OTHER IMPORTANT LABOR PROVISIONS

task, job or project

A. CONTRACTING ARRANGEMENT
ART. 108. Posting of Bond. An employer or indirect employer may
Arts. 106-109; “trilateral relationship” “; scope & nature of liability of
require the contractor or subcontractor to furnish a bond equal to
principal & contractor & duties and obligations; rights of contractual
the cost of labor under contract, on condition that the bond will
employees
answer for the wages due the employees should the contractor or
subcontractor, as the case may be, fail to pay the same
ART. 106. Contractor or Subcontractor. Whenever an employer
enters into a contract with another person for the performa ART. 109. Solidary Liability. The provisions of existing laws to the
accordance with the provisions of this Code. In the event that the contrary notwithstanding, every employer or indirect employer
contractor or subcontractor fails to pay the wages of his shall be held responsible with his contractor or subcontractor for
employees in accordance with this Code, the employer shall be any violation of any provision of this Code. For purposes of
jointly and severally liable with his contractor or subcontractor to determining the extent of their civil liability under this Chapter, they
such employees to the extent of the work performed under the shall be considered as direct employers
contract, in the same manner and extent that he is liable to
employees directly employed by him. The Secretary of Labor and
Trilateral Relationship
Employment may, by appropriate regulations, restrict or prohibit
➔ In legitimate contracting, there exists a trilateral relationship
the contracting-out of labor to protect the rights of workers
➔ Under which there is a:
established under this Code. In so prohibiting or restricting, he may
◆ Contract for a specific job, work, or service between
make appropriate distinctions between labor-only contracting and
the principal and the contractor or subcontractor,
job contracting as well as differentiations within these types of
and
contracting and determine who among the parties involved shall
◆ A contract of employment between the contractor or
be considered the employer for purposes of this Code, to prevent
subcontractor and its workers
any violation or circumvention of any provision of this Code. There
is "labor-only" contracting where the person supplying workers to
Three parties involved:
an employer does not have substantial capital or investment in the
1. Principal - any employer who decides to farm out a job or
form of tools, equipment, machineries, work premises, among
service to a contractor or subcontractor
others, and the workers recruited and placed by such person are
2. Contractor or subcontractor - has the capacity to
performing activities which are directly related to the principal
independently undertake the performance of the job, work or
business of such employer. In such cases, the person or
service
intermediary shall be considered merely as an agent of the
3. Contractual workers - engaged by the contractor or
employer who shall be responsible to the workers in the same
subcontractor to accomplish the job, work or service
manner and extent as if the latter were directly employed by him.
pursuant to the agreement between the latter and the
principal
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 JOB CONTRACTING
with an independent contractor for the performance of any work, Elements Of Legitimate Job Contracting Or Subcontracting
 ➔ A person is considered engaged in legitimate job ➔ Why? Because SC equated substantial capital or investment
contracting or subcontracting if the following conditions should be in the form of tools, equipment and
concur: implements/machineries used in the performance of the
1. The contractor or subcontractor carries on a distinct and work
independent business and undertakes to perform the job, ➔ This now supersedes of Neri v. NLRC (on substantial capital
work or service on its own account and under its own investment)
responsibility according to its own manner and method, and ◆ Pagmay substantial capital ok na yon
free from the control and direction of the principal in all ◆ But now hindi na
matters connected with the performance of the work except ➔ Remember: Quintanar v Coca-Cola and Coca Cola v Ajito
as to the results thereof ◆ Route sales helper
2. The contractor or subcontractor has substantial capital or ◆ Kahit sufficiently capitalized ka, when the employees
investment; and are performing functions directly related to principal
3. The Service Agreement ensures compliance with all the then contractor is engaged still in labor only
rights and benefits for all the employees of the contractor or contracting
subcontractor under the labor laws. (D.O. No. 174, Sec. 8, s.
2017) More notes:
➔ Registration with the DOLE as a contractor is not conclusive
Substantial Capital evidence of a legitimate job contractor. It only prevents the
➔ Refers to paid-up capital stocks/shares of at least PHP 5 presumption that there is labor-only contracting
Million in the case of corporations, partnerships and ➔ W/N labor-only contracting exists will be based on
cooperatives established facts and applicable law
➔ PHP 5 Million net worth in the case of a single ➔ An agreement that a contractor is an independent contractor
proprietorship (Sec. 3, [L], DOLE D.0. No. 174 S. 2017) and no relationship between EEs and EEr
◆ The law does not require both substantial capital ◆ Contractual agreements cannot prevail over totality
and investments, it is sufficient that either of the two of facts and circumstances
is complied with ◆ Which is the determination of true facts
◆ Burden of proof to prove that he/it has substantial ➔ Service agreement which states that there is no EE/ER
capital or investment rests on the contractor himself relationship - such provision is not going to prevail over
★ NOTE: In legitimate Job Contracting, the principal is jointly actual surrounding circumstances which may show the
and severally liable with the contractor for the payment of existence of labor-only contracting
unpaid wages ◆ Di yan iiral para pabulaanan na may labor only
cotnracting
◆ w/n there is labor only contracting or job contracting
Note: Monsanto Philippines v. NLRC (2020) is based on circumstances
➔ This defines substantial capital stock/investment at P5M. Note: 174-17: Where the termination of the employment is due to
Here in this case, the capitalization is at P10M as stated in XXXX right to contractors unpaid wages w/o prejudice
their articles. ➔ When yo
➔ However, still despite, the P10M capitalization, the SC found INDEPENDENT CONTRACTING
that there was labor-only contracting ➔ Those who undertake "job-contracting"
 ➔ They exercise independent employment, contracting to do a ➔ It is a prohibited act, an arrangement where the contractor or
piece of work according to their own methods and without subcontractor merely recruits, supplies or places workers to
being· subject to control of their employer except as to the perform a job, work or service for a principal
result of their work
➔ NOTE: Independent contractors often present themselves to Essential Elements
possess unique skills, expertise or talent to distinguish them 1. The contractor or subcontractor does not have substantial
from ordinary employees (Sonza v. ABS-CBN, G.R. No. capital or Investment to actually perform the job, work or
138051, June 10, 2004) service under its own account and responsibility; (it’s OR
now)
Indirect or Statutory Employer 2. The employees recruited, supplied or placed by such
➔ One who enters into a contract with an independent contractor or subcontractor are performing activities which
contractor for the performance of any work, task, job, or are directly related to the main business of the principal
project not directly· related to the employer's business ★ NOTE: A finding that a contractor is a "labor-only" contractor
is equivalent to declaring that there is an ER-EE relationship
Points to remember: between the principal and the employees of the "labor-only"
➔ NOTE: There is no Er-Ee relationship between the owner of contractor
the project and the employees of the independent contractor
➔ The principal employer is considered only an indirect Element Of Control
employer ➔ Control over the manner or method of doing the work
◆ What is contracted is the performance and characterizes employment
completion of a designated job, and not just the ➔ In contrast, control only of the desired result of the work
supplying of people to do the job often indicates a contracting arrangement
➔ Labor-only" contractor is considered merely as an agent of
MAJOR LAWS APPLICABLE TO WORK RELATIONSHIP the employer and is responsible to the employees of the
1. Between the Principal and Contractor - The Civil Code and "labor-only" contractor as if they had been directly employed
pertinent Commercial Laws by the employer
2. Between Contractor and his Employees - the Labor Code and ➔ While the services may be considered directly related to the
Special Labor Laws principal business of the employer; nevertheless, they are
➔ NOTE: Between the principal and the contractor's employees, not necessary in the conduct of the principal business of the
no employer-employee relationship exists; the contractor, employer
being himself a businessman, is the employer. But the
contractor may in turn become a contractee if he contracts Confirming Elements
with a contractor. Either one of two confirming elements:
➔ Employer-employee relationship may be declared to exist 1. Lack of substantial capital or investment and performance
between the principal and the contractor's workers where of activities directly related or usually necessary or desirable
the contracting arrangement is not legitimate. to the principal's main business; or
2. The contractor does not exercise control over the
LABOR-ONLY CONTRACTING performance of the employees
➔ Notwithstanding the absence of a direct employer· employee
relationship between the employer in whose favor work had
 been contracted out by a Labor-Only Contractor, and the
Presence of substantial capital Absence of substantial capital
employees, the former has the responsibility, together with
or investment or investment
the LOC for any valid labor claims, by operation of law.
➔ The reason is that the LOC ls considered merely an agent of
the employer, and liability must be shouldered by either one Individual Independent contractor
or shared by both DO No. 174-17; DOLE D,O. No, 174 s. 2017
➔ Issued by the Secretary of Labor and Employment
IN-HOUSE AGENCY implementing and interpreting Articles 106 to 109 of the LC.
➔ Refers to a contractor or subcontractor engaged in the ➔ Effective 16 March 2017
supply of labor which:
◆ ls owned, managed or controlled by the principal;
Note this provision: DO No. 174-17; In case the termination of
and
employment is caused by the pre-termination of the Service
◆ Operates solely for the principal owning, managing
Agreement not due to authorized causes under Article 298, the
or controlling it.
right of the contractor's/subcontractor's employee to unpaid
➔ NOTE: Contracting out a job, work or service through an in-
wages and other unpaid benefits including unremitted legal
house agency is contrary to law or public policy
mandatory co ntributions, e.g., SSS, PhilHealth, Pag-IBIG, ECC,
shall be borne by the party at fault, without prejudice to the
JOB CONTRACTING LABOR ONLY CONTRACTING solidary liability of the parties to the Service Agreement.

The er/principal is merely an The er/principal is treated as

indirect employer, by operation direct employer of the ➔ When you have a service agreement between service
of law, of his contractor’s contractor’s employees in all provider and contractor, what prevails is the civil law
employees instances (contractor = agent of ➔ As to relationship between contractor and employees, labor
the employer) code prevails
➔ If there is labor only contracting then governed by labor code
The law creates an er-ee The statute creates an er-ee ➔ But the service agreement between principal and that of
relationship for a limited relationship for a contractor is civil law
purpose comprehensive purpose ➔ Take note: Rosewood processing v NLRC
◆ Solidary liability of job contractor - principal extends
The principal becomes The principal becomes to wages unpaid but not as to such other liabilities
solidarily liable. The liability solidarily liable with the incurred by contractor which are punitive in
however does not extend to the contractor not only for unpaid character
payment of backwages or wages but also for all the ● Unless you can show principal had a hand
separation pay of employees rightful claims of the employees on such decision then you can hold him
who are illegally dismissed under the Labor Code and liable even in respect of those items
ancillary laws ● But if you cannot prove that the principal
had any hand in such decision, then only
Allowed by law Prohibited by law liable up to extent of unpaid wages
 ➔ In contra-disctiontion: When it is labor only contracting then security industry shall be governed by DO
you have got the principal as real employer of the employees No.150, s.2016
and contractor as only agent 4. Other Contractual Relationships
◆ Principal becomes liable for ALL aspects of ➔ DO No. 174. S. 2016 does not contemplate
employment to cover contractual relationships such as in
◆ Because in reality, the principal is employer and the contract of sale or purchase/ contract of
contractor is merely an agent of the principal lease, contract of carriage, contract
➔ Also note: if the guards keep changing jobs, then the growing/growership agreement, toll
contractor and individuals are only liable up to the extent of 'manufacturing, contract of management,
the guard’s contract with them operation and maintenance and such other
contracts governed by the Civil Code and
special laws
Non-Applicability Of D.O. No. 174 S. 2017
➔ D.O. 174 S. 2017 is not applicable to trilateral relationship Wage increases; legislated & contractual; effect on principal &
which characterizes contracting or subcontracting contractor's liability (RA 6727)
arrangement DO No. 14, S. 2001 (Employment & Working Conditions of Security
➔ Take note that 174-17, as the prevailing IRR, as the prevailing Guards) & RA 5487 (Private Security Agency Law)
rules and regulations on Art. 106-109, Does not apply to BPO,
KPO, IT, legal process outsourcing, hardware, construction B. WORKER'S PREFERENCE
industry
Scope (Art. 110); unpaid wages and other monetary benefits
➔ Including:
1. BPO/KPO
➔ It does not contemplate to cover ART. 110. Worker Preference in Case of Bankruptcy. In the event
information-technology enabled services of preference as regards their wages and other monetary claims,
involving an entire or specific business any provisions of law to the contrary notwithstanding. Such unpaid
process such as Business Process wages and monetary claims shall be paid in full before claims of
Outsourcing (BPO) or Knowledge Process the government and other creditors may be paid.
Outsourcing (KPO)
2. Construction Industry ➔ Worker’s money claim has preference even over government
➔ Licensing and exercise of regulatory powers claims
over the construction industry is lodged with Preference of credit vs. lien; nature of preference
the Philippine Constructors Accreditation ➔ A preference applies only to claims which do not attach to
Board (PCAB) of the Construction Industry specific properties, A lien creates a charge on a particular
Authority of the Philippines (CIAP) property
3. Private Security Agency Bankruptcy or liquidation proceedings
➔ Except for the registration requirement as ➔ Art. 110 cannot be invoked without a formal declaration of
provided in DO No. 174, s. 2017, contracting bankruptcy or liquidation order
or subcontracting arrangement in the private
Worker's Lien
ART. 228. Appearances and Fees
Article 1707 NCC. The laborer's wages shall be a lien on the goods
manufactured or the work done (a) Non-lawyers may appear before the Commission or any Labor
Arbiter only:
1. If they represent themselves; or
C. ATTORNEY'S FEES & APPEARANCE OF LAWYERS
2. If they represent their organization or members thereof

(b) No attorney’s fees, negotiation fees or similar charges of any

kind arising from any collective bargaining agreement shall be
Unlawful & Lawful withholding of wages; Concept (Art. 111) imposed on any individual member of the contracting union:
ART. 111. Attorney's Fees Provided, however, that attorney’s fees may be charged against
union funds in an amount to be agreed upon by the parties. Any
(a) In cases of unlawful withholding of wages, the amount of contract, agreement or arrangement of any sort to the contrary
wages recovered shall be null and void

(b) It shall be unlawful for any person to demand or accept, in any Award of attorney's fees: limitations
judicial or ten percent of the amount of wages recovered

Article 2208 of the NCC. In the absence of stipulation, attorney's

Attorney's fee; two (2) concepts fees and expenses of litigation, other than judicial costs, cannot be
1. Ordinary concept recovered, except:
➔ Reasonable compensation paid to a lawyer by his
client for the legal services the lawyer has rendered (1) When exemplary damages are awarded
➔ The basis of this compensation is the agreement
between the lawyer and his client (2) When the defendant's act or omission has compelled the
2. Extraordinary concept plaintiff to litigate with third persons or to incur expenses to
➔ Attorneys fees here are deemed as indemnity for protect his interest
damages ordered by the court to be paid by the
losing party in a litigation (3) In criminal cases of malicious prosecution against the plaintiff;
➔ Art. 2208(7) NCC - for payment of recovery of wages
and is not payable to the lawyer, but to the lenient, (4) In case of a clearly unfounded civil action or proceeding
unless the parties have agreed that the award shall against the plaintiff
pertain to the lawyer as additional compensation or
as part thereof (5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable
claim;
Appearance and fees (Art. 228) see 2011 NLRC Rules of Procedure
(6) In actions for legal support
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers

(8) In actions for indemnity under workmen's compensation and

employer's liability laws;

(9) In a separate civil action to recover civil liability arising from a

crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable
that attorney's fees and expenses of litigation should be
recovered.

In all cases, the attorney's fees and expenses of litigation must be

reasonable