A.

How do local laws direct the implementation of the said employment relationship in the
Philippines?

The 1987 Constitution mandates that the State shall protect labor and promote
its welfare, and provide basic rights, including just and humane terms and conditions of
employment and the right to self-organization, for Filipino workers. This is the
fundamental rule in labor and social legislations. This is likewise the building block of
the Labor Code of the Philippines. The Code provides for the rights and privileges of
Filipino workers in all kind of employment relationship including those under the trilateral
employment relationship.

In the Philippine setting, the implementation of the trilateral employment

relationship is governed by three different local laws on different facets of the
relationship. As regards the principal and the contractor, the civil code and pertinent
provisions in the commercial laws apply. This is because their relationship is merely
under an ordinary contract and under dealings in form of business. On the other hand,
the labor code and other special labor laws apply between the contractor and his
employees. 1The specific laws under the latter stance are the provisions of Articles 106
to 109 of the Labor Code of the Philippines which provides thus:

Art. 106. Contractor or subcontractor. Whenever an employer

enters into a contract with another person for the performance of the
1 Cesario Azucena. The Labor Code of the Philippines of 1991. P.

formers work, the employees of the contractor and of the latters

subcontractor, if any, shall be paid in accordance with the provisions of
this Code.

In the event that the contractor or subcontractor fails to pay the

wages of his employees in accordance with this Code, the employer
shall be jointly and severally liable with his contractor or subcontractor
to such employees to the extent of the work performed under the
contract, in the same manner and extent that he is liable to employees
directly employed by him.

The Secretary of Labor and Employment may, by appropriate

regulations, restrict or prohibit the contracting-out of labor to protect
the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only
contracting and job contracting as well as differentiations within these
types of contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to prevent
any violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying

workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
such person are performing activities which are directly related to the
principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.

Article 106 states that when the subcontractor enters a contract to the principal
for the performance of the subcontractor, the employees of the contractor and
subcontractor shall be paid in accordance with the provision of the Labor Code. This
means that the main mandate of our laws is that the core labor standards must be
complied with by the contractor. Having said that, it is readily apparent that our laws
recognize the contractor as the employer unless otherwise is proven.

Equally important is the provision in the said article providing that whenever the
contractor or the subcontractor fails to pay the wages of the employee, the employer is

2 Supra at page 1

jointly and severally liable to pay the employees which are directly employed to them.
This provision is another safeguard for the workers

It is worth noting also that not all labor dealings of the contractor is legally
permissible. Prohibited under the immediately referred provision is labor-only
contracting. Said scheme is evident when a person who supplies workers to an
employer does not have substantial capital or investment in the form of tools,
equipment, machineries and the like and if the workers recruited and placed by such
person are performing activities which are directly related to the principal business of
such employer. In such event, the workers are considered as employees of the
principal.

On the other hand, the Code likewise provides for the manner on how should the
principal must comply with the standards of trilateral employment relationship, hence:

Art. 107. Indirect employer. The provisions of the immediately

preceding article shall likewise apply to any person, partnership,

association or corporation which, not being an employer, contracts

with an independent contractor for the performance of any work,
task, job or project.

The above mentioned article provides that there is "job contracting" where (1) the
contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method,
free from the control and direction of his employer or principal in all matters connected
with the performance of the work except as to the results thereof; and (2) the contractor
has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business. 4

The distinction between Articles 106 and 107 is that in the former it speaks of labor only
wherein the contractor is considered as an agent of the employer but the latter pertains
to job contracting wherein the contractor is the direct employer of the employees and
the employer may be considered as indirect employer. These two provisions must be
3 Supra at page 3
4

G.R. No. 79004-08 October 4, 1991

read together in order to understand how the trilateral system is being regulated by our
laws.

Another important article of our Labor Code is Article 109 which reads:

Art. 109. Solidary liability. The provisions of existing laws to the

contrary notwithstanding, every employer or indirect employer shall
be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining
the extent of their civil liability under this Chapter, they shall be
considered as direct employers. 5
Despite recognition of the contractor as the direct employer of the
contractuals, our Labor Code however imposes liability both to the principal and
the contractor. This is upon proper determination of violations of any mandates
of the Code. This is not to mention the civil liability attached to both of them
should the said happenstance arises.

It is important to note nevertheless that under the existing laws of the country,
there is no employer-employee relationship between the principal and the contractors
employee because the contractor, being the businessman himself, is the employer. The

5 Ibid.

Labor Code prohibits the labor-only-contracting because it attempts to evade the

obligations of an employer to respect the employees right to employment standards,
and the right to security of tenure.
D.O. NO. 18-A
Pursuant to the mandate of the Labor Code that the Secretary of Labor and
Employment should enact an implementing rules and regulations on provisions
governing trilateral employment, the Department of Labor and Employment enacted
Department Order No. 18-A, Series of 20111 (Rules Implementing Articles 106-109 of
the Labor Code, As Amended). This is to address the shortcomings of the prior
Implementing Rules and Regulations (IRR) 6 on security of tenure and compliance with
workers right to labor standards. The new department order recognizes the
subcontracting as legitimate business undertaking but tightens the requirement to
ensure that only legitimate subcontractors can subcontract jobs or services. The new
Department Order (DO) specifically delineates service contracting/subcontracting from
private

recruitment

and

placement

agency

(PRPA),

by

prohibiting

contractors/subcontractors from engaging in PRPA activities and vice-versa. This

distinguishes a subcontractor, who should be an independent employer, from a PRPA
who merely acts for and on behalf of an employer and not the employer of the recruited
and placed workers at a company or an employer. It induces ethical and professional
subcontracting by ensuring compliance with labor standards by requiring an
employment contract a service agreement, by prescribing a standard form for Service
Agreement wherein it contains the description of the job and the like. It also
6 Department of Labor and Employment Order No. 18

underscores observance of security of tenure by requiring compliance with the clear

standards of due process in termination. The new DO is also a testament that the
tripartite partners such as the government, labor and employers groups, have effectively
harnessed the institution of tripartism and social dialogue in handling highly contentious
and delicate issues such as the security of tenure and subcontracting.

7 Department Order No. 18-A. http://www.ffcccii.org/wpcontent/uploads/2011/11/NotesDO-18-A.pdf