Definition of Terms:• Contracting or Subcontracting – refers to an arrangement whereby the principal agrees to farm out a job, work or service to a contractor/subcontractor within a definite period of time regardless whether the job is completed within or outside the premises of the principal.• Contractor/Subcontractor – any person or entity engaged in a legitimate contracting or subcontracting arrangement.
•Contractual employee – employed by a contractor orsubcontractor to perform or complete a job, work or servicepursuant to an arrangement between the contractor and theprincipal.* Principal – any employer who puts out a job, service to acontractor.
Guiding Principle: Contracting and subcontracting arrangements areallowed by law and are subject to regulation for the promotionof employment and the observance of the rights of workers to just and humane conditions of work, security of tenure, self- organization, and collective bargaining. Labor-only is definitely prohibited. Coverage: The rules are applicable to all parties of contracting and subcontracting where employer-employee relationship exists.
Trilateral Relationship There should be 3 parties involved in thearrangement – the principal which farms out a job or service to the contractor/subcontractor; the contractor/subcontractor which has thecapacity to independently perform the job or service; and the contractual employees who will perform the job or service.
Prohibitions against Labor-Only Contracting (Article 106)Labor-only contracting shall refer to an arrangement where the contractor or subcontractor merely recruits and supplies workers to perform a job for a principal and these elements are present:(1) Contractor or subcontractor does not have the substantial capital or investment which relates to the job to be performed by the employees hired.(2) Contractor does not exercise the right to control over the working performance of the contractual employees. Right to control implies determining means and manner of the contractual employee in achieving the job.
Prohibitions(1) Contracting out a job which is not justified by the urgent or immediate need of the company/business and the same results in the termination of regular employees and reduction of work hours or splitting of the bargaining unit.(2) Contracting out of work with a “cabo.” “Cabo” refers to a person or group of persons or to a labor group which in the guise of a labor organization, supplies workers to an employer, with or w/o monetary or order of consideration whether in the capacity of an agent of the employer.(3) Taking advantage of the economic situation or lack of bargaining strength of the contractual employee or undermining his security of tenure or basic rights or avoiding the provisions of regular employment in instances like :
a) Assigning tasks or job to the contractual employeeswhich are currently performed by regular employees ofthe principal or contractor.b) Requiring the contractual employee to sign, as aprecondition to employment, antedated resignation, ablank payroll, waiver of labor standards includingminimum wages and social/welfare benefits, or aquitclaim releasing the principal or contractor from anyliability to future claimsc) Requiring to sign a contract fixing the period ofemployment to a term shorter than the contractingagreement between the principal and the contractor,unless the last contract is divided into phases in whichdifferent skill are requires. Nevertheless, It should beknown at the time of engagement.
(4) Contracting out of a job, work or service through an in-house agency in which the contractor supplying the labor ismanaged, controlled or owned by the principal.(5) Contracting out a job by reason of a strike or lockout.(6) Contracting out a job, work or service being performed byunion members when such will interfere with the exercise oftheir rights to self-organization.
Existence of an Employer-Employee Relationship (Article 109)The contractor shall be considered the employer of the contractual employees. The principal shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code i.e failure to pay wages. The principal shall be deemed the employer of the contractual employee in the ff. cases:a. Where there is labor-only contracting orb. Where the contracting arrangement falls within the Prohibitions.
Rights of Contractual Employees:• Safe and healthful working conditions• Labor standards such as service incentive leave, rest days, overtime pay, holiday pay, 13th month pay and separation pay• Social Security and welfare benefits• Self-organization, collective bargaining and peaceful concerted action• Security of tenure
Contract between Contractor and Subcontractor and Contractual EmployeeThe contract between contractor/subcontractor shall be in the ff. terms:a) The specific description of the job, work or service to be performed by the contractual employee.b) The place of work and terms and conditions of employment, including a statement of the wage rate applicable to the individual contractual employee.c) The term or duration of employment.
Effect of Termination of Contractual EmploymentIn cases of termination of employment prior to the expiration of the contract between the principal and the contractor/subcontractor, the right of the contractual employee to separation pay or other related benefits shall be governed by the applicable laws and jurisprudence on termination of employment. When the contract of the principal and contractor has ended with the completion of the contractual employee’s job, the employee shall not be entitled to a separation pay but will be given completion bonuses.
Enforcement of Labor Standards and Working ConditionsThe Regional Director through his duly authorized representatives shall:a) Have the authority to conduct routine inspection of establishments engaged in contracting/subcontracting.b) Have access to employer’s records and premises at any time of the day or night whenever work is being undertaken therein.c) Right to question any employee and investigate any fact or matters necessary to determine violations in the enforcement of the Labor code.