The Philippines Government has been stepping up its efforts to crack down “labor-contracting” to protect workers’ rights, as evidenced by the increase in its monitoring and enforcement actions. It is necessary for companies to ensure that service contractors and sub-contractors are compliant with the rules regulating “labor-contracting” by reviewing their contracting arrangements and employment practices.

“Labor-only” contracting

The Philippines Government prohibits the practice of “labor-only” contracting under the Philippines Labor Code. The objective of this is to prevent the exploitation of contingent workers and protect workers’ rights to employee benefits. Labor-only contracting is the arrangement whereby contractors or sub-contractors supply workers to perform work for the principal. As noted in our previous article, the Philippines Department of Labor and Employment (“DOLE”) introduced new guidelines last year to tighten the rules on the use of third party labor. The guidance identifies two arrangements which are illegal, namely where: (a) the contractor does not have substantial capital or investments, and the contractor’s workers are performing activities which are directly related to the principal’s operations; and (b) the contractor does not have control over its workers.

Increase in monitoring and enforcement

Since the introduction of the new guidelines, there has been an increase in monitoring and enforcement actions by the DOLE in cracking down “labor-contracting”. The DOLE has been stepping up its efforts to eliminate “labor-contracting” and other forms of illegal contracting arrangements by being more proactive in undertaking labor assessments and investigations to regularise the workers’ employment status in the Philippines.

For example, in November 2017, the DOLE issued compliance orders ordering two companies (Terumo Philippines and Toyo Seat Philippines Corporation) and their contractors to regularise the employment status of over 1,000 workers. In December 2017, the DOLE penalised Jollibee (Philippines’ biggest fast food chain) and its contractors for labor-only contracting. Further, early this year in January 2018, the DOLE found that three Philippines technology companies violated the workers’ right to job security and ordered them to regularise the employment status of over 700 workers.

The DOLE took into account factors including the fact that the contractors lacked substantial capital as the workers used their principals’ equipment and tools in the performance of their outsourced services, the contractors’ lapse in health and safety standards, and the fact that the principals exercised full control over the workers alongside their regular employees.

The DOLE ordered the companies and contractors to compensate the workers for unauthorised deductions of wages and other employee benefits. The DOLE also cancelled the certificate of registration of several of the companies’ contractors and removed them from the roster of contractors.

Key takeaways

Companies should ensure that their contractors have substantial capital and investments (such as tools, plant and equipment, work premises), and that contractors exercise control over the performance of work by their workers.

Companies should regularly review its contracting arrangements (including ensuring that certain mandatory provisions are included in the contractor service agreements) and employment practices to ensure compliance so as to avoid sanctions by the DOLE, disruptions to their operations, and damage to their reputation.