- New rules on contract labour introduced in the Philippines on 5 December 2011 require contractors to provide contract workers with similar benefits to their permanent employee counterparts.
- The rules also prohibit certain types of contracting out of jobs including the repeated hiring of employees under short fixed term employment.
On 5 December 2011, a new order (Department Order No. 18-A) (the Order) implemented by the Department of Labor and Employment (DOLE) took effect, which increases the benefits and protections available to contractors’ employees.
The Order applies to all parties of contracting and sub-contracting arrangements where employer-employee relationships exist.
Contractors and principals
‘Contractors’ are defined in the Order as any person or entity, including a cooperative, engaged in a legitimate contracting or subcontracting arrangement providing either services, skilled workers, temporary workers, or a combination of services to a principal under a service agreement.
A ‘principal’ refers to any employer, whether a person or entity, including government agencies and government-owned and controlled corporations, who/which puts out or farms out a job, service or work to a contractor.
Benefits extended to contractors’ employees
The Order stipulates that all contractors’ employees (including regular employees or those employed to perform or complete a job, work or service within a certain timeframe and pursuant to a service agreement with a principal) shall be entitled to the following rights and benefits under the Labor Code:
- workplace health and safety conditions,
- labor standards including but not limited to service incentive leave, rest days, overtime pay, holiday pay, 13th month pay and separation pay as may be provided under a service agreement or the Labor Code,
- retirement benefits,
- social security and welfare benefits,
- self-organisation, collective bargaining and peaceful concerted activities, and
- security of tenure.
Restrictions on contracting arrangements and registration
The Order prohibits various types of contracting arrangements including:
- repeated hiring of employees under employment contracts of short duration or under a service agreement of short duration with the same or a different principal which circumvents Labor Code provisions on security of tenure, and
- requiring employees under a sub-contracting arrangement to sign a contract for a fixed period of employment which is shorter than the term of the service agreement with the principal.
Contractors are also subject to mandatory registration with the appropriate Regional Office of the Department of Labor and Employment.
Failure to comply with the Oder
Non-compliance with the Order may result in:
- cancellation of a contractor’s registration,
- the principal becoming a direct employer of the contractor’s employees under a service agreement, and/or
- enforcement action against the principal and/or contractor under the Labor Code.
Implications for principals and contractors
The new Order on contract labour is likely to make it more expensive for companies to engage contract labour in the Philippines. Principals under a service contract with contractors and contractors who are employers of contract labour should ensure that:
- service contracts and contractor’s employment documentation are both compliant with the Order,
- contracting arrangements do not fall within any of the Order’s prohibitions on contracting out of jobs, works or services, and
- contractors have in place a lawful and current registration in compliance with the Order.