The Philippines Department of Labor and Employment (“DOLE”) introduced guidelines earlier this year on the prohibition of “labor-only” contracting (ie labour hire). These changes show the continued tightening on the use of third party labor in the Philippines. Is your company compliant?

What is “labor-only” contracting?

Guidance provided by the DOLE specifies two arrangements that constitute “labor-only” contracting, which is prohibited by law:

  • Type 1 is where:
    • the contractor does not have substantial capital, or it does not have investments such as tools, plant and equipment, work premises; and
    • the contractor’s employees are performing activities which are directly related to the main business operations of the principal; and
  • Type 2 is where the contractor does not exercise control over the performance of the work by its employees.

Companies must also abide by the prohibitions on contractors performing certain functions as well as the registration and capital requirements and ensure certain mandatory provisions are included in the contractor service agreement.

Compliance

Companies should review their resourcing arrangements including the agreements with any contractor provider to ensure compliance and to avoid sanctions and disruption to their operations.