DOLE
PRIMER ON CONTRACTING
effects of department of D.O. No.
18-02, series of 2002
he guiding principles
of D.O. No. 18-02 as per section
1 states that contracting and subcontracting
are expressly allowed by law and
are subject to regulation for the
promotion of employment and the
observance of the rights or workers
to just and humane conditions of
work, security of tenure, self-organization,
and collective bargaining.
1. WHAT IS CONTRACTING OR SUBCONTRACTING?
There is contracting or subcontracting
when an employer, referred to as
the principal, farms out the performance
of a part of its business to another,
referred to as the contractor or
subcontractor. For The purpose of
undertaking the principal’s
business that is farmed out, the
contractor or subcontractor then
employs its own employees.
Contracting and subcontracting are
synonymous under Philippine Labor
Law. The term that is more commonly
used is subcontracting.
2. IN THE EMPLOYMENT OF WORKERS,
IS THERE A DIFFERENCE BETWWEN AN
ORDINARY EMPLOYER-EMPLOYEE RELATIONSHIP
AND CONTRACTING?
Yes. In an ordinary employer-employee
relationship, there are only two
parties involved - the employer
and the employee. This relationship
is established through a four-fold
test, under which the employer:
a)Directly exercises
control and supervision over the
employee not only as to the results
of the work but also as to the means
employed to attain this result;
b)Has the power to select and hire
the employee;
c)Has the power to dismiss or fire
the employee; and
d)Has the obligation to pay the
employee his or her wages and other
benefits.
The power of control is the most
important factor in determining
the existence of an employer-employee
relationship. The employer need
not actually exercise this power.
It is that the employer retains
the right to exercise it, as it
may deem necessary or appropriate.
In subcontracting, there are three
parties involved:
a) The principal which decides to
farm out a job or service to a subcontractor;
b) The subcontractor which has the
capacity to independently undertake
the performance of the job or service;
and
c) The employees engaged by the
subcontractor to accomplish the
job or service.
In subcontracting, the four-fold
test of employer-employee relationship
should be satisfied by the subcontractor
in relation to the employees it
engages to accomplish the subcontracted
job or service. In such cases, the
subcontractor is also referred to
as independent contractor.
If the four-fold test is satisfied
not by the subcontractor but by
the principal, the principal then
becomes the employer of the employee
engaged to accomplish the job or
service. What exists is not subcontracting
but a direct employer-employee relationship
between the principal and the employees.
3. IS THERE A DIFFERENCE
BETWEEN A SUBCONTRACTOR AND A PRIVATE
RECRUITMENT AND PLACEMENT AGENCY
(PRPA)?
Yes.
A subcontractor directly undertakes
a specific job or service for a
principal and for this purpose employs
its own workers. A PRPA cannot be
a subcontractor. It simply recruits
workers for the purpose of placing
them with another employer so that
the workers recruited will not become
the PRPA'S employees.
A subcontractor is governed by the
laws and rules enumerated under
Question #4 below. A PRPA is governed
by Articles 25 to 39 of the Labor
Code and the rules implementing
these articles.
A subcontractor does not need authority
from the Department of Labor and
Employment (DOLE) to undertake a
subcontracted job or service. A
PRPA needs an authority or license
from DOLe to legally undertake recruitment
and placement activities.
4. WHAT LAW OR RULES GOVERN SUBCONTRACTING?
The basic law governing subcontracting
is the Labor Code, particularly
Articles 106 to 109. These provisions
prescribe the conditions for regulating
subcontracting and the rights and
obligations of parties to this arrangement.
There was also a set of rules implementing
Articles 106 to 109, known as Department
Order No. 10, issued by DOLE in
1997 that was replaced by DOLE D.O.
No.3 Series of 2001 that was then
superceded by D.O. No. 18-02 Series
of 2002. D.O. No. 18-02 took effect
on March 16, 2002.
The following laws and rules will
apply in addition to Articles 106
to 109 of the Labor Code.
a)Article 248 (c) which disallows
contracting out of services or functions
being performed by union members
when such will interfere with, restrain
or coerce employees in the exercise
of their rights to self-organization;
b)Article 280, which classifies
employees into regular, project
or seasonal employees;
c)Article 2180 of the Civil Code,
under which the principal, in a
civil suit for damages instituted
by and injured person, can be held
liable for any negligent acts of
the employees of a labor-only contractor.
d)Republic Act No. 5487 and its
implementing rules, which regulate
the operation of security agencies;
e)Jurisprudence interpreting the
foregoing laws; D.O. No. 18-02;
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