Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

Sixteenth Congress
Second Regu ar Session

541

HOUSE BILLNO.____

INTRODUCED BY: REP. FLORENCIO T. FLORES, JR., REP. KARLO ALEXEI 8.
NOGRALES, AND REP. DEOGRACIAS B. RAMOS. JR.

EXPLANATORY NOTE

Innovation and fast-paced technological progress has constantly redefined jobs and
work arrangements such as contracting or subcontracting, This has given rise to the
mushrooming of forms of employment engagem'znt that were nol adequately captured by the
provisions of the 1974 Labor Code of the Philigpines, as amended, which was tailored for
the manufacturing industries work arrangement Gaps in the entitlement of labor standards
benefits. exercise of labor rights, the blurring of employer-employee relationship and the lack
of security of tenure are burning issues under such work arrangements

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 through industry tripartite-determined
functions or standards on contracting and subcontracting. (3) in the absence of industry-
tripartite standards, application of the general standards as determined by DOLE Secretary
after consultation with the TIPC; (4) emphasizing the prohibition against labor-only
contracting: (5) licensing of contractors and subcontractors: (6) mandatery posting of bor J to
answer for the wages and other monetary benetits due the employees in case the contr
fails to pay the same: (7) coverage of the cuoperatives as employers in contracting
subcontracting; and (8) reiteration of solidary liability in case of a finding of labor-only
contracting.

Thus, the passage of this important measure is earngstly sought

F LORENCIQ KARLO ALEXEI B. NOGRALES

RAGIAS B. RAMOS, JR


Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

Sixteenth Congress
Second Regular Session

5416
HOUSE BILL NO.

INTRODUCED BY: REP. FLORENCIO T. FLORES, JR|, REP. KARLO ALEXEI B.
NOGRALES, AND REP. DEOGRACIAS B|RAMOS, JR

An Act Specifying the Requirements of Legitimate Cgntracting/Subcontracting
amending for this Purpose Articles 106 to 109 of Presidential Decree No. 442,
Otherwise Known as the Labor Code of the Philippines, as amended

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

“ARTICLE 106. CONTRACTOR OF SUBCONTRACTOR - Whenever a
PRINCIPAL EMPLOYER enters into a contract with janother 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 Act,

FOR THIS PURPOSE, LEGITIMATE CONTRACTOR OR
SUBCONTRACTOR MUST:

1) BE LICENSED WITH THE DEPARTMENT OF LABOR AND
EMPLOYMENT:
2) HAVE SUBSTANTIAL CAPITALIZATION OF AT LEAST THREE

MILLION PESOS OR AS MAYBE DETIERMINED THROUGH
TRIPARTITE CONSULTATION;
HAVE EQUIPMENT, MACHINEFIES AND TOOLS NECESSARY TO
PERFORM OR COMPLETE “HE JOB, WORK OR SERVICE
CONTRACTED OUT; AND.

°

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

THE SECRETARY OF LABOR AND EMPLOYMENT, BY APPROPRIATE
REGULATIONS, SHALL DETERMINE FUNCTIONS THAT CAN BE
SUBCONTRACTED BASED ON THE RECOMMENDATION BY APPROPRIATE
INDUSTRY TRIPARTITE COUNCIL. IN THE ABSENCE OF INDUSTRY-



SPECIFIC TRIPARTITE, STANDARDS, ON
CONTRACTING/SUBCONTRACTING, THE SECRETARY OF LABOR AND
EMPLOYMENT SHALL DETERMINE STANDARDS AND ISSUE APPROPRIATE
REGULATIONS AFTER CONSULTATIONS WITH THE NATIONAL TRIPARTITE
INDUSTRIAL PEACE COUNCIL.

In the event that the contractor or subcontractor fails to pay the wages
AND OTHER WAGE-RELATED BENEFITS INCLUDING SOCIAL WELFARE
BENEFITS, the PRINCIPAL EMPLOYER shall be jointly and severally liable with
his/her contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he/she is liable
to employees directly employed by him/her.

LABOR-ONLY CONTRACTING IS PROHIBITED. There is “labor-only
contracting where the person supplying workers to a principal does not have
substantial capital AND investment in the form of tools, equipment, machineries,
work premises, among others, OR [and] the workers recruited and placed
ARE UNDER THE CONTROL AND SUPERVISION OF THE PRINCIPAL
EMPLOYER [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 PRINCIPAL employer
who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him,

SECTION 2. Article 107 of the Labor Code as amended, is hereby amended to
read as

“ARTICLE 107. PRINCIPAL [Indirect] EMPLOYER. The provisions of the
immediately preceding article shall [likewise] apply to any person, partnership
association or corporation which [net-being-an-empleyer.] contracts with an
independent contractor for the performance of any work, task, job or project

SECTION 2. Article 107-A is hereby inserted in the Labor Code of the
Philippines. as amended, to read as:

ARTICLE 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 GUIDELINES PRESCRIBE 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 GOVERNMENTAL AUTHORITIES

UNLICENSED CONTRACTORS Of SUBCONTRACTORS SHALL BE
DEEMED ENGAGED IN LABOR-ONLY CONTRACTING, THE PRINCIPAL
EMPLOYER SHALL BE CONSIDERED THE DIRECT EMPLOYER OF ALL
EMPLOYEES UNDER THE INTRACTING/SUBCONTRACTING



AGREEMENT.

THE SECRETARY OF LABOR AND EMPLOYMENT MAY IMPOSE A
FINE AGAINST UNLICENSED CONTRACTORS OR SUBCONTRACTORS IN
AN AMOUNT TO BE DETERMINED THR UGH CONSULTATION WITH THE
NATIONAL TRIPARTITE INDUSTRIAL PEACE COUNCIL

SECTION 4. Article 108 of the Labor Code as amended, is hereby amended to
read as

“ARTICLE 108. MANDATORY POSTING OF BOND. - THE
CONTRACTOR OR SUBCONTRACTOR SHALL FURNISH A BOND TO THE
PRINCIPAL EMPLOYER EQUAL TO THE COST OF LABOR UNDER THE
CONTRACT BETWEEN THE CONTRACTOR OR SUBCONTRACTOR AND ITS
EMPLOYEES. THE BOND SHALL ANSWER FOR THE WAGES AND OTHER
MONETARY BENEFITS DUE THE EMPLOYEES IN CASE THE CONTRACTOR
OR SUBCONTRACTOR FAILS TO PAY THE SAME.

SECTION 5. A new Article 108-A of the Labor Code, as amended, is hereby
inserted to read as.

ARTICLE 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 CONTRACTOR'S OR SUBCONTRACTOR’S
EMPLOYEES:

«MINIMUM WAGE

+ SAFE AND HEALTHFUL WORKING CONDITIONS.

* LABOR STANDARDS SUCH AS BUT NOT LIMITED TO SERVICE
INCENTIVE LEAVE, REST DAYS, OVERTIME PAY, HOLIDAY PAY
13™ MONTH PAY AND SEPARATION PAY AS MAY BE PROVIDED
IN THE SERVICE AGREEMENT OR UNDER THE LABOR CODE;

+ RETIREMENT BENEFITS U THE SSS OR RETIREMENT
PLANS OF THE CONTRACTOR, IF THERE IS ANY

* SOCIAL SECURITY AND WELFARE BENEFITS.

* SELF-ORGANIZATION, COLLECTIVE BARGAINING = AND
PEACEFUL CONCERTED ACTIVITIES; AND

* SECURITY OF TENURE

SECTION 5. Article 109 of the Labor Code as amended, is hereby amended to
read as:

“ARTICLE 109.SOLIDARY LIABILITY. — The provisions of existing laws to
the contrary notwithstanding, PRINCIPAL employer shall be held solidarily LIABLE
sponsible) with his/HER contractor or subcontractor for UNPAID WAGES, LABOR
ANDARDS AND OTHER WELFARE BENEFITS TO THE WORKERS IF THERE
|S A FINDING OF LABOR-ONLY CONTRACTING.



SECTION 6. 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

SECTION 7. Sunset Provision. - After every five (5) years from the effectivity of
this Act, there shall be an Automatic Review to be conducted by the Tripartite
Industrial Peace Council. For purposes of tis Act, Automatic Review shall mean the
programmed and systematic evaluation by the Council of the accomplishments and
impact of this Act, as well as the performance and accomplishments of the
Department of Labor and Employment and other implementing agencies, for
purposes and in aid of legislation

SECTION 8, Repealing Clause. - Alll laws, decrees, rules, and regulations or parts
thereof, which are contrary to or inconsistent with this Act are hereby repealed or
modified accordingly

SECTION 9. Separability Provisions. - 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

SECTION 10. Effectivity. - This Act shell take effect fifteen (15) days after its
publication in the Official Gazette or in st least two (2) newspapers of general
circulation.