Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRES:
First Regular Session

ary REOTPATION INIT
HOUSE BILLNOZ "| BILLS.AN. iNDER stevie:
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INTRODUCED BY REP. KARLO ALEXEI B, NOGRALES AND HON. JERICHO JONAS
B. NOGRALES

EXPLANATORY NOTE

Innovation and fast-paced technological progress has constantly redefined jobs and
work arrangements in the private sector. New forms of employment engagements
emerged, such as contracting or subcontracting, that were not adequately captured
by the provisions of the 1974 Labor Code of the Philippines, being tailored for the
manufacturing industries work arrangement. As a consequence, the existence of
new work arrangements in the absence of clear policy guidelines blurred the
employer-employee relationship, and gave rise to issues on the circumvention of the
law on security of tenure of workers and employees in the private sector, not to
mention gaps in their entitlement to labor standards benefits, and obstructions to the
exercise of their labor rights.

To address the above-mentioned concerns, this bill proposes the following:

(1) clearly defining legitimate contractor or subcontractor as an employer
engaged in providing job, work or services to another business;

(2) recognizing industry peculiarities in the determination of functions and
standards on contracting and subcontracting;

(3) criminalizing labor-only contracting;

(4) licensing of contractors and subcontractors;

(8) mandatory posting of bond to answer for the wages and other monetary
benefits due the workers and employees in case the contractor fails to pay
the same;

(6) coverage of the cooperatives as employers in contracting or

subcontracting;

(7) reiterating the right to security of tenure to the effect that all workers and
employees in the private sector shall not be dismissed without cause and
due process;

(8) defining the criteria for the existence of an employer-employee

relationship:

(9) classifying all employees as regular except those under probationary
employment, or those under industry-specific work arrangement as may


be determined by the Secretary of Labor and Employment, through
tripartite consultation; and
(10) providing for probationary employment which shall not exceed six (6)
months.

The bill also provides that repeated engagement of the same employee after
the expiration of the probationary employment or contract of employment in industry-
specific work arrangements will render the employment as regular in nature

To secure compliance with the constitutional and statutory guarantee to

security of tenure of workers and employees in the private sector, among other
concerns, the passage of this bill is earnestly sought.

KARLO A. B. NOGRALES JERICH . NOGRALES


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

HOUSE BILL NO.

INTRODUCED BY REP. KARLO ALEXEI B. NOGRALES and REP. JERICHO JONAS
B, NOGRALES

AN ACT
STRENGTHENING THE SECURITY OF TENURE OF WORKERS AND EMPLOYEES IN
THE PRIVATE SECTOR AMENDING FOR THE PURPOSE PRESIDENTIAL DECREE
NO. 442, AS AMENDED, OTHERWISE KNOWN AS THE LABOR CODE OF THE
PHILIPPINES

Be it enacted by the Senate and the House of Representatives of the Philippines
in Congress assembled:

SECTION 1. Article 106 of PD 442, as amended, otherwise known as the Labor
Code of the Philippines, is hereby amended to read as follows:

“ART. 106. CONTRACTOR OR SUBCONTRACTOR. - Whenever
a[n] PRINCIPAL 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 AND OTHER WAGE-RELATED BENEFITS, INCLUDING
SOCIAL WELFARE BENEFITS, of his employees in accordance with this
Code, the PRINCIPAL 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

"FOR PURPOSES OF THIS CODE, CONTRACTING OR
SUBCONTRACTING REFERS TO AN ARRANGEMENT WHEREBY THE
PRINCIPAL EMPLOYER AGREES TO PUT OUT OR FARM OUT TO A
CONTRACTOR OR ITS SUBCONTRACTOR THE PERFORMANCE OR
COMPLETION OF A SPECIFIC JOB, WORK OR SERVICE WITHIN A
DEFINITE OR PREDETERMINED PERIOD, REGARDLESS OF
WHETHER SUCH JOB, WORK OR SERVICE IS TO BE PERFORMED
OR COMPLETED WITHIN OR OUTSIDE OF THE PREMISES OF THE
PRINCIPAL EMPLOYER.


‘A CONTRACTOR OR SUBCONTRACTOR IS A PERSON OR
ENTITY WITH WHOM A PRINCIPAL EMPLOYER ENTERS INTO A
CONTRACT FOR THE PERFORMANCE OF THE LATTER'S WORK.
FOR THIS PURPOSE, A LEGITIMATE CONTRACTOR OR
SUBCONTRACTOR MUST:

A) BE LICENSED WITH THE DEPARTMENT OF LABOR
AND EMPLOYMENT;

B) HAVE SUBSTANTIAL CAPITALIZATION OF AT LEAST
THREE MILLION PESOS (P3,000,000.00) FULLY PAID UP
OR AS MAY BE DETERMINED THROUGH TRIPARTITE
CONSULTATION, PROVIDED THAT THE AMOUNT SHALL
NOT BE LOWER THAN THREE MILLION PESOS
(P3,000,000.00);

C) HAVE THE | EQUIPMENT, MACHINERIES AND
TOOLS NECESSARY TO PERFORM OR COMPI-ETE
THE JOB, WORK OR SERVICE CONTRACTED OUT; AND,

D) EXERCISE CONTROL OVER THE PERFORMANCE OR
COMPLETION OF THE JOB, WORK OR SERVICE
CONTRACTED OUT

"The Secretary of Labor [may] SHALL, 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 purposes of this Code, to prevent any violation or
circumvention of any provision of this Code] DETERMINE FUNCTIONS
THAT CAN BE SUBCONTRACTED, WITH THE CONCURRENCE OF
THE APPROPRIATE INDUSTRY TRIPARTITE COUNCIL. IN THE
ABSENCE OF INDUSTRY-SPECIFIC TRIPARTITE STANDARDS ON
CONTRACTING AND SUBCONTRACTING, THE SECRETARY OF
LABOR AND EMPLOYMENT SHALL DETERMINE STANDARDS AND
ISSUE APPROPRIATE REGULATIONS AFTER CONSULTATION WITH
THE NATIONAL TRIPARTITE INDUSTRIAL PEACE COUNCIL

“LABOR-ONLY CONTRACTING IS HEREBY DECLARED
PROHIBITED AND CRIMINAL IN NATURE. There is “labor-only"
contracting where the person supplying workers to a{n] PRINCIPAL
employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, [and] OR
the workers recruited and placed [by such persons are performing
activities which are directly related to the principal business of such
employer] ARE UNDER THE CONTROL AND SUPERVISION OF THE
PRINCIPAL EMPLOYER. In such cases, the person or intermediary shall
be considered merely as an agent of the PRINCIPAL employer who shall
be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.


SEC. 2. Article 107 of the Labor Code is hereby amended to read as follows:

‘ART. 107, [INDIRECT] PRINCIPAL EMPLOYER. - The provisions
of the immediately preceding Article shall [likewise] apply to any person,
partnership, association or corporation which [, not being an employer]
contracts with an independent contractor for the performance of any work
task. job or project

SEC. 3. A new article Article 107-A is hereby introduced to the Labor Code to
read as follows:

“ART. 107-A. LICENSING OF JOB CONTRACTORS. - THE
SECRETARY OF LABOR AND EMPLOYMENT, THROUGH THE
REGIONAL OFFICES, SHALL ISSUE QUALIFIED APPLICANTS THE
JOB CONTRACTOR'S LICENSE IN ACCORDANCE WITH THE
GUIDELINES PRESCRIBED FOR THE PURPOSE. THE APPLICANT
MUST BE A FILIPINO CITIZEN OR A CORPORATION OF WHICH ONE
HUNDRED PERCENT (100%) OF AUTHORIZED AND VOTING
CAPITAL IS OWNED AND CONTROLLED BY FILIPINO CITIZENS, A
PARTNERSHIP, CRAFT UNION OR ANY OTHER ENTITY. SUCH
CONTRACTOR SHALL LIKEWISE COMPLY WITH = THE
REQUIREMENTS OF OTHER GOVERNMENT AUTHORITIES.

“CONTRACTORS OR SUBCONTRACTORS WITHOUT A
LICENSE SHALL BE DEEMED ENGAGED IN LABOR-ONLY
CONTRACTING. THE PRINCIPAL EMPLOYER SHALL BE
CONSIDERED THE DIRECT EMPLOYER OF ALL EMPLOYEES UNDER
THE CONTRACTING OR SUBCONTRACTING AGREEMENT.

“THE SECRETARY OF LABOR AND EMPLOYMENT MAY
IMPOSE A FINE AGAINST CONTRACTORS OR SUBCONTRACTORS.
WITHOUT A LICENSE IN AN AMOUNT TO BE DETERMINED
THROUGH CONSULTATION WITH THE NATIONAL TRIPARTITE
INDUSTRIAL PEACE COUNCIL."

SEC. 4. Article 108 of the Labor Code is hereby amended to read as follows.

‘ART. 108. MANDATORY POSTING OF BOND. - [An employer or
indirect employer may require t] The contractor or subcontractor [to]
SHALL furnish THE PRINCIPAL EMPLOYER a bond equal to the cost of
labor under THE contract [] BETWEEN THE CONTRACTOR OR
SUBCONTRACTOR AND ITS EMPLOYEES. [on condition that t]The
bond [will] SHALL answer for the wages AND OTHER MONETARY
BENEFITS due the employees [should] IN CASE the contractor or
subcontractor [, as the case may be,] failS to pay the same.”

SEC. 5. A new Article 108-A is hereby introduced to the Labor Code to read as
follows:

"ART. 108-A. APPLICABILITY TO COOPERATIVES. - THE
PROVISIONS OF THIS ACT SHALL APPLY TO COOPERATIVES


ENGAGED IN CONTRACTING OR _ SUBCONTRACTING
ARRANGEMENTS. COOPERATIVES ARE DEEMED EMPLOYERS AND
THEIR EMPLOYEES, MEMBERS OR NON-MEMBERS SHALL BE
ENTITLED TO THE FOLLOWING RIGHTS AND PRIVILEGES
ACCORDED TO THE CONTRACTOR'S OR SUBCONTRACTOR’S
EMPLOYEES:

A) MINIMUM WAGE;

B) SAFE AND HEALTHFUL WORKING CONDITIONS;

C) LABOR STANDARDS SUCH AS SERVICE INCENTIVE
LEAVE, REST DAYS, OVERTIME PAY, HOLIDAY PAY,
THIRTEENTH MONTH PAY, AND SEPARATION PAY AS
MAY BE PROVIDED IN THE SERVICE AGREEMENT OR
UNDER THE LABOR CODE;

D) RETIREMENT BENEFITS UNDER THE SOCIAL SECURITY
SYSTEM (SSS) OR RETIREMENT PLANS OF THE
CONTRACTOR, IF THERE IS ANY;

—) SOCIAL SECURITY AND WELFARE BENEFITS;

F) SELF-ORGANIZATION, COLLECTIVE BARGAINING, AND
PEACEFUL CONCERTED ACTIVITIES; AND

G) SECURITY OF TENURE.”

SEC. 6. Article 294 of the Labor Code Is hereby further amended to read as
follows:

"ART, 294. SECURITY OF TENURE, - ALL EMPLOYEES,
IRRESPECTIVE OF EMPLOYMENT STATUS OR POSITION, SHALL NOT
BE DISMISSED WITHOUT CAUSE AND DUE PROCESS.

‘[In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this
Title] An employee who is [unjustly] dismissed [from work] WITHOUT
CAUSE AND DUE PROCESS shall be entitled to reinstatement without loss
of seniority rights [and other privileges and to his) AND BENEFITS, full
backwages, [inclusive of] allowances, COMMISSION, SSS, PHILHEALTH,
AND PAG-IBIG BENEFITS, AND ALL OTHER BENEFITS AND
REMUNERATIONS PROVIDED BY LAW, COMPANY POLICY AND
COLLECTIVE BARGAINING AGREEMENT, COMPUTED [and to his other
benefits or their monetary equivalent computed) from the time [his]
compensation was withheld [from him] up to the time of fhis] actual
reinstatement

‘THE EMPLOYER SHALL HAVE THE BURDEN OF PROVING THAT
THE TERMINATION IS WITH CAUSE AND DUE PROCESS.”

SEC. 7. A new Article 294-A is hereby introduced to the Labor Code to read

as follows
ART. 294-4, EMPLOYER-EMPLOYEE RELATIONSHIP. - THERE
EXISTS AN EMPLOYER-EMPLOYEE RELATIONSHIP WHEN THE
WORKER IS ENGAGED TO RENDER WORK OR SERVICE UNDER THE


CONTROL OR SUPERVISION OF THE EMPLOYER, NOT ONLY AS TO
THE END TO BE ACHIEVED, BUT ALSO TO THE MANNER AND MEANS
IN ACHIEVING THE END.

‘THE PAYMENT OF REMUNERATION TO THE WORKER ALSO
INDICATES THE EXISTENCE OF AN EMPLOYER-EMPLOYEE
RELATIONSHIP.”

SEC. 8. Article 295 of the Labor Code is hereby amended to read as follows:

‘ART, 295, [REGULAR AND CASUAL EMPLOYMENT. - The
provisions of written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform
activities which are usually necessary or desirable in the usual business cr
trade of the employer, except where the employment has been fixed for a
specific project or undertaking the completion or termination of which has
been determined at the time of the engagement of the employee or where the
work or services to be performed is seasonal in nature and the employment is
for the duration of the season.

‘An employment shall be deemed to be casual if it is not covered by the
preceding paragraph Provided, That, any employee who has rendered at
least one year of service, whether such service is continuous or broken, shall
be considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity exists.]
STATUS OF EMPLOYMENT. - ALL EMPLOYEES ARE DEEMED
REGULAR EXCEPT THOSE UNDER:

A) PROBATIONARY EMPLOYMENT WHICH SHALL NOT
EXCEED SIX (6) MONTHS AND AS DEFINED IN ARTICLE
281 OF THIS ACT ; OR

B) INDUSTRY-SPECIFIC WORK ARRANGEMENT AS MAY BE
DETERMINED BY THE SECRETARY OF LABOR AND
EMPLOYMENT THROUGH TRIPARTITE APPROVAL,
PROVIDED THAT THERE SHALL BE A_ WRITTEN
CONTRACT OF EMPLOYMENT WHICH MUST NOT BE LESS
THAN SIX (6) MONTHS BUT NOT MORE THAN ONE YEAR
SPECIFYING THE RIGHTS, TERMS AND CONDITIONS OF
EMPLOYMENT NOT LOWER THAN THE MINIMUM
STANDARDS SET BY LAWS OR REGULATIONS.

THE ENGAGEMENT OF THE SAME EMPLOYEE AFTER THE
EXPIRATION OF THE PROBATIONARY EMPLOYMENT OR CONTRACT
OF EMPLOYMENT IN AN INDUSTRY-SPECIFIC WORK ARRANGEMENT
SHALL RENDER THE EMPLOYMENT REGULAR.’

SEC. 9. Article 296 of the Labor Code is hereby amended to read as follows

“ART. 296. PROBATIONARY EMPLOYMENT. - Probationary


employment shall not exceed six (6) months from the [date the employee
started working, unless it is covered by an apprenticeship agreement
stipulating a longer period] FIRST DAY OF SERVICE REGARDLESS OF
THE NATURE OF WORK TO BE PERFORMED.

“THE RIGHTS, TERMS AND CONDITIONS OF EMPLOYMENT OF A
PROBATIONARY EMPLOYEE WHICH SHALL NOT BE LOWER THAN
THE MINIMUM STANDARDS SET BY LAWS OR REGULATIONS, THE
JOB DESCRIPTION, AND QUALIFICATION STANDARDS FOR REGULAR
EMPLOYMENT SHALL BE IN A WRITTEN CONTRACT AND MADE
KNOWN BY THE EMPLOYER TO THE EMPLOYEE AT THE TIME OF HIS
ENGAGEMENT.

"The services of a[n] PROBATIONARY employee [who has been
engaged on a probationary basis] may be terminated for a just AND
AUTHORIZED cause UNDER ARTICLES 297 AND 298 OF THE LABOR
CODE or when he fails to qualify as a regular employee [in accordance with
reasonable standards made known by the employer to the employee at the
time of his engagement. An employee who is allowed to work after a
probationary period shall be considered a regular employee).

“THE PROBATIONARY EMPLOYEE SHALL AUTOMATICALLY
BECOME A REGULAR EMPLOYEE AFTER MEETING THE STANDARDS
STIPULATED IN THE WRITTEN CONTRACT OF PROBATIONARY
EMPLOYMENT."

SEC. 10. Implementing Rules and Regulations. - The Secretary of Labor

and Employment shall promulgate the necessary implementing rules and regulations
within one hundred and twenty (120) days from the effectivity of this Act

SEC. 11. Separability Clause. - If any provision of this law or the application

thereof to any person or circumstance is held invalid, the remainder of this law or the.
application of such provision or part to other persons of circumstances shall not be
affected thereby.

SEC. 12. Repealing Clause. - All laws, decrees, rules, and regulations or

parts thereof which are contrary to or inconsistent with this Act are hereby repealed
or modified accordingly.

SEC. 13. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in a newspaper of national circulation.

Approved