Prohibitions to Contractual Employment in the Philippines

We want to shed more light on the legal provisions of Department Order No.18-A, which extensively covers the legal
principles governing contracting and subcontracting arrangements. This article will focus on Section 6 and Section 7
of the Department Order, which is all about the prohibitions to contractual employment.

Here are the prohibitions to contractual employment in the Philippines, explained.

Section 6

Under Section 6, labor-only contracting is prohibited. Labor-only contracting is defined by the following elements:

The contractor or subcontractor does not have substantial capital or investments in the form of tools, equipment,
machineries, work premises, among others and the employees recruited and placed are performing activities which
are usually necessary or desirable to the operation of the company, or directly related to the main business of the
principal within a definite or predetermined period, regardless of whether such job, work or service is to be performed
or completed within or outside the premises of the principal; or

The contractor does not exercise the right to control over the performance of the work of the employee.

In laymans terms, this section defines labor-only contracting as a set-up where a labor supplier or recruiter supplies
workers to a principal employer but without the necessary tools or enough funds to perform services for the principal.
The workers would then perform services that are essential to the business of the principal but the contractor cannot
control or supervise the work of the employee.

This set-up necessitates the use of the labor supplier as a cabo or middle man to handle the supply of workers to
the principal, and at the same time, help the principal avoid responsibility of managing employees.

Employees are then left with the cabo, who doesnt have a direct hand or funds to shoulder the costs of workers
wages and benefits. This is to prevent an employer-employee relationship between principal and contract employee,
which lets the principal avoid any direct responsibility for manpower and its subsequent labor cost.

This arrangement benefits the principal because they are able to benefit from shabby treatment of contractual
employees and they dont have to bear any responsibility for them.

Section 7

Other prohibitions in a contractual employment arrangement:

Contracting out of jobs, works or services when not done in good faith and not justified by the exigencies of the
business such as the following:
Contracting out of jobs, works or services when the same results in the termination or reduction of work hours or
reduction or splitting of the bargaining unit.

The hiring of contractual employees should in no way result in the loss of employment, reduction of work hours or the
dissolving of an existing union or bargaining unit. Employment under such terms undermines the rights of the
employees belonging to the union or bargaining unit.

Contracting out work with a cabo

As previously mentioned, the use of a middle man or cabo in employing contractual employees is illegal because it
incapacitates the contractual employees right to be managed humanely and compensated fairly by the principal
because they are isolated from the employer-employee relationship.

Taking undue advantage of the economic situation or lack of bargaining strength of the contractors employees, or
undermining their security of tenure or basic rights, or circumventing the provisions of regular employment, in any of
the following instances:

A common illegal practice in contractual employment in the Philippines is the principals abuse of their employees
economic status. They may threaten their employees basic rights or security of tenure or maybe find a loophole
wherein they dont have to grant regular employment to contractual employees under the following terms:

Requiring them to perform functions which are currently being performed by the regular employees of the principal; It
is illegal to require you to perform work that is similar to work being done by a regular employee. It is not fair to
employ you under different conditions if you are doing the exact same type of work but dont get the same benefits.

Requiring them to sign, as a precondition to employment or continued employment, an antedated resignation letter; a
blank payroll; a waiver of labor standards including minimum wages and social or welfare benefits; or a quitclaim
releasing the principal, contractor or from any liability as to payment of future claims. It is also illegal to ask you, as a
condition for employment or job security, to sign a resignation later, a blank payroll, to ask you to waive basic rights
such as minimum wages or social/ welfare benefits, or a quitclaim releasing the principal or contractor from any
liability. Any action they will undertake to force you to give up your rights or your claim for any liability in exchange for
employment is illegal.

Contracting out of a job, work or service through an in-house agency. The use of an in-house agency risks the
existence of a cabo as the agency functions as a subcontractor that supplies labor only to the principal employer.

Contracting out of a job, work or service that is necessary or desirable or directly related to the business or operation
of the principal by reason of a strike or lockout whether actual or imminent. Hiring contractual employees for work that
is essential to the business of the principal employer because of a strike or lockout by unions or bargaining units
infringes upon the unions rights as employees.

Contracting out of a job, work or service being performed by union members when such will interfere with, restrain or
coerce employees in the exercise of their rights to self-organization as provided by Art. 248 (c) of the Labor Code, as
amended. The right to self-organization or to join unions and protests is protected by Philippine law. It is illegal to
contract out a job that is performed by union members if it will serve to censor their freedoms or inhibit them from
exercising their rights to self-organization.

Repeated hiring of employees under an employment contract of short duration or under a Service Agreement or short
duration with the same or different contractors, which circumvents the Labor Code provisions of Security of Tenure.
The department order assures security of tenure as one of the rights of contractual employees. Hiring contractual
employees repeatedly for a short period or under a service agreement or short duration with the same or different
contractors is an illegal loophole designed to cheat employees out of benefits and job security.

Requiring employees under a subcontracting arrangement to sign a contract fixing the period of employment to a
term shorter than the term of the Service Agreement, unless the contract is divisible into phases for which
substantially different skills are required and this is made known to the employee at the time of engagement. Your
employment contract should coincide with the term of the Service Agreement. It is illegal for an employer to force you
to sign a contract which fixes your employment to a shorter period. The only exception is if the contract is divisible
into phases where substantially different skills are needed per phase and this has been made clear to the contractual
employee.
Refusal to provide a copy of the Service Agreement and the employment contracts between the contractor and the
employees deployed to work in the bargaining unit of the principals certified bargaining agent to the sole and
exclusive bargaining agent (SEBA). Principal employers should provide a copy of the service agreement and
employee contracts to not only its contractual employees but also to the SEBA or appointed representative of the
bargaining unit.

Engaging or maintaining by the principal of subcontracted employees in excess of those provided for in the Collective
Bargaining Agreement (CBA) or as set by the Industry Tripartite Council (ITC).

A collective bargaining agreement is a written agreement entered into by an employer and a trade union establishing
the terms and conditions of the principals employment with regard to pay rate, work hours and other relevant
conditions. An Industry Tripartite Council ensures that employers and workers are represented by policy-making
entities of the government. The council may, from time to time, convene to discuss the adoption of policies that will
promote industrial peace and social justice in the face of economic development. Therefore, the CBA and ITC serves
to legally regulate working conditions for both employers and employees. If a principal employer employs contractual
employees in excess of what is deemed allowable by the ITC and the CBA between employer and trade union, they
are hereby breaking the law.

Contracting out of jobs, works or services analogous, to the above when not done in good faith, and not done by the
exigencies of the business.

Contracting out of jobs or services similar to the above instances, when not done in good faith, is prohibited by the
department order.