Transcribed by: Ma. Luisa Rose P.

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00:19:27-00:38:54

DEPARTMENT ORDER NO. 174

Rules Implementing Articles 106 to 109 of the Labor Code, As Amended

When is there Labor-Only Contracting?

Section 5. Absolute Prohibition against Labor-only Contracting. – Labor-only contracting, which is totally prohibited, refers to an
arrangement where:

a) i. The contractor or subcontractor does not have substantial capital, or

ii. The contractor or subcontractor does not have investments in the form of tools, equipment, machineries, supervision, work, premises,
among others, and
iii. The contractor’s or subcontractor’s employees recruited and placed are performing activities directly related to the main business
operation of the principal; or

b) The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.

The contractor or subcontractor does not have substantial capital or does not have investments in the form of tools, equipment,
machineries, supervision, work, premises, among others

There are instances when retired employees of a particular firm or company would create an agency. For example, employees of Water District.
Muingon sila, “kami nalang mag-deliver anang inyong bill kay kami man kabalo ana.” So they will make an agency and their employees are
their pamangkins. Can it be done? Yes, provided that you have permit from DOLE, you have substantial capital, probably you have some
motorcycle.

The contractor’s or subcontractor’s employees recruited and placed are performing activities directly related to the main business
operation of the principal

I have a client before na tighinlo ug botelya sa RC Cola. Unfortunately, the DOLE said that their activities are directly related to the business of
making softdrinks.

Also, there is a case when this D.O. was implemented. There were several PLDT workers who were employed by different manpower agencies.
The DOLE said that although there is substantial capital, but they are working directly related to the business of the principal. There is labor-
only contracting.

What is the effect? The company is required to regularize all these employees. Himuon na silag empleyado sa principal. Ang problema lang ani
kay manpower agencies are not so strict about hiring. Magdala pa lang na silag hilo sa softdrinks. You have to screen this again, pero regular
naman na sila? Mao nay bantayanan.

The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.

I have a client na nagbaligyag tinapa. Pero dako nga tindahan. They hired manpower agencies kay makatipid man ka. Kung regular man gud,
for example, ang starting kay P300, increase-an nimo sa 3 rd year to P350. Musaka man ang needs. Magka-edad na siya, muabot siyag P500
na. So, that is additional cost. And so, they hire manpower agencies kay di mana sila mahimong regular employee nimo. Sa manpower agency
lang man na siya kutob.

Section 6. Other Illicit Forms of Employment Arrangements. – In addition to Section 5 of these Rules, the following are hereby declared
prohibited for being contrary to the law or public policy:

a) When the principal farms out work to a “Cabo”.

b) Contracting out of job or work through an in-house agency.
c) Contracting out of job or work through an in-house cooperative which merely supplies workers to the principal.
d) Contracting out of job or work by reason of a strike or lockout whether actual or imminent.
e) Contracting out of job or work being performed by union members and such will interfere with, restrain or coerce employees in the exercise
of their rights to self-organization as provided in Article 259 of the Labor Code, as amended.
f) Requiring the contractor’s/subcontractor’s employees to perform functions which are currently being performed by the regular employees
of the principal.
g) Requiring the contractor’s/subcontractor’s employees to sign, as a precondition to employment or continued employment, an antedated
resignation letter; a blank payroll; a waiver of labor standards including minimum wages and social or welfare benefits; or a quitclaim
releasing the principal or contractor from liability as to payment future claims; or require the employee to become member of a cooperative.
h) Repeated hiring by the contractor/subcontractor of employees under an employment contract of short duration.
i) Requiring employees under contracting/subcontracting arrangement to sign a contract fixing the period of employment to a term shorter
than the term of the Service Agreement, unless the contract is divisible into phases for which substantially different skills are required and
this is made known to the employee at the time of the engagement.
j) Such other practices, schemes or employment arrangements designed to circumvent the right of workers to security of tenure.

When the principal farms out work to a “Cabo”

Cabo – refers to a person or group of persons or to a labor group which under the guise of a labor organization, cooperative or any entity,
supplies workers to an employer, with or without any monetary or other consideration, whether in the capacity of an agent of the employer or as
an ostensible independent contractor. (Sec. 2)

Contracting out of job or work through an in-house agency

In-house agency – refers to a contractor which is owned, managed, or controlled directly or indirectly bby the principal or one where the
principal owns-represents any share of stock, and which operates solely or mainly for the principal. (Sec. 2)

Why do they create this agency? Control mana, but the principal is not liable, only the agency.

Contracting out of job or work being performed by union members

Why is this here? To accommodate the request of the union. Niingon man ang union, “Kanang inyong D.O. 174 ba, anti-labor mana.”

For example, naa kay 200 union members, they will pay P200/month (union dues). That is P40,000. What if mag-retrench? Nahimo nalang
silag 100 employees. P20,000 nalang imong union dues. Anti-union na, kay kung gamay ra ang members, the union cannot persuade the
company.

Requiring the contractor’s/subcontractor’s employees to sign, as a precondition to employment or continued employment, an

antedated resignation letter

This is immoral. Imagine, nag-apply pa lang ka, naa nakay resignation letter? Later on, when you become employers and you represent for an
employer, you tell your client na kung naay mo-resign, make sure that it is handwritten. I had a client who said na tapulan daw ilang mga
empleyado, so sila naghimo sa letter ug gipapirmahan sa ila. Uniform ang contents sa resignation letter! Makabayad ka ini! In that case, the
complainants contest the validity of the resignation letters because they do not agree to be separated. They agree to be separated but with pay.
So, areglo nalang.

Repeated hiring by the contractor/subcontractor of employees under an employment contract of short duration

Kanang 5 months-5 months lang, pwede? This is a wrong notion.

When is contracting or subcontracting permissible?

Section 8. Permissible Contracting or Subcontracting Arrangements. – Notwithstanding Sections 5 and 6 hereof, contracting or
subcontracting shall only be allowed if all the following circumstances concur:

a) The contractor or subcontractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own
responsibility, according to its own manner and method;
b) The contractor or subcontractor has substantial capital to carry out the job farmed out by the principal on his account, manner and method,
investment in the form of tools, equipment, machinery and supervision;
c) In performing the work farmed out, the contractor or subcontractor is free from the control and/or direction of the principal in all matters
connected with the performance of the work except as to the result thereto; and
d) The Service Agreement ensure compliance with all the rights and benefits for all the employees of the contractor or subcontractor under
the labor laws.
Section 9. Solidary Liability. – In the event of violation of any provision of the Labor Code, including the failure to pay wages, there exists a
solidary liability on the part of the principal and the contractor for purposes of enforcing the provisions of the Labor Code and other social
legislations, to the extent of the work performed under the employment contract.

Section 10. Rights of Contractor’s/Subcontractor’s Employees. – All contractor’s/subcontractor’s employees, shall be entitled to security of
tenure and all the rights and privileges as provided for in the Labor Code, as amended, to include the following:

a) Safe and healthful working conditions;

b) Labor standards such as but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13 th month pay, and separation
pay;
c) Retirement benefits under the SSS or retirement plans of the contractor/subcontractor;
d) Social security and welfare benefits; and
e) Self-organization, collective bargaining and peaceful concerted activities including the right to strike.