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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 when D. 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:chanroblesvirtuallawlibrary
The objective of the State in prohibiting labor-only contracting is to ensure that labor laws are
followed and to prevent exploitation of workers. A labor-only contractor is one which presents
itself as an employer even if it does not have capital to run a business or capacity to ensure that
its workers are paid their wages and other benefits as prescribed by law. As such, it cannot
independently undertake to perform a subcontracted job or service. To allow a labor-only
contractor to operate is to give it an opportunity to circumvent the law and to exploit workers.
D. O. No. 3 is not the first regulation to prohibit labor-only contracting. The prohibition was
embodied in the original rules implementing Articles 106 to 109 issued right after the Labor
Code took effect in 1974. D. O. No. 10 also contained a similar prohibition. D. O. No. 3 merely
reiterates the prohibition.
15. WHAT DOES NON-IMPAIRMENT OF EXISTING CONTRACTS MEAN AND WHY IS THIS
NECESSARY?
Section 3 of D. O. No. 3 states that rights or benefits enjoyed by parties in contracts executed
prior to D. O. No. 3 shall not be impaired. The contracts referred to are those contracts executed
and already being implemented before D. O. No. 3 took effect on 29 May 2001. Accordingly, the
obligations, rights and benefits or parties to any subcontracting arrangement prior to the
effectivity of D. O. No. 3 shall not be diminished, subject to Articles 106 to 109 of the Labor
Code, and jurisprudence. The non-impairment provision in D. O. No. 3 is derived from the
Constitutional principle against non-impairment of contracts.
16. UNDER D. O. NO. 10, THERE WAS A REGISTRY OF SUBCONTRACTORS
ESTABLISHED IN DOLE. WHAT IS THE EFFECT OF REVOCATION ON THIS REGISTRY?
D. O. No. 3 abolished the DOLE registry of subcontractors. Thus, there is no more requirement
for subcontractors to register in DOLE.
The purpose of the DOLE registry of subcontractors is specific. If a subcontractor enrolls in this
registry, it enjoys the presumption that it is engaged in legitimate subcontracting. The burden of
proving that it is an illegitimate or an illegal subcontractor will then be on the person claiming it.
With the revocation, there is no more difference between DOLE-registered subcontractors and
those that are not.
Abolition of the DOLE registry, however, does not mean that a subcontractor will no longer
register at all. A subcontractor must still follow the registration or licensing procedures required
in other applicable laws. For example, a corporation or cooperative which seeks to operate as a
subcontractor should still register with the Securities and Exchange Commission or the
Cooperative Development Authority, as the case may be. Likewise, the abolition of the DOLE
registry does not exempt a subcontractor from the licensing or permit requirements
administered by relevant regulatory agencies.
17. D. O. NO. 10 CONTAINED PROVISIONS ON SECURITY OF TENURE AND
PROCEDURES FOR DISMISSAL. HAVE THESE BEEN REVOKED BY D. O. NO. 3?
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 the Labor 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.
HOT in the public mind nowadays is the issue on contractualization and the differentiation between labor-
only contracting and labor-plus contracting.
A number of Social Security System employees and officials (including friends from the public and private
sector) want me to clarify the meaning of contractualization and the basic distinction between labor-only
contracting and labor-plus contracting.
Labor-only contracting and labor-plus contracting are both forms of contractualization. In both forms, two
employers are involved, the genuine employer and the fictitious employer.
In labor-only contracting, the genuine employer enters into a service contract with a labor contractor to hire
employees or laborers in such a number as his business or workplace may need. This kind of labor
contractor has no sufficient capital to maintain his own work force or work equipment to be used by the
employees and laborers he hires and deploys to work with the genuine employer. He only provides labor that
is the reason for the term “labor-only” contracting.
Under the service contract, which the genuine employer and the labor-only contractor sign, the labor-only
contractor is the employer of the workers he deploys to the genuine employer. The arrangement is illegal
under Article 106 of the Labor Code and the aggrieved or underpaid deployed workers may sue the genuine
employer before the National Labor Relations Commission (NLRC) for nonpayment or underpayment of
correct wages and labor standard benefits.
Labor-plus contractors, unlike labor-only contractors, are required by Article 106 of the Labor Code to be
sufficiently capitalized or to possess their own equipment for use by the workers as they work in the premises
of the genuine employer. Labor-plus contractors also execute a service contract with the genuine employer
stating that the former is the employer of the deployed workers and that the labor-plus contractors can pull
out any deployed worker anytime for any cause and reassign him to other or vacant positions in the
contractors’ other clients. This kind of arrangement is legal and is allowed under Article 106 of the Labor
Code.
The labor unions all over the archipelago are vehemently against the genuine employer-labor-plus contracting.
To the labor unions, this is a worse form of contractualization. The first form, labor-only contracting, is not
much of a headache to the labor unions because in the first place, it is already illegal. In the second place, the
deployed workers have the effective remedy of suing the genuine employer for correct wages and benefits
since the labor-only contracting camouflage has time and again been undressed and trounced by our
labor tribunals.
On the other hand, because of its legal cover, the second form of contractualization, the genuine employer-
labor-plus contracting has thrived in the labor horizon and there seems to be no stopping its growth, like
a kamote plant on fertile soil.
This form of contractualization has lessened the members of labor federations and labor centers and has
weakened their political power. Deployed workers may form labor unions under the fictitious employer but
being penniless, so to speak, how can the deployed workers economically benefit from organizing a labor
union as employees of the fictitious employer?
Moreover, to save on costs and to avoid labor unions, there exists an undeniable temptation for the genuine
employer to create or finance its own fictitious labor-only or labor-plus contractor.
Article 106 of the Labor Code allows contractualization of the second variety, genuine employer-labor-plus
variety. On the other hand, Article 280 of the same Code allows the hiring of contractuals and endos.
Palliative department orders have been and will be issued by the Department of Labor and Employment in
order to placate the workers and labor unions affected by the endo and contractualization
arrangements. However, until and unless Article 106 and 280 of the Labor Code are repealed or
amended, endo and contractualization will continue to dominate the Philippine industrial landscape.