DEPARTMENT ORDER 18-A

DOLE D.O. No. 18-A

Background 

Department Order No. 18-A (D.O. 18-A) are the implementing rules and regulations issued by the Department of Labor and Employment (DOLE) to implement Article 106 to 109 of P.D. No. 442 or the Labor Code.   

Article 106 to 109 of the Labor Code (Presidential Decree No. 442) are the provisions that refers to the contractor and subcontractor relationship, to wit: 

ART. 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

ART. 107. Indirect employer. - The provisions of the immediately preceding article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

ART. 108. Posting of bond. - An employer or indirect employer may require the contractor or subcontractor to furnish a bond equal to the cost of labor under contract, on condition that the bond will answer for the wages due the employees should the contractor or subcontractor, as the case may be, fail to pay the same.

ART. 109. Solidary liability. - The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

A “contractor” under the labor code is an employer who enters into contracts with other persons (the Principal) for the performance of the former's work.  The relationship between a contractor and his employee is thus that of a normal employer-employee relationship with the contractor having the obligation to pay his employees, accord them their benefits, social security, etc. in accordance with the provisions of the Labor Code.  The contractor is also required to furnish to his employees the work materials.   

The Labor Code recognizes two kinds of contracting, the first, as described in the previous paragraph, is known as “job contracting.”  The second which is known as “labor-only contracting” occurs when the contractor only supplies workers to the Principal and does not have a substantial investment in the form of tools, equipment, machineries, work premises and others, and the workers recruited and placed by such person are performing activities which are directly related to the business of such Principal.  In other words, the contractor is merely supplying labor to the Principal engaging his services.  Under the Labor Code, a person or company engaging in labor-only contracting shall be considered as a mere agent of the Principal who shall be directly responsible for the workers as though they had been directly employed by him. 

Department Order No. 18-A 2011 

D.O. No. 18-A implements Articles 106-109 of the Labor Code.  Most of these rules are directed towards the contractors themselves who are required to register themselves with DOLE and to submit regular compliance reports with them.  Nevertheless, there are some prohibitions that principals have to comply with. 

One feature that needs to be mentioned about D.O. No. 18-A is that it considers job contracting arrangements to be a “trilateral arrangement,” or one which involves three parties, the principal, the contractor and the workers and is composed of two main relationships: 

a. an employer-employee relationship between the contractor and the worker; and  

b. a contractual relationship between the contractor and the principal (Sec. 5). 

Pursuant to this, the D.O. requires for compliance with this rule: 1) employment contracts between the contractor and workers; and 2) a service agreement between the principal and contractor (Sec. 9).  

As for job contracting arrangements, in order to be considered legitimate, the following : 

1. Be registered with the DOLE and carries a distinct and independent business from the company contracting its services and undertakes to perform the job, work or service on its own responsibility, according to its own manner and method and free from control and direction of the Principal in all matters connected with the performance of the work except as to the results thereof; 

2. The contractor has substantial capital and/or investment; and  

3. The service agreement ensures compliance will all the rights and benefits under labor laws. (Sec. 4) 

In cases of violation of any provision of the labor code, such as the failure to pay wages or enforce labor standards, both the Principal and the contractor may be demandable (solidary liability).  In any case, the D.O. prohibits labor-only contracting and if the authorities or the courts discover that this is happening, the principal shall be deemed the direct employer of the contractor’s workers, meaning that it is the Principal which shall be held liable for the wages, benefits etc., of the contractor’s workers (Sec. 5). 

  

D.O. No. 18-A also prohibits the contracting out of jobs, works, or services when not done in good faith and not justified by the exigencies of the business (Sec. 7). 

HYATT ELEVATORS AND ESCALATORS CORPORATION vs. GOLDSTAR ELEVATORS, PHILS., INC.

G.R. No. 161026; October 24, 2005

Ponente:  Panganiban, J.,

 

FACTS:

Petitioner and Respondent are both engaged in the business of importing, installing and maintaining elevators and escalators. Hyatt filed an unfair competition case against LG and Goldstar alleging that it was appointed as the sole distributor of LG elevators and escalators.

Goldstar moved to dismiss the case alleging that venue was improperly laid as neither the Hyatt, LG or Goldstar itself resided in Mandaluyong city where the case was originally filed. The RTC denied the motion. The CA dismissed the case and held that Makati was the principal place of business of both respondent and petitioner, as stated in the latter’s Articles of Incorporation, that place was controlling for purposes of determining the proper venue.

ISSUE:

Whether or not the “residence” of the corporation is the same one as stated in the AOI.

HELD:

Yes. Although the Rules of Court do not provide that when the plaintiff is a corporation, the complaint should be filed in the location of its principal office as indicated in its articles of incorporation, jurisprudence has, however, settled that the place where the principal office of a corporation is located, as stated in the articles, indeed establishes its residence. This ruling is important in determining the venue of an action by or against a corporation, as in the present case.

BERNARDO vs. NLRC and FAR EAST BANK

GR No. 122917; July 12, 1999

 

FACTS:

Far East Bank (Respondent) entered into employment contracts with deaf-mutes, who were hired as money sorters under uniform “Employment Contracts for Handicapped Workers.” Every 6 months, these workers renewed their employment contracts. The complainants here complain that they were regular employees and that they have been illegally dismissed.

Respondent argued that complainants were not regular employees, but a special class of workers who were hired because of political and civic accommodation. And that the Bank’s corporate philosophy does not allow the hiring and regularizing handicapped workers unless it was on a special arrangement basis. The Labor Arbiter ruled in favor of respondent bank workers. NLRC affirmed.

ISSUE:

Whether or not petitioner workers are regular employees.

HELD:

YES, petitioners are regular employees. The fact that after the expiry of their 6 month contract, respondent bank renewed their contracts shows that these workers were qualified to perform the responsibilities of their positions. 

The Magna Carta for Disabled Persons mandates that a qualified disabled employee should be given the same terms of employment as a qualified able-bodied person.  This being so, petitioners are thus covered by Art. 286 of the Labor Code which defines regular employment to be that the employee has been engaged to perform activities usually necessary or desirable in the usual business or trade of the employer.  The task of counting and sorting bills is necessary to the business of respondent bank.  Except for sixteen of them, the petitioners performed these tasks for more than six months.  Therefore, the 27 petitioners should be deemed regular employees entitled to security of tenure.  Their services may only be terminated for a just and authorized cause.  Because respondents failed to show such cause, these 27 petitioners are deemed illegally dismissed and hence entitled to backwages and separation pay.