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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 theLabor 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 a 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. However, D. O. No. 10 was revoked by DOLE on 08 May 2001
through another order, D. O. No. 3, Series of 2001. D. O. No. 3 took effect on 29 May
2001.
With the revocation of D. O. No. 10, the following laws and rules will apply in
addition to Articles 106 to 109 of the Labor Code:chanroblesvirtuallawlibrary
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 an 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;
f. D. O. No. 3;
g. D. O. No. 19, Series of 1993, for subcontracting arrangements in the construction
industry; and
h. Contractual stipulations provided these are not in conflict with Labor Code
provisions, jurisprudence, and D. O. Nos. 3 and 19.
5. ASIDE FROM REVOKING D. O. NO. 10, WHAT ARE THE IMPORTANT
FEATURES OF D. O. NO. 3?
The following are the important features of D. O. No. 3.
a. It prohibits labor-only contracting;
b. It recognizes the continuing validity of contracts entered into whenD. O. No. 10
was still in force;
c. It is a temporary measure;
d. It sets the process and mechanism, which is through consultations through the
Tripartite Industrial Peace Council, by which a new set of rules shall be formulated.
6. DOES D. O. NO. 3 RENDER SUBCONTRACTING ILLEGAL?
No, provided the requirements for legitimate subcontracting are satisfied and the
prohibition against labor-only subcontracting is observed.
7. WHAT IS LEGITIMATE SUBCONTRACTING?
Neither the Labor Code nor D. O. No. 3 has a definition of legitimate subcontracting.
However, while D. O. No. 3 rendered D. O. No. 10 ineffective, existing jurisprudence
still provides definitive guidance. In two recent cases decided by the Supreme Court
(Vinoy v. National Labor Relations Commission, G.R. No. 126586, 02 February 2000,
and Lim v. National Labor Relations Commission, G.R. No. 124630, 19 February
1999), the definition of legitimate subcontracting in D. O. No. 10 is favorably cited
as follows:
Contracting shall be legitimate 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;
c. The agreement between the principal and the contractor or subcontractor assures
the contractual employees entitlement to all occupational safety and health
standards, free exercise of the right to self organization, security of tenure, and
social and welfare benefits.
8. WHAT IS SUBSTANTIAL CAPITAL? IS SUBSTANTIAL CAPITAL SUFFICIENT
TO ESTABLISH LEGITIMATE SUBCONTRACTING?
Substantial capital refers to such investment, whether in the form of money,
facilities, tools, equipment, machineries, work premises, or subscribed capital stock
that would indicate the subcontractor's capacity to undertake the subcontracted
work or service independently. For example, a subcontractor with a capital stock of
P1 Million which is fully subscribed and paid for has been deemed by the Supreme
Court to be a highly capitalized venture which satisfies the requirement of
substantial capital.
Where a subcontractor is highly capitalized, the Supreme Court has held that it
need not show evidence that it has investment in the form of tools, equipment,
machineries, work premises, among others, to be considered legitimate. However, it
is still necessary for it to show that it has the capacity to be an independent
contractor, That is, it can undertake the performance of the contract according to its
own manner and method, free from the supervision of the principal in all matters
except as to the results of the work.
9. IS LEGITIMATE SUBCONTRACTING DIFFERENT FROM LABOR-ONLY
CONTRACTING? HOW IS LABOR-ONLY CONTRACTING DEFINED?
Yes, legitimate subcontracting is different from labor-only contracting because the
former is allowed and the latter is illegal and prohibited.
Section 2 of D. O. No. 3 states that there is labor-only contracting where the
contractor or subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal, and 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; and
D. O No. 10 was revoked in its entirety by D. O. No. 3. Thus, D. O. No. 10 itself can
no longer be cited as an implementing guideline of theLabor Code provisions on
security of tenure and dismissal of employees.
However, the provisions of D. O. No. 10 on security of tenure and dismissal are
identical with the provisions of Rule XXIII, D. O. No. 9, series of 1997. These
provisions of D. O. No. 9 are not affected by D. O. No. 3, and, therefore, remain in
force relative to security of tenure and employee dismissal.
18. AFTER THE REVOCATION OF D. O. NO. 10, ARE THERE PLANS FOR THE
FORMULATION OF NEW GUIDELINES TO IMPLEMENT ARTICLES 106 TO 109?
Yes.
D. O. No. 10 was revoked to give government, workers and employers an
opportunity to formulate a new set of rules that is more responsive to current
employment arrangements and more acceptable to all concerned. Accordingly,
Section 4 of D. O. No. 3 mandates that new guidelines shall be formulated by DOLE
upon prior consultations with all sectors concerned, particularly the Tripartite
Industrial Peace Council (TIPC) established under Executive Order No. 49, series of
1998.