U.P.
LAW BOC LABOR 1
4. Withholding tax from income, provided a
proper withholding tax receipt is issued to
the employee before the filing of income
tax return every year;
5. Union dues, if authorized in writing;
6. Agency fees which may be collected from
employees who are not members of the
bargaining agent but accept benefits under
the collective bargaining agreement (CBA);
and
7. Other deduction as may be authorized in
writing by the security guard and other
private security personnel for payment to a
third person and the employer agrees to do
so, provided that the latter does not receive
any pecuniary benefit, directly or indirectly,
from the transaction.
In case an SSC/PSA requires its security guard
and other private security personnel to post a
bond for use of firearms and other
paraphernalia, such may only be imposed
once.
The amount of the bond should not be more
than 5% of the amount of the firearm issued to
the security guard and other private security
personnel. The said cash bond, less the cost of
damage or loss of firearms or paraphernalia
due to the fault of the security guard, shall be
refunded to the security guards and other
private security personnel within 15 calendar
days from severance of employment.
See III. B. 4. b. Prohibition against wage
deductions for deduction from deposits.
In the event that a SSC/PSA requires a cash
deposit from its employees, the maximum
amount shall not exceed the employee’s 1
month basic salary. The said cash deposit may
be deducted from the employee’s wages in an
amount which shall not exceed 20% of the
employee’s wages in a week. The full amount
of cash deposit deducted shall be returned to
the employee within 10 days from his/her
separation from the service. [Sec. 8, DO 150-
16]
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IV. POST-EMPLOYMENT
A. EMPLOYER-EMPLOYEE
RELATIONSHIP
Definitions
1. Employer
• Any person acting directly or indirectly in
the interest of an employer in relation to an
employee. [Art. 97(b); Art. 219(f)]
• Any person, natural or juridical, employing
the services of the employee. [Art. 173(f)]
• Includes:
o The government
o All its branches, subdivisions and
instrumentalities
o All government-owned or controlled
corporations and institutions
o All nonprofit private institutions, or
organizations. [Art. 97(b)]
• Does not include any labor organization or
any of its officers or agents except when
acting as employer. [Art. 219(f)]
2. Employee
• Any individual employed by an employer.
[Art. 97(c); Art. 219(g)]
• Any person compulsorily covered by the
GSIS under C.A. No. 168, as amended.
[Art. 173(g)]
• Includes:
o The members of the AFP,
o Any person employed as casual,
emergency, temporary, substitute or
contractual,
o Any person compulsorily covered by
the SSS under R.A. No. 1161, as
amended. [Art. 173(g)]
o Any individual whose work has ceased
as a result of or in connection with any
current labor dispute or because of any
unfair labor practice if he has not
obtained any other substantially
equivalent and regular employment.
[Art. 219(g)]
• The term shall not be limited to the
employees of a particular employer, unless
the Code so explicitly states. [Art. 219(g)]
U.P. LAW BOC LABOR 1
3. Person
• An individual, partnership, association,
corporation, business trust, legal
representatives, or any organized group of
persons. [Art. 97(a); Art. 173(h)]
Both a question of law and of fact
The existence or absence of EER is a question
of law and of fact, each in its defined sense.
Ultimately, it is a question of fact because
whether one exists or not is dependent upon
the facts of each case. [SSS v. CA and Ayalde,
G.R. No. 100388, (2000)]. However, it is a
question of law because it cannot be made the
subject of agreement [Tabas et.al. v. California
Manufacturing Co., et. al., G.R. No. 80680,
(1989)]. Hence, the characterization of the law
prevails over that in the contract.
1. Tests to Determine Existence
a. Four-Fold Test
Elements of an EER
1. Selection and engagement of the
employee;
2. Payment of wages;
3. Power of dismissal; and
4. Employer’s power to control the
employee’s conduct with respect to the
means and methods by which the work is
to be accomplished [Brotherhood Labor
Unity Movement of the PH v. Zamora, G.R.
No. 48645, (1987)]
Payment of wages
The following are not conclusive of the
absence of an EER:
• That a worker was not reported as an
employee to SSS;
• That a worker’s name does not appear in
the payrolls and pay envelope records
submitted by the employer.
Note: For a payroll to be utilized to disprove the
EER, it must contain a true and complete list of
employees. [Southeast East International
Rattan v Coming, G.R. No. 186621 (2014)]
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Power to control
This is the most important element when
determining the existence of an EER. It
pertains not only to results, but also to the
means and methods to attain those results.
[Lirio v. Genovia, G.R. No. 169757 (2011)].
The “existence” of the right to control is
sufficient for the element to be present. There
need not be “actual exercise” of the right.
[Zanotte Shoes v. NLRC, G.R. No. 100665,
(1995)]
Not every form of control will create an EER.
No EER exists when control is in the form of
rules that merely serve as guidelines towards
the achievement of results without dictating the
means or methods to attain them. EER exists
when control is in the form of rules that fix the
methodology to attain a specified result and
bind the worker to use such. [Insular Life
Assurance Co, LTD v. NLRC, G.R. No. 84484
(1989)].
b. Economic Dependence Test
Two-tiered approach
1. Control Test (refer to the Four-Fold Test)
2. Underlying economic realities within the
activity or relationship [Sevilla v. CA, G.R.
Nos. L-41182-3 (1988)]
Underlying economic realities
In determining the existence of an EER, these
realities must be examined, taking into
consideration the totality of circumstances
surrounding the true nature of the parties’
relationship. The benchmark “reality” for the
existence of an EER is economic dependence
of the worker on his employer. “Economic
dependence” is whether the worker is
dependent on the employer for his continued
employment. [Orozco v. CA, G.R. No. 155207
(2008)]
U.P. LAW BOC LABOR 1
Competent and relevant evidence needed
to prove EER
No particular form of evidence is required to
prove the EER. Any competent and relevant
evidence to prove the relationship may be
admitted. For, if only documentary evidence
would be required to show that relationship, no
scheming employer would ever be brought
before the bar of justice, as no employer would
wish to come out with any trace of the illegality
he has authored considering that it should take
much weightier proof to invalidate a written
instrument. [Tenazas, et al., v. R. Villegas Taxi
Transport, G.R. No. 192998 (2014)]
Burden of proof on alleged employee
The onus probandi rests on the employer to
prove that its dismissal was for a valid cause.
However, before a case for illegal dismissal
can prosper, an EER must first be established.
It is incumbent upon the employee to prove the
EER by substantial evidence. [Javier v. Fly Ace
Corporation, G.R. No. 192558 (2012)]
Doctrine of piercing the corporate veil
When this doctrine is applied, an employee can
be said to have an EER with the corporation
that another corporation (who the employee
“works” for) is merely an alter ego of. It applies
in these 3 basic scenarios:
1. Defeat of public convenience as when
corporate fiction is used as a vehicle to
evade existing obligations;
2. Fraud cases as when the corporate entity
is used to justify a wrong, protect fraud, or
defend a crime;
3. Alter ego cases, where a corporation is a
farce, as it is a mere alter ego or business
conduit of a person, or where the
corporation is so organized and controlled
and its affairs are so conducted as to make
it merely an instrumentality, agency,
conduit or adjunct of another corporation.
[Maricalum Mining Corp. v. Florentino,
G.R. No. 221813 (2018)]
Note: The corporate character is not fully
abrogated. It continues for other legitimate
objectives. However, in certain circumstances,
it may be pierced in order to promote
substantial justice. Such fiction of law cannot
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LABOR LAW
be invoked to further ends subversive of
justice. [Pamplona Plantation Co v Tinghil
[G.R. No. 159121 (2005)]
Doctrine illustrated in jurisprudence
In Sarona v. NLRC [G.R. No. 185280 (2012)],
the doctrine was applied. It involved the illegal
dismissal of Sarona, a security guard who first
worked at Sceptre but was subsequently
assigned to Royale, where he was illegally
dismissed. In the computation of his separation
pay, Sarona prayed that the corporate veil of
Royale be pierced as it was a mere
continuation of Sceptre; hence, his separation
pay should be computed from the time he was
hired by Sceptre. This was granted.
Circumstances indicated that Spectre and
Royale were one and the same (same office,
same officers, same person exercising control
and supervision over employees of both
companies), and that Sarona’s transfer to
Royale was done in bad faith. As such, Sarona
could be said to have an EER with Sceptre.
Thus, his separation pay was to be computed
from the time he was hired by Sceptre.
2. Legitimate Subcontracting as
distinguished from Labor-Only
Contracting
Contracting or Subcontracting
Definition of Contracting/Subcontracting
Contracting or subcontracting refers to an
arrangement whereby a principal agrees to
farm out to a contractor the performance or
completion of a specific job or work –
a. Within a definite or predetermined period,
b. Regardless of whether such job or work is
to be performed or completed within or
outside the premises of the principal. [Sec.
3(c), D.O. No. 174-17]
Contracting/Subcontracting as
distinguished from Labor-Only Contracting
There is "labor-only" contracting where:
1. 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
U.P. LAW BOC LABOR 1
2. 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.
106, par. 4]
Rules for Contracting/Subcontracting
1. 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. [Art. 106, par. 1]
2. 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:
a. To the extent of the work performed
under the contract
b. In the same manner and extent that he
is liable to employees directly
employed by him. [Art. 106, par. 2]
3. The SOLE may, by appropriate
regulations, restrict or prohibit the
contracting-out of labor to protect the rights
of workers established under this Code.
[Art. 106, par. 3]
a. He may make appropriate distinctions
between labor-only contracting and job
contracting as well as differentiations
within these types of contracting.
b. He may determine who among the
parties involved shall be considered
the employer for purposes of this Code.
4. 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. 108]
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5. Contractors and subcontractors referred to
in these rules are prohibited from engaging
in recruitment and placement activities as
defined in Art. 13(b), whether for local or
overseas employment. [Sec. 2. D.O. No.
174-17: Rules Implementing Articles 106 to
109 of the Labor Code, as amended]
Applicability of Rules to Indirect Employers
The provisions of Art. 106 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. 107]
Service Agreement
Service agreement refers to the contract
between the principal and contractor
containing the terms and conditions governing
the performance or completion of a specific job
or work being farmed out for a definite or
predetermined period. [Sec. 3(j), D.O. No. 174-
17]
a. Elements
To be considered legitimate contracting or
subcontracting, the following elements must
concur:
1. Distinct and independent business:
Contractor or subcontractor is engaged in
a distinct and independent business and
undertakes to perform the job on its own
responsibility, according to its own manner
and method;
2. Substantial capital or investment:
Contractor or subcontractor has substantial
capital to carry out the job farmed out by
the principal on his account, manner and
method, investment in the form of tools,
equipment, machinery and supervision;
3. Free from control/direction of the
principal: In performing the work,
contractor or subcontractor is free from the
control/direction of the principal in all
matters regarding performance of the work
except the result;
4. Compliance with labor laws: Service
Agreement ensures that employees of the
contractor/subcontractor are given all the
U.P. LAW BOC LABOR 1
benefits and rights they are entitled to
under labor laws. [Sec. 8, D.O. No. 174-17]
Substantial capital (#2)
Refers to paid-up capital stocks/shares of at
least P5,000,000 in the case of corporations,
partnerships and cooperatives; in case of
single proprietorship, a net worth of at least
P5,000,000. [Sec. 3(l), D.O. No. 174-17]
b. Trilateral relationship
When the above-elements are present, a
trilateral relationship arises. It consists of the
following parties:
1. Principal - Any natural or juridical entity,
whether an employer or not, who puts out
or farms out a job or work to a contractor.
2. Contractor - Any person or entity engaged
in a legitimate contracting
subcontracting arrangement providing
services for a specific job or undertaking
farmed out by a principal under a Service
Agreement.
3. Contractor’s employee - Employee of the
contractor hired to perform or complete a
job or work farmed out by the principal.
[Sec. 3, D.O. No. 174-17]
Note: Contractor may also be a subcontractor.
Relationships within the trilateral
relationship
1. EER between the contractor and the
employees it engaged to perform the
specific job, work or service being
contracted; and
2. Contractual relationship between the
principal and the contractor as governed
by the provisions of the NCC. [Sec. 5, par.
1, D.O. No. 18-A-11]
Required contracts
1. Employment contract between the
contractor and its employees - Service
Notwithstanding any oral or written
stipulations to the contrary, such contract
shall be governed by LC 294 and 295, and
provisions on general labor standards. It
shall include the following:
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a. Specific description of the job or work
to be performed by the employee; and
b. Place of work and terms and conditions
of employment, including a statement
of the wage rate applicable to the
individual employee.
2. Service Agreement between the principal
and the contractor - It shall include the
following:
a. Specific description of the job or work
being subcontracted, including its term
or duration;
b. Place of work and terms and conditions
governing the contracting
arrangement, including the agreed
amount of the contracted job or work,
the standard administrative fee of not
less than 10% of the total contract cost;
c. Provision on the issuance of the bond/s
or renewable every year. [Sec. 11, D.O.
No. 174-17]
Rights of contractor’s employees
1. Security of tenure
2. Safe and healthful working conditions;
3. Labor standards such as but not limited to
service incentive leave, rest days, overtime
pay, holiday pay, 13th month pay, and
separation pay
4. Retirement benefits under the SSS or
retirement plans of the
contractor/subcontractor;
5. Social security and welfare benefits; and
6. Self-organization, collective bargaining
and peaceful concerted activities including
the right to strike. [Sec. 10, D.O. No. 174-
17]
Termination of employment [Sec. 13, D.O.
No. 174-17]
Cause Effect
Prior to Governed by Art. 297 –
expiration of 299
Agreement
Pre- The right of the
termination of contractor’s employee to
Service unpaid wages and other
U.P. LAW BOC LABOR 1
Agreement. unpaid benefits including
and not due to unremitted legal mandatory
authorized contributions, (e.g., SSS,
causes PhilHealth, Pag-ibig, ECC),
shall be borne by the party
at fault, without prejudice
to the solidary liability of
the parties to the Service
Agreement.
Due to Employee may opt to wait
expiration of for re-employment within 3
Service months to resign and
Agreement, or transfer to another
from contractor-employer.
completion of
the phase of Failure of the contractor to
the job, work provide new employment
or service for shall entitle the employee
which to payment of separation
employee is benefits as may be
engaged provided by law or the
Service Agreement,
whichever is higher,
without prejudice to his/her
entitlement to completion
bonuses or other
emoluments, including
retirement benefits
whenever applicable.
The mere expiration of the
Service Agreement shall
not be deemed as a
termination of employment
of the contractor’s
employees who are
deemed regular employees
of the contractor.
c. Liabilities
Solidary liability of principal and contractor
Every employer or indirect employer shall be
held responsible with his contractor for any
violations of labor laws. For purposes of
determining the extent of their civil liability, they
shall be considered as direct employers. [Art.
109]
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Labor-only contracting
This is one of the violations that may be
committed by the principal and contractor,
which may make them solidarily liable. There
are two kinds:
1. Provided for by Article 206, Labor Code:
a. (i) The contractor does not have
substantial capital; or
(ii) the contractor does not have
investments in the form of tools,
equipment, machineries, supervision,
work premises, among others;
b. The contractor’s employees are
performing activities that are directly
related to the main business operation
of the principal.
2. The contractor does not exercise the right
to control the performance of the work of
the employee. [Sec. 5., D.O. No. 174-17]
Substantial capital under 1st kind
Having substantial capitalization is not enough
to declare one a legitimate contractor. If any of
the other elements of labor-only contracting is
present, they are labor-only contractors.
[Quintanar v. Coca-Cola Bottlers, 794 SCRA
654 (2016)]
Presumption of labor-only contracting
A contractor is presumed to be a labor-only
contractor and has the burden of proving the
contrary. [Polyfoam-RGC Int’l Corp. v.
Concepcion, 672 SCRA 148 (2012)]
Effect of labor-only contracting: employees
become regular employees
Where an entity is declared to be a labor-only
contractor, the employees supplied by said
contractor to the principal become regular
employees of the latter. Having gained regular
status, the employees are entitled to security of
tenure and can only be dismissed for just or
authorized causes and after they had been
afforded due process. [Norkis Trading v.
Buenavista, G.R. No. 182018 (2012)]
Other prohibitions
1. When the principal farms out work to a
“Cabo” [See definition under Sec. 3(a).,
D.O. No. 174-17];
U.P. LAW BOC LABOR 1
2. Contracting out of job or work through an
in-house agency;
3. Contracting out of job or work through an
in-house cooperative which merely
supplies workers to the principal;
4. Contracting out of a job or work by reason
of a strike or lockout whether actual or
imminent;
5. Contracting out of a job or work being
performed by union members and such will
interfere with, restrain or coerce employees
in the exercise of their rights to self-
organization as provided in Art. 259;
6. Requiring the contractor’s employees to
perform functions which are currently being
performed by the regular employees of the
principal;
7. Requiring the contractor’s employees 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 or
contractor from liability as to payment of
future claims; or require the employee to
become member of a cooperative;
8. Repeated hiring by the contractor of
employees under an employment contract
of short duration;
9. Requiring employees under a contracting
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;
10. Such other practices, schemes or
employment arrangements designed to
circumvent the right of workers to security
of tenure. [Sec. 6, D.O. No. 174-17]
Mandatory registration
It shall be mandatory for all persons or entities,
including cooperative, acting as contractors, to
register with the Regional Office of the DOLE
where it principally operates. Failure to register
shall give rise to the presumption that the
contractor is engaged in labor-only contracting.
[Sec. 14, D.O. No. 174-17]
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Applicability
D.O. No. 174-17 applies only to trilateral
relationships that can be characterized as
contracting or subcontracting arrangements. It
does not apply to:
1. Information technology-enabled services,
such as:
a. Business process outsourcing
b. Knowledge process outsourcing
c. Legal process outsourcing
d. IT infrastructure outsourcing
e. Application development
f. Hardware and/or software support
g. Medical transcription
h. Animation services
i. Back office operations/support
2. Construction industry under the licensing
coverage of the Philippine Contractors
Accreditation Board, which shall be
governed by D.O. No. 19-93; D.O. No. 13-
98; and DOLEDPWH-DILG-DTI and PCAB
Memo of Agreement-Joint Admin Order 1-
2011.
3. Contracting or subcontracting
arrangements in the private security
industry, which are governed by D.O. No.
150-16.
4. Contracts of sale, purchase, lease,
carriage, growing agreement, toll
manufacturing, contract of management,
operation and maintenance and other such
contracts governed by the NCC and other
special laws. [DOLE Dept. Circular No. 01-
17]
3. Kinds of Employment
a. Regular
An employment shall be deemed to be regular
where the employee has been engaged to
perform activities which are usually necessary
or desirable in the usual business or trade of
the employer, except where:
a. The employment has been fixed for a
specific project or undertaking, the
completion or termination of which has
been determined at the time of the
engagement of the employee; or