D.O. No. 174 is essentially a reiteration of the old rules in D.O. No. 18-A with the
exception of the omitted 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.
Third, Section 8 of D.O. No. 174 added a list of requirements for a permissible contracting or
subcontracting arrangement:
b) The contractor or subcontractor has substantial capital to carry out the job farmed out by the
principal on his account, manner and method, investment in the form of tools, equipment,
machinery and supervision;
c) In performing the work farmed out, the contractor is free from the control and/or direction
of the principal in all matters connected with the performance of the work except as to the
result thereto; and
d) The Service Agreement ensures compliance with all the rights and benefits for all the
employees of the contractor or subcontractor under the labor laws.