Labor-Only Contracting

By Philippine law, there are permissible job contracting and subcontracting. But labor-only contracting? My friendly advice is to stay away from it. It is illegal!

What is it?

The Philippine Labor Code, since 1974, had already illegalized the notorious practice of labor-only contracting by some middlemen (now mostly masking as valid companies) who make quick money at the expense of the blood, sweat, and tears of workers. The practice has long been proven illegal in many court decisions, where both the contractors and the employers were heavily penalized.

But what’s the difference between permissible job contracting and labor-only contracting?

In a Supreme Court decision just last year [G.R. No. 172349; 13 June 2012], it was stated that,

“Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service 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. A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.

In contrast, labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility; and

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.”

The test of independent contractorship is “whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.” A mere declaration of independent contractorship in a contract does not necessarily make it so.

If that’s not clear enough, I don’t know what is.

Anti-business, some would counter. I beg to disagree. An employer-employee relationship is akin to a social compact. Both parties, employers and employees, must therefore contribute to the compact and must both have their sacrifices. The protection of workers does not necessarily mean the oppression of capital.

So, if you think you may be unknowingly violating the law, you’d better step back, regroup, and do it right... now, before it is too late.

Not worried?

In the case of Procter & Gamble [GR 160506, 2010], the Supreme Court awarded moral damages and full back wages to hundreds of workers amounting to almost P300 Million. Need I say more?

(SBFCC Newsletter Volume 18 Issue 5)