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3GPH Law Office

University of Santo Tomas


Atty. Gonzales, Atty. Gualberto, Atty. Guillermo, Atty. Halog
Atty. Pineda

27 October 2016
Service Provider Inc. (SPI)
123 Maykaya St., Makati City
Attention: Mr. Juan A. Presidente
President, SPI
Re: Labor-related concerns: Job Contractualization and
ENDO

Arrangement

Dear Mr. President:


We write to provide you with our legal opinion and analysis
so you can make a qualified decision regarding your concerns
about President Rodrigo Dutertes pronouncement of putting an
end to contractualization and the practice of putting employees
on an ENDO (end of contract) agreement.
Factual Background:
Service Provider Inc. (SPI) is a business process outsourcing
(BPO) company with full facilities and equipment as a BPO with
capitalization of P10M. It provides clients with services of
Scanning, document storage, call center work, claims processing,
etc. It appears that the newly-elected President of the Philippines,
Pres. Rodrigo R. Duterte, made a pronouncement that he will put

an end to

contractualization and the practice of putting

employees on an ENDO arrangement every five months, all with


Department of Labor and Employment (DOLE)s support. In the
meantime, DOLE suspended the grant of accreditation to job
contractors.
It appears to us that you seek to know the steps that your
company can take to cope and ensure that SPI complies with the
laws and pronouncements made by the President with the
following concerns:
1.)Is job contracting allowed under Philippine laws?
2.)Can SPIs services be legitimately sub-contracted to it by
the clients as a job contractor?
3.)What is ENDO and contractualization as mentioned by the
President?
4.)Is SPIs job contractor arrangement illegal?
5.)Is Project employment allowed under Philippine laws?
6.)Can SPI still engage employees on a per project basis or
does it have to employ all employees as regular employees?
Discussions
Is job contracting allowed under Philippine laws?
The Labor Code of the Philippines recognizes job contracting as a legal
and legitimate business practice. Articles 106 to 109 regulate job
contracting in the Philippines. What is not allowed is labor-only
contracting. DOLEs Department Order No. 18-A serves as the
implementing rules and regulations on job contracting. The DO 18-A
has made the rules more stringent in the Philippines.
Difference between Permissible Job Contracting and LaborOnly Contracting:

person

is

considered

engaged

in

legitimate

job

contracting or subcontracting if the following conditions


concur:
(a) The contractor or subcontractor carries on a distinct and
independent business and undertakes to perform the job, work or
service on its own account and under its own responsibility
according to its own manner and method, and free from the
control and direction of the principal in all matters connected with
the performance of the work except as to the results thereof;
(b) The contractor or subcontractor has substantial capital or
investment; and
(c) The agreement between the principal and contractor or
subcontractor assures the contractual employees entitlement to
all labor and occupational safety and health standards, free
exercise of the right to self-organization, security of tenure, and
social and welfare benefits.
In labor-only contracting, the following elements are
present:
(a) The contractor or subcontractor does not have substantial
capital or investment to actually perform the job, work or service
under its own account and responsibility;
(b) The employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are
directly related to the main business of the principal. (Rolando
Sasan, Sr. et al. vs. NLRC, et al. G.R. No. 176240. October
17, 2008)
Who

is

legitimate

subcontractor

Department Order No. 18-A?

under

DOLEs

A legitimate contractor is an independent employer who meets


the following:
1) Minimum capitalization of at least P3 Million
fully paid up capital for corporation, partnership and
cooperative;
net worth for single proprietorship
2) Proof of ownership or lease agreement on tools, equipment,
machineries and work premises
3) Payment of P25,000.00 registration fee
4) Proof of financial capacity to pay the wages and benefits of its
workers using the Net Financial Contracting Capacity (NFCC)
formula in government procurement
5) Control over the performance of the work of the employee
deployed or assigned to render the contracted work or services
6) Not engaged in labor-only contracting arrangement as
provided in Section 6
.Certificate of Bank Deposits
7) Not engaged in prohibited activities enumerated in Section 7
8) Observes the rights of the workers as provided in Section 8
9) Observes the required contracts under Section 9
10)Not

delisted

from

the

registry

of

legitimate

contractor/subcontractor
SPI Global, when in compliance with the aforementioned criteria,
shall be otherwise called as a legitmate contractor/subcontractor.
Difference between ENDO Employment and Contracting
for Services

Contracting or subcontracting is an arrangement whereby a


principal agrees to farm out to a contractor the performance or
completion of a specific job, work or service within a definite or
predetermined period whether such job, work or service is to be
performed

or

completed

within

or

outside

the

principals

premises. There are three parties involved in this arrangement,


the principal which decides to farm out work, the contractor or
subcontractor which has the capacity to independently undertake
the performance of the work, and the contractual workers
engaged by the contractor or subcontractor to accomplish the
job, work or service.
On the other hand, strictly speaking, endo, also known as
the 5-5-5 scheme, is a fixed-period employment scheme
entered into to prevent the employees from attaining the status
of regular employment. Endo is a bilateral contract between the
employee and the employer. Such arrangements have been
repeatedly struck down by the Supreme Court.
Recognition of Project Employment under Philippine Laws
Project

employment

is

recognized

in

the

Philippines.

It

contemplates an arrangement whereby the employment has


been fixed for a specific project or undertaking whose completion
or termination has been determined at the time of the
engagement of the employee. (Article 280, Labor Code of
the Philippines)
Since the employees services are coterminous with the project,
the

services

of

the

project

employees

are

legally

and

automatically terminated upon the end or completion of the


project.

Can SPI Can SPI still engage employees on a per project


basis or does it have to employ all employees as regular
employees?
Pursuant to Articles 5, 106 to 109 of the Labor Code, as
amended, and consistent with the policy directives to strictly
implement and enforce the workers right to security of tenure,
Department Order 162 was issued, suspending registration of
new

applicants

as

contractors

Department Order 18-A.

or

subcontractors

under

In other words, new applicants as

contractors or subcontractors will not be registered and issued a


DO18-A Certificate of Registration anytime within the near future
to give the DOLE sufficient time to address all issues surrounding
contracting or outsourcing.
Sec 3 of Department Order 162 reads: Contracts entered in to by
duly registered contractors prior to the issuance of this Order
shall not be impaired or diminished consistent with the provisions
of the Labor Code, the Civil Code and existing jurisprudence.
Nothing herein shall impair the rights or diminish the benefits
being

enjoyed

by

parties

to

existing

contracting

or

subcontracting agreements.
Thus, SPI is not restricted to employ on a contractual or on a
project basis and it shall also have the prerogative on whether or
not to employ all employees as regular ones as it may see fit.
Recommendations:
For now, Service Provider Inc., has the flexibility to either directly
hire workers as regular employees or outsource them through the
service providers. We, however would suggest SPI to undergo a
strategic planning in preparation for the end of contractualization

as

pronounced

by the

President

without

prejudice

to

its

employees rights and welfare.


Should you have queries or other concerns, do not hesitate to
contact us.
Yours truly.
Atty. Ellize Gail Gonzales
Atty. Marshan Deinn Gulaberto
Atty. Patricia Mae Guillermo
Atty. Jhedlyn Grace Halog
Atty. Marie Beatrice Pineda
For the Firm