COURSE SYLLABUS

LAW 203
LABOR STANDARDS
PRELIMINARY TITLE
Chapter I General Provisions (Arts. 1 to 6)
A. Definitions
a. Labor legislation SRJ governing the relations
between capital and labor, by providing for certain
employment standards and a legal framework for
negotiating, adjusting and administering those
standards and other incidents
b. Labor standards the minimum requirements
prescribed by existing laws, rules and regulations
relating to wages, hours of work, cost-of-living
allowance, and other monetary and welfare benefits,
including occupational, safety, and health (Maternity
Childrens Hosp. v. Sec. of Labor, G.R. No. 78909,
June 30, 1989).
c. Labor relations law that which defines the status,
rights and duties, and the institutional mechanisms,
that govern the individual and collective interactions
of employers, employees or their representatives.
d. Labor law v. Social legislation (those laws that
provide particular kinds of benefits to society or
segments thereof in furtherance of social justice;
effects of employment)
e. Worker v. Employee
B. Aim and basis of labor laws
a. Aim of labor law is social justice The State shall
promote social justice in all phases of national
development (Art. II, sec. 10; 1987 Constitution)
b. Calalang v. Williams, 70 Phil. 726
- The humanization of laws and the equalization of
social and economic forces by the State so that
justice in its rational and secular conception may at
least be approximated.
c. Basis of labor laws is the police power of the State
- The power inherent in a government to enact laws,
within constitutional limits, to promote the order,
safety, health, morals, and general welfare of society
(People v. Vera Reyes, 67 Phil. 190)

C. Fundamental principles
a. Labor as principal creator of wealth
b. Constitutional foundations
- State policy: Art. II, secs. 9 (promote full
employment) and 18 (labor as primary social
economic force)
- Rights of labor: Art. XIII, sec. 3 (protection to labor;
promote full employment; ensure equal work
opportunities regardless of race, sex or creed;
regulate the relations between workers and
employers; affording right to self-organization,
collective bargaining, security of tenure, and just and
humane conditions of work)
- Rights of management (right to ROI, right to
prescribe rules, right to select employees, right to
transfer or discharge employees)
c. Balanced treatment: private sector as indispensable
and labor as primary social economic force
d. Relations between capital and labor
- Not merely contractual but impressed with public
interest and must yield to the common good. (Art.
1701, Civil Code).
e. Declaration of policy (Art. 3)
f. Reason for full protection to labor; security of tenure
- A. Rance v. NLRC, G.R. No. 68147, June 30, 1988,
163 SCRA 279; Bondoc vs. Peoples Bank & Trust Co.,
103 Phil. 599; When a person has no property, his
job may possibly be his only possession or means of
livelihood. He should therefore be protected against
any arbitrary deprivation of his job. Security of
tenure means that the employer shall not terminate
the services of an employee except for a just cause or
when authorized by the Labor Code.
- Employment as property right
D. Rule of construction
a. Doubts resolved in favor of labor
b. Civil Code: Art. 10; Art. 1702
c. Cases
- Masing and Sons Devt Corp. v. Rogelio, G.R. No.
161787, April 24, 2011; Asian Transmission Corp. v.
CA, G.R. No. 144664, Mar. 15, 2004; Art. 4 of the
Labor Code enunciates the time-honored principle
that all doubts in the implementation and

interpretation of its provisions should be resolved in

favor of labor.
- IBAAEU v. Inciong, G.R. No. L-52415, Oct. 23, 1984;
This rule applies not only in the interpretation of the
provisions of the Labor Code but also of its
Implementing Rules.
- Land and Housing Devt Corp. v. Esquillo, G.R. No.
152012, Sept. 30, 2005; This rule of interpretation or
construction applies to all workers whether in the
government or private sector in order to give flesh
and vigor to the pro-poor and pro-labor provisions of
the Constitution.
- PNCC v. NLRC, G.R. No. 101535, Jan. 22, 1993, 217
SCRA 455; in relation to Art. 1702, Civil Code
- Ditan v. POEA, 191 SCRA 823; In case of doubt or
ambiguity, labor contracts should be interpreted
liberally in favor of the worker.
d. When rule in Art. 4 does not apply
- Bonifacio v. GSIS, G.R. No. 62207, 146 SCRA 276;
does not apply where the pertinent provisions of the
Labor Code leave no room for doubt either in their
interpretation or application
e. Labor law determinations
- Rubberworld v. NLRC, G.R. No. 75704, July 29,
1989; Labor law determinations should not only be
secundum rationem but also secundum caritatem.
E. Applicability (Art. 5)
a. To government corporations
- National Service Corp. v. NLRC, G.R. No. L-69870,
Nov. 29, 1988
b. To government agencies
- SSS Employees Assn., et al. v. CA, G.R. No. 85279,
July 28, 1989; SSS employees are part of the civil
service. As such, the Civil Service law, not the Labor
Code applies. RTC, not NLRC, had jurisdiction over
their strike.
c. Requirement of employer-employee relationship
Chapter II Emancipation of Tenants (Arts. 7 to 11)
TITLE I RECRUITMENT AND PLACEMENT OF WORKERS
Chapter I - General Provisions
A. Definitions

a. Recruitment and placement (Art. 13[b])

b. When presumption of recruitment and placement arises
- People v. Panis, 142 SCRA 664 (1986) held that the
number of persons dealt with is not an essential
ingredient of the act of recruitment and placement of
workers. Any of the acts mentioned in the basic rule of
Art. 13 (b) will constitute recruitment and placement of
workers. The proviso was intended neither to impose a
condition on the basic rule nor to provide an exception
thereto but merely to create a presumption (of being
engaged in recruitment and placement).
c. What needs to be proven for conviction in illegal
recruitment
- People v. Goce, 274 SCRA 780 (1995): to prove that the
accused was engaged in recruitment activities, it must
be shown that the accused gave the complainant the
distinct impression that she had the power or ability to
send the complainant abroad for work, such that latter
was convinced to part with her money in order to be so
employed.
d. Distinction between illegal recruitment under Labor
Code (Art. 38) and R.A. 8042 (Section 6)
1. Only non-licensees or non-holders of
authority liable for illegal recruitment under
Art. 38 of Labor Code in relation to Article
34;
2. Even licensees liable for illegal recruitment
under R.A. 8042 under Section 6; for nonlicensees, acts under Art. 13(b) are already
considered illegal recruitment
e. Penalties
i. Simple illegal recruitment (committed by and
against less than three persons)
1. Licensee or holder of authority 2 to 5 years
imprisonment or fine from Php10,000 to
50,000 or both (Art. 39, Labor Code); 6 years
and one day to 12 years and fine from
Php200,000 to 500,000 (Sec. 7, R.A. 8042)
2. Non licensee or non-holder 4 to 8 years
imprisonment or fine from Php20,000 to
100,000 or both
ii. Illegal recruitment as economic sabotage (Art. 38,
Labor Code)

1. Committed by a syndicate, i.e., if carried out

by a group of 3 or more persons conspiring
with one another;
2. Committed in large scale, i.e., if committed
against 3 or more persons individually or as
a group;
3. Penalty is life imprisonment and fine of
Php500,000.00 to 1,000,000.00
4. Jurisdiction of criminal case is RTC where
crime was committed or where offended
party actually resides at the time of
commission
B. R.A. 8042 Migrant Workers and Overseas Filipinos Act of
1995
a. Migrant worker a person who is to be engaged, is
engaged, or has been engaged in a remunerated activity
in a state in which he or she is not a legal resident.
b. Millares and Lagda v. NLRC (July 29, 2002) seafarers
are contractual employees.
Their employment is
contractually fixed for a certain period.
c. Pre-termination under RA 8042 (July 15, 1995) full
reimbursement of placement fee with interest (12% per
annum) plus salary for the unexpired portion of his
contract or for 3 months for every year of the unexpired
term, whichever is less. Marsaman Manning Agency v.
NLRC, G.R. No. 127195, Aug. 25, 1999 held that the
choice of 3 months salary per year of the unexpired
portion of the term, whichever is less, comes into play
only when the employment contract concerned has a
term of at least one (1) year or more.
d. The subject clause in the 5th paragraph of Section 10 of
R.A. 8042 is violative of the right of petitioner and other
OFWs to equal protection. (Serrano v. Gallant Maritime
Services, et al., G.R. No. 167614, Mar. 24, 2009)
e. Under the Serrano ruling, the OFW is entitled to
payment of salaries corresponding to unexpired portion
of his contract, reimbursement of placement fee plus
12% per annum, and attorneys fees.
f. Under Section 10, R.A. 8042, there is joint and solidary
liability of corporate officers, directors and partners for
claims
and
damages
of
the
OFW
if
the
recruitment/placement agency is a juridical entity.

g. The party invoking the application of a foreign law has

the burden of proving the law under the doctrine of
processual presumption (presumed-identity approach).
h. Foreign law applied to a dispute must be treated as a
question of fact and proved accordingly. When it is not
pleaded or, even if pleaded, is not proved the
presumption is that the foreign law is the same as ours.
Thus, Philippine labor laws are applied in resolving the
issues. (EDI-Staff Builders Intl. v. NLRC, 537 SCRA 409
[2007])
i. Theory of imputed knowledge is a principle of law that
ascribes the knowledge of the agent to the principal and
binds the former vis--vis the liability of the principal.
It is not to be applied the other way around. (Sunace
International Mgt. Services v. NLRC, G.R. No. 161757,
Jan. 25, 2006); Question: Agency willingly deploying
sick OFW despite express prohibition by principal.
j. The commencement of EER takes place when the
migrant worker had been actually deployed from the
point of hire. Labor Arbiter and NLRC has jurisdiction
over a case for illegal dismissal, damages, and attorneys
fees due to an agencys failure to deploy a seafarer as
they involve a contract for overseas employment.
(Santiago v. CF Sharp Crew Management, Inc., G.R. No.
162419, July 10, 2007)
C. COMPENSABILITY (SEAFARERS)
a. For occupational disease and resulting disability or
death
i. Seafarers work must involve the risks described
herein;
ii. Disease was contracted as a result of exposure to
the described risks;
iii. Disease was contracted with a period of exposure
and such other factors necessary to contract it;
iv. No notorious negligence on the part of the
seafarer.
b. For non-occupational disease reasonable proof of work
connection and not direct causal relation is required.
Probability. Not the ultimate degree of certainty is the
test of proof in compensation proceedings. (Leonis
Navigation Co. v. Villamater, G.R. No. 179169, March 3,
2010)

c.
BOOK III, Title I (Arts. 82 96)
Chapter I HOURS OF WORK
A. Coverage; classes of employees not covered
a. Managerial employees or staff; supervisors
i. Supervisors, like managers, not entitled to
overtime pay (NASUREFCO v. NLRC, et al., G.R.
No. 101761, March 24, 1993)
b. Field personnel (salesmen)
i. Workers who regularly perform their duties
away from the principal place of business of the
employer and whose actual hours of work in the
field cannot be determined with reasonable
certainty. Bus drivers are not field personnel as
they are under constant supervision while in
the performance of their work.
(Auto Bus
Transport System, Inc. v. Bautista, G.R. No.
156637, May 16, 2005)
ii. Fishermen on board a fishing vessel are not
field personnel. They have no choice but to
remain on board the vessel during the entire
course of the fishing voyage. Remain under
effective control and supervision of the
employer. (Mercidar Fishing Corp. v. NLRC, et
al., G.R. No. 112574, Oct. 8, 1998)
c. Domestic helpers, personal service
d. Family members
e. Workers paid by result (paid by piece or by task); taxi
drivers as regards 8 hour labor law
B. Test of employment relationship
a. Employment relationship is a question of law,
question of fact
b. Core or non-core jobs. Depending on the applicability
of the tests of employment, an employment
relationship may exist regardless of the nature of the
activities involved (Phil. Fuji Xerox Corp. v. NLRC, G.R.
No. 111501, March 5, 1996). The kind of work is not
the definitive test of whether a worker is an employee
or not;
c. Four-fold right of control test and economic
dependency test (Sevilla v. CA, G.R. Nos. 44182-83,

d.

e.

f.

g.

h.

April 15, 1988; Francisco v. NLRC, et al., G.R. No.

170087, Aug. 31, 2006)
The power of control refers to the existence of the
power and not necessarily to the actual exercise
thereof. It is not essential, in other words, for the
employer to actually supervise the performance of
duties of the employee; it is only enough that the
former has the right to wield that power.
(Equitable Banking Corp. v. NLRC, G.R. No. 102467,
June 13, 1997)
No particular evidence is required to prove the
existence of an employer-employee relationship. All
that is necessary is to show that the employer is
capable of exercising control over the employee. It
suffices that there be a causal connection between
the claim asserted and the employer-employee
relations. (Algon Engineering and Construction Corp.
v. NLRC, G.R. No. 83402, Oct. 6, 1997)
Not all rules imposed by the hiring party on the hired
party indicate that the latter is an employee of the
former.
Rules
which
serve
as
general
guidelines towards the achievement of the mutually
desired result are not indicative of the power of
control Logically, the line should be drawn between
rules that merely serve as guidelines towards the
achievement of the mutually desired result without
dictating the means or methods to be employed in
attaining it, and those that control or fix the
methodology and bind or restrict the party hired to
the use of such means. The first, which aim only to
promote the result, create no employer-employee
relationship unlike the second, which address both
the result and the means used to achieve it. (Orozco
v. CA, 155207, August 13, 2008)
Absence of name in the payroll; other indicia of
employment: IDs, vouchers, SSS registration,
memorandum
Examples where employment relationship exists:
i. Jeepney drivers on boundary system (Martinez
v. NLRC, 272 SCRA 793 [1997])
ii. Boundary-hulog driver (Villamaria v. CA and
Bustamante, G.R. No. 165881, Apr. 19, 2006)

iii. Piece-rate workers (Makati Haberdashery, Inc.

v. NLRC, G.R. Nos. 83380-81, Nov. 15, 1989)
iv. Street-hired cargadores (Caurdanetahan Piece
Workers Union v. Usec. Laguesma, et al., G.R.
No. 113542, Feb. 24, 1998)
v. Handicraft workers on pakyaw system (Dy
Keh Beng v. Intl Labor, 90 SCRA 161 [1979])
i. Examples where no employment relationship exists:
i. Insurance company vis--vis commission
agents (Insular Life v. NLRC, 197 SCRA 459)
ii. Company v. collecting agents on commission
basis (Singer Sewing Machine v. Drilon, 193
SCRA 270)
C. HOURS WORKED
a. Normal hours of work
b. Is a 12-hour work shift normal?
c. Waiting time: engaged to wait or waiting to be
engaged; controlling factor is whether waiting time
spent in idleness is so spent predominantly for the
employers benefit of for the employees
d. On call
i. If required to be in the place of work before or
after the regular working hours and within the
call of their employers, the time of stay in the
place of work should be counted as working
hours
ii. If not required to be on the premises but merely
required to leave word at his home or company
officials where he may be reached is not
working while on call
e. Travel time
i. Home-to-work travel; normally not work time,
unless the worker receives an emergency call
outside of his regular working time and is
required to travel to his regular place of
business or some other work site, in which case
time spent for travel is working time.
ii. Travel away from home; part of working time
when it cuts across employees workday;
substitution of travel for other duties
f. Hours of work of seamen

g.

h.

i.

j.

i. Rule: a worker need not leave the premises of

the factory, shop or boat in order that his
period of rest shall not be counted, it being
enough that he ceases to work, may rest
completely and leave or may leave at his will the
spot where he actually stays while working, to
go somewhere else within or outside the
premises
Evidence of hours worked
i. When employer alleges that workers renders
less than the normal 8 hours of work per day,
he has the burden of proving it with clear and
substantial evidence (Prangan v. NLRC, et al.,
G.R. No. 126529, April 15, 1998)
Meal time
i. If at least 60 minutes, not compensable; if less
than 60 minutes, it is part of worktime but
most not be less than 20 minutes
ii. If less than 20 minutes, then considered only
as rest period and also considered compensable
iii. Can be changed from compensable 30-minute
on call lunch break to unpaid full-hour lunch
break. (Sime Darby Pilipinas, Inc. v. NLRC, et
al., G.R. No. 119205, April 15, 1998)
Night shift differential (Art. 86)
i. Ten percent premium over regular hourly wage
for work performed between 10:00 PM to 6:00
AM; not waivable as additional compensation
for nighttime work is founded on public policy
ii. Burden of proof of payment rests on the
employer where the claim is not an essential
part of his cause of action but merely an
incident of his main cause of action, i.e., illegal
dismissal. Allegation of non-payment of this
benefit, which the worker is entitled by law, is a
negative allegation which need not be supported
by evidence.
(National Semiconductor (HK)
Distribution, Ltd. v. NLRC and Santos, G.R. No.
123520, June 26, 1998)
Overtime work (Arts. 87 - 90)
i. Excess of 8 hours of work per day entitled to
overtime premium

10

ii. How work day is counted 24-hour period

commences from the time the employee
regularly starts to work
iii. Sufficient that employee is permitted or
suffered to work; no need for express
instruction from employer
iv. Is employee entitled to overtime pay for work
upon verbal instruction of by superior despite a
standing memo against overtime work? (A.L.
Ammen Trans. Co., et al. v. Borja, 143 SCRA 69
[1986]) yes, if rendered with full knowledge of
employer
v. Validity of waivers and quitclaims
1. General rule is that waivers are frowned
upon as contrary to public policy
2. Not bar against subsequent and full
recovery by the worker of waived benefits
3. Valid where voluntarily entered into and it
represents a reasonable settlement, i.e.,
consideration is credible and reasonable
4. Periquet v. NLRC, et al., G.R. No. 91298,
June 22, 1990; Land Housing v. Esquillo
vi. Conversion of monthly to daily rate
1. MS (monthly salary) x 12 / No. of actual
working days = X (basic daily rate) and
X/8 = basic hourly rate divisor should
not be 365 days as worker is not
compelled to work on off days; if he does,
he receives premium pay
vii. Burden of proving claims rests on the worker
k. Weekly rest periods (Arts. 91 - 93)
i. A period of not less than 24 consecutive hours
after every six (6) consecutive normal working
days; employer to schedule weekly rest days
subject to CBA and DOLE rules; preference
based on religious grounds shall be respected
ii. May an employer require a Seventh Day
Adventist to work on Saturday?
iii. Premiums for work on rest day, holiday or
special day
l. Holiday pay (Art. 94)
i. List of holidays

11

ii. Excluded employer (retail

and
service
establishments regularly employing less than
10 workers)
m. Service Incentive Leave (Art. 95)
i. 5 days
ii. Excluded employer (establishments regularly
employing less than 10 employees)
iii. Paternity and maternity leave
1. RA 8187 seven (7) days fully paid, noncommutable paternity leave; seven days,
not seven working days; first four
deliveries of the legitimate spouse with
whom husband is cohabiting
2. RA 8972 Solo Parents Welfare Act; not
more than seven (7) days per year under
conditions set by the statute
n. Service charges (Art. 96)
1. 85% for worker - integrated into basic
salary if abolished; average monthly share
2. Tips (if no service charges collected)
distributed in same ratio as service
charges
D. WAGES
a. Definitions
i. Employer
ii. Wage includes commissions (for purposes of
computing backwages and separation pay) and
facilities and commodities; Songco v. NLRC,
G.R. No. 50999-51000, March 23, 1990:
Inasmuch as the words "wages", "pay" and
"salary" have the same meaning, and
commission is included in the definition of
"wage", the logical conclusion, therefore, is, in
the computation of the separation pay of
petitioners, their salary base should include also
their earned sales commissions.
iii. Is the company transport service part of wages?
iv. Facilities articles or services for the benefit of
the employee or his family but does not include
tools of the trade or articles or services
primarily for the benefit of the employer or
necessary to the conduct of the employers
business. (Book III, Rule VII, Sec. 5)

12

v. Supplements extra remuneration or special

privileges or benefits given to or received by the
workers over and above ordinary earnings or
wages. (Atok-Big Wedge Assn. v. Atok-Big Wedge
Co., 97 Phil. 294)
vi. Requirements for deduction of facilities from
wages: first, proof that such facilities are
customarily furnished by the trade; second,
provision of facilities voluntarily accepted in
writing by the employee; third, charged at fair
and reasonable value. Distinction between
facilities and supplements is not in the kind
but in the purpose of the item. (Mabeza v.
NLRC, et al., G.R. No. 118506, April 18, 1997)
vii. Equal pay for equal work If an employer
accords employees the same position and rank,
the presumption is that these employees
perform equal work. (Intl School Alliance of
Educators v. Hon. Quisumbing, et al., G.R. No.
128845, June 1, 2000)
viii. Fair days wage for fair days labor (Durabilt
Recapping Plant & Co. v. NLRC, G.R. No. L76746, July 27, 1987)
ix. Minimum wages
1. Ability to pay; collection of differentials
2. Exemptions
a. Household or domestic helpers,
personal service
b. Homeworkers engaged in needlework
c. NACIDA registered establishments
d. Cooperatives recommended by CDA
and approved by SOLE
e. BMBEs
f. Retail and service establishments
with not more than 10 workers
b. Non-diminution of benefits (Art. 100)
i. Conditions
1. Grant founded on policy has ripened into
practice over a long period
2. Practice is consistent and deliberate
3. Not due to error in application of difficult
or doubtful question of law

13

4. Diminution is unilateral on the part of the

employer
ii. Practice of including non-basic benefits like
paid leaves for unused sick and vacation leave
in the computation of 13th month pay of the last
two (2) years constitutes voluntary employer
practice which can no longer be withdrawn
unilaterally (Sevilla Trading Co. v. Semana, G.R.
No. 152456, April 28, 2004; Honda, Phils. v.
Samahan ng Manggagawa sa Honda, G.R. No.
145561, June 15, 2005)
iii. Exceptions to non-diminution rule
1. Mistake of law application
2. Negotiated benefits (bilateral)
3. Benefits on reimbursement basis, like gas
rations for managers (Asis v. Minister of
Labor, G.R. Nos. 38094-95, March 15,
1989)
4. Reclassification of position from rank and
file to supervisory (loss of overtime pay)
5. Contingent or conditional benefits like
bonuses
th
iv. 13 month pay
1. PD 851 all employees regardless of
salary
rate,
except
managerial
or
supervisory employees
2. Are piece rate workers entitled to 13th
month pay? yes, piece-rate workers are
covered by the law, provided they
rendered work for at least one month
during the year. However, unsupervised
task-based (or pakyao) workers are not.
[Labor Congress of the Phil. v. NLRC, et al.,
G.R. No. 123938, May 21, 1998]
3. Equivalent bonuses may be credited as
13th month pay
4. 1/12th of basic salary within a calendar
year
5. Are commissions part of the computation
of 13th month pay?
6. Workers paid by result

14

a. Rules on NSD and SIL do not apply

to unsupervised workers who are
paid by results (pakyaw)
v. Wage protection provisions
1. Prohibition as to deduction from wages
without authorization, except as provided
by law (Art. 113);
a. Requirement of deposits from which
deductions for loss or damage to
tools, materials, equipment allowed
only such practice is recognized or
necessary
or
desirable
as
determined by SOLE (Art. 114);
deductions only after employee is
heard and responsibility clearly
shown (Art. 115)
2. Prohibition as to withholding of wages
and kickbacks (Art. 116);
3. Freedom of disposition of wages by
employees (Art. 112);
4. Payment of wages in legal tender (Art. 102
and Sec. 4, Rule VII-A and Secs. 1 and 2,
Rule VIII, Book III, RILC); Jimenez v.
NLRC, et al., G.R. No. 116960, April 2,
1996: Where the defendant [who is] sued
for a debt admits that the debt was
originally owed, and pleads payment in
whole or in part, it is incumbent upon him
to prove such payment. Proof of payment
rests upon employer.
5. Direct payment of wages by employer (Art.
105 and Sec. 5, Rule VIII, Book III, RILC)
6. Direction as to period of payment of wages
(Art. 103 and Sec. 3, Rule VIII, Book III,
RILC)
7. Direction as to place of payment of wages
(Art. 104 and Sec. 4, Rule VIII, Book III,
RILC)
vi. Worker preference in case of bankruptcy (Art.
110)
1. Contingent
upon
institution
of
bankruptcy or insolvency proceedings
against employer

15

2. Not a lien but preference of credit in favor

of workers
vii. Attorneys fees (Art. 111)
1. Applies when there is an unlawful
withholding of wages; section 2208, New
Civil Code
2. 10% of the amount of wages recovered
3. Attorneys fees on quantum meruit
4. Non-lawyers not entitled to attorneys fees
5. Heirs of Aniban v. NLRC, G.R. No. 116354,
Dec. 4, 1997 (case where attorneys fees
were awarded in death claims case):
Suffice it to say that Art. 111 of the Labor Code
does not limit the award of attorneys fees to cases
of unlawful withholding of wages.
c. CONTRACTING
i. Definition of contracting or subcontracting (Sec.
4d of D.O. No. 18-02)
ii. What is prohibited
1. Labor-only contracting (Sec. 5, D.O. No.
18-02)
a. Essential element arrangement is
merely to recruit, supply or place
workers to perform a job, work, or
service for a principal
b. Confirming element (a) contractor
has no substantial capital or
investment relative to job or work or
service and employees recruited,
supplied or placed are performing
activities directly related to the main
business of the principal; or (b)
contractor does not exercise the
right of control over performance of
the work by the contractual
employee
c. Consequences of LoC
i. Worker supplied by agency
becomes employee of client
company (PBCom v. NLRC, et
al., G.R. No. L-66958, Dec. 19,
1986)
ii. Agency-hired
employee
becomes entitled to benefits

16

under CBA of client company

(Tabas, et al. v. California
Manufacturing Co., Inc., et al.,
G.R. No. 80680, Jan. 26,
1989) manpower agency was
not a promotions firm and it
supplied workers performing
merchandising activities for
the client, which is considered
an integral part of the
manufacturing business
iii. Worker-members supplied by
cooperative become regular
employees of client company
(San Miguel Corp. v. Aballa,
G.R. No. 149011, June 28,
2005) cooperative did not
have substantial capital; lot,
building,
machineries
and
other
working
tools
of
complainant workers owned
and
provided
by
client;
cooperative did not undertake
performance of its service
according to its manner and
method, free from control of
client (SMC supervisors signed
the DTRs); workers worked
side by side with regular
employees performing identical
jobs.
2. Arrangements violating public policy (Sec.
6, D.O. No. 18-02)
a. Contracting out not done in good
faith and not justified by exigencies
of the business resulting in
termination of regular employment
b. Contracting with a cabo
c. Contracting out a job to an in-house
agency
owned,
managed
or
controlled by the principal and
which operates solely for the
principal

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d. Contracting because of strike or

lockout
e. Contracting that constitutes ULP
under Art. 248
iii. Extent of liability of employer under invalid
contracting
1. Employer directly responsible to the
employees of the LoC as if such employees
had been directly hired by the employer.
The law establishes a direct employeremployee relationship between employer
and employees of LoC.
iv. Legitimate contracting
1. Samples
are
dealership,
janitorial/manpower services, commission
agents, independent operators
2. Extent of liability of principal
a. As to payment of wages/monetary
claims solidary liability

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