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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Constitution Hills, Quezon City

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SEVENTEENTH CONGRESS
First Regular Session

QEoc
House BiLt no 8898

Introduced by Honorable Mark O, Go

EXPLANATORY NOTE

Cases of violation on the prohibition on labor-only contracting and what is
commonly described and tagged as “5-5-5" or “endo” have become rampant and
unabated for the past few years. Circumvention of the prohibition on labor-only
contracting persists despite the provisions of the Labor Code and its implementing
rules, DOLE Department Order 18-A

These practices perpetuated by some contractors have developed a
misconception and imputed a bad reputation on the whole manpower service
industry as violator of workers’ rights characterized by non-payment of proper
wages, benefits and other incentives, and the execution of -month end of contract
or "ENDO,"

As of 2014, the Philippine Statistical Authority (PSA) estimated that there are
621,908 agency-hired workers employed in various business establishments in the
Philippines, For the same year, records of the Integrated Survey on Labor and
Employment (ISLE) showed an estimate of 21,650 (61.5%) of the establishments
engaged the services of agency-hired workers

The manufacturing industry hired the largest number of agency workers at
244,538 or 39.3% of total agency-hired workers reported, Nearly two-fifths (36.8% or
228,886) of total agency-hired workers were engaged in security and janitorial
services, The next largest share of agency-hired workers is in wholesale and retail
trade at 90,763 or 14.6%, Agriculture, forestry and fishing ranked next at 7.1% or
43,955. This was followed by accommodation and food service activities (7.0% or
43,354)

For 2016, the figure rose to an estimate of 2,000,000 contractor's employees.
These figures covered those contractual workers who are employed under legitimate
contractors registered with the Department of Labor and Employmen (DOLE). As
per DOLE records, there are now 5,600 legitimate service contractors registered with
the Department


According to a study by the Boston Consulting Group, service contracting has
helped 61 million workers gain access to the international labor market. Service
contracting is a worldwide trend

The guiding principle of D.0.18-A provides: “Contracting and subcontracting
arrangement are expressly allowed by law and are subject to regulations for the
promotion of employment and the observance of the rights of workers to just and
humane conditions of work, security of tenure, self-organization and collective
bargaining.”

It is the intent of this proposed measure to redefine and simplify job
contracting and labor-only contracting under the term “outsourcing of work.” Under
this bill, outsourcing of work refers to the contracting out of work or service by an
employer to a contractor or sub-contractor whose employees perform functions and
activities which are directly or indirectly related to the principal business of the
employer.

This bill seeks to regulate outsourcing of work by providing conditions for its
practice and penalties for any violation.

The measure also seeks to resolve recurring problems in the practice of
contractualization and to achieve a “win-win’ situation for both the employees and
employers, being essential components of a progressive economy, and as partners
in attaining sustainable growth and development for the country

This is an opportune time to do what is necessary and to make changes in the
light of current global order that will be beneficial for our employees, employers,
manpower service contracting industry and the economy.

Hence, immediate consideration and approval of this proposed measure is
earnestly sought.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Constitution Hills, Quezon City

SEVENTEENTH CONGRESS,
First Regular Session

8556

HOUSE BILL NO.

Introduced by Honorable Mark O. Go

AN ACT
REGULATING THE OUTSOURCING OF WORK AMENDING FOR THE PURPOSE
ARTICLE 106 OF PRESIDENTIAL DECREE NO. 442, AS AMENDED,
OTHERWISE KNOWN AS THE LABOR CODE OF THE PHILIPPINES

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

Section 1. Article 106 of Presidential Decree No. 442, as amended, is hereby
further amended to read as follows:

“Article 108. OUTSOURCING OF WORK BY A 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 and Employment 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 purposes 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 workers in the same manner and
extent as if the latter were directly employed by him]

“OUTSOURCING OF WORK" REFERS TO THE CONTRACTING OUT OF
WORK OR SERVICE BY AN EMPLOYER TO A CONTRACTOR OR SUB-
CONTRACTOR WHOSE EMPLOYEES PERFORM FUNCTIONS AND.
ACTIVITIES WHICH ARE DIRECTLY OR INDIRECTLY RELATED TO THE
PRINCIPAL BUSINESS OF THE EMPLOYER.

THE PERIOD OF CONTRACT FOR OUTSOURCING OF WORK SHALL
NOT BE LESS THAN ONE (1) YEAR AND MAY BE SUBJECT FOR
RENEWAL. DURING THE PERIOD OF THE CONTRACT, AN EMPLOYER-
EMPLOYEE RELATIONSHIP EXISTS BETWEEN THE EMPLOYEES AND.
CONTRACTOR OR SUB-CONTRACTOR. IN THE EVENT OF NON-
PAYMENT OF WAGES, THE OBLIGATION OF THE EMPLOYER AND THE
CONTRACTOR OR SUB-CONTRACTOR, AS PROVIDED UNDER THE
SECOND PARAGRAPH OF THIS ARTICLE SHALL BE FOLLOWED.

OUTSOURCING OF WORK SHALL BE ALLOWED UNDER THE
FOLLOWING CONDITIONS:

1, EMPLOYEES OF THE CONTRACTOR OR SUB-CONTRACTOR
SHALL NOT EXCEED 20% OF THE TOTAL EMPLOYEES OF AN
EMPLOYER OR COMPANY:

2. WITHIN THE PERIOD OF HIS CONTRACT, EMPLOYEES OF THE
CONTRACTOR OR SUB-CONTRACTOR SHALL NOT BE
TERMINATED WITHOUT JUST CAUSE AND DUE PROCESS, AS
PROVIDED THIS DECREE;

3. FOR OUTSOURCING OF WORK, IN CASE OF NON-COMPLETION
OF THE CONTRACT PERIOD DUE TO THE FAULT OF THE
EMPLOYER, EMPLOYEES OF THE CONTRACTOR OR SUB-
CONTRACTOR ARE ENTITLED TO RECEIVE SALARY UP TO THE
LAST DAY OF THE CONTRACT;

4, AFTER COMPLETION OF THE WORK OR PROJECT, THE
EMPLOYEES OF THE CONTRACTOR OR SUB-CONTRACTOR ARE
ENTITLED TO RECEIVE A SEPARATION PAY EQUIVALENT TO
4/12 OF THE ANNUAL SALARY;

IN THE EVENT OF A RE-ASSIGNMENT OF THE EMPLOYEES OF
THE CONTRACTOR OR SUB-CONTRACTOR TO ANOTHER


PROJECT OF THE SAME CONTRACTOR, ALL ASSIGNMENTS IN
VARIOUS PROJECTS SHALL BE THE BASIS IN COMPUTING AND
DETERMINING THE NUMBER OF YEARS OF SERVICE
RENDERED BY THE EMPLOYEES.

5. THE EMPLOYEES OF THE CONTRACTOR OR SUB-CONTRACTOR
ARE ENTITLED TO OTHER BENEFITS AND INCENTIVES
PROVIDED BY EXISTING LAWS;

6, THE RIGHT TO ORGANIZE SHALL BE GUARANTEED BY THE
CONTRACTOR OR SUB-CONTRACTOR; AND

7. THE CONTRACTOR OR SUBCONTRACTOR SHALL PROVIDE
SKILLS COMPETENCY AND TRAINING PROGRAM FOR THE
EMPLOYEES,

TO ENSURE COMPLIANCE TO THE PROVISIONS OF THIS ACT, THE
CONTRACTOR OR SUB-CONTRACTOR ENGAGED IN OUTSOURCING OF
WORK MUST BE REGISTERED WITH THE DEPARTMENT OF LABOR AND
EMPLOYMENT WHICH SHALL EXERCISE ITS VISITORIAL POWER IN
THE WORKPLACE OF THE EMPLOYEES OF THE CONTRACTOR OR
SUB-CONTRACTOR.”

XXX XXX XXX

Section 2. Article 288 of the same Decree, as amended, is hereby further
amended to be read as follows

“Article 288. Penalties, - XXX

XXX XXX XXX

A CONTRACTOR OR SUBCONTRACTOR WHO IS GUILTY OF VIOLATING
ARTICLE 106 OF THIS DECREE SHALL BE IMPOSED THE PENALTY OF
FIFTY THOUSAND PESOS TO ONE MILLION PESOS TO BE
DETERMINED BY THE COURT.

FOR THE SECOND OFFENSE, THE CONTRACTOR OR SUB-
CONTRACTOR SHALL BE IMPOSED THE PENALTY OF ONE HUNDRED
THOUSAND PESOS TO TWO MILLION PESOS TO BE DETERMINED BY
THE COURT AND SHALL BE SUBJECTED TO THE REVOCATION OF
LICENSE TO OPERATE AN OUTSOURCING BUSINESS

XXX XXX XXX

XXX XXX XXX."


Section 3. Repealing Cause. - All laws, decrees, executive orders, letters of
implementations, rules and regulations or part or parts thereof inconsistent with any
provision of this Act are hereby repealed, modified, superseded or amended
accordingly

Section 4. Effectivity.- This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in at least two (2) national newspapers of
general circulation, whichever comes earlier.

Approved,