Republic of the Philippines

DEPARTMENT OF LABOR AND EMPLOYMENT

Department Order No. 174,

Series of 2017
 DIRECTLY
HIRE

EMPLOYEE

REGULAR EMPLOYEE
CASUAL EMPLOYEE
SEASONAL EMPLOYEE
PROJECT EMPLOYEE
PROBATIONARY EMPLOYEE
EMPLOYER
 HIRE
THROUGH EMPLOYEE
PEA
REGULAR EMPLOYEE
CASUAL EMPLOYEE
SEASONAL EMPLOYEE
PROJECT EMPLOYEE
PROBATIONARY EMPLOYEE
EMPLOYER
 REGULAR EMPLOYEE
CASUAL EMPLOYEE
SEASONAL EMPLOYEE
PROJECT EMPLOYEE
PROBATIONARY EMPLOYEE

CONTRACTOR’S EMPLOYEES

ENGAGE A
CONTRACTOR

EMPLOYER
EMPLOYEE
Ø CONTRACTING AND SUBCONTRACTING

(CONTRACTOR & PRINCIPAL

SUBCONTRACTOR) Service
Agreement

COMPANY

Employment REGULAR EMPLOYEE

Contract SEASONAL EMPLOYEE
PROJECT EMPLOYEE
CASUAL EMPLOYEE
PROBATIONARY EMPLOYEE

WORKER
ALL WORKERS HAVE THE RIGHT TO:

I. GENERAL LABOR STANDARDS,

OCCUPATIONAL SAFETY AND
HEALTH STANDARDS AND SOCIAL
WELFARE BENEFITS

II. SECURITY OF TENURE AND DUE

PROCESS

III. SELF-ORGANIZATION AND

COLLECTIVE BARGAINING
Carlos Miguel Francisco, a native of
Camarines Norte

In 2013, he worked at a speakers store

under a 5-month contract in 2013.

When his contract ended, he found a job

as a bagger at a large supermarket chain,
again under a 5-month contract.

He found jobs as a promodizer at an

appliances store and a canteen server.
National Action Plan

1 Strictly
enforce
compliance to
Labor
Standards

2 Review 3 Pursue
D.O 18-A legislative
agenda
National Action Plan
• Five (5) Focus Group Discussion sessions.
• Three (3) area-wide Labor Summits.
• Seventeen (17) sectoral meetings.
• National Tripartite Industrial Peace Council
meeting

2 Review (1) Visayas-wide FGD on 9-10 September 2016 in Cebu City; (2) Luzon-wide
FGD on 19-20 September 2016 in Angeles City, Pampanga; (3) National
D.O 18-A Capital Region FGD on 23-24 September 2016 in Pasay City, Metro Manila;
(4) Mindanao-wide FGD on 26-27 September 2016 in Davao City; and (5)
FGD with Academicians and Experts on 30 September 2016 in Quezon City,
Metro Manila.

(1) Luzon on 17 October 2016 at the Occupational Safety and Health Center,
Quezon City; (2) Mindanao on 11 November 2016 at the Apo View Hotel,
Davao City; and (3) Visayas on 18 November 2016 at the Golden Prince
Hotel, Cebu City.

7 high-level meetings, 5 labor sector dialogues, and 5 Tripartite Executive

Committee meetings
 NEW PROVISIONS
• Reiterates the prohibition against LOC based on statutory
definition and jurisprudence
• Expands illicit forms of employment arrangements: 1)
contracting out of work to an in-house cooperative: 2)
requiring employees to become members of cooperative;
and 3) other schemes, practices or arrangements designed
to circumvent the worker’s right to security of tenure
• Removes the provision that employment contract is co-
terminus with the service agreement
 NEW PROVISIONS
• In case of termination due to expiration of Service Agreement,
requires contractor to provide new assignment to the employee
within 3 months, and pay the latter of separation benefits
• Adds as ground for cancellation of registration violations of any
provisions of the Labor Code
• Reduces the period within which Regional Directors shall resolve
filed complaints from 10 days to 7 days
• Blacklists contractor whose registration has been cancelled
including any of its officers to operate or apply for new registration
as contractor under either the same or different name
 NEW PROVISIONS
• Increases the substantial capital requirement from P
3M to P 5M
• Increases registration fee from P 25,000.00 to P
100,000.00
• Shortens the validity of the certificate of registration
of contractors from 3 years to 2 years
LABOR-ONLY CONTRACTING
OR SUBCONTRACTING IS
PROHIBITED.

(Omnibus Rules)
(DO NO. 10)
(DO NO. 18-02)
(DO NO. 18-A)
 LABOR-ONLY CONTRACTING (Omnibus Rules)

SECTION 9, Rule VIII, Book III. Labor-only contracting. — (a) Any person who
undertakes to supply workers to an employer shall be deemed to be engaged in
labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which
are directly related to the principal business or operations of the employer in
which workers are habitually employed.
LABOR-ONLY CONTRACTING (DO NO. 10)

(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the
contractor or subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal and the following elements are present:

i.The contractor or subcontractor does not have substantial capital or investment to

actually perform the job, work or service under its own account and responsibility;
and
ii.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.
LABOR-ONLY CONTRACTING (DO NO. 18-02)
Section 5. Prohibition against labor-only contracting. - Labor-only contracting is hereby
declared prohibited. For this purpose, labor-only contracting shall refer to an
arrangement where the contractor or subcontractor merely recruits, supplies or places
workers to perform a job, work or service for a principal, and any of the following
elements are present:

(i) 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

(ii) the contractor does not exercise the right to control over the performance of the work
of the contractual employee.
LABOR-ONLY CONTRACTING (DO NO. 18-A)
Section 6. Prohibition against labor-only contracting. Labor-only contracting is hereby
declared prohibited. For this purpose, labor only contracting shall refer to an
arrangement where:

a) The contractor does not have substantial capital or investments in the form of tools,
equipment, machineries, work premises, among others, and the employees recruited
and placed are performing activities which are usually necessary or desirable to the
operation of the company, or directly related to the main business of the principal
within a definite or predetermined period, regardless of whether such job, work or
service is to be performed or completed within or outside the premises of the
principal; or

b) The contractor does not exercise the right to control over the performance of the
work of the employee.
LABOR-ONLY CONTRACTING (DO NO. 174)
Section 5. Absolute Prohibition against Labor-only Contracting. Labor-only contracting, which is totally
prohibited, refers to an arrangement where:
a) i. The contractor or subcontractor does not have substantial capital, or

ii. The contractor or subcontractor does not have investments in the form of tools, equipment,
machineries, supervision, work premises, among others,

and

iii. 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

b) The contractor or subcontractor does not exercise the right to control over the performance of the
work of the employee.
LABOR-ONLY CONTRACTING (SC RULING)
Case Principal Third Party Capital/Investment Workers LOC
Deployed
Neri vs. NLRC, Far East Bank and Building Care P1,000,000.00 fully Radio/Telex No
July 23, 1993 Trust company Corporation paid up capital operator &
janitor
Philippine Fuji Philippine Fuji Xerox Skillpower Inc. Assets exceeding Machine Yes
Xerox Corporation P5,000,000.00
possessing at least 29
operator
Corporation
typewriters, office
vs. NLRC, equipment, and service
March 5, 1996 vehicles.
Vinoya vs. Regent Food Peninsula Manpower P75,000 paid up Sales Yes
NLRC, Corporation Company Inc. capital representative
February 2,
2000
SMC vs. San Miguel Maerc Integrated Building, tools and Washing & Yes
MAERC, July Corporation Services Inc. equipment amounting Segregating Empty
10, 2003 to more than P4M Bottles workers
LABOR-ONLY CONTRACTING (SC RULING)
Case Principal Third Party Capital/Investment Workers Deployed LOC

DOLE vs. DOLE Philippines, Cannery Multi- P6,600 paid up Processing Yes
Esteva, Inc. Purpose Cooperative capital attendants and
November 30, feeders
2006
Sasan vs. Equitable-PCI Bank Helpmate, Inc. P20,939,935.72 Janitors and No
NLRC October Messengers
17, 2008

PAL vs. Ligan, Philippine Airlines, Synergy Services No capital Stevedores and Yes
et. al, Feb. 29, Inc. Corporation delivery men
2008

Coca Cola vs. Coca-Cola Bottlers Interserve Service vehicles Salesmen Yes
Agito, Phils., Inc. Management and and equipment
February 13, Manpower Resources, valued at P510,000
2009 Inc. and P200,000
LABOR-ONLY CONTRACTING (SC RULING)
Case Principal Third Party Capital/Investment Workers Deployed LOC

Aliviado vs. Proctor and Gamble Promm-Gem, Inc. Promm-Gem – P500,000 Merchandisers No
paid up capital, assets
Proctor & Phils., Inc. Sales and Promotions Yes
worth P1,151,937.60, three
Gamble, Services registered vehicles,
March 9, 2010 markers, tapes, liners and
cutters; SAPS - P31, 250
paid up capital

Babas vs. Lorenzo Shipping Best Manpower No capital Checkers, welders, Yes
Lorenzo Corporation Services, Inc. utility men, clerks,
Shipping, Dec. Equipment owned forklift operators,
15, 2010 by and merely machine shop
rented from Lorenzo workers, technicians,
drivers and
Shipping
mechanics
Polyfoam vs. Polyfoam-RGC P.A. Gramaje No capital Factory workers Yes
Conception, International Employment Services (Packers)
June 13, 2012 Corporation (PAGES)

Norkis Trading Norkis Trading Panaghiusa sa Machineries and Welders and Yes
vs. Buena Corporation Kauswagan Multi- equipment worth operators
Vista, October Purpose Cooperative P344, 273.02
10, 2012
LABOR-ONLY CONTRACTING (SC RULING)
Case Principal Third Party Capital/Investment Workers Deployed LOC

Alilin vs. Petron Corporation Romeo D. Gindang P4.8 million as of Janitors, Yes
Petron, June Services Dec. 1998 and P1.6 maintenance
9, 2014 million as of 2000 crew, tanker
receivers, packers
and other utility
workers
Petron vs. Petron Corporation ABC Contracting Performance bond LPG fillers, Yes
Caberte, June Services in the amount of maintenance
15, 2015 P596,799.51 crew,
warehousemen,
No capital tanker receivers
and utility workers
Quintanar vs. Coca-Cola Bottlers Interserve Highly capitalized Route Helpers Yes
Coca Cola, Phils., Inc. Management and with a total of P21,
June 28, 2016 Manpower Resources, 658,220.26; Total
Inc. assets-
P27,509,716.32
LABOR-ONLY CONTRACTING (SC RULING)
TOTALITY OF THE CIRCUMSTANCES
• 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
• the duty to supply premises, tools, appliances, materials and labor
• the mode, manner and terms of payment.
ILLICIT FORMS OF EMPLOYMENT ARRANGEMENT (DO NO. 174)

• Contracting out of work to an in-house cooperative which

merely supplies workers
• Requiring employees to become members of cooperative
• Other schemes, practices or arrangements designed to
circumvent the worker’s right to security of tenure
PROHIBITED PRACTICES (DO NO. 174)
Section 6. Other Illicit Forms of Employment Arrangements. In addition
to Section 5 of these Rules, the following are hereby declared
prohibited for being contrary to the 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.
PROHIBITED PRACTICES (DO NO. 174)
• 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.
 PROHIBITED PRACTICES (DO NO. 174)
• 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.
 PROHIBITED PRACTICES (DO NO. 174)
• 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.
PROHIBITED PRACTICES (DO NO. 10)
Section 7. Prohibitions. - The following are hereby declared prohibited for being contrary
to law or public policy;

a) Labor-only contracting;
b) Contracting out of work which will either displace employees of the principal from their
jobs or reduce their regular work hours;
c) Contracting out of work with a "cabo" as defined in Section 1 (ii), Rule I, Book V of these
Rules;
d) Taking undue advantage of the economic situation of lack of bargaining strength of the
contractual employee, or undermining his security of tenure or basic rights, or
circumventing the provisions of regular employment, in any of the following instances:

i. In addition to this assigned functions, requiring the contractual employee to

perform functions which are currently being performed by the regular employees of
the principal or of the contractor or subcontractor;
PROHIBITED PRACTICES (DO NO. 10)
Section 7. Prohibitions. - The following are hereby declared prohibited for being contrary
to law or public policy: (cont.)
d) Taking undue advantage of the economic situation of lack of bargaining strength of the
contractual employee, or undermining his security of tenure or basic rights, or circumventing
the provisions of regular employment, in any of the following instances: (cont.)

ii. Requiring him 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,
contractor or subcontractor from any liability as to payment of future claims; and
iii. Requiring him to sign a contract fixing the period of employment to a term shorter than
the term of the contract between the principal and the contractor or subcontractor,
unless the latter 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;
PROHIBITED PRACTICES (DO NO. 10)
Section 7. Prohibitions. - The following are hereby declared prohibited for being contrary
to law or public policy: (cont.)

(e) Contracting out of a job, work or service through an in-house agency as defined
herein;

(f) Contracting out of a job, work or service directly related to the business or operation
of the principal by reason of a strike or lockout whether actual or imminent; and

(g) Contracting out of job, work or service when not justified by the exigencies of the
business and the same results in the reduction or splitting of the bargaining unit.
PROHIBITED PRACTICES (DO NO. 18-02)
Section 6. Prohibitions. - Notwithstanding Section 5 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:

(a) Contracting out of a job, work or service when not done in good faith and not
justified by the exigencies of the business and the same results in the termination of
regular employees and reduction of work hours or reduction or splitting of the
bargaining unit;
(b) Contracting out of work with a "cabo" as defined in Section 1 (ii), Rule I, Book V of
these Rules. "Cabo" refers to a person or group of persons or to a labor group which, in
the guise of a labor organization, 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;
PROHIBITED PRACTICES (DO NO. 18-02)
Section 6. Prohibitions. - Notwithstanding Section 5 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:
(c) Taking undue advantage of the economic situation or lack of bargaining strength of the
contractual employee, or undermining his security of tenure or basic rights, or circumventing the
provisions of regular employment, in any of the following instances:
(i) In addition to his assigned functions, requiring the contractual employee to perform functions
which are currently being performed by the regular employees of the principal or of the contractor
or subcontractor;
(ii) Requiring him 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, contractor or subcontractor
from any liability as to payment of future claims; and
(iii) Requiring him to sign a contract fixing the period of employment to a term shorter than the term
of the contract between the principal and the contractor or subcontractor, unless the latter
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;
PROHIBITED PRACTICES (DO NO. 18-02)
Section 6. Prohibitions. - Notwithstanding Section 5 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:

(d) Contracting out of a job, work or service through an in-house agency which refers
to a contractor or subcontractor engaged in the supply of labor which is owned,
managed or controlled by the principal and which operates solely for the principal;
(e) Contracting out of a job, work or service directly related to the business or operation
of the principal by reason of a strike or lockout whether actual or imminent; and
(f) Contracting out of a job, work or service being performed by union members when
such will interfere with, restrain or coerce employees in the exercise of their rights to self
organization as provided in Art. 248 (c) of the Labor Code, as amended.
PROHIBITED PRACTICES (DO NO. 18-A)
Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:

A. Contracting out of jobs, works or services when not done in good faith and not
justified by the exigencies of the business such as the following:

(1) Contracting out of jobs, works or services when the same results in the termination
or reduction of regular employees and reduction of work hours or reduction or
splitting of the bargaining unit;

(2) Contracting out of work with a “Cabo”;

PROHIBITED PRACTICES (DO NO. 18-A)
Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:

A. Contracting out of jobs, works or services when not done in good faith and not justified by
the exigencies of the business such as the following: (cont.)

(3) Taking undue advantage of the economic situation or lack of bargaining strength of
the contractor’s employees, or undermining their security of tenure or basic rights, or
circumventing the provisions of regular employment, in any of the following instances:

(i) Requiring them to perform functions which are currently being performed by the
regular employees of the principal; and

(ii) Requiring them 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,
contractor or from any liability as to payment of future claims;
PROHIBITED PRACTICES (DO NO. 18-A)
Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:
A. Contracting out of jobs, works or services when not done in good faith and not justified by the
exigencies of the business such as the following: (cont.)

(4) Contracting out of a job, work or service through an in-house agency;

(5) Contracting out of a job, work or service that is necessary or desirable or directly related to
the business or operation of the principal by reason of a strike or lockout whether actual or
imminent;

(6) Contracting out of a job, work or service being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their rights to self-organization as
provided in Art. 248 (c) of the Labor Code, as amended;

(7) Repeated hiring of employees under an employment contract of short duration or under a
Service Agreement of short duration with the same or different contractors, which circumvents
the Labor Code provisions on Security of Tenure;
PROHIBITED PRACTICES (DO NO. 18-A)
Section 7. Other Prohibitions. Notwithstanding Section 6 of these Rules, the following are
hereby declared prohibited for being contrary to law or public policy:
(8) Requiring employees under a 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;

(9) Refusal to provide a copy of the Service Agreement and the employment contracts
between the contractor and the employees deployed to work in the bargaining unit of the
principal’s certified bargaining agent to the sole and exclusive bargaining agent (SEBA); and

(10) Engaging or maintaining by the principal of subcontracted employees in

excess of those provided for in the applicable Collective Bargaining
Agreement (CBA) or as set by the Industry Tripartite Council (ITC).

B. Contracting out of jobs, works or services analogous to the above when not done in good faith
and not justified by the exigencies of the business.
Strict implementation of the
provisions of the Labor Code

a) Appointment of additional
Labor Laws Compliance Officers
b) Accreditation of labor and
employers organization
c) Constitution of Regional Audit
Team
d) Review of DO 131-B (LLCS)
 OPERATIONAL CONCERNS

Effectivity of D.O. No. 174, Series of 2017

D.O. No. 174, Series of 2017 shall take effect on 03 April 2017.
Henceforth, all contracting and subcontracting arrangements
shall be governed by D.O. No. 174, Series of 2017.
 OPERATIONAL CONCERNS
Effect of D.O. No. 174, Series of 2017 to D.O. No. 162, series of
2016

D.O. No. 162, Series of 2016, which suspends the registration

of new applicants as contractors or subcontractors under D.O.
No. 18-A, is effectively lifted upon the effectivity of D.O. No.
174, Series of 2017.

New application for registration shall be processed in

accordance with the provisions of D.O. No. 174, Series of 2017.
 OPERATIONAL CONCERNS
Effect of D.O. No. 174, Series of 2017 to Existing Certificate of
Registration of Contractors and Subcontractors under D.O. No.
18-A, Series of 2011

Existing Certificate of Registration of Contractors and

Subcontractors under D. O. No. 18-A, Series of 2011 shall
remain valid until its expiration. Contractors and subcontractors
registered under D. O. No. 18-A, Series of 2011 need not yet
file an application for renewal of registration under D.O. No.
174, Series of 2017.
 OPERATIONAL CONCERNS
Pending Application for Renewal of Certificate of Registration Under
Department Order No. 18-A, Series of 2011

Pending application for renewal of Certificate of Registration under D.O.

No. 18-A filed before the effectivity of D.O. No. 174, Series of 2017 shall
be processed in accordance with the provisions of D.O. No. 18-A, Series
of 2011.
Application for renewal filed before the effectivity of D.O. No. 174, Series
of 2017 by contractors or subcontractors whose Certificate of
Registration under D.O. No. 18-A has not yet expired or is not yet expiring
pursuant to Section 21, D.O. No. 18-A shall be denied.
 OPERATIONAL CONCERNS
Effect of D.O. No. 174, Series of 2017 on Existing Service Agreement and
Employment Contract

Contracts and agreements executed under D.O. No. 18-A, Series of

2011 shall not be impaired or diminished consistent with the provisions
of the Labor Code, the Civil Code and existing jurisprudence. Thus,
rights, benefits and obligations of parties to an existing Service
Agreement or Employment Contract under D.O. No. 18-A, series of 2011
shall be respected until its expiration.
Thank you!