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 :
- 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;
- The contractor has substantial capital and/or investment; and
- 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).