Independent Contractor – Trilateral Relations; Labor Code; Department Order No. 174, Executive Order No. 51, Department Circular 1 s. 2017 > Other Prohibitions
The legal framework governing labor relationships in the Philippines includes critical provisions on the prohibition of certain practices related to independent contracting. These are covered by Department Order (DO) No. 174, Executive Order (EO) No. 51, and Department Circular 1 s. 2017, which refine and clarify the Labor Code’s provisions. These regulations aim to prevent abusive labor practices and ensure the protection of workers’ rights. Below is a detailed exposition of "other prohibitions" under this regulatory framework:
I. Prohibitions under Department Order No. 174
DO No. 174 s. 2017, issued by the Department of Labor and Employment (DOLE), regulates contracting and subcontracting arrangements. It expressly prohibits the following:
Labor-Only Contracting
This occurs when:- The contractor or subcontractor does not have substantial capital (at least PHP 5 million in paid-up capital or net worth) or investments in tools, equipment, and other assets.
- The contractor’s workers are performing activities directly related to the principal business of the employer.
- The contractor does not exercise the right to control over the workers’ performance.
Prohibited Contracting Arrangements
- Fixed-Term Employment: Employers cannot repeatedly renew fixed-term employment contracts to circumvent the regularization of workers.
- Farm-Out Work without DOLE Authorization: Subcontracting arrangements that require prior approval from DOLE but are implemented without such approval are unlawful.
- Subcontracting of Core Functions: Contractors are prohibited from engaging workers to perform jobs that are core to the main business of the principal.
- Chain or Repeated Subcontracting: This involves layering subcontracting agreements to obscure the true employer-employee relationship.
- In-House Agency Arrangements: Agencies operating exclusively within the premises of the principal, providing workers solely for the latter, are not allowed.
Absence of Employment Relationship
Principals and contractors are prohibited from engaging workers under conditions that negate the existence of an employment relationship, thereby depriving workers of rights such as minimum wage, security of tenure, and social benefits.Imposition of Bond or Deposits on Workers
Requiring workers to post bonds or deposits for employment is strictly prohibited.
II. Relevant Provisions of Executive Order No. 51
EO No. 51, issued in 2018, reinforces DOLE’s policies against labor-only contracting and further prohibits exploitative labor practices. Salient points include:
Direct Hiring Mandate
The order encourages direct hiring of workers by employers and mandates the elimination of labor-only contracting as a means to protect workers' rights to security of tenure, fair wages, and safe working conditions.Prohibition on End-of-Contract Scheme ("Endo")
The executive order explicitly prohibits short-term employment arrangements designed to prevent regularization.Blacklisting Non-Compliant Entities
Principals and contractors found violating labor laws, including those under DO 174 and EO 51, may be barred from engaging in further contracting or subcontracting activities.
III. Department Circular No. 1 s. 2017
This Circular provides implementing guidelines for DO 174. Specific prohibitions include:
Misclassification of Workers
- Misclassifying employees as independent contractors to deny them their rights and benefits as employees is prohibited.
- Establishments cannot classify regular jobs as project-based work to avoid employer obligations.
Non-Payment of Legal Benefits
Contractors must ensure payment of minimum wage, holiday pay, overtime pay, and other statutory benefits. Principals are prohibited from contracting with entities that fail to comply with these standards.Substandard Agreements
Agreements between principals and contractors that result in less favorable conditions than those provided by law are void.Submission of Fraudulent Documents
Contractors are prohibited from submitting false documents, such as fake licenses, clearances, or certifications, to operate as a legitimate subcontractor.
IV. Enforcement and Penalties
Non-compliance with the above prohibitions can lead to severe consequences:
Administrative Penalties
DOLE may suspend or revoke the license of contractors or subcontractors found violating DO 174.Joint and Solidary Liability
Principals are jointly and solidarily liable with the contractor for violations of workers’ rights.Criminal Liability
Serious violations may be prosecuted under the Labor Code’s penal provisions.Blacklist of Erring Contractors
Non-compliant contractors may be blacklisted, preventing them from entering into new contracts.
V. Key Interpretations by DOLE and Jurisprudence
Several decisions by the Supreme Court and DOLE interpret these prohibitions:
- Employer-Employee Relationship Tests
The Supreme Court consistently applies the four-fold test and the control test to determine whether an employment relationship exists. - Role of DOLE
DOLE retains the authority to inspect and enforce compliance with contracting and subcontracting regulations.
Conclusion
The prohibitions on certain contracting practices under DO No. 174, EO No. 51, and Department Circular 1 s. 2017 are clear safeguards against labor exploitation. They aim to:
- Ensure that workers receive their due rights and benefits.
- Prohibit the circumvention of labor laws through fraudulent contracting practices.
- Establish accountability and enforcement mechanisms for erring principals and contractors.
Employers, contractors, and workers alike must familiarize themselves with these provisions to ensure full compliance with Philippine labor laws.