Department Order 174: Rules Implementing the provisions on the Labor Code

of the Philippines on Contracting and Sub-Contracting

Under the 1987 Philippine Constitution, one of the State policies enunciated provides that,
“The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare.”[1] In line with this, the State shall afford full protection to labor, whether
local or abroad, in order to promote equality of employment opportunities for all.[2]

One of the basic principles in labor provides for the concept of contracting and
subcontracting, as contained under Articles 106-109 of the Labor Code [3]. Under the law,
contracting or subcontracting is defined to be an arrangement whereby an employer engages the
services of a contractor who undertakes to perform a work, task, or job on his own account under
his own responsibility free from the control and direction of his employer in all matters except as to
the result of the work.

In order to properly implement the provisions of the Labor Code on contracting and
subcontracting, the Department of Labor and Employment issued Department Order 174 [5] (DO
174) on March 16, 2017. This Department Order aims to give sufficient guidelines on how to apply
Articles 106 to 109 of the Labor Code.

DO 174 provides for its guiding principle that non-permissible forms of contracting and
subcontracting arrangements undermine the Constitutional and statutory right to security of tenure
of workers.[6] These arrangements are so-called Labor-Only Contracting. In a legitimate contracting
or subcontracting scheme, no employer-employee relationship was created between the principal
and the employees of the contractor. Instead, there exists a trilateral relationship under which there
is a contract for a specific job, work or service between the principal and the
contractor/subcontractor, and a contract of employment between the prin cipal and the

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Footnotes:
[1] PHIL.CONST, art 2 §18
[2] Id, art 13 §3, ¶1.
[3] A Decree Instituting a Labor Code thereby Revising and Consolidating Labor and Social Laws to afford
Protection to Labor, promote Employment and Human Development and insure Industrial Peace Based on
Social Justice, Labor Code of the Philippines, PD 442 as amended.
[4] Paulino Ungos, Jr. and III, The Fundamentals on Labor Law Review, p.98, 2015 ed.
[5] Department of Labor and Employment, Department Order No. 174 (Mar. 16, 2017)
[6] Id.

Footnotes:
contractor/subcontractor and its employees.[7] However, in a labor only contracting arrangement, an
employer-employee relationship is created between the principal and the employees of the
contractor. The labor-only contractor will be considered as a mere agent of the principal, and both
the principal and the labor-only contractor will be held solidarily liable for all claims of the
employees.[8] Labor-Only Contracting is declared prohibited by D.O. No. 18-A of 2011.

DO 174 provides that the Secretary of Labor and Employment has been given the authority
to regulate the conduct of contracting and subcontracting arrangements and likewise prohibit the
establishment of a labor-only contracting arrangement.[9]

The Labor Code mandates every contractors and subcontractors to be registered with the
Department of Labor and Employment where it principally operates. The failure to comply with the
registration requirement shall give rise to a presumption that the contractor is engaged in labor-only
contracting. In the case of Aklan et al., the employer-employee relationship between the contractor
(BMA) and the workers (petitioners) is not tarnished by the absence of registration with the 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 which may be refuted.[10]

Under Section 14 of DO 174, the Bureau of Working Conditions (BWC) shall serve as the
central registry of all contracting arrangements implemented by the Regional Offices of DOLE. In
line with this, Section15 of DO 174 provides for the necessary requirements for registration which
must be complied with in order for the respective application for registration be given due course.
Upon approval of the application, the applicant will be given a Certificate of Registration, which
shall be effective for a period of two years, unless duly cancelled.

DO 174 likewise provided for the Rights granted to Contractors/Subcontractors’ Employees

and the effect of violation of these said rights. In case of violation of the Rights granted to
Contractors/Subcontractors’ Employees, the principal the direct employer of the contractor’s
employees. DO 174 also provide for the process in the cancellation of the
Contractors/Subcontractors’ registration. Like in any other proceeding, due process must be duly
complied with. Upon cancellation, a Final Order of cancellation of the registration shall thereafter

[7] C.A Azucena The Labor Code with Comments and Cases, Vol. 1: Labor Standards and Welfare, p. 305,
2013 ed.
[8] Paulino Ungos, Jr. and III, The Fundamentals on Labor Law Review, p.101, 2015 ed.
[9] Id, p.101
[10] Aklan, et. al vs San Miguel Corp., BMA Philasia, Inc., et al., G.R. No. 168537, December 11, 2008
divest the contractor of its legitimate status to engage in contracting/subcontracting. It added that no
contractor whose registration is cancelled under DO 174, shall be allowed to operate, and apply for
new registration as a contractor either under the same name or a different one. (Ibid, Section 26)

The concept of engaging in contracting or subcontracting has two sides. It has advantages
and disadvantages. What the law provides is that the rights and privileges granted to legitimate
contractors will not be available to non-permissible contractors. With the issuance of DO 174, the
mandate of the labor law and the Constitution in promoting the welfare of the workers is further
assured.