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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

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House Bill Nod 789

Introduced by REPRESENTATIVE ARTHUR C. YAP

EXPLANATORY NOTE

Presidential Decree 442, otherwise known as the Labor Code of the
Philippines, as amended, attempts to protect non-regular workers by providing
for the solidary liability of the principal and the labor-only contractor for the
former’s unpaid wages.

‘Thereafter, the Labor Code was amended by P.D. No. 570-A, Section
22 of which is the predecessor of what is now Article 106 of the Labor Code,
which provides:

“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 and Employment may, by appropriate regulations, restrict or
prohibit the contractingout 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 "Iabor-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.”

Over four decades later, the wording has remained the same, despite the
many interpretations and amendments brought by various department orders
and the unresolved confusion as to the meanings of “contractor” and
“subcontractor.”

Where an entity is declared to be a labor-only contractor, the employees
supplied by said contractor to the principal employer become regular
employees of the latter. Having gained regular status, the employees are
entitled to security of tenure and can only be dismissed for just or authorized
causes and after they had been afforded due process

Despite these gains, there must still be a finding from labor arbiters that
labor-only contracting existed before workers can claim reinstatement and
backwages. Even then, it is possible that workers would still be unable to
claim the benefits granted by the labor tribunals and the courts.

According to DOLE, more and more companies are engaged in
contractualization. These companies include those in manufacturing, hotels,
restaurants and fast food, and retail sectors,

It was reported that the number of registered companies that are
considered principal owners reached more than 26,000 — and they contract
employees from a registered number of more than 5,000 contractors.

However, contractualization per se is not bad. It is a perfectly valid and
useful employment mode and if done right, it has benefits for employer and
employee alike. However, there are two main ways wherein a perfectly legal
concept like contractualization is abused.

The first one is ‘endo’ or ‘end of contract,’ in which a worker is serially
re-hired on five month contracts to escape the legal stipulation that an
employee must be considered permanent after six months.The second is the
underpayment of contractual workers, which happens two ways. Employees
are often misclassified in order to qualify them for a lower minimum wage;
and more generally, many employees are paid less on a contractual basis for
work that pays significantly better in comparable permanent jobs.

Both of these practices are already prohibited by law, but the law has
many loopholes that most of the practitioners are doing them completely
legally.

This measure seeks to amend the Labor Code to eliminate these abuses
It particularly amends Articles 106 and 280 so that subcontracting
arrangements makes explicit the currently implied requisite of a trilateral
relationship between the principal, the subcontractor, and the subcontracted
employee and requirement for a written contract, stipulating precisely the
terms and conditions for employment of a company’s workers, would help



clarify ambiguities with regard to the nature of their employment. These
proposed amendments will help to ensure that employers who decide to hire
employees on a contractual basis will also be required to clearly stipulate in
such contracts the particular type of contractual relationship established. This
premise is anchored on a real situation in the labor force that not all employees
can be employed with a regular status on establishments, and that there may
exist situations and events where employees may _ be hired for jobs with
seasonal nature, or projects that terminate or ends at specific period of time,
special events like conventions, exhibits and related activities that are time-
bound.

The amendments shall also cover these type of workers, including those that
are in service with the Government who are not qualified to be conferred with
regular or temporary appointments in the Civil Service but who functions are
deemed necessary to deliver or support delivery of essential government
services to the general public; and empower these type of workers who are
left behind by the “regularization” phenomenon with equal if not more than
sufficient protection and social safety nets that are provided to and enjoyed by
regularly-situated type of workers, minus the security of tenure of regular
employees.

This will also enable labor mobility to a protected workforce and enable
especially the first-entrants to the labor force, new graduates and even
unskilled, skilled or partly-skilled workers to move between employers, place
and venue of work, or to areas that provide alternative employment
opportunities outside of the usual concentration on urbanized centers.

By establishing employment relationships between the employer and
the regular employee, the direct employer and the contractual employee, and
the subcontractor and the subcontracted employee, the lines of accountability
are determined, making it easier for employees to pursue their claims for
benefits against the appropriate party.

Also, the prohibitions on labor-only contracting are retained, and its
definitions concretized to ensure the protection of subcontracted employees
from exploitative employment regimes, which are utilized by principals to
circumvent laws on the granting of benefits, the exercise of the freedom of
association and collective bargaining, and the acquisition of security of tenure

Under these proposed amendments, the doctrine laid out in
jurisprudence that labor-only contractors are mere agents of the principal is
wholly retained. What is made express is that, once a labor-only contracting
arrangement is found, the subcontracted employees are automatically deemed
to be regular employees of the principal.

Moreover, these amendments will entitle a non-regular employee to be
paid at least five percent (5%) higher than the required minimum wage and
shall already be entitled to all the benefits of a regular employee as provided
for in Book 3 of the Labor Code, as amended, as well as the 13 month pay


and other benefits as provided by law. Same as a minimum wage eamer, the
income of these non-regular employees shall also be tax exempt. These
monetary benefits shall be included in the payment of the employee’s monthly
salary on a pro-rated basis. However, said non-regular employees shall not be
covered by Article 279 and may be removed summarily, with or without
cause, by the employer.

With the proposed legislation I believe that the plight of non-regular
workers would begin to be relieved. They will be empowered.

Hence, support of this bill is earnestly sought.

ARTHYR CAVAP
Represenfative



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

House Bill No. 8769

Introduced byREPRESENTATIVE ARTHUR C. YAP

AN ACT

EMPOWERING NON REGULAR WORKERS,

ELIMINATING ABUSIVE CONTRACTUALIZATION

PRACTICES AND PENALIZING EMPLOYERS AND

CONTRACTORS WHO COMMIT SUCH ABUSES, BY

AMENDING FOR THIS PURPOSE BOOK THREE,

TITLE TWO AND BOOK SIX, TITLE 1 OF

PRESIDENTIAL DECREE NO. 442, OTHERWISE

KNOWN AS THE LABOR CODE OF THE PHILIPPINES,

AS AMENDED
Be it enacted by the Senate and House of Representatives of the Philippines
inCongress assembled.

SECTION 1. Title. This Act shall be known as the “Labor Force
Empowerment Act.”

SECTION 2. Book III, Title II, chapter III, Article 106 of the Labor
Code, as amended is hereby further amended, by adding new articles as
follows:

ARTICLE 106-A CONCEPT AND NATURE OF
SUBCONTRACTING ARRANGEMENTS. — IN LEGITIMATE
SUBCONTRACTING, THERE EXISTS A TRILATERAL
RELATIONSHIP UNDER WHICH THERE IS A CONTRACT FOR A

SPECIFIC JOB, WORK OR SERVICE BETWEEN THE PRINCIPAL


AND THE SUBCONTRACTOR, AND A CONTRACT OF
EMPLOYMENT BETWEEN THE SUBCONTRACTOR AND ITS
WORKERS. HENCE, THERE ARE THREE PARTIES INVOLVED IN

T

E ARRANGEMENTS: THE PRINCIPAL WHICH DECIDES TO

FARM OUT A JOB OR SERVICE TO A SUBCONTRACTOR, THE
SUBCONTRACTOR WHICH HAS THE CAPACITY TO
INDEPENDENTLY UNDERTAKE AND ACTUALLY UNDERTAKES
THE PERFORMANCE OF THE JOB, WORK OR SERVICE, AND
THE SUB-CONTRACTED WORKERS ENGAGED BY THE SUB-
CONTRACTOR TO ACCOMPLISH THE JOB, WORK OR SERVICE.
FOR PURPOSES OF THIS CODE, “SUBCONTRACTING” REFERS
TO AN ARRANGEMENT WHEREBY:

(A) A PRINCIPAL AGREES TO PUT OUT OR FARM OUT
WITH A 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 THE
PREMISES OF THE PRINCIPAL; OR

(B) A PERSON, PARTNERSHIP, ASSOCIATION OR
CORPORATION WHICH, NOT BEING A PRINCIPAL CONTRACTS
WITH A SUB-CONTRACTOR FOR THE PERFORMANCE OF ANY
WORK, TASK, JOB OR PROJECT.

ARTICLE 106-B. PROHIBITION AGAINST LABOR-ONLY

SUBCONTRACTING. — ENGAGING IN LABOR-ONLY


SUBCONTRACTING, OR CONTRACTING WITH A LABORONLY
SUBCONTRACTOR IS STRICTLY PROHIBITED. FOR THIS
PURPOSE, LABOR-ONLY CONTRACTING REFERS TO AN
ARRANGEMENT WHERE THE SUBCONTRACTOR MERELY
RECRUITS, SUPPLIES, OR PLACES WORKERS TO PERFORM A
JOB, WORK OR SERVICE FOR A PRINCIPAL, INCLUDING

INSTANCES WHERE ANY OF THE FOLLOWING IS PR Ti

(A) THE SUBCONTRACTOR DOES NOT HAVE
SUBSTANTIAL CAPITAL AND INVESTMENT WHICH RELATES
TO THE JOB, WORK OR SERVICE TO BE PERFORMED;

(B) THE EMPLOYEES RECRUITED, SUPPLIED OR PLACED
BY SUCH SUBCONTRACTOR ARE PERFORMING ACTIVITIES
USUALLY NECESSARY OR DESIRABLE OR DIRECTLY RELATED
TO THE USUAL BUSINESS OF THE PRINCIPAL; OR

(C) THE PRINCIPAL HAS THE RIGHT TO CONTROL,
WHETHER EXERCISED OR NOT, NOT ONLY THE END TO BE
ACHIEVED BUT ALSO THE MANNER AND MEANS TO BE USED
IN REACHING THAT END. IN CASES OF LABOR-ONLY
CONTRACTING, THE SUBCONTRACTED EMPLOYEES ARE

DEE

ED REGULAR EMPLOYEES OF THE PRINCIPAL,
OTHERWISE, THE SUBCONTRACTED EMPLOYEES ARE
DEEMED REGULAR EMPLOYEES OF THE SUBCONTRACTOR

OR SERVICE PROVIDER.


SECTION 3. Book VI, Title I, of the Labor Code, as amended, is
hereby further amended as follows:

Art. 280, Regular and casual employment. —-IN THE ABSENCE OF
A WRITTEN AGREEMENT, AN EMPLOYMENT SHALL BE
DEEMED REGULAR FROM THE TIME OF ITS
COMMENCEMENT.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 or 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 service 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, IN THE SAME OR SIMILAR POSITION, 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.

PROVIDED FURTHER, THAT A CONTRACTUAL OR

CASUAL EMPLOYEE SHALL BE PAID AT LEAST FIVE PERCE!

a
(5%) HIGHER THAN THE REQUIRED MINIMUM WAGE AND

SHALL ALREADY BE ENTITLED TO ALL THE BENEFITS OF A


REGULAR EMPLOYEE AS PROVIDED FOR IN BOOK 3 OF
PRESIDENTIAL DECREE 442, AS AMENDED,THE 13™ MONTH
PAY, AND OTHER BENEFITS OF A REGULAR EMPLOYEE AS
PROVIDED BY LAW SUCH AS BUT NOT LIMITED TO, LEAVE
PAY, SEVERANCE PAY OF 1 MONTH SALARY OF SALARY FOR
EACH YEAR OF SERVICE COMPUTED PRO-RATA PER EACH
MONTH OF ACTUAL SERVICE RENDERED, MANDATORY
SOCIAL SECURITY, PHILHEALTH AND PAG-IBIG FUND
PREMIUM CONTRIBUTIONS THAT MUST BE REMITTED BY
EMPLOYER WITHIN THE NEXT 15 DAYS ENDING THE
PREVIOUS MONTH OF WORK BY THE EMPLOYEE. THESE
BENEFITS SHALL BE INCLUDED IN THE PAYMENT OF THE
EMPLOYEE’S MONTHLY SALARY ON A PRO RATED BASIS.
INCOME OF SAID EMPLOYEES SHALL ALSO BE TAX EXEMPT.

NEVERTHELESS, EMPLOYEES COVERED BY THE
PRECEEDING PARAGRAPH SHALL NOT HAVE THE RIGHT TO
SECURITY OF TENURE UNDER ARTICLE 279 SUCH THAT SAID
EMPLOYEE MAY REMOVED SUMMARILY, WITH OR WITHOUT
CAUSE, BY THE EMPLOYER.

MOREOVER, SAID EMPLOYEE SHALL, UPON THE

TERMINATION OF EMPLOYMENT, BE ENROLLED IN ANY
TESDA ACCREDITED INSTITUTION FOR THE UPGRADING OF
HIS SKILLS, FREE OF CHARGE. THE EXPENSES SHALL BE

FULLY SUBSIDIZED BY TESDA.


SECTION 4.Book VI, Title I, of the Labor Code, as amended, is hereby

amended by adding a new article as follows:

ARTICLE 280-A. INITIAL AND SUBSEQUENT ENGAGEMENTS. —
ANY EMPLOYEE ENGAGED FOR A DEFINITE PERIOD OF TIME,
PROVIDED THAT SUCH ENGAGEMENT IS COVERED BY A
WRITTEN CONTRACT OF EMPLOYMENT SPECIFYING THE

RIGHTS, TERMS, AND CONDITIONS OF EMPLOYME

‘T NOT
LOWER THAN THE MINIMUM STANDARD SET BY LAWS OR
REGULATIONS, SHALL NOT BE DEEMED A REGULAR
EMPLOYEE UPON THE EXPIRATION OF SAID CONTRACT.

SUBSEQUENT ENGAGEMENT UNDER ANY ARRANGEMENT,
WITH OR WITHOUT A WRITTEN CONTRACT, REGARDLESS OF
WHETHER THE EMPLOYEE WAS DIRECTLY HIRED OR
THROUGH A CONTRACTOR OR THIRD PARTY, WOULD
AUTOMATICALLY RENDER THE EMPLOYMENT REGULAR: (1)
WHEN THE INITIAL CONTRACT THAT EXPIRED WAS FOR A
PERIOD OF AT LEAST SIX (6) MONTHS AND THE WORK IS
DESIRABLE TO THE BUSINESS OF THE EMPLOYER, OR (II)
WHEN THE WORKER HAS ACCUMULATED AN AGGREGATE
PERIOD OF AT LEAST SIX (6) MONTHS FOR SUCCESSIVE PRIOR
CONTRACTS OR ARRANGEMENTS OF SHORTER DURATION
AND THE WORK IS DESIRABLE TO THE BUSINESS OF THE

EMPLOYER.


SUBSEQUENT ENGAGEMENT OF THE SAME EMPLOYEE
SHALL BE DEEMED COVERED BY THE PRECEDING
PARAGRAPH AND THE EMPLOYEE DEEMED TO HAVE
ATTAINED REGULAR EMPLOYMENT IN THE PROPER CASES
EVEN WHEN THE NEW EMPLOYER IS A DIFFERENT ENTITY;
PROVIDED, THAT THE OWNERSHIP OF AT LEAST TWO-THIRDS
(2/3) OF THE TOTAL STOCKHOLDING OR OTHER
PROPRIETARY INTEREST OF THE FIRST AND THE
SUBSEQUENT ENTITY BELONGS TO ONE AND THE SAME
JURIDICAL PERSON OR INDIVIDUAL; OR ONE EMPLOYER
EXERCISES OVER THE OTHER EMPLOYER COMPLETE
CONTROL OR DOMINATION OF FINANCES, POLICIES, AND

BUSINESS PRACTICES.

ARTICLE 280-B. PENALTIES FOR NON-COMPLIANCE. — AN
EMPLOYER WHO FAILS TO IMPLEMENT ARTICLE 106 AND THE
PRECEDING PROVISION, OR WHO INTENDS TO CIRCUMVENT
SAID PROVISIONS BY INDICATING OTHERWISE IN THEIR
CONTRACT WITH THEIR EMPLOYEE SHALL BE PENALIZED BY

AF

IE OF FIFTY THOUSAND PESOS (PHPS0,000.00) FOR THE

FIRST OFFENSE; ONE HUNDRED THOUSAND PESOS
(PHP100,000.00) FOR THE THIRD OFFENSE, AND FIVE HUNDRED
THOUSAND PESOS (PHP500,000.00) FOR THE THIRD OFFENSE. IN
ADDITION, THE EMPLOYER SHALL IMMEDIATELY

REGULARIZE THE EMPLOYEE, OR IF REGULARIZATION IS NO


LONGER FEASIBLE, PAY A SEPARATION FEE TO THE
EMPLOYEE EQUIVALENT TO THE LATTER’S THREE MONTHS
SALARY.”

SECTION 5.1mplementing 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

CTION 6. Separability Clause - \f any of the provisions of this Act
is declared invalid or unconstitutional, the remaining parts or provisions
hereof not affected thereby shall remain in full force and effect

SECTION 7. Repealing Clause. - All laws, decrees, executive orders,
proclamations, rules and regulations, and issuances, or parts thereof,
inconsistent with the provisions of this Act are hereby repealed or modified
accordingly.

SECTION 6. Effectivity Clause. - This Act shall take effect fifteen
(15) days after its publication in at least two (2) national newspapers of

general circulation:

Approved.