LABOR ONLY CONTRACTING

FIRST COVERAGE:
GENERAL CONCEPT OF THE CASES:
There is labor-only contracting when the contractor or sub-contractor merely recruits, supplies
or places workers to perform a job, work or service for a principal and any of the following
elements are present:
• The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and 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; or
• The contractor does not exercise the right to control over the performance of the
work of the contractual employee.

A legitimate job contract, wherein an employer enters into a contract with a job contractor for
the performance of the former's work, is permitted by law. Thus, the employer-employee
relationship between the job contractor and his employees is maintained. In legitimate job
contracting, the law creates an employer-employee relationship between the employer and the
contractor's employees only for a limited purpose, i.e., to ensure that the employees are paid their
wages. The employer becomes jointly and severally liable with the job contractor only for the
payment of the employees' wages whenever the contractor fails to pay the same. Other than that,
the employer is not responsible for any claim made by the contractor's employees.
On the other hand, labor-only contracting is an arrangement wherein the contractor
merely acts as an agent in recruiting and supplying the principal employer with workers for
the purpose of circumventing labor law provisions setting down the rights of employees. It is
not condoned by law. A finding by the appropriate authorities that a contractor is a "labor-
only" contractor establishes an employer-employee relationship between the principal
employer and the contractor's employees and the former becomes solidarily liable for all the
rightful claims of the employees.

CASE NAME FINDINGS RATIONALE

1. Serrano v. NLRC Isetann’s hiring of an independent
security agency to replace the
security section is a valid ground
for Serrano’s dismissal.
Article 283 of the Labor Code
states that a company may
terminate the employment of any
employee due to the installation of
labor-saving devices, redundancy,
retrenchment to prevent losses or
the closing or cessation of
operations of the establishment.
Without any proof that the
management acted in a malicious
or arbitrary manner, the Court will
 LABOR ONLY CONTRACTING
2. WM WM Manufacturing contracted
Manufacturing v. the services of a labor-only
Dalag contractor, Golden Rock.
3. American No employer-employee
President Lines v. relationship existed between
Clave American President Lines and
Marine Security Agency.
4. Aliviado v. Procter Procter & Gample contracted the
& Gample services of a labor-only
contractor, SAPS.
5. CCBPI v. Agito Interserve was a labor-only
contractor.
6. Philippine Fuji Philippine Fuji Xerox contracted
Xerox Corp. v. the services of a labor-only
NLRC contractor, Skillpower.
not interfere with the exercise of its
judgment.
Golden Rock’s certificate was not
conclusive evidence that they are
an independent contractor, and
without proof that Golden Rock
has substantial capital and that it
exercised control over Dalag, the
WM and Golden Rock failed to
establish their status as an
independent contractor.
Since the American
President Lines only deals
with the Marine Security
Agency, and not the
individual watchmen, it
was concluded that
American does not
exercise any power over
the watchmen's conduct.
SAPS only had a paid-in capital
of only P30,000. There was no
other evidence presented to show
how much its working capital and
assets are. There was no showing
of substantial investment in tools,
equipment or other assets, nor that
they have any other client aside
from P&G.
The Court does not provide an
absolute figure as substantial
capital for an independent job
contractor. It only measures it
based on the type of work to be
performed. Such cannot be applied
in this case because the Contract
between petitioner and Interserve
does not specify what kind of work
is to be performed.
Even though Garado was
employed by Skillpower to
provide his services to Fuji Xerox,
 LABOR ONLY CONTRACTING

he had never been assigned to any

other company and worked
exclusively for Fuji Xerox. The
fact that Skillpower had other
clients is immaterial. What’s
important is that Garado never
worked for any other clients but
Fuji.

The tools, equipment,

machineries, work premises, and
other materials which are
necessary in the conduct of his
business must be directly related to
the service it is being contracted to
render.

7. Vinoya v. NLRC Vinoya was an employee of It is not enough to show

Regent Food Corp. and Skillpower substantial capitalization or
was a labor-only contractor. investment in the form of tools,
equipment, machineries and work
premises to be considered as an
independent contractor. Several
factors that might be considered
are:

• the contractor is carrying

on an independent
business;
• the nature and extent of
the work;
• the skill required;
• the term and duration of
the relationship;
• the right to assign the
performance of specified
pieces of work;
• the control and supervision
of the workers;
• the power of the employer
with respect to the hiring,
firing and payment of the
workers of the contractor;
• the control of the
premises;
 LABOR ONLY CONTRACTING

• the duty to supply

premises, tools,
appliances, materials and
labor; and the mode,
manner and terms of
payment. |||

8. San Miguel Corp. San Miguel Corp. is solidarily In labor-only contracting, the
MAERC liable with MAERC. statute creates an employer-
employee relationship for a
comprehensive purpose: to prevent
a circumvention of labor laws. The
contractor is considered merely an
agent of the principal employer
and the latter is responsible to the
employees of the labor-only
contractor as if such employees
had been directly employed by the
principal employer. The principal
employer therefore becomes
solidarily liable with the labor-
only contractor for all the rightful
claims of the employees.|||

9. DIGITEL v. DEU Digiserv is a labor-only Section 7 of the IRR held that

contractor, thus Digitel is labor-only contracting would give
solidarily liable with Digiserv. rise to:
• the creation of an
employer-employee
relationship between the
principal and the
employees of the
contractor or sub-
contractor;
• the solidary liability of the
principal and the contractor
to the employees in the
event of any violation of
the Labor Code.

10. Fonterra Brand Zytron is a labor-only contractor, A.C. Sicat has substantial capital,
Phils. Largado while A.C. Sicat is not a labor- having assets totaling P5,926,155.
only contractor. In its agreement with Fonterra, it is
clearly set forth that A.C. Sicat
 LABOR ONLY CONTRACTING

shall be liable for the wages and

salaries of its employees or
workers, including benefits,
premiums, and protection due
them, as well as remittance to the
proper government entities of all
withholding taxes, Social Security
Service, and Medicare premiums,
in accordance with relevant laws.

11. Manila Memorial Manila Memorial Park Cemetery While Ward has a Certificate of
Park Cemetery v. contracted the services of a labor Business Name Registration
Lluz only contractor, Ward Trading. issued by the Department of Trade
and Industry, it expressly states
that it is not a license to engage in
any kind of business, and that it is
valid only at Las Piñas City. Not in
Parañaque City, where Ward
assigned Lluz and the other to
perform interment services it
contracted with respondent Manila
Memorial.

Failing to register as a contractor

gives rise to the presumption that
one is engaged in labor-only
contracting unless the contractor
overcomes the burden of proving
that it has substantial capital,
investment, tools and the like,
which Manila Memorial failed to
do.

12. Quintanar v. Quintanar’s true employer was Interserve claimed to exercise

CCBPO Coca Cola, not Interserve. supervision over the work of its
employees, they failed to show that
they had representatives who
actually supervised the
respondents in the work premises.

Interserve guaranteed to Coca Cola

that they would provide relievers
or replacements in case of
absences. However, according the
Court, an independent job
 LABOR ONLY CONTRACTING

contractor is only answerable for

the results of the work done.

The Court gave the Certificate no

merit because in the Article of
Incorporation, it only included
janitorial services. Not the delivery
and distribution of the Coca Cola
products which the respondents
were doing.

DOLE DEPARTMENT ORDER NO. 174-17

RULES IMPLEMENTING ARTICLES 106 TO 109 OF THE LABOR CODE, AS AMENDED
Salient provisions:
• SECTION 2. Coverage.
o These Rules shall apply to all parties in an arrangement where employer-
employee relationship exists.
o Contractors and subcontractors referred to in these Rules are prohibited from
engaging in recruitment and placement activities as defined in Article 13
(b) of the Labor Code, whether local or overseas employment.

• SECTION 3. Definition of Terms.

o The following terms, as used in these Rules, shall mean:
o "Bond" — refers to the bond under Article 108 of the Labor Code that
the principal may require from the contractor to be posted equal to the
cost of labor under contract.
o "Cabo" — refers to a person or group of persons or to a labor group
which, under the guise of a labor organization, cooperative or any
entity, supplies workers to an employer, with or without any monetary
or other consideration, whether in the capacity of an agent of the
employer or as an ostensible independent contractor.
o "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 within a definite or
predetermined period, regardless of whether such job or work is to be
performed or completed within or outside the premises of the principal.
o "Contractor" — refers to any person or entity engaged in a legitimate
contracting or subcontracting arrangement providing services for a
specific job or undertaking farmed out by principal under a Service
Agreement.
 LABOR ONLY CONTRACTING

o "Contractor's employee" — refers to employee of the contractor

hired to perform or complete a job or work farmed out by the principal
pursuant to a Service Agreement with the latter.
o f) "In-house agency" — refers to a contractor which is owned,
managed, or controlled directly or indirectly by the principal or one
where the principal owns/represents any share of stock, and which
operates solely or mainly for the principal.
o g) "In-house cooperative" — refers to a cooperative which is
managed, or controlled directly or indirectly by the principal or one
where the principal or any of its officers owns/represents any equity or
interest, and which operates solely or mainly for the principal.
o h) "Labor-only contracting" — refers to arrangement where the
contractor or subcontractor merely recruits, supplies or places workers
to perform a job or work for a principal, and the elements enumerated
in Section 5 hereunder are present.
o i) "Principal" — refers to any natural or juridical entity, whether an
employer or not, who puts out or farms out a job or work to a contractor.
o "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.
o "Solidary liability" — refers to the liability of the principal, pursuant
to the provision of Article 109 of the Labor Code, as direct employer
together with the contractor for any violation of any
provision of the Labor Code.
o It also refers to the liability of the principal, in the same
manner and extent that he/she is liable to his/her direct employees, to
the extent of the work performed under the contract when the contractor
fails to pay the waged of his/her employees, as provided in Article
106 of the Labor Code, as amended.
o l) "Substantial capital" — refers to paid-up capital
stock/shares at least Five Million Pesos (P5,000,000.00) in the
case of corporations, partnerships and cooperatives; in the
case of single proprietorship, a net worth of at least Five Million Pesos
(P5,000,000.00).

• SECTION 5. Absolute Prohibition against Labor-only Contracting.

o Labor-only contracting, which is totally prohibited, refers to an arrangement
where:
§ The contractor or subcontractor does not have substantial capital, or
• The contractor or subcontractor does not have investments in the
form of tools, equipment, machineries, supervision, work
premises, among others, and
• The contractor's or subcontractor's employees
recruited and placed are performing activities which are directly
related to the main business operation of the principal; or
 LABOR ONLY CONTRACTING

§ The contractor or subcontractor does not exercise the right to control over
the performance of the work of the employee.

• SECTION 6. Other Illicit Forms of Employment Arrangements.

o In addition to Section 5 of these Rules, the following are hereby declared
prohibited for being contrary to law or public policy:
§ When the principal farms out work to a "Cabo".
§ Contracting out of job or work through an in-house agency.
§ Contracting out of job or work through an in-house cooperative which
merely supplies workers to the principal.
§ Contracting out of a job or work by reason of a strike or lockout whether
actual or imminent.
§ 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 Article
259 of the Labor Code, as amended.
§ Requiring the contractor's/subcontractor's employees to perform
functions which are currently being performed by the regular
employees of the principal.
§ Requiring the contractor's/subcontractor'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.
§ Repeated hiring by the contractor/subcontractor of employees under
an employment contract of short duration.
§ Requiring employees under a contracting/subcontracting 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.
§ Such other practices, schemes or employment arrangements designed to
circumvent the right of workers to security of tenure.

• SECTION 7. When Principal is Deemed the Direct Employer of the Contractor's or

Subcontractor's Employees.
o In the event that there is a finding that the contractor or subcontractor is engaged
in labor-only contracting under Section 5 and other illicit
forms of employment arrangements under Section 6 of these Rules, the principal
shall be deemed the direct employer of the contractor's or subcontractor's
employees.

• SECTION 8. Permissible Contracting or Subcontracting Arrangements.

o Notwithstanding Sections 5 and 6 hereof, contracting or subcontracting shall
only be allowed if all the following circumstances concur:
 LABOR ONLY CONTRACTING

§ The contractor or subcontractor is engaged in a distinct and independent

business and undertakes to perform the job or work on its own
responsibility, according to its own manner and method;
§ The 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;
§ In performing the work farmed out, the contractor or subcontractor is
free from the control and/or direction of the principal in all matters
connected with the performance of the work except as to the result
thereto; and
§ The Service Agreement ensures compliance with all the
rights and benefits for all the employees of the contractor or
subcontractor under the labor laws.

• SECTION 9. Solidary Liability.

o In the event of violation of any provision of the Labor Code, including the
failure to pay wages, there exists a solidary liability on the part of the
principal and the contractor for purposes of enforcing the
provisions of the Labor Code and other social legislations, to the extent of the
work performed under the employment contract.

• SECTION 10. Rights of Contractor's/Subcontractor's Employees.

o All contractor's/subcontractor's employees, shall be entitled to
security of tenure and all the rights and privileges as provided for in
the Labor Code, as amended, to include the following:
§ Safe and healthful working conditions;
§ Labor standards such as but not limited to service incentive leave, rest
days, overtime pay, holiday pay, 13th month pay, and separation pay;
§ Retirement benefits under the SSS or retirement plans of the
contractor/subcontractor, whichever is higher;
§ Social security and welfare benefits; and
§ Self-organization, collective bargaining and peaceful concerted
activities including the right to strike.

• SECTION 11. Required Contracts under These Rules.

o Employment contract between the contractor/subcontractor and its employees.
Notwithstanding any oral or written stipulations to the contrary, the contract
between the contractor/subcontractor and its employees shall be governed by
the provisions of Articles 294 and 295 of the Labor Code, as amended,
including the provisions on general labor standards. It shall include the
following stipulations:
§ The specific description of the job or work to be performed by the
employee; and
§ The place of work and terms and condition of employment, including a
statement of the wage rate applicable to the individual employee.
 LABOR ONLY CONTRACTING

o The contractor/subcontractor shall inform the employee of the foregoing

stipulations in writing on or before the first day of his/her employment.
o Service Agreement between the principal and the contractor. The Service
Agreement shall include the following:
o The specific description of the job or work being subcontracted,
including its term or duration;
o The place of work and terms and conditions governing the contracting
arrangement, to include the agreed amount of the contracted job or work
as well as the standard administrative fee of not less than ten percent
(10%) of the total contract cost; and
o A provision on the issuance of the bond/s as defined in Section 3 (a)
renewable every year.

• SECTION 12. Effect of Violation of the Provisions on the Rights of Contractor's

Employees and Required Contracts.
o A finding of violation of either Sections 10 or 11 hereof, shall render the
principal the direct employer of the employees of the contractor or
subcontractor, pursuant to Article 109 of the Labor Code, as amended.

• SECTION 13. Effect of Termination of Employment.The

termination of employment of the contractor's/subcontractor's employee prior to the
expiration of the Service Agreement shall be governed by Articles 297,
298 and 299 of the Labor Code.
o In case the termination of employment is caused by the pre-termination of the
Service Agreement not due to authorized causes under Article 298, the
right of the contractor's/subcontractor's employee to unpaid wages and other
unpaid benefits including unremitted legal mandatory contributions, e.g., SSS,
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.
o Where the termination results from the expiration of the Service Agreement, or
from the completion of the phase of the job or work for which the employee is
engaged, the latter may opt to wait for re-employment within three (3) months
to resign and transfer to another contractor-employer. Failure of the contractor
to provide new employment for the employee shall entitle the latter to
payment of separation benefits as may be 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/subcontractor's
employees who are regular employees of the latter.

• SECTION 14. Mandatory Registration and Registry of Legitimate Contractors.

o Consistent with the authority of the Secretary of Labor and Employment to
restrict or prohibit the contracting out of labor to protect the rights of workers, it
shall be mandatory for all persons or entities acting as contractors to register with
 LABOR ONLY CONTRACTING

the Regional Office of the Department of Labor and Employment (DOLE)

where it principally operates.
o Failure to register shall give rise to the presumption that the contractor is engaged
in labor-only contracting.
o Accordingly, the registration system, governing contracting
arrangements and implemented by the Regional Offices of the DOLE is hereby
established, with the Bureau of Working Conditions (BWC) as the central
registry.

• SECTION 20. Validity of Certificate of Registration.

o The contractor shall be deemed registered only on the date of issuance of its
Certificate of Registration.
o The Certificate of Registration shall be effective for two (2) years, unless
cancelled after due process. The same shall be valid in the region where it is
registered.
o In case the contractor has Service Agreements or operates outside the
jurisdiction of the Regional Office where it is registered, it shall request a duly
authenticated copy ofits Certificate of Registration from the registering Regional
Office and submit the same to the DOLE Regional Office where it seeks to
operate together with a copy of its Service Agreement/s in the area, for
purposes of monitoring compliance with these Rules.

• SECTION 23. Grounds for Cancellation of Registration.

o The Regional Director shall, upon a verified complaint, cancel or revoke the
registration of a contractor after due process, based on any of the following
grounds:
§ Misrepresentation of facts in the application;
§ Submission of falsified or tampered application or supporting
documents to the application for registration;
§ Non-submission of Service Agreement between the principal and the
contractor when required to do so;
§ Non-submission of the required semi-annual report as provided in
Section 22 (Semi-Annual reporting) thereof;
§ Final findings that the contractor has engaged in labor-only
contracting and/or other illicit forms of employment arrangements as
provided in Section 6 hereof;
§ Non-compliance with labor standards and working conditions;
§ Findings of violation of Section 10 (Rights of contractor's
employees), and Section 11 (Required contracts);
§ Non-compliance with SSS, the HDMF, Pag-IBIG, PhilHealth, and ECC
Laws;
§ Collecting any fees not authorized by law and other applicable
rules and regulations; and
§ Violations of any provisions of the Labor Code.

• SECTION 26. Effects of Cancellation of Registration.

 LABOR ONLY CONTRACTING

o A final Order of cancellation shall divest the contractor of its legitimate status
to engage in contracting/subcontracting.
o Such Order of cancellation shall be a ground to deny registration an application
for renewal of registration to a contractor under the Rules.
o No contractor whose registration is cancelled under these Rules or any of its
officers shall be allowed to operate, and apply for new registration as contractor
under either the same or different name.
o The cancellation of the registration of the contractor for engaging in labor-only
contracting or for violation of any of the provisions of these Rules involving a
particular service agreement will not, however, impair the validity of existing
legitimate job-contracting arrangements the contractor may have entered into
with other principal prior to the cancellation of its registration. Any
valid and subsisting Service Agreement shall be respected until its expiration;
thereafter, contracting with a delisted contractor shall make the principal direct
employer of all employees under the Service Agreement pursuant to Articles
106 and 109 of the Labor Code, as amended.

• SECTION 33. Contracting or Subcontracting in the Construction and Other

Industries.
o Contracting or subcontracting arrangements in the Construction Industry, under
the licensing coverage of the Philippine Construction Accreditation Board
(PCAB), shall not be covered by the provisions of these Rules and shall
continue to be governed by Department Order No. 19,
Series of 1993 (Guidelines Governing the Employment of Workers in the
Construction Industry) and Department Order No. 13,
Series of 1998 (Guidelines Governing the Occupational Safety and Health in
the Construction Industry); and DOLE-DPWH-DILG-DTI and PCAB
Memorandum of Agreement-Joint Administrative Order No. 1, Series of 2011
(on coordination and harmonization of policies and programs on occupational
safety and health in the construction industry).
o In industries covered by a separate regulation of the DOLE or other
government agency, contracting therein shall be governed by these Rules unless
expressly provided otherwise.

• SECTION 34. Prohibition on DOLE Officials or Employees.

o Any official or employee of the DOLE or its attached agencies is prohibited
from engaging or having any interest in any contracting or subcontracting
business.

DOLE Department Circular 01-17

Clarifying the applicability of Department Order No. 174, Series of 2017

Salient provisions:
 LABOR ONLY CONTRACTING

• Non-Applicability of D.O. No. 174

o applies only to trilateral relationship which characterizes contracting or
subcontracting arrangement. It does not contemplate to cover information
technology-enabled services involving an entire specific business process such as
§ Business Process Outsourcing
§ Knowledge Process Outsourcing
§ Legal Process Outsourcing
§ IT Infrastructure Outsourcing
§ Application Development
§ Hardware and/or Software Support
§ Medical Transcription
§ Animation Services
§ Back Office Operations/Support

• III Applicability/Non-Applicability to Construction Industry

o Contracting or subcontracting arrangements in the construction industry under the
licensing coverage of the Philippine Contractors Accreditation Board (PCAB) shall
be governed by Department Order No 19, Series of 1993 (Guidelines Governing
the Employment of Workers in the Construction Industry), Department Order No.
13, Series of 1998 (Guidelines Governing the Occupational Safety and Health in
the Construction Industry); and DOLE-DPWH-DILG-DTI and PCAB
Memorandum of Agreement-Joint Administrative Order No 1, Series of 2011 on
coordination and harmonization of policies and programs on occupational safety
and health in the construction industry.

• Section 2, Subparagraph 2.5 of Department Order No. 19, Series of 1993, provides:
o Contracting and subcontracting
§ The practice of contracting out certain phases of a construction project is
recognized by law, particularly wage legislations and wage orders, and by
industry practices. The Labor Code and its Implementing Regulations
allowing the contracting out of jobs under certain conditions. Where such
job contracting is permissible, the construction workers are generally
considered as employees of the contractor or subcontractor, as the case may
be, subject to Article 109 of the Labor Code, as amended.'

• Applicability/Non-Applicabffily of D.O. No. 174, Series of 2017, to Private Security

Agencies
o Except for the registration requirements as provided for In D.O. No. 174, Series of
2017, contracting or subcontracting arrangements in the private security industry
shall be governed by Department Order No. 150, Series of 2018 (Revised
Guidelines Governing the Employment and Worldng Conditions of Security
Guards and other Private Security Personnel in the Private Security Industry).

• Non-Applicability of D.O. No.174, Series of 2017, to Other Contractual Relationships

 LABOR ONLY CONTRACTING

o D.O. No. 174, Series of 2017, apples only to bilateral relationship which
characterizes contracting or subcontracting arrangement. It does not contemplate to
cover contractual relationships such as in contract of sale or purchase, contract of
lease, contract of carriage, contract growing/growership agreement, toll
manufacturing, contract of management, operation and maintenance and such other
contracts governed by the Civil Code of the Philippines and other special laws.
o D.O. No. 174, Seri. of 2017 does not also cover the contracting out of job or work
to a professional, or individual with unique skills and talents who himself or herself
performs the job or work for the principal.

DOLE DEPARTMENT ORDER NO. 150-16

REVISED GUIDELINES GOVERNING THE EMPLOYMENT AND WORKING
CONDITIONS OF SECURITY GUARDS AND OTHER PRIVATE SECURITY PERSONNEL IN
THE PRIVATE SECURITY INDUSTRY
Salient provisions:
• SECTION 2. Definition of Terms.
o As used herein, the following terms shall mean:
§ "Bond" refers to the bond under Article 108 of the Labor Code, as
amended, that the principal may require from the contractor to be posted
equal to the cost of labor under contract.
§ "Duty Detail Order" refers to a written order/schedule/assignment issued
to a security guard and other private security personnel by a superior
officer, usually the private security agency or branch manager or
operation's officer, for the performance of security and/or detective
service duty/ies.
§ "Net Financial Contracting Capacity (NFCC)" refers to the formula to
determine the financial capacity of the contractor to carry out the job,
work, or services sought to be undertaken under a Service Agreement.
NFCC is current assets minus current liabilities multiplied by K, which
stands for contract duration equivalent to: ten (10) for one year or less;
fifteen (15) for more than one (1) year up to two (2) years; and twenty
(20) for more than two (2) years, minus the value of all outstanding or
ongoing projects including contracts to be started.
§ "Philippine National Police (PNP), Civil Security Group (CSG)-
Supervisory Office for Security Investigation Agencies
(SOSIA and Firearms and Explosives Division (FED)" refers to the
agencies charged with the implementation of Republic Act No. 5487.
§ "Principal" refers to any individual, company, cooperative, or
establishment, including government agencies and government-
owned and controlled-corporations, who or which puts out or farms out a
security and/or detective job, service, or work to a private Security
Service Contractor.
 LABOR ONLY CONTRACTING

§ "Private Security Personnel" refers to natural persons, including private

detectives, security consultants and security officers, employed by private
security agency or firm, to render security and/or detective services.
§ "Right to Control" refers to the right reserved to the Security Service
Contractor to determine not only the end to be achieved as required by the
principal, but also the manner and means to be used in reaching that end
within the limits of the law.
§ "Security Guard" refers to any person who offers or renders personal
service to watch or secure a residence, business establishment, building,
compound, any other area or property; or inspects, monitors, or performs
body checks or searches of individuals or baggage and other
forms of security inspection.
§ "Security Service Contractor (SSC)" is synonymous with Private
Security Agency (PSA) which refers to any person, association,
partnership, firm, or private corporation engaged in contracting,
recruitment, training, furnishing, or posting of security guard and other
private security personnel to individuals, corporations,
offices andorganizations, whether private or public, for their security
needs as the Philippine National Police (PNP) may approve.
§ "Service Agreement" refers to the contract between the principal and the
SSC/PSA containing the terms and conditions governing the performance
or completion ofsecurity service, job, or work being farmed out for a
definite or predetermined period.
§ "Solidary Liability" refers to the liability of the principal, in the same
manner and extent that he/she is liable to his/her direct employees, to the
extent of the work performed under the contract when the SSC/PSA fails
to pay the wages of his/her employees, as provided for in Article
106 of the Labor Code,as amended.
§ "Total Contract Cost" refers to the payment of wage and wage-related
benefits including social welfare benefits of security guards and other
private security personnel in conformity with the Standard
Computation of the Department of Labor and Employment using the
form prescribed in this Guidelines.
§ "Trilateral Relationship" refers to the relationship in contracting or
subcontracting arrangement where there is a contract for a specific
security job, work, or service between the principal and the
SSC/PSA, and a contract of employment between the latter and its
security guards. There are three (3) parties involved in these
arrangements: the principal who decides to farm out a security job, work,
or service to a security service contractor; the SSC/PSA who has the
capacity to independently undertake the performance of the security job,
work, or service; and the security guards and other private security
personnel engaged by the SSC/PSA to accomplish the security job, work,
or service.

• SECTION 3. Employment Status.

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o Employer-Employee Relationship.
§ The SSC/PSA is the employer of its security guards and other private
security personnel on duty detail to a principal or client under a Service
Agreement.
o Probationary Employment.
§ The probationary period of newly-hired security guard and other private
security personnel in the private security industry shall not exceed six (6)
months. While engaged on probationary basis, their services may be
terminated for failure to meet reasonable standards or criteria made
known by the SSC/PSA to the security guards and other private security
personnel at the time of their engagement or for any just cause contained
in the probationary contract.
o Regular Employment.
§ Any security guard or other private security personnel who is allowed to
work after the probationary period or in the absence of a valid
probationary contract shall be considered a regular employee. Security
guards and other private security personnel affected by repeated hiring-
firing-rehiring scheme for short periods of time, the aggregate
duration of which is at least six (6) months, shall be considered regular
employees.

• SECTION 4. Service Agreements.

o The SSC/PSA and/or the principal shall produce or submit the original
copy of the Service Agreement when directed to do so by the Regional Director
or his/her duly authorized representative. The Service Agreement must conform
to the DOLE Standard Computation and Standard Service Agreement, as
provided for under this Guidelines. The Service Agreement shall stipulate,
among others:
§ The specific description of the kind or nature of security job, work, or
service being subcontracted;
§ The place of work and terms and conditions governing the contracting
arrangement which shall include the agreed amount of the security
services to be rendered and the standard administrative fee of not less
than twenty percent (20%) of the total contract cost;
§ The basic equipment to be provided by the SSC/PSA which shall be as
follows:
• For every two (2) security guards and other private security
personnel, one (1) handgun as prescribed by R.A. 5487; but in
no case shall a security guard be posted without a firearm, unless
required otherwise by the client; and
• One (1) handheld radio; provided that, if the principal requires
more than these basic equipment, it shall be shouldered by the
principal.
§ An "automatic crediting provision" which shall immediately give effect
to the common provision in wage orders that prescribed increases in
wage rates and other wage-related benefits of security guards and other
 LABOR ONLY CONTRACTING

private security personnel shall be borne by the principals or

clients of the SSC/PSAs and the Service Agreements shall be deemed
amended accordingly;
§ Provisions which shall ensure that the principal and the SSC/PSA shall
uphold the rights and provide all the benefits of security
guards and other private security personnel under the Labor Code, as
amended, and other existing laws, and that violation of which will
render the service contractor ineligible to participate in any
bidding and the principal ineligible to engage the services of such
SSC/PSA;
§ A provision on the NFCC of the SSC/PSA, which must be equal to the
total contract cost per month, provided that posting of the corresponding
bond shall be required only when the NFCC is less than the total contract
cost;
§ An undertaking that the SSC/PSA shall directly remit monthly the
employers' share and employees' contribution to the Social Security
System (SSS), Employees' Compensation Commission (ECC),
Philippine Health Insurance Corporation (PhilHealth), and Home
Development Mutual Fund (Pag-IBIG); and
§ An undertaking that the expenses for any training required by the
principal or other government instrumentalities, in addition to those
required by the PNP, shall be shouldered by the principal.

• SECTION 5. Employment Contracts.

o Status of Employment.
§ Notwithstanding any oral or written stipulations to the contrary, the
contract between the SSC/PSA and its security guards and other private
security personnel shall be governed by the provisions of Articles 294
(formerly 279) and 295 (formerly 280) of the Labor Code, as
renumbered. The SSC/PSA shall provide his/her security
guards and other private security personnel a
copy of the employment contract duly signed by the parties, which shall
contain the terms and conditions ofe mployment, such as those provided
under Section 7 hereof.
o Contents of Duty Detail Order.
§ For every assignment of security guards and other private security
personnel to a principal, the Duty Detail Order shall contain the following,
among others:
• Name, address, and telephone number of agency;
• Issue serial number and date of the Duty Detail Order;
• Complete name and designation of grantee;
• Purpose;
• Inclusive dates of detail;
• Firearms description and license number;
• Authorized uniform to be used;
• Other specific instructions or remarks; and
 LABOR ONLY CONTRACTING

• Signature and designation of issuing officer.

• SECTION 6. Rights of Security Guards and Other Private Security Personnel.

o All security guards and other private security personnel, whether deployed or
assigned as reliever, seasonal, week-ender, or temporary, shall be entitled to all
the rights and privileges as provided for in the Labor Code, as amended, which
shall include the following:
§ Safe and healthful working conditions;
§ Labor standards such as but not limited to service incentive leave,
premium pay, overtime pay, holiday pay, night shift differential, 13th
month pay, and separation pay as may be provided in the Service
Agreement or under the Labor Code,as amended;
§ Retirement benefits under Republic Act No. 7641, Republic Act No.
1161, as amended by Republic Act No. 8282, and retirement plans of the
security service contractor, if any;
§ Social security and welfare benefits;
§ Right to self-organization and collective bargaining, subject to the
provisions of existing laws; and
§ Security of tenure.

• SECTION 7. Terms and Conditions of Employment.

o Requirements for Pre-employment and Continued Employment.
§ The security guards and other private security personnel in the
employ of any SSC/PSA or firm should be duly licensed and must have
passed the physical and neuro-psychiatric examination and drug test
required by the PNP for pre-employment and for continued employment.
Expenses for these examinations and test shall be shouldered by the
security guards.
§ Any additional test may be required at the expense of the requesting
party.
o Obligations of Government Agencies.
§ Government agencies or instrumentalities engaging security services from
SSC/PSA shall comply with all labor standards and shall require the
submission, among other requirements and as part of the bid, an
undertaking from the SSC/PSA to pay their security guards and other
private security personnel the prescribed benefits.
o Entitlement to Minimum Wage.
§ Unless a higher minimum wage is agreed upon by the parties, the security
guards and other private security personnel shall be entitled to receive a
salary of not less than the minimum wage rate prescribed for non-
agricultural sector or industry in the region where he/she is assigned,
regardless of the nature of business of the principal.
o Transfer of Assignment.
§ In case of transfer, the wage rate most favorable to the security
guards and other private security personnel shall apply. Thus, transfer of
security guards and other private security personnel to areas outside the
 LABOR ONLY CONTRACTING

region of the domicile or head office of the SSC/PSA shall not result to
reduction of the wage rate being enjoyed by the security guards and other
private security personnel prior to such transfer. Transfer to an area or
region with higher wage rate shall render the higher rate the applicable
wage rate for the transferred security guards and other private security
personnel.
o Statutory Benefits.
§ Security guards and other private security personnel are entitled to not
less than the following benefits depending on the working hours, work
shift and workdays and other analogous conditions, which benefits
should be included in the cost distribution in the Service Agreement:
• Basic salary for all actual workdays and for the twelve (12) regular
holidays (as holiday pay) which must not be lower than the
minimum wage rates described in Subsection 7.3, to be computed
by using the factors recommended herein. Whenever work is
rendered on a regular holiday, an additional pay of one hundred
percent (100%) of the minimum wage rate should be paid;
• Allowance in addition to the basic salary, if prescribed by the
applicable Regional Wage Order;
• Premium pay of thirty percent (30%) of the daily rate for work on
special days or on rest days, which is increased to fifty percent
(50%) whenever work is performed coinciding the rest
days and special days;
• Overtime pay for work rendered in excess of eight (8) hours a day,
equivalent to at least twenty-five percent (25%) of the regular
hourly rate on ordinary days andthirty percent (30%) of the hourly
rate on regular holidays, special days and rest days;
• Night shift differential equivalent to ten percent (10%) of the
regular hourly rate for work rendered between 10:00
p.m. and 6:00 a.m. of the following day;
• Five (5) days service incentive leave for every year of service
which benefits can be availed of during days of absence and, if not
used, are convertible into its cash equivalent. A proportionate
leave benefit per month may be derived by dividing five (5) days
by twelve (12) months multiplied by the current daily rate;
• Maternity leave as provided for under Republic Act No. 1161, as
amended by Republic Act No. 8282, otherwise known as the
"Social Security Law," for female security guards and other
private security personnel who are unable to work due to
childbirth or miscarriage, up to the first four (4) deliveries or
miscarriages;
• Paternity leave of seven (7) days with full pay for male security
guards and other private security personnel under Republic Act
No. 8187, otherwise known as the "Paternity Leave Act of 1996,"
which shall be granted after the delivery, without prejudice to an
employer's policy of allowing the employee to avail of the benefit
LABOR ONLY CONTRACTING

before or during the delivery. The paternity leave with pay is

granted for the first four deliveries, including miscarriages, of the
male employee's lawful wife with whom he is cohabiting;
• Parental leave of seven (7) days every year for solo parents
security guards and other private security personnel who are left
alone with the responsibility ofparenthood as defined
under Republic Act No. 8972, otherwise known as the "Solo
Parents' Welfare Act of 2000";
• Leave for Victims of Violence Against Women and their
Children of ten (10) days for qualified victim-female security
guards and other private security personnel under Republic Act
No. 9262, otherwise known as "Anti-Violence Against
Women and Their Children Act of 2004";
• Special Leave for Women of not more than two (2) months with
full pay based on her gross monthly compensation following
surgery caused by gynecological disorders, under Republic Act
No. 9710, otherwise known as "The Magna Carta of Women";
• 13th month pay which is one-twelfth (1/12) of the total basic
salary earned within a calendar year;
• Separation Pay if the termination of employment is for authorized
cause as provided by law and as enumerated below:
• One-half (1/2)-month pay per year of service, but guaranteed to
one (1) month pay if separation is due to:
o Retrenchment or reduction of personnel effected by
management to prevent serious losses;
o Closure or cessation of operation of an establishment not
due to serious losses or financial reverses;
o Illness or disease not curable within a period of six (6)
months and continued employment is prohibited by law or
prejudicial to the employee's health or that of his/her co-
employees; or
o Lack of service assignment for a continuous period of six
(6) months.
• One (1) month pay per year of service if separation is due to:
o Installation of labor-saving device, such as
replacement of employees by equipment/machinery;
o Redundancy, as when the position has been found to be a
surplusage or unnecessary in the operation of the agency;
o Impossible reinstatement of the employee to his/her
former position or to a substantially equivalent position for
reasons not attributable to the fault of the employer, as
when the reinstatement ordered by a competent authority
cannot be implemented due to closure or
cessation ofoperations of the establishment/security
service contractor, or the position to which the employee
is to be reinstated no longer exists and there is no
 LABOR ONLY CONTRACTING

substantially equivalent position to which he/she can be

assigned;
o Lack of service assignment by reason of age.
§ Benefits under the Employees Compensation Program pursuant
to Presidential Decree 626;
§ PhilHealth benefits under Republic Act No. 7875, as amended
by Republic Act No. 9241;
§ Social Security benefits under Republic Act No. 1161, as amended
by Republic Act No. 8282;
§ Safe and healthful working conditions as provided in the Occupational
Safety and Health Standards;
§ Retirement pay granted under Republic Act No. 7641 to any security
guard and other private security personnel which shall be billable monthly
to the principal or client of the SSC/PSA.
o The fund shall be administered and maintained by a trust company bank,
investment house, pre-need company, or corporation duly authorized to perform
trust function exclusively for collective investment or re-investment of certain
money received in its capacity as trustee, or similar arrangement as may be agreed
upon in accordance with law.
o The SSC/PSA may establish a retirement plan for the payment of the retirement
benefits of its security guards or other private security personnel. From this a
Retirement Trust Fund (RTF) shall be created out of contributions from the
principal.
o The trust fund agreement shall be executed by and between the SSC/PSA as
trustor and a trust entity as trustee in favor of security guards or other private
security personnel employed by the trustor. The trust entity as trustee shall
administer the retirement plan and manage the trust fund in accordance with the
retirement plan agreed upon by the SSC/PSA and its security guards or other
private security personnel.
o The SSC/PSA may also register with the Securities and Exchange Commission
(SEC), a non-stock Retirement Fund Company (RFC) owned and managed by its
members who are officers, employees, security guards, or other private security
personnel. The RFC shall manage and reinvest the retirement fund, and shall pay
the retirement benefits of its members upon his/her retirement.
o As such, any payment for retirement benefits collected in advance from the
principal shall immediately be deposited by the SSC/PSA or trustor to the trustee
or retirement fund company in favor of the security guard and other private
security personnel as benefit upon retirement; and
o Other benefits granted by law, individual or collective agreement, or company
policy or practice.

• SECTION 8. Deductions from Salary.

o No deduction shall be made from the salary of the security guards and other
private security personnel, except for:
§ SSS contribution;
§ Pag-IBIG contribution;
 LABOR ONLY CONTRACTING

§ PhilHealth contribution;
§ Withholding tax from income, provided a proper withholding tax receipt
is issued to the employee before the filing of income tax return every year.
§ Union dues, if authorized in writing;
§ 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
§ 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.
o These deductions should be reflected in the payroll by the SSC/PSA.
o 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 five percent
(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 fifteen (15) calendar
days from severance of employment.
o Pursuant to Labor Advisory No. 11, Series of 2014, deductions or requiring cash
deposits from employees to answer for reimbursement of loss or damage on tools,
materials, or equipment supplied by the employer is allowed in private security
agencies as a recognized and reasonable industry practice given the nature of the
service or business.
o However, for deductions of such nature to be valid, the following conditions must
be observed:
o The employee concerned is clearly shown to be responsible for the loss or
damage;
o The employee is given reasonable opportunity to show cause why the
deduction should not be made;
o The amount of such deduction is fair and reasonable and shall not exceed
the actual loss or damage; and
o The deduction from the wages of the employee does not exceed twenty
percent (20%) of the employee's wages in a week.

• SECTION 9. Liability and Responsibilities of Security Service Contractors/Private

Security Agencies and Principals.
o Solidary Liability. — The SSC/PSA and its principal or client shall be
jointly and solidarily liable with each other in any of the following
circumstances:
§ When the SSC/PSA fails to pay the wages of its security guards and other
private security personnel, the principal or client shall be considered the
"indirect employer" and shall be jointly and severally liable with the
SSC/PSA to the extent of the work performed by such security
guards and other private security personnel under the Service Agreement,
 LABOR ONLY CONTRACTING

in the same manner and extent that the principal is liable to its direct
employees.
§ If there are wage increases or adjustments after the execution of the
Service Agreement, the prescribed increases in the wage rates of security
guards and other private security personnel shall be borne by the
principal and the Service Agreement shall be deemed amended
accordingly. In the event that the principal fails to pay the prescribed
increases, the SSC/PSA shall be jointly and solidarily liable with the
principal.
§ The immediate recourse of security guards and other private security
personnel for payment of wage increase before litigation is with their
employer, the SSC/PSA. To enable the SSC/PSA to comply with the new
rates, the consideration paid by the principal for the security guards' wages
has to be adjusted in conformity with the mandated wage increase.
§ When the SSC/PSA is found to be engaged in labor-only contracting, the
principal shall be jointly and solidarily liable with it in the same manner
that the principal is liable to employees directly hired by him/her.
§ When the SSC/PSA is found to be an in-house agency, the principal shall
be the direct employer of the security guards and/or other private security
personnel deployed with it.
§ When a violation of the relevant provisions of the Labor Code, as
amended, has been established by the DOLE Secretary or his/her duly
authorized representative in the exercise of his/her enforcement power,
the principal shall be deemed solidarily liable with the SSC/PSA to the
extent of accrued wage and wage-related benefits that the latter may owe
to its security guards and other private security personnel in the following
instances:
• When the certificate of registration of the SSC/PSA is cancelled,
revoked, or not renewed by the competent authority; or
• When the contract between the principal and the SSC/PSA is pre-
terminated for reasons not attributable to the fault of the latter.

• SECTION 10. Right to Security of Tenure and Due Process.

o Security guards and other private security personnel shall enjoy security of tenure
in their employment as provided by law. Their services can only be terminated
for just or authorized causes after due process.
o For termination of employment based on just causes as defined in Article 297
(formerly 282) of the Labor Code, as renumbered, the requirement of two written
notices served on the employee shall be in accordance with the following:
§ The first written notice should contain:
• The specific causes or grounds for termination;
• Detailed narration of the facts and circumstances that will serve as
basis for the charge against the security guard and other private
security personnel. A general description of the charge will not
suffice;
 LABOR ONLY CONTRACTING

• The company rule, if any, that is violated and/or the ground under
Article 297 (formerly 282) of the Labor Code, as renumbered, that
is being charged against the security guard and other private
security personnel; and
• A directive that the security guard and other private security
personnel is given an opportunity to submit a written explanation
within five (5) calendar days from receipt of the first written
notice.
§ After serving the first notice, the employer should afford the security
guard and other private security personnel ample opportunity to be
heard and to defend himself/herself with the assistance of his/her
representative if he/she so desires, as provided in Article 292 (b) (formerly
277) of the Labor Code,as renumbered.
o "Ample opportunity to be heard" means any meaningful
opportunity (verbal or written) given to the security guard and other
private security personnel to answer the charges against
him/her and submit evidence in support of his/her defense, whether
in a hearing, conference, or some other fair, just, andcreasonable
way. A formal hearing or conference becomes mandatory only:
§ when requested by the security guard and other private
security personnel in writing;
§ substantial evidentiary disputes exist;
§ a company rule or practice requires it; or
§ when similar circumstances justify it.

o After determining that termination of employment is justified, the SSC/PSA shall serve
the security guard and other private security personnel a second written notice, the
notice of termination, indicating that:
o all circumstances involving the charge against the security guard and other
private security personnel have been considered; and
o the grounds have been established to justify the severance of his/her employment.
o The foregoing notices shall be served on the security guard and private security
personnel's last known address.
o Termination for just cause as stated in Article 297 (formerly 282) of the Labor Code, as
renumbered, does not entitle the security guard and other private security personnel to
separation pay, unless otherwise provided in the employer's policy, individual contract,
or collective agreement.
o For termination of employment based on authorized causes, as defined in Articles
298 and 299 (formerly 283 and 284 of the Labor Code, as renumbered), the
requirement of due process shall be deemed complied upon service of a written notice to
the security guard and other private security personnel and to the
appropriate DOLE Regional Office at least thirty (30) days before the effectivity of the
termination, specifying the ground(s) for termination.
o If the termination is brought about by the completion of the contract, no prior notice is
required.
 LABOR ONLY CONTRACTING

o If the termination is brought about by the failure of a probationary security

guards and other private security personnel to meet the reasonable standards of the
SSC/PSA, which was made known to the security guard and other private security
personnel at the time of employment, it shall be sufficient that a written notice is served
upon the security guard and other private security personnel within a reasonable time
prior to the expiration of the probationary period.
o The termination of employment of security guards and other private security personnel
prior to the expiration of the Service Agreement shall be governed by Articles 297,
298, and 299 (formerly 282, 283, and 284 of the Labor Code, as renumbered)
o In case the termination of employment is caused by the pre-termination of the Service
Agreement not due to any authorized cause under Article 298 (formerly 283), the
right of the security guard and other private security personnel to accrued and unpaid
wages and other wage-related benefits, including unremitted legal mandatory
contributions such as SSS, PhilHealth, Pag-IBIG, and ECC, shall be borne by the
party at fault, without prejudice to the solidary liability of the parties to the Service
Agreement.
o No security guard and other private security personnel can be placed in a work pool or
on reserved status in any of the following situations:
a. after expiration of a service contract, if there are other principals where he/she can
be assigned;
b. as a measure to constructively dismiss the security guard; and
c. as an act of retaliation for filing any complaint against the employer for
violation of labor laws, among others.
o If after a period of six (6) months, the SSC/PSA cannot provide work or give an
assignment to the reserved security guard, the latter can be separated from
service and shall be entitled to separation pay as described in Subsection 7.5 (m)
hereof. An assignment of the security guard and other private security personnel as a
reliever for less than one-month shall not be considered as an interruption of the six (6)
months period.

o Preventive Suspension.
o Subject to the constitutional rights of the workers to security of tenure and the
right to be protected against dismissal except for a just and authorized
cause and without prejudice to the notice requirement under Article 297
(formerly 282) of the Labor Code, as renumbered, security guards and other
private security personnel may be preventively suspended if their
continued employment poses a serious and imminent threat to life or
property of the SSC/PSA, its principal, or the co-workers of security
guards and other private security personnel.
o No preventive suspension shall last longer than thirty (30) days. The SSC/PSA
shall thereafter reinstate the security guard and other private security personnel
to his/her former position or it may extend the period of suspension, provided
that during the period of extension, the SSC/PSA shall pay the wages and other
benefits due the security guard and other private security personnel.
 LABOR ONLY CONTRACTING

Provisions under the Labor Code:

Article 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.

Article 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.

Article 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.
 LABOR ONLY CONTRACTING

Article 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.