THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Second Regular Session 
S E N A T E  
Senate Bill No. 
INTRODUCED BY SEN. MANNY VILLAR 
EXPLANATORY NOTE 
Today, one of the most controversial issues affecting labor and industrial 
relations in the country is the practice known as “sub-contracting”. Basically, this 
term or expression refers to a business or commercial arrangement whereby 
work is contracted out by a firm or company to another entity or enterprise. 
To be sure, the practice of subcontracting is not a novelty in this country, 
and it is not now regarded as a scheme or system which is essentially 
objectionable. For many years, business firms or establishments in the country 
have been using the services of independent contractors or subcontractors in 
relation to their various operations and activities, and the contractual 
arrangements between these firms and their contractors or subcontractors, which 
have become widely known as “subcontracting”, having gained public recognition 
and acceptance particularly in the light of the principles and concepts of the law 
on contracts and the reasons as well as the motivations of a free enterprise 
economy. 
However, the aforementioned business or commercial practice became 
the subject of remedial legislation effected through P.D. No. 442, as amended, 
otherwise known as the Labor Code of the Philippines, particularly because of 
the fact that in the course of time, it has become a source of abuses and 
injustices which are prejudicial to the rights and welfare of the workers. It was 
noted in this regard that, as revealed by a substantial number of cases, there are 
times when the subcontracting arrangement is used or adopted not as a means 
to achieve some legitimate business purposes or objectives, but as a deceptive 
and fraudulent device to deprive the workers of their rights and the benefits to 
which they are entitled under the law and the national policies governing labor 
and the relations between employees and employers in the country. On some 
occasions, the said contractual arrangement was utilized by the management of 
some firms or establishments for some unscrupulous and unconscionable 
purposes and ends such as, for instance, where a corporation would shut down 
one of its operating departments and give the work being performed by that 
department to a contractor or subcontractor in order that workers in the said 
department would not succeed in organizing themselves into a labor union; to 
prevent a group of workers from acquiring a permanent employment status; and 
to evade the obligations and responsibilities which a business firm or 


establishment has to assume in relation to workmen’s compensation, minimum 
wage, medicare and social security. 
To provide an effective solution to the pernicious problems affecting the 
workers, and the business and industrial community as a whole, arising not SO 
much from the use but from the wrongful utilization or what should be regarded 
as a perversion of the subcontracting system, several significant reforms were 
instituted and made part of the Labor Code so that the subcontracting industry 
itself would really perform its business and economic functions and would be 
able to pursue its goals within the proper bounds of a legitimate and responsible 
enterprise. One of these important reforms brought about by the Labor Code is 
the prohibition against ”labor-only’’ contracting. 
It should be observed, in this connection, that under the provisions of 
Article 106 of the Labor Code and its implementing rules and regulations, the 
subcontracting relationships are classified into two types or kinds. One of them is 
called “job-contracting”, which is a legally permitted type of subcontracting and is 
subject to the regulatory authority of the Secretary of Labor and Employment. 
The other type or kind of subcontracting is known as “labor-only contracting”, 
which is illegal and prohibited by the Labor Code. The distinction between these 
two types of subcontracting have been drawn and delineated under Section 8 
and 9, Book 111, Rule Vlll of the Implementing Rules and Regulations, in 
amplification of Article 106 of the Labor Code. 
The aforementioned prohibition against “labor-only contracting” is certainly 
one of the most commendable features of our Labor Code and is well in accord 
with the constitutional mandate that the State shall provide ample protection to 
the rights and welfare of the workers in our society. It is lamentable to say, 
however, that notwithstanding this prohibition, there are still many instances in 
this country where some business firms or establishments, in connivance with 
some unscrupulous individuals and entities, are using the “labor-only contracting” 
arrangements with seeming impunity and to the detriment and prejudice of the 
workers. Thus it is proper and necessary that the prohibition against the practice 
of “Labor-Only Contracting” which is embodied in Article 106 of the Labor 
Code, should be strengthened and made truly effective by providing it with penal 
sanctions, and this Bill was prepared precisely for the purpose of giving more 
teeth to the aforesaid labor policy. 
In view of the foregoing, approval of this bill is earnestly recommended. 


THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Second Regular Session 
S E N A T E  
Senate Bill No. 
INTRODUCED BY SEN. MANNY VILLAR 
AN ACT 
PROVIDING PENALTY FOR THE VIOLATION THEREFOR, AMENDING FOR 
THIS PURPOSE ARTICLE 106 OF PRESIDENTIAL DECREE NO. 442, AS 
AMENDED, OTHERWISE KNOWN AS THE “LABOR CODE OF THE 
PHILIPPINES” AND FOR OTHER PURPOSES 
STRENGTHENING THE PROVISION ON “LABOR-ONLY” CONTRACTING BY 
it- 
Benenacfed by fhe Senafe and House of Represenfafives of fhe 
Philippines in Congress assembled: 
SECTION 1. Article 106 of Presidential Decree No. 442, as amended, is 
hereby amended to read as follows: 
“Art. 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 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 purpose 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 worker in the same 
manner and extent as if the latter were directly employed by him. 
ANY PERSON, NATURAL OR JURIDICAL, VIOLATING 
UNDER THIS SECTION OR THE RULES AND REGULATIONS 
ISSUED IN PURSUANCE THERETO SHALL BE LIABLE TO PAY 
A FINE OF NOT LESS THAN FIVE THOUSAND PESOS 
(P5,OOO.OO) NOR MORE THAN TWENTY THOUSAND PESOS 
(P20,OOO.OO) OR BE IMPRISONED FOR NOT LESS THAN TWO 
(2) YEARS NOR MORE THAN FIVE (5) YEARS, OR BOTH, AT 
THE DISCRETION OF THE COURT. IF THE VIOLATION IS 
COMMITTED BY A JURIDICAL PERSON, THE PENALTY OF 
IMPRISONMENT SHALL BE IMPOSED UPON THE OFFICER 
RESPONSIBLE 
THEREFOR: 
PROVIDED, 
THAT 
THE 
INSTITUTION OF ANY CRIMINAL ACTION UNDER THIS 
SECTION SHALL NOT BAR THE AGGRIEVED PARTY FROM 
FILING AN ENTIRELY SEPARATE AND DISTINCT ACTION FOR 
MONEY CLAIMS, WHICH MAY INCLUDE CLAIMS FOR 
DAMAGES AND OTHER AFFIRMATIVE RELIEFS. THE ACTIONS 
HEREBY AUTHORIZED SHALL PROCEED INDEPENDENTLY OF 
EACH OTHER. 
THE PROVISIONS AGAINST “LABOR-ONLY” CONTRACTING 
IN ADDITION, ANY ALIEN FOUND GUILTY UNDER THIS 
SECTION 
SHALL 
BE 
SUMMARILY 
DEPORTED 
UPON 
COMPLETION 
OF 
SERVICE 
OF 
SENTENCE AND 
BE 
WITHOUT SPECIAL PERMISSION OF THE PRESIDENT OF THE 
PHILIPPINES”. 
PERMANENTLY BARRED FROM RE-ENTERING THE COUNTRY 
SECTION 2. The. Secretary of, Labor and Employment is hereby 
authorized to promulgate such rules and regulations as may be necessary to 
implement fhe provisions of this Act, 
SECTION 3. This Act shall take effect fifteen (15) days after its complete 
publication in the Official Gazette or in at least two (2) national newspapers of 
general circulation, whichever comes earlier. 
Approved,