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End of ‘ENDO’?

End of ‘ENDO’?

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On March 16, 2017, the Department of Labor and Employment Secretary Silvestre H. Bello III signed the Department Order 174 which implements Articles 106 to 109 of the Labor Code, as amended. Although the newly signed DO sets new guidelines for contractualization, it does not completely abolish it as most citizens desired.

Labor-only contracting, which is entirely prohibited as stated in Section 5, 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,


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

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

Listed in the Section 6 of said department order are the other illicit forms of employment arrangement:

  • When the principal farms out work to a “cabo”
  • Contracting work from an in-house agency or an in-house cooperative
  • Contracting work due to a strike or lockout
  • Contracting work performed by union leaders to ensure employees’ rights to self-organization
  • Requiring agency-hired employees to perform jobs that are being done by regular employees of the principal
  • Requiring employees to sign , as a precondition to employment or continued employment, and antedated resignation letter; a blank payroll; a waiver of labor standards; or a quitclaim releasing the principal or contractor from liability
  • Requiring the employee to be a part of a cooperative
  • Requiring employees to sign a contract with a term shorter than the agency’s contract period with the principal
  • Such other practices, schemes or employment arrangements designed to circumvent the right of workers to security of tenure

As for other forms of contracting or subcontracting, the arrangements made permissible by the DO are the following:

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 ensures compliance with all the rights and benefits for all the employees of the contractor or subcontractor under the labor laws.

To proscribe and restrict contractualization and in order to protect the rights of workers, the DO 174 declares the Mandatory Registration and Registry of Legitimate Contractors in Section 14. If not registered, it is presumed that the contractor is engaged in labor-only contracting.

Granted that this new set of guidelines create a safer environment for employees and employers alike, it still welcomes some varieties of contractualization.


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