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Labor Standards Finals Transcript

AY 2013-2014

Labor Standards Finals Transcription Attys Discussion:

(AY 2013-2014) In a contracting arrangement, there exists a trilateral relationship.
Atty. Jefferson Marquez
Q: If USC does not hire a Security Agency but preferred the
NOTE: These questions are the relevant issues sa teachers to perform security services, how many parties are there?
Recordings. Wala na nko gi-apil ang uban kay kapoy A: 2, (1) Employer & (2) Employee; there is no trilateral relationship.

September 3, 2013 Attys Discussion:

TOPIC 14: OTHER IMPORTANT LABOR In the situation, USC is the Principal; Security Agency is the
Contractor or Subcontractor; and the Security guards are the
PROVISIONS Contractors Employees.
A. CONTRACTING ARRANGEMENT For the reason of expertise, USC would hire Security guards for
security services. Another reason would be economy, instead of
Attys Discussion: directly hiring security guards or janitors where USC would be
obliged to pay the minimum wage and etc, USC would prefer to hire
Contracting Arrangements is governed by the Labor Code of the contractors to be the direct employer of the guards and janitors.
Philippines under Art 106, 107, 108, 109.
Q: How is the agreement between USC the Contractor referred to
The implementing Rules and Regulations applicable is DO No 18-A, under the implementing rules?
Series 2011 dated Nov. 14, 2011.
A: Referred to as a Service Agreement, it involves the
Q: What is the concept of a Contracting Arrangement? performance or completion of a specific job, work or service, thats
why its called a service agreement. It is not selling goods, it is selling
A: The principal farms out the performance of a SPECIFIC job, work or providing services.
or service within a definite period of time regardless of where the
performance of the job, work or service will take place. The subject of a Service Agreement is the performance of a SPECIFIC
job, work, or service.
Q: Who are the parties of a Contracting Arrangement?
It should not be a supplier of services nor a supplier of manpower
1. "Principal" refers to any employer who puts out or farms out services, it must be a performer of a specific job work or service.
a job, service or work to a contractor or subcontractor;
2. "Contractor or subcontractor" refers to any person or entity (NOTE: Emphasis on SPECIFIC)
engaged in a legitimate contracting or subcontracting
Specific job, work or service must be provided by one that
specializes on that kind of job work or service. It must be an expert
3. "Contractors employee" includes one employed by a
in that field that performs or completes a job, work or service.
contractor or subcontractor to perform or complete a job,
work or service pursuant to an arrangement between the When you choose a contractor or subcontractor, you must choose
latter and a principal. one who specializes in performing/completing that job, work or
Attys Situation:
It must not be just any contractor that provides any Tom, Dick, or
USC is involved in providing education to students. USC can require Harry that knows nothing, otherwise he would not qualify as a
their teachers to provide security or clean the campus, but it will bonafide job contractor.
distract the main purpose of the teachers which is teaching. So what
USC does is it hires security guards and janitors for a definite period In case of Security Guards, it requires a specialty or specialization in
of time, to ensure security and to do the cleaning. When USC hires providing security services.
security guards and janitors there is a Contracting Arrangement.
Whether its a Job-Contracting or a Labor-Only contracting will Q: What should be written in a Service Agreement? (Relating the
depend on the circumstances. law to sirs example of USC hiring a security agency for security
NOTE: SPECIFIC job, work or service. Security guards does a specific
job/work/service which is to provide security.

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DO 18-A contributions and remittance of SSS, Philhealth, PagIbig Fund,

and other welfare benefits; the right to self-organization,
Section 9. Required contracts under these Rules:
collective bargaining and peaceful concerted action; and the
XXX right to security of tenure.
(b) Service Agreement between the principal and the contractor. NOTE: Include this provision in order to protect the contractors
The Service Agreement shall include the following: employees. Even if they are not a party to the service
agreement, they can derive benefit from the agreement under
1. The specific description of the job, work or service being this provision. ensure protection to labor.
The service agreement must contain in writing that the
NOTE: it does not provide manpower; it does not provide contractors employees will be provided with the rights and
security guards nor janitors; IT PROVIDES SECURITY SERVICES, benefits under labor standards and labor relations.
JANITORIAL SERVICES. It is not providing human bodies, it is
providing services. Q: What is the relationship between the Principal (USC)
and the contractors employees (security guards)?
(SIR: If magkamali pah kayo dyan tapos kau sa akin! I WILL DRAFT
2. The place of work (USC) and terms and conditions governing
the contracting arrangement, to include the agreed amount Q: Who is the Direct employee of the contractors
(cost and consideration of the contract) of the services to be employees?
rendered, the standard administrative fee of not less than ten
A: the contractor or subcontractor (Security Agency)
percent (10%) of the total contract cost.
Q: in what instance where the Principal becomes the
NOTE: You will pay only the security agency (contractor) with
direct employer of the contractors employees?
the agreed amount, not the minimum wage. The contractor
pays the minimum wage. A: where the contractor is unable to pay the wages of the
contractors employees.
The contractor decides how many security guards he will
provide because he is the expert; he can send only 1 security 4. A provision on the Net Financial Contracting Capacity of the
guard (RAMBO) or 1,000 security guards, it would depend on contractor, which must be equal to the total contract cost.
his ocular inspection, etc.
NOTE: the parties must stipulate the Net Financial Capacity of
What you are paying for is the services, not the security guards. the contractor because the Contractor must have sufficient
The agreed amount is the amount decided by the principal and capital and investment of tools, equipment, machinery, etc
the contractor. directly used it the operation of the business.
The agreed amount must be written in the service agreement. FORMULA: NFCC is current assets (building, machineries, etc)
minus current liabilities (bank loans, etc) multiplied by K, K
Ex. consideration of the security services at USC campus at
which stands for contract duration equivalent to: 10 for one
P. Del Rosario St, corner of whatever, USC will pay a monthly
year or less; 15 for more than one (1) year up to two (2) years;
service fee of P100,000 to the contractor.
and 20 for more than two (2) years, minus the value of all
Standard administrative fee- the security agency has its own outstanding or on-going projects including contracts to be
office and its own personnel; it has to pay its expenses. If it is a started (contract with USJR or UC, etc). (Sec. 3 I, DO 18-A)
bonafide contracting agency it has its own office or is renting its
Under the rules, the NFCC must be more than or equal to the
own office. The parties will have to input the admin fee of not
total contract cost.
less than 10%.
Attys Situation:
A legitimate contractor must be able to pay for its operating
expenses and make a profit/income in providing security USC agrees to hire the services of a security agency for (1)
services; the payment is taken from the administrative fees. year for a service fee of P100,000.
The law does not favour a contractor that does not provide
Q: What is the total contract cost in so far as USC is
services without profit.
So if P100,000 monthly + 10% (admin fee) = P10,000, so the
A: P1.2M exclusive of the 10% admin fee. (wala sah labot
principal will have to pay P110,000/month to the contractor.
ang 10%, for purposes of discussion P1.2M lang sah)
3. Provisions ensuring compliance with all the rights and benefits
Q: What happens if the Contractor does not pay the
of the employees under the Labor Code and these Rules on:
salary/wages of its employees?
provision for safe and healthful working conditions; labor
standards such as, service incentive leave, rest days, overtime A: the principal will become the direct employer of the
pay, 13th month pay and separation pay; retirement benefits; contractors employees and must pay the salary.

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However, it does not absolve the Contractor of its liability, SSS Social Security System (under the Social Secuirty act)
the principal will become jointly and severally or solidarily
liable with the contractor, without prejudice to the Every employee, unless expressly excluded, is a member of
principal to be reimbursed by the contractor. the SSS.
If you are an Employer, you become a member on the
The NFCC gives the employees the assurance that in case the FIRST DAY OF YOUR OPERATION.
contractor does not pay them right, they can still run after the If you are an Employee, you become a member on your
contractor. FIRST DAY OF WORK.
Ex. After computing the NFCC and is written in the service ECC Employees Compensation Commission
agreement, the total contract cost (TCC) is P1.2M and the NFCC
is P1B = good; if TCC is P1.2M and NFCC is P50 = not good. For WORK RELATED illness, injuries.
The contribution comes solely from the EMPLOYER.
If the NFCC is only P50, it would not be able to assure its
workers in case of non-payment of wages and etc. Phil Health under the Phil. Health Insurance Act.
Q: What is the Capitalization prescribed under DO 18-A for (TAKE NOTE!! Ana si Sir iya ni e-multiple choice ang
corporations and partnerships? Single proprietor? meaning sa Pag-ibig)
A: Sec 3. (n) Substantial Capital refers to paid-up capital HDMF Home Development Mutual Fund
stocks/shares of at least Three Million Pesos (P3,000,000.00) in the Q: Why does the contractor pay these contributions and not the
case of corporations, partnerships and cooperatives; in the case of principal?
single proprietorship, a net worth of at least Three Million Pesos
(P3,000,000.00). A: because it is the contractor that pays the wages of the employees
and not the principal.
Corporations, Partnership minimum capitalization of at least 3M,
1. The contractor is the direct employer.
2. Being the direct employer, under the law it is his obligation
Single Proprietorship ONLY NET WORTH of at least 3M. to deduct from the employees wages the corresponding
contributions and to remit the same to these agencies of
If you do not meet the minimum then it is indicative that you are not agreement.
a legitimate contractor. 7. The term or duration of engagement. The Service Agreement
5. A provision on the issuance of the bond/s as defined in Section must conform to the DOLE Standard Computation and
3(m) renewable every year. Standard Service Agreement, which form part of these

Art. 108. Posting of bond. An employer or indirect employer may Under the definition of a contracting arrangement, it must be
require the contractor or subcontractor to furnish a bond equal to for a DEFINITE PERIOD or a PRE-DETERMINED PERIOD.
the cost of labor under contract, on condition that the bond will A period is definite if it will come to an end. It cannot be for an
answer for the wages due the employees should the contractor or indefinite or endless agreement because it is not allowed by
subcontractor, as the case may be, fail to pay the same. law.
Attys Discussion: It is Pre-determined if the period is agreed beforehand, not
If the contractor fails to pay the wages, then the principal will run after.
after the bond. Because the bond is supposed to answer for the In the example, the 1 year service agreement is both a DEFINITE
unpaid wages due to the contractors employees. and PRE-DETERMINED PERIOD.
The principal may require the contractor to furnish a bond, the The Service Agreement must conform to the DOLE Standard
purpose is to answer for any liability arising from the failure of the Computation and Standard Service Agreement, which form part of
contractor to pay the wages of the employees. these Rules as Annex A and B
The provision provides for protection to workers, this provision When the parties agree with the cost and consideration of the
assures the workers what us legally due them. services to be rendered, the parties, specifically the contractor,
The principal is also ensured that he can reimbursed from the bond. has to take into account how much to pay his workers.
Standard Computation:
Under the service agreement there should be posting of a bond and A. Payable Directly to Servicemen
the parties can renew the bond after the agreement expires. a. Basic Salary at daily rate for the equivalent of No. of
6. A contractor or subcontractor shall directly remit monthly the days per month
empolyers share and employees contribution to the SSS, ECC, b. Night differential Premium Pay 10% of basic salary
Philhealth and Pagibig. c. Emergency cost of living allowance

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d. 13th month pay 1/12 of basic salary 1. Contractor/employer does not have substantial capital or
e. Service Incentive Leave Pay 5 days per year at basic investment in the form of tools, equipment, machineries,
salary rate work premises, among others; and
B. Payable to the government Employee Share of: 2. the workers recruited and placed by such person are
a. SSS Premiums performing activities which are directly related to the
b. Philhealth Premiums principal business of such employer.
c. ECC Insurance Premiums
d. Pag-Ibig Contributions Labor-only contracting is not allowed by law, only Job-contracting is
The importance of adhering to this standard computation is the lawful and valid arrangement.
to make sure that in coming up with agreed consideration,
you have inputted the labor cost that the contractor would Q: Under DO 18-A, what are the requisites for there to be a
laterally incur in providing those services. legitimate Job-contracting? (3)
While it is the contractor that provides the services, it is the
worker that does the actual services. So you have to pay 1. The contractor or subcontractor has substantial capital or
them at least the daily minimum wage, etc. for the entire investment.
duration of the agreement. 2. The agreement between the principal and contractor or
It assures to the parties that the workers, who will be made subcontractor assures the contractual employees to
to perform, are paid what is legally due them under the law. entitlement to all labor and occupational safety standards, free
(Minimum Wage in Region 7 = Php327) exercise of the right to self-organization, security of tenure, and
social and welfare benefits.
THE (7) REQUIREMENTS TO BE WRITTEN IN THE SERVICE 3. The contractor must be registered as a legitimate
parties may stipulate any other terms and conditions. They can
stipulate any provision as long as it is consistent with the basic Q: What agency of Government has the authority to register
provisions prescribed by DO 18-A. contractors?

You can stipulate any terms and conditions subject to the A: DOLE Regional Office in the region where it seeks to
condition in the Civil Code, that it is not contrary to law, public principally operate.
policy, morals, customs, etc.. Q: How do you call that agency that is referred to as the
Central Registry of Contractors?
ADD MORE BUT YOU CANNOT REDUCE IT. A: Bureau of Working Conditions (BWC)
Q: What are the requirements/document that you need to
Q: What is meant by Job Contracting?
submit to apply for registration?
A: When the contractor who performs/completes a specific job, 1. A certified true copy of a certificate of registration of firm
work or service, is engaged in a business separate and distinct from or business name from the Securities and Exchange
that of the principal and performs the job, work or service without Commission (SEC), Department of Trade and Industry
the control of the principal as to the means, manner and method, (DTI), Cooperative Development Authority (CDA), or from
except as to the results therein. the DOLE if the applicant is a labor organization;
If the applicant for registration is a corporation or a
Q: What is Labor Only Contracting?
partnership you must be duly registered with SEC; if
A: where the person supplying workers to an (1)employer does not you are registered with SEC, definitely you have a
have substantial capital or investment in the form of tools, certificate of registration.
equipment, machineries, work premises, among others, and the (2) You have to prove that you are a legal entity and a
workers recruited and placed by such person are performing certificate of registration is proof.
activities which are directly related to the principal business of If the applicant is a single proprietor, he must be duly
such employer. registered with the DTI.
2. A certified true copy of the license or business permit
In such cases, the person or intermediary shall be considered merely
issued by the local government unit or units where the
as an agent of the employer who shall be responsible to the workers
contractor operates;
in the same manner and extent as if the latter were directly
employed by him. Ex. Mayors permit, other licenses
3. A certified listing, with proof of ownership or lease
Q: What are the elements that constitute Labor-Only contracting? contract, of facilities, tools, equipment, premises
implements, machineries and work premises, that are
actually and directly used by the contractor in the
performance or completion of the job, work or service
contracted out. In addition, the applicant shall submit a

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photo of the office building and premises where it holds A: 30 days before the expiration; you must also present other
office; supporting documents.
You have to CERTIFY that you own or lease the
facilities, tools, equipment, premises implements and You do not apply for a renewal after the 3 years has expired because
machineries. by then there is nothing to renew.
This requirement is important to prove you have
substantial capital. Q: There is this REFORTING (Reporting) requirement to the
Under the rules of evidence use the term photo not DOLE, is it annually or semi-annually?
A: Semi-Annually
Take a photo of the building or office space to prove
that you own or you are renting it.
Q: If you apply for Renewal, how much is the registration?
4. A copy of audited financial statements if the applicant is a
corporation, partnership, cooperative or a labor A: Php 25,000 (MCQ nasad daw)
organization, or copy of the latest Income Tax Return
(ITR) if the applicant is a sole proprietorship; Q: Once you are given a Certificate of Registration, when does it
You would be able to check the financial statements take effect?
and the balance sheets if indeed you have substantial
capital. A: upon the issuance of the Certificate of Registration
If you are operating, you must submit a copy of your
ITR. In the ITR you write your income and the source Q: What about BPOs and KPOs, are they covered in DO 18-A?
of your income.
5. A sworn disclosure that the registrant, its officers and A: No, DO 18A, Series of 2011, clearly speaks of a trilateral
owners or principal stockholders or any one of them, has relationship that characterizes the covered contracting
not been operating or previously operating as a contractor subcontracting arrangement.
under a different business name or entity or with pending
Thus, vendorvendee relationship for entire business processes
cases of violations of these Rules and/or labor standards,
covered by the applicable provisions of the Civil Code on Contracts is
or with a cancelled registration. In case any of the
foregoing has a pending case, a copy of the complaint and
the latest status of the case shall be attached. BPO Business Process Outsourcing
You have to disclose whether prior to your KPO Knowledge Process Outsourcing
application for registration you have been operating There is no trilateral relationship in BPOs and KPOs,
as a contractor before and was declared for example what they have is a VENDOR-VENDEE relationship.
a labor-only contracting or you are operating under a Therefore it is not covered under DO 18-A.
different name.
If you misrepresent those documents, you commit DO 18-A covers specific job, work and services. In the case of BPOs
perjury. and KPOs they sell services and are paid for those services, thus a
VENDOR-VENDEE relationship.
If you have a pending case you must make a
disclosure. You must get a certification from the NLRC Q: Does DO 18-A also contemplates of cancellation of registration?
whether you have a pending case and whats the
status thereof and attach also the complaint. A: Yes, DOLE who issues the certificate of registration has the power
If the DOLE finds out you had previous judgement to cancel the registration.
example from the SC declaring you as labor-only Ex. If DOLE Region 7 issued it, then DOLE 7 should be the one to
contracting then DOLE will deny you application. cancel it.
These documents are important because a contractor
must be one who is legitimate and bonafide. He must Q: What are the Grounds for cancellation?
operate with honesty and follow the law.
A: Sec 23. Grounds for cancellation
Q: How much is the Registration Fee? a. Misrepresentation of facts in the application;
b. Submission of a falsified or tampered application or
A: Php 25,000 (MCQ daw)
supporting documents to the application for registration;
Q: If a certificate of registration is issued by the DOLE, it is valid for ex. You Photoshop the picture of a building
how many years? c. Nonsubmission of Service Agreement between the principal
and the contractor when required to do so;
A: 3 years; it is valid only within the Region where the contractor is d. Nonsubmission of the required semi-annual report as
principally operating. provided in Section 22 (Semi-annual reporting) hereof;

Q: How soon should the contractor apply for a renewal?

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e. Findings through arbitration that the contractor has engaged iii. The term or duration of employment that must be co-
in labor--only contracting and/or the prohibited activities as extensive with the Service Agreement or with the specific
provided in Section 7 (Other Prohibitions) hereof; phase of work for which the employee is engaged.
f. Noncompliance with labor standards and working
Note: This question was not answered by Atty M, Sec 9 iii is the
most relevant provision sa DO 18-A with regards to whether the
g. Findings of violation of Sec 8 (Rights of contractors
duration of the employment of the contractors employees is co-
employees) or Sec 9 (Required contracts) of these Rules
terminus with the service agreement.
h. Non-compliance with SSS, the HDMF, PagIbig, Philhealth,
and ECC laws; and Q: if USC has a service agreement with the Security Agency where
i. Collecting any fees not authorized by law and other the latter provides Security Services to USC for 1 year, in the last
applicable rules and regulations. quarter of the year, there was a wage increase of the minimum
wage from 327 per day to 400. What is the effect of such increase
Atty M: you dont have to enumerate, you just have to know that in the liability of the parties?
there are grounds for the cancellation of the registration.
A: RA 6727 (Wage Rationalization Act)
Q: If there is a complaint for the cancelation of registration, how Section 6. In the case of contracts for construction projects and for
many days does the respondent contractor required to answer? security, janitorial and similar services, the prescribed increases in
the wage rates of the workers shall be borne by the principals or
A: 10 days clients (USC) of the construction/service contractors and the
contract shall be deemed amended accordingly.
The decision will have to rendered in a Clarificatory Hearing and the In the event, however, that the principal or client fails to pay the
DOLE will have to render a decision. prescribed wage rates, the construction/service contractor (Security
Agency) shall be jointly and severally liable with his principal or
Q: Is the decision appealable? client.

A: Yes, to the SOLE within 10 days. NOTE: The principal primarily bears the obligation of paying the
contractors employees the prescribed increase in the minimum
After the SOLE, there is no more appeal. The only remedy to wage.
question the decision is thru Certiorari to the CA under Rule 65. The contractor only becomes jointly and severally liable if the
Then from CA, next is to the SC under Rule 45. principal fails to pay. If the contractor pays, he is subject to
Q: If the Contractor pays the increase of the minimum wage, can
September 10, 2013 he demand reimbursement from the principal?
A: yes, under RA 6726, the obligation to pay the increase in the
Q: What is the importance of writing the Net Financial Contracting
minimum wage is born by the principal (USC), so in the event that
Capacity (NFCC) of the contractor in the Service Agreement?
the principal fails to pay the wage increase, the contractor is jointly
and severally liable for the increase and must pay.
A: to determine whether or not that the contractor has substantial
capital to be a legitimate contractor and that in case
If the contractor pays the increase, he can demand reimbursement
Q: Under DO 18-A, how much must the NFCC be? from the principal.

Q: If the contractor cannot pay the wage increase, then what is the
A: it must be equal to or more than the total contract cost
remedy for the contractors employees?
Q: If there is a 1 year service agreement between USC and the
security agency, what is the term or duration of the employment A: they can ask directly the principal (USC) to pay the wage increase.
of the contractors employees?
Q: Can the principal (USC) demand reimbursement from the
A: Section 9. Required contracts under these Rules.
Employment contract between the contractor and its employee. A: No, because RA 6727 states that the principal primarily bears the
Notwithstanding any oral or written stipulations to the contrary, obligation to pay the wage increase, not the contractor.
the contract between the contractor and its employee shall be
governed by the provisions of Articles 279 and 280 of the Labor The contractor only comes in when the principal fails to pay.
Code, as amended. It shall include the following terms and

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Q: If the principal cannot pay the wage increase, can the or service for which the employee is engaged, the latter may opt
employees sue the principal or the contractor or both? for payment of separation benefits as may be provided by law or
the Service Agreement, without prejudice to his/her entitlement
A: the contractor becomes jointly and severally liable with the to completion bonuses or other emoluments, including
principal. The contractors employees can sue either or both. retirement benefits whenever applicable.

Q: In the event that the Security guards sue both the Principal and This provision contemplates of the following conditions:
the contractor and then judgement was rendered holding them
both jointly and severally liable and the contractor is the one who 1. Pre-termination of the service agreement;
paid the whole judgement award. Can the contractor ask for 2. Not due to authorized causes under Art 283 of the Labor
reimbursement from the principal? Code;
Article 283. Closure of establishment and reduction of
A: Yes, in cases of wage increase it is the principal who should pay personnel.
the contractors employees. Closure of establishments:
Ex. If USC after 6 months wants to closes the school,
It is not the obligation of the contractor so he may ask for it is an authorized cause. So Sec 13 is not applicable if
reimbursement from the principal. the pre-termination is due to closure.

Q: If the principal was the one who paid the whole judgement, can Q: What is the scope of Sec 13?
he ask reimbursement from the contractor?
A: unpaid wages and other benefits
A: AGAIN NO! The principal bears it alone because in the first place it
is his sole obligation to pay the wage increase. It is his sole liability. Atty M: During the exam I will be giving you a set of facts and you
have to analyse and determine the liability and whos liability it is.
Q: What if the joint and solidary liability of the contractor and the
principal was for non-payment of overtime pay, can the principal Q: How about expiration of the contract under Sec 13, is there an
demand reimbursement from the contractor? obligation to pay the contractors employees separation pay?

A: Yes, in this case, the contractor bears the liability of the non- A: No, there is no law yet providing for separation pay to
payment of OT because the contractor is the direct employer of the contractors employees in cases where the termination of the
contractors employees, the principal is only the indirect employer. service agreement is due to the expiration of the contract.

Q: If the principal does not pay, and the contractor pays the whole DO 18-A says in accordance with law, there is no law regarding
amount, can he demand reimbursement from the principal? this yet.

A: No, it is the sole obligation of the contractor to pay OT to the Q:What are the rights of the contractors employees under DO 18-
contractors employees. The principal only becomes jointly and A?
severally liable if the contractor cannot pay but he is subject to
reimbursement from the contractor. Section 8. Rights of contractors employees

Q: There is a 1 year service agreement with the security agency, in All contractors employees, whether deployed or assigned as
the middle of the year the principal decides to pre-terminate reliever seasonal, week-ender, temporary, or promo jobbers, shall
(FREE-termination) the contract. What is the legal effect with be entitled to all the rights and privileges as provided for in the
regards to the parties under DO 18-A? Labor Code, as amended, to include the following:
a. Safe and healthful working conditions;
A: Section 13. Effect of termination of employment (right under labor standards)
b. Labor standards such as but not limited to service incentive
leave, rest days, overtime pay, holiday pay, 13th month pay,
and separation pay as may be provided in the Service
In case the termination of the employment is caused by the pre-
Agreement or under the Labor Code;
termination of the service agreement not due to authorized
c. Retirement benefits under the SSS or retirement plans of the
causes under Art 283, the right of the contractors employee to
contractor, if there is any;
unpaid wages and other benefits including unremitted legal and
d. Social security and welfare benefits;
monetary contributions, eg SSS, Philhealth, Pag-ibig, ECC, shall be
e. Self-organization, collective bargaining and peaceful
borne by the party at fault, without prejudice to the solidary
concerted activities; and
liability of the parties to the service agreement.
(right under labor relations)
Where the termination results from the expiration of the service f. Security of tenure.
agreement, or from the completion of the phase of the job, work

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Employees cannot be dismissed/terminated without Labor Code: Article 97. Definitions. As used in this Title:
just cause
Example of just causes: "Employer" includes any person acting directly or indirectly in the
Article 282. Termination by employer. An employer interest of an employer in relation to an employee and shall
may terminate an employment for any of the include the government and all its branches, subdivisions and
following causes: instrumentalities, all government-owned or controlled
1. Serious misconduct or willful disobedience by the corporations and institutions, as well as non-profit private
employee of the lawful orders of his employer or institutions, or organizations.
representative in connection with his work;
2. Gross and habitual neglect by the employee of his
3. Fraud or willful breach by the employee of the
trust reposed in him by his employer or duly
authorized representative;
4. Commission of a crime or offense by the employee Q: What is meant by Labor-Only contracting?
against the person of his employer or any
immediate member of his family or his duly A: Art 106. There is "labor-only" contracting where the person
authorized representatives; and supplying workers to an employer does not have substantial capital
5. Other causes analogous to the foregoing. OR investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
If the contractor terminates the employees without just cause or such person are performing activities which are directly related to
authorized cause, the contractor may be liable for illegal dismissal. the principal business of such employer.
The effect is that the contractors employees under Art 279, is Elements:
entitled to reinstatement and the payment of his back wages until
the end of the service agreement. 1. the person supplying workers to an employer does not have
substantial capital or investment in the form of tools,
The principal cannot also pre-terminate the service agreement equipment, machineries, work premises, among others; and
unless it is due to authorized causes under Art 283. If not, the 2. the workers recruited and placed by such person are
principal would be considered the party at fault and would have to performing activities which are directly related to the
pay unpaid wages and other benefits of the contractors employees. principal business of such employer.
Q: If there is labor only contracting, what becomes of the
Atty M: Our topic is to determine the scope and liability of the
A: the contractor becomes a mere agent of the principal, so the
Q: If there is a 1 year service agreement between USC and the principal becomes the direct employer.
security agency and the agreed consideration is 100,000/month
and the agreement continued until the end of the 1 year term. But Q: What is this bond contemplated by the Labor Code?
USC still owes 200,000 to the security agency. What is the remedy
of the security agency? A: Article 108. Posting of bond. An employer or indirect employer
may require the contractor or subcontractor to furnish a bond equal
A: there is a breach of contract, the security agency can file a Civil to the cost of labor under contract, on condition that the bond will
Case. answer for the wages due the employees should the contractor or
subcontractor, as the case may be, fail to pay the same.
The jurisdiction of the Civil Case is with the regular courts not before
the labor arbiter. Q: How much is the bond?

Attys Situation: The City of Cebu (chartered city) assigns security A: at least equal to the cost of labor under contract
guards from the security agency. But the agency failed to pay the
Q: Can the principal ask for a higher bond?
security guards, can they sue the City of Cebu before the labor
arbiter or the DOLE? If yes, which jurisdiction?
A: it would depend on the agreement between the principal and the
A: Yes the government (City of Cebu) can be liable as a principal.
If a bond is furnished, it will answer for the wages due the
DO 18-A Sec 3. (j) Principal - refers to any employer, whether a
employees should the contractor or subcontractor, as the case may
person or entity, including government agencies and government-
be, fail to pay the same.
owned and controlled-corporations, who/which puts out or farms
out a job, service or work to a contractor.

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Q: If there is no stipulation as to the posting of a bond, does it Q: When can there be lawful withholding of wages?
make the Service Agreement illegal?
A: employer withholds wages for contributions to SSS, Pag-ibig, etc.
A: No, it is not illegal, the effect would be that if the contractor/sub-
contractor fails to pay the wages of the contractors employees, Also the employer can withhold wages for debts due by the
then the principal being jointly and solidarily liable for the unpaid employee. (Art. 1706. Withholding of the wages, except for a debt
wages would have to pay. due, shall not be made by the employer. [Civil Code])

If there were a bond, then the principal can just pay the unpaid Q: Is an award of attorneys fees only limited to unlawful
wages from the bond if the contractor does not pay the wages. withholding of wages under Art 111?

The principal will use the bond to answer the unpaid wages of the A: No, also under 2208 of the Civil Code
contractors employees.
Art. 2208. In the absence of stipulation, attorneys fees and
If the contractors employees are not paid their wages, OT, etc. expenses of litigation, other than judicial costs, cannot be recovered
these are the remedies to follow: except:
(7) In actions for the recovery of wages of household helpers,
1. first, make a demand for payment from the contractor; laborers and skilled workers;
2. if the contractor does not pay, they can sue both the
principal and contractor being jointly and severally liable; C. WORKERS PREFERENCE
3. if there is judgement award holding both of them jointly (aka Workers Freference )
and severally liable;
4. if contractor does not pay, the principal will pay;
5. the principal may run after the bond to pay for judgement Article 110. Worker preference in case of bankruptcy. In the event
award OR the principal will just pay the judgment award of bankruptcy or liquidation of an employers business, his workers
and then ask reimbursement from the bond. shall enjoy first preference as regards their wages and other
6. If the bond is not sufficient to answer for the judgement monetary claims, any provisions of law to the contrary
award, then the principal will pay the remaining deficiency notwithstanding. Such unpaid wages and monetary claims shall be
and then ask reimbursement from the contractor. paid in full before claims of the government and other creditors
may be paid. (As amended by Section 1, Republic Act No. 6715,
B. ATTORNEYS FEES March 21, 1989)

Article 111. Attorneys fees. Q: Does bankruptcy require a judicial proceeding?

In cases of unlawful withholding of wages, the culpable party may A: yes, only a court can declare a company or business as bankrupt
be assessed attorneys fees equivalent to ten percent of the and only the court can institute a liquidation proceeding.
amount of wages recovered. Q: What is the prevailing law on bankruptcy?
It shall be unlawful for any person to demand or accept, in any A: RA 10142: Financial Rehabilitation and Insolvency Act of 2010
judicial or administrative proceedings for the recovery of wages, (FRIA)
attorneys fees which exceed ten percent of the amount of wages
recovered. Q: What is the scope of the workers preference?

Q: What are the 2 concepts of attorneys fees? A: wages and other monetary claims
It includes separation pay, 13 month, holiday, etc.
A: Ordinary and extraordinary.
Q: Does Workers Preference constitute a lien or a preference of
In its ordinary concept, an attorneys fee is the reasonable
compensation paid to a lawyer by his client for the legal services he
has rendered to the latter. The basis of this compensation is the fact A: Preference of credit
of his employment by and his agreement with his client.
Q: What kind of (siopao) credit is it? Ordinary or Special credit?
In its extraordinary concept, an attorneys fee is an indemnity for
damages ordered by the court to be paid by the losing party in A: It is an ordinary preferred credit.
litigation. Distinction between a preference of credit and a lien
Q: When may an award of attorneys fees be awarded? A preference applies only to claims which do not attach to specific
A: in cases of unlawful withholding of wages (DONT FORGET THE
SPELLING OF WITHHOLDING) A lien (ex. Mortgage Credit) creates a charge on a particular
property. It goes wherever the property is.

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Labor Standards Finals Transcript
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The right of first preference as regards unpaid wages recognized by

Article 110 does not constitute a lien on the property of the
insolvent debtor in favor of workers. It is but a preference of credit
in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in
the final distribution of the proceeds of the insolvent's assets. It is a
right to a first preference in the discharge of the funds of the
judgment debtor. (DBP vs. NLRC)
Having preferential credit means that among other creditors, you
have the first preference to be paid by the insolvent employer.
IMPORTANT: The workers preference is superior even against
claims of the government for unpaid taxes.
(See Article 110 LC; Article 2244 CC)
Q: What is the reason why a judicial proceeding is needed in a
A: in order to give creditors the opportunity to present their claims.
Attys Discussion:
There is such a thing as a Secured Creditor and an Unsecured
Example of a Secured Creditor is a Mortgage creditor, the security is
the property. An example of an Unsecured Creditor is if an employer
who owes you money and there is no security.
Both secured and unsecured can present their claims in a
bankruptcy proceeding.


Questions & Answers of Topic 15 will be posted by JP
Copyright 2013

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