Diploma

Labor Rev

DO No. 18-A DO No. 174

COMMON PROVISIONS

Contracting Refers to an arrangement whereby a principal agrees to put out or farm out with a contractor the performance or
Definition 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.
Mandatory Mandatory Registration and Registry of Legitimate Contractors. Consistent with the authority of the Secretary of Labor
Registration and Employment to restrict or prohibit the contracting out of labor to protect the rights of workers, it shall be mandatory
for all persons or entities, including cooperatives, acting as contractors to register with the Regional Office of the
Department of Labor and Employment (DOLE) where it principally operates. Failure to register shall give rise to the
presumption that the contractor is engaged in labor-only contracting.
Construction DOLE, through its regional offices, shall not require contractors licensed by PCAB in the Construction Industry to
Industry not register under D.O. 18-A, Series of 2011. Moreover, findings of violation/s on labor standards and occupational health
mandated to and safety standards shall be coordinated with PCAB for its appropriate action, including the possible
register cancellation/suspension of the contractor’s license.

DIFFERENT PROVISIONS

Regulating Contracting and subcontracting arrangements are Non-permissible forms of contracting and subcontracting
Contracting expressly allowed by law and are subject to regulations arrangements undermine the Constitutional and statutory
for the promotion of employment and the observance of right to security of tenure of workers.
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.
Trilateral Sec. 3. Sec. 9.
Relationship and
Solidarity In legitimate contracting or subcontracting arrangement In the event of violation of any provision of the LC, including
there exists: failure to pay wages, there exists solidary liability on the part
(a) An employer-employee relationship between the of the principal and the contractor for purposes of the
contractor and the employees it engaged to perform provisions of the LC and other social legislations, to the
the specific job, work or service being contracted; extent of the work performed under the employment
and contract.
(b) A contractual relationship between the principal
and the contractor as governed by the provisions of
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the Civil Code.

In the event of any violation of any provision of the

Labor Code, including the failure to pay wages, there
exists a solidary liability on the part of the principal and
the contractor for purposes of enforcing the provisions
of the Labor Code and other social legislation, to the
extent of the work performed under the employment
contract.

However, the principal shall be deemed the direct

employer of the contractor’s employee in cases where
there is a finding by a competent authority of labor-only
contracting, or commission of prohibited activities as
provided in Section 7, or a violation of either Sections 8
or 9 hereof.
Coverage These Rules shall apply to all parties of contracting and These Rules shall apply to all parties in an arrangement
subcontracting arrangements where employer- where employer- employee relationship exists.
employee relationships exist. It shall also apply to
cooperatives engaging in contracting or subcontracting Contractors and subcontractors referred to in these Rules
arrangements. are prohibited from engaging in recruitment and placement
activities as defined in Article 13(b) of the Labor Code,
Contractors and subcontractors referred to in these whether local or overseas employment.
Rules are prohibited from engaging in recruitment and
placement activities as defined in Article 13(b) of the
Labor Code, whether for local or overseas employment.
Legitimate or Legitimate Contracting Or Subcontracting Permissible Contracting
Permissible
Contracting Contracting or subcontracting shall be legitimate if all Notwithstanding Section 5 and 6 hereof, contracting or
the following circumstances concur: subcontracting shall only be allowed if all the following
(a) The contractor must be registered in accordance circumstances concur:
with these Rules and carries a distinct and a) The contractor or subcontractor is engaged in a
independent business and undertakes to perform distinct and independent business and undertakes to
the job, work or service on its own responsibility, perform the job or work on its own responsibility,
according to its own manner and method, and free according to its own manner and method:
from control and direction of the principal in all
matters connected with the performance of the work b) The contractor or subcontractor has substantial
except as to the results thereof; capital to carry out the job farmed out by the principal on
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(b) The contractor has substantial capital and/or
investment; and
(c) The Service Agreement ensures compliance with
all the
rights and benefits under Labor Laws.
“Substantial Refers to paid-up capital stocks/shares of at least Three
capital” Million Pesos (P3,000,000.00) in the case of
corporations, partnerships and cooperatives; in the case
of single proprietorship, a net worth of at least Three
Million Pesos (P3,000,000.00).
Labor-only Section 6. Prohibition Against Labor-Only
contracting Contracting
Labor-only contracting is hereby declared prohibited.
For this purpose, labor only contracting shall refer to an
arrangement where:
(a) The contractor does not have substantial capital
or investments in the form of tools, equipment,
machineries, work premises, among others, and
the employees recruited and placed are
performing activities which are usually
necessary or desirable to the operation of the
company, or directly related to the main
business of the principal 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; or
(b) The contractor does not exercise the right to
his account, manner and method, investment in the
form of tools, equipment, machinery and supervision;
c) In performing the work farmed out, the contractor or
subcontractor 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 hereto;
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.
Refers to paid-up capital stocks/shares of at least Three
Million Pesos (P5,000,000.00) in the case of corporations,
partnerships and cooperatives; in the case of single
proprietorship, a net worth of at least Three Million Pesos
(P5,000,000.00).
Section 5. Absolute Prohibition against Labor Only
Contracting.
Labor-only contracting, which is totally prohibited refers to
an arrangement where:
a)
i. The contractor or subcontractor does not have
substantial capital, or
ii. The contractor or subcontractor does not have
investments in the form of tools, equipment,
machineries, supervision, work premises, among
others,
iii. The contractor’s or subcontractor’s 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
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control over the performance of the work of the right to control over the performance of the work of the
employee. employee.

Right to Control Refers to the right reserved to the person for whom the N/A
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.
Violations of the Sec. In the event of any violation of any provision of the
Rules Labor Code, including the failure to pay wages, there
exists a solidary liability on the part of the principal and
the contractor for purposes of enforcing the provisions
of the Labor Code and other social legislation, to the
extent of the work performed under the employment
contract.

However, the principal shall be deemed the direct

employer of the contractor’s employee in cases where
there is a finding by a competent authority of labor-only
contracting, or commission of prohibited activities as
provided in Section 7, or a violation of either Sections 8
or 9 hereof

Sec. 27. A finding by competent authority of labor-only

contracting shall render the principal jointly and
severally liable with the contractor to the latter’s
employees, in the same manner and extent that the
principal is liable to employees directly hired by him/her,
as provided in Article 106 of the Labor Code, as
amended.

A finding of commission of any of the prohibited

activities in Section 7, or violation of either Sections 8 or
9 hereof, shall render the principal the direct employer
of the employees of the contractor or subcontractor,
pursuant to Article 109 of the Labor Code, as amended.
Prohibitions Long list in Section 7. Long list in Section 6.
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Termination of Where the termination results from the expiration of the
Employment service agreement, or from the completion of the phase
of the job, work or service for which the employee is
engaged, the latter may opt for payment of separation
benefits as may be provided by law or the Service
Agreement, without prejudice to his/her entitlement to
the completion bonuses or other emoluments, including
retirement benefits whenever applicable.
Required (a) Employment contract between the contractor and its
Contracts employee. Notwithstanding any oral or written
stipulations to the contrary, the contract between the
contractor and its employee shall be governed by the
provisions of Articles 279 and 280 of the Labor Code,
as amended. It shall include the following terms and
conditions:
i. The specific description of the job, work or service
to be performed by the employee;
ii. The place of work and terms and conditions of
employment, including a statement of the wage rate
applicable to the individual employee; and
iii. The term or duration of employment that must be
co-extensive with the Service Agreement or with the
specific phase of work for which the employee is
engaged.
Where the termination results from the expiration of the
Service Agreement, or from the completion of the phase of
the job or work for which the employee is engaged, the
latter may opt to wait for re- employment within three (3)
months to resign and transfer to another contractor-
employer.
Failure of the contractor to provide new employment for the
employee shall entitle the latter to payment of separation
benefits as may be provided by law or the Service
Agreement, whichever is higher, without prejudice to his/her
entitlement to completion bonuses or other emoluments,
including retirement benefits whenever applicable. The
mere expiration of the Service Agreement shall not be
deemed as a termination of employment of the
contractor’s/subcontractor’s employees who are regular
employees of the latter.
a) Employment contract between the
contractor/subcontractor and its employees.
Notwithstanding any oral or written stipulations to the
contrary, the contract between the contractor/subcontractor
and its employees shall be governed by the provisions of
Articles 294 and 295 of the Labor Code, as amended,
including the provisions on general labor standards. It shall
include the following stipulations:
i. The specific description of the job or work to be
performed by the employee; and
Ii. The place of work and terms and condition of
employment, including a statement of the wage rate
applicable to the individual employee.
The contractor/subcontractor shall inform the employee of
the foregoing stipulations in writing on or before the first day
of his/her employment.
b) Service Agreement between the principal and the
contractor. The Service Agreement shall include the
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BPO’s not (V)endor-vendee relationship for entire business
covered processes covered by the applicable provisions of the
Civil Code on Contracts is excluded.
- Contemplates generic or focused singular activity in
one contract between the principal and the contractor
(for example, janitorial, security, merchandising, specific
production work) and does not contemplate information
technology-enabled services involving an entire
business processes (for example, business process
outsourcing, hardware and/or software support, medical
transcription, animation services, back office
operations/support
following:
i.The specific description of the job or work being
subcontracted, including its term or duration;
ii.The place or work and terms and conditions governing
the contracting arrangement, to include the agreed
amount of the contracted job or work as well as the
standard administrative fee of not less than ten
percent (10%) of the total contract cost; and
iii.A provision on the issuance of the bond/s as defined in
Section 3(a) renewable every year.
DO only applies only to trilateralrelationship which
characterizes contracting or subcontracting arrangement. It
does not contemplate to cover information technology-
enabled services involving an entire business process such
as:
• Business Process outsourcing
• Knowledge Process Outsourcing
• Legal Process Outsourcing
• Application development
• Hardware and/or Software Support
• Medical Transcription
• Animation Services
• Back Office Support