The Department of Labor and Employment issued Department Order No. 174 Series of 2017 or the Rules Implementing Articles 106 to 109 of the Labor Code, As Amended.
The coverage of this law as stated in Section 2 therein is that “these Rules shall apply to all parties in an arrangement where employer-employee relationship exists. Contractors and subcontractors referred to in these Rules are prohibited from engaging in recruitment and placement activities as defined in Article 13(b) of the Labor Code, whether local or overseas employment.”
Section 3 defines contracting or subcontracting as that which “refers to an arrangement whereby a principal agrees to farm out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such job or work is to be performed or completed within or outside the premises of the principal.”
Section 5 provides for the absolute prohibition against Labor-only Contracting. Labor-only Contracting refers to an arrangement where:
(b) The contractor or subcontractor does not exercise the right to control over the performance of the work of the employee.”
While most of the provisions of the guidelines remained the same, there were some changes that were incorporated to the law.
Under Section 3, substantial capital is defined as that which “refers to paid-up capital stock/shares at least Five Million Pesos (P5,000,000.00) in the case of corporations, partnerships and cooperatives; in the case of single proprietorship, a net worth of at least Five Million Pesos (P5,000,000.00).”
Section 6 on other illicit forms of employment arrangements provides that included in what are declared prohibited for being contrary to the law or public policy is:
“(c) contracting out of job or work through an in-house cooperative which merely supplies workers to the principal” and;
“(f) requiring the contractor’s/subcontractor’s employees to perform functions which are currently being performed by the regular employees of the principal.”
Under Section 11 on the required contracts under these Rules, the following are the requirements for the Service Agreement, “b) Service Agreement between the principal and the contractor. The Service Agreement shall include the following:
i. The specific description of the job or work being subcontracted, including its term or duration;
ii. The place or work and terms and conditions governing the contracting arrangement, to include the agreed amount of the contracted job or work as well as the standard administrative fee of not less than ten percent (10%) of the total contract cost; and
iii. A provision on the issuance of the bond/s as defined in Section 3(a) renewable every year.”
Section 13 provides for the effect of termination of employment. The provision states that, “The termination of employment of the contractor’s/ subcontractor’s employee prior to the expiration of the Service Agreement shall be governed by Articles 297, 298, and 299 of the Labor Code. In case the termination of employment is caused by the pre-termination of the Service Agreement not due to authorized causes under Article 298, the right of the contractor’s/ subcontractor’s employee to unpaid wages and other unpaid benefits including unremitted legal mandatory contributions, e.g., SSS, PhilHealth, Pag-IBIG, ECC, shall be borne by the party at fault, without prejudice to the solidary liability of the parties to the Service Agreement. When the termination results from the expiration of the Service Agreement, or from the compilation of the phase of the job or work for which the employee is engaged, the latter may opt to wait for re-employment within three (3) months to resign and transfer to another contract-employer.
Failure of the contractor to provide new employment for the employee shall entitle the latter to payment of separation benefits as may be provided by law or the Service Agreement, whichever is higher, without prejudice to his/her entitlement to completion bonuses or other emoluments, including retirement benefits whenever applicable. The mere expiration of the Service Agreement shall not be deemed as a termination of employment of the contractor’s/ subcontractor’s employees who are regular employees of the latter.”
Section 19 states that the, “payment of registration fee of One Hundred Thousand Pesos (P100,000.00) shall be required upon approval of the application.”
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