Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

3462

House Bill No.

Introduced by DIWA Party-list Representative Emmeline Y. Aglipay

EXPLANATORY NOTE

The right of employees to security of tenure is enshrined in our Constitution, and yet
increased competition in the globalized marketplace means that this right has frequently been
subordinated to the needs of employers for a flexible labor force. This has given rise to the
phenomenon of contractualization or casualization, to an increase in what some countries refer to
as precarious employment. The difficulty lies in the fact that under such schemes, it is possible
that persons who do the same kind and amount of work as regular employees, persons who are
essential to the business of the employer, are nevertheless denied the status and attendant
benefits of a regular employee, often through the imposition of fixed term contracts, or through
the abuse of the probationary mechanism of employment.

While it is reasonable that industries under distressed conditions should be allowed to
engage in flexible labor practices, it is important that, consistent with the mandate of the
Constitution, these instances be the exceptions, and regular employment must be - in practice as
well as on paper - the general rule. The necessity of regular employment - one that allows for
upward mobility as a reward for excellence and diligence - to the Filipino family cannot be
overemphasized, for it is almost impossible to have a stable family, or even to plan for the future,
if one does not have a stable job.

The fact that contractualization has remained a concern for employees for more than a
decade shows that the current legal framework is inadequate at dealing with the issue. Abuses
occur in the current system because some unscrupulous employers can take advantage of grey
areas in the law in order to circumvent the right of employees to security of tenure, for no other
reason than to enhance the profits of an already profitable enterprise. This bill creates a new
categorization of employment, one that returns regular employment to its primary position, while
making allowances for distressed industries. It makes clear and precise distinctions and corrects
legal loopholes, and ensures that the nation’s legal framework will once again support the right
to security of tenure, rather than undermine it. While labor legislation always involves a balance
of interests and the sacrifices inherent thereto, to maintain the status quo is to ignore the plight of
those most in need of the protection of the law.

Lurge my fellow lawmakers to address the problem of contractualization and I earnestly
seek the approval of this bill.

EMMELINE Y. AGLIPAY
Representative, DIWA Party-list

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

G2
HOUSE BILL NO. 3402

Introduced by DIWA Party-list Representative Emmeline Y. Aglipay

AN ACT STRENGTHENING THE SECURITY OF TENURE OF EMPLOYEES,
AMENDING FOR THIS PURPOSE ARTICLES 106, 109, 280, AND 281 OF
PRESIDENTIAL DECREE NUMBER 442, OR THE LABOR CODE OF THE
PHILIPPINES; AND ADDING ARTICLES ARTICLE 108-A ON THE DEFINITION OF
CONTRACTING, ARTICLE 108-B ON THE PROHIBITION OF LABOR-ONLY
CONTRACTING, ARTICLE 108-C ON THE EXISTENCE OF AN EMPLOYER-
EMPLOYEE RELATIONSHIP BETWEEN THE CONTRACTOR AND
CONTRACTUAL EMPLOYEE, ARTICLE 108-D ON THE RIGHTS OF
CONTRACTUAL EMPLOYEES, ARTICLE 108-E ON THE CONTRACT BETWEEN
CONTRACTOR OR SUBCONTRACTOR AND CONTRACTUAL EMPLOYEE,
ARTICLE 108-F ON THE EFFECT OF TERMINATION OF CONTRACTUAL
EMPLOYMENT, ARTICLE 108-G ON LICENSING OF CONTRACTORS AND
SUBCONTRACTORS, ARTICLE 108-H ON GOOD FAITH CONTRACTING,
ARTICLE 280-A, DEFINING FIXED TERM EMPLOYMENT; AND ARTICLE 280-B,
DEFINING PROJECT EMPLOYMENT TO PRESIDENTIAL DECREE NUMBER 442,
OR THE LABOR CODE OF THE PHILIPPINES

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

SECTION 1. Short Title. — This Act shall be known as the “Security of Tenure Act of 2010”

SECTION 2. Article 106 of Presidential Decree Number 442, or the Labor Code of the
Philippines, is hereby amended with the addition of the following Articles, 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.

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SECTION 3. Presidential Decree Number 442, or the Labor Code of the Philippines, is hereby
amended with the addition of the following Articles, to read as follows:

ARTICLE 108-A. DEFINITION OF CONTRACTI = "CONTRACTING" OR
"SUBCONTRACTING" REFERS TO AN ARRANGEMENT WHEREBY A
PRINCIPAL AGREES TO ASSIGN OR DELEGATE TO A CONTRACTOR OR
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; PROVIDED THAT SUCH JOB, WORK, OR SERVICE
MUST FALL UNDER FIXED TERM EMPLOYMENT UNDER ARTICLE 280-A.

ARTICLE 108-B. PROHIBITION OF LABOR-ONLY CONTRACTING. — LABOR-
ONLY CONTRACTING IS HEREBY DECLARED PROHIBITED.

FOR THIS PURPOSE, LABOR-ONLY CONTRACTING SHALL REFER TO A
CONTRACTING ARRANGEMENT WHERE:

(A) THE CONTRACTOR OR SUBCONTRACTOR IS NOT TO PERFORM OR
COMPLETE AN IDENTIFIABLE JOB BUT MERELY RECRUITS, SUPPLIES OR
PLACES WORKERS TO PERFORM A JOB, WORK OR SERVICE FOR A
PRINCIPAL; AND

(B) EITHER OF THE FOLLOWING ELEMENTS IS PRESENT:

@ THE CONTRACTOR OR SUBCONTRACTOR DOES NOT HAVE
SUBSTANTIAL CAPITAL OR INVESTMENT WHICH RELATES
TO THE JOB, WORK OR SERVICE TO BE PERFORMED AND
THE EMPLOYEES RECRUITED, SUPPLIED OR PLACED BY
SUCH CONTRACTOR OR SUBCONTRACTOR = ARE
PERFORMING ACTIVITIES WHICH ARE NECESSARY IN THE
USUAL BUSINESS OR TRADE OF THE PRINCIPAL; OR

(ij) | THE CONTRACTOR DOES NOT EXERCISE THE RIGHT TO.
CONTROL OVER THE PERFORMANCE OF THE WORK OF THE
CONTRACTUAL EMPLOYEE.

THE FOREGOING PROVISIONS SHALL BE WITHOUT PREJUDICE TO THE
APPLICATION OF ARTICLE 248 (C ) OF THE LABOR CODE, AS AMENDED.

"SUBSTANTIAL CAPITAL OR INVESTMENT" REFERS TO CAPITAL STOCKS
AND SUBSCRIBED CAPITALIZATION IN THE CASE OF CORPORATIONS,
TOOLS, EQUIPMENT, IMPLEMENTS, MACHINERIES AND WORK

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PREMISES, ACTUALLY AND DIRECTLY USED BY THE CONTRACTOR OR
SUBCONTRACTOR IN THE PERFORMANCE OR COMPLETION OF THE JOB,
WORK, OR SERVICE CONTRACTED OUT.

THE "RIGHT TO CONTROL" SHALL REFER TO THE RIGHT RESERVED TO.
THE PERSON FOR WHOM THE SERVICES OF THE CONTRACTUAL
WORKERS ARE PERFORMED, TO DETERMINE NOT ONLY THE END TO BE
ACHIEVED, BUT ALSO THE MANNER AND MEANS TO BE USED IN
REACHING THAT END.

ARTICLE 108-C. EXISTENCE OF AN  EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN THE CONTRACTOR AND CONTRACTUAL
EMPLOYEE. — THE CONTRACTOR OR SUBCONTRACTOR SHALL BE
CONSIDERED THE EMPLOYER OF THE CONTRACTUAL EMPLOYEE FOR
PURPOSES OF ENFORCING THE PROVISIONS OF THE LABOR CODE AND
OTHER SOCIAL LEGISLATION; PROVIDED, THAT THE PRINCIPAL SHALL
BE CONSIDERED THE EMPLOYER IN THE CASE OF LABOR-ONLY
CONTACTING AS DEFINED BY ART. 108-B,

ARTICLE 108-D. RIGHTS OF CONTRACTUAL EMPLOYEES. - A
CONTRACTUAL EMPLOYEE SHALL BE A REGULAR EMPLOYEE OF THE
CONTRACTOR OR SUBCONTRACTOR, AND SHALL BE ENTITLED TO THE
RIGHTS OF A REGULAR EMPLOYEE.

ARTICLE 108-E. CONTRACT BETWEEN CONTRACTOR OR
SUBCONTRACTOR AND CONTRACTUAL EMPLOYEE. a
NOTWITHSTANDING ORAL OR WRITTEN STIPULATIONS TO THE
CONTRARY, THE CONTRACT BETWEEN THE CONTRACTOR OR
SUBCONTRACTOR AND THE CONTRACTUAL EMPLOYEE SHALL BE IN
WRITING, AND SHALL NOT INCLUDE ANY PROVISIONS CONTRARY TO
THIS CODE.

ARTICLE  108-F. EFFECT OF TERMINATION OF CONTRACTUAL
EMPLOYMENT. — IN CASES OF TERMINATION OF EMPLOYMENT DUE TO.
THE EXPIRATION OF THE CONTRACT BETWEEN THE PRINCIPAL AND
THE CONTRACTOR OR SUBCONTRACTOR, OR DUE TO THE COMPLETION
OF THE PHASE OF THE JOB, WORK, OR SERVICE FOR WHICH THE
CONTRACTUAL EMPLOYEE IS ENGAGED, THE EMPLOYEE SHALL NOT BE
ENTITLED TO SEPARATION PAY FROM THE PRINCIPAL. HOWEVER, THIS
SHALL BE WITHOUT PREJUDICE TO COMPLETION BONUSES OR OTHER
EMOLUMENTS, INCLUDING RETIREMENT PAY AS MAY BE PROVIDED BY
LAW OR IN THE CONTRACT BETWEEN THE PRINCIPAL AND THE
CONTRACTOR OR SUBCONTRACTOR.

ARTICLE 108-G. LICENSING OF CONTRACTORS AND SUBCONTRACTORS. —
THERE SHALL BE A SYSTEM OF LICENSING OF JOB CONTRACTORS AND
SUBCONTRACTORS TO GOVERN CONTRACTING ARRANGEMENTS. THIS
SYSTEM SHALL BE FORMULATED BY THE SECRETARY OF LABOR AND
EMPLOYMENT, IN CONSULTATION WITH REPRESENTATIVES FROM THE
DEPARTMENT OF TRADE AND INDUSTRY, EMPLOYEE ORGANIZATIONS,
AND EMPLOYER ORGANIZATIONS, WITH PARTICULAR ATTENTION
GIVEN TO ADAPTING THE RULES TO THE PECULIAR NEEDS OF

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DIFFERENT INDUSTRIES, AND SHALL BE IMPLEMENTED BY THE
REGIONAL OFFICES OF THE DOLE.

FAILURE TO OBTAIN A LICENSE OR THE LACK OF A LICENSE
SHALL GIVE RISE TO THE PRESUMPTION THAT THE CONTRACTOR IS
ENGAGED IN PROHIBITED LABOR-ONLY CONTRACTING.

ARTICLE 108-H. GOOD FAITH CONTRACTING. - CONTRACTING OUT OF A
JOB, WORK OR SERVICE MUST BE DONE IN GOOD FAITH, AND WITHOUT
TAKING UNDUE ADVANTAGE OF THE ECONOMIC SITUATION OR LACK
OF BARGAINING STRENGTH OF THE CONTRACTUAL EMPLOYEE, OR
UNDERMINING HIS SECURITY OF TENURE OR BASIC RIGHTS, OR
CIRCUMVENTING THE PROVISIONS OF REGULAR EMPLOYMENT. THE
SECRETARY OF LABOR AND EMPLOYMENT MAY, BY APPROPRIATE
REGULATIONS, RESTRICT OR PROHIBIT SPECIFIC ACTIONS IN
RELATION TO THE CONTRACTING OUT OF A JOB, WORK, OR SERVICE
WITHIN A SPECIFIC INDUSTRY, SHOULD THE SAME PROVE, AFTER DUE
CONSULTATION WITH EMPLOYERS AND EMPLOYEES IN SUCH
INDUSTRY, TO BE UNDULY DETRIMENTAL TO THE RIGHT OF
EMPLOYEES TO SECURITY OF TENURE.

SECTION 4. Article 109 of Presidential Decree Number 442, or the Labor Code of the
Philippines, is hereby amended to read as follows:

ARTICLE 109. SOLIDARY LIABILITY. — The provisions of existing laws to the
contrary notwithstanding, every principal or indirect employer shall be held solidarily
responsible with the contractor or subcontractor, and for purposes of determining the extent
of their civil liability under this chapter, shall be considered as direct employers, IN THE
FOLLOWING INSTANCES:

qa FOR ANY VIOLATIONS OF PROVISIONS OF THIS CODE;

Q) FOR MONETARY CLAIMS OF CONTRACTUAL EMPLOYEES
AGAINST THE PRINCIPAL IN THE CASE OF LABOR-ONLY
CONTRACTING;

@Q) FOR MONETARY CLAIMS OF CONTRACTUAL EMPLOYEES IN THE
EVENT OF THE COMMISSION OF ACTS IN VIOLATION OF
REGULATIONS ISSUED PURSUANT TO ARTICLE 108-H.

(4) IN CASE THE CONTRACT BETWEEN THE PRINCIPAL AND
CONTRACTOR OR SUBCONTRACTOR IS PRETERMINATED FOR
REASONS ATTRIBUTABLE TO THE FAULT OF THE PRINCIPAL.

SECTION 5. Article 280 of Presidential Decree Number 442, or the Labor Code of the
Philippines, is hereby amended to read as follows:

“ARTICLE 280. REGULAR EMPLOYMENT. - THE
PROVISIONS OF ANY WRITTEN AGREEMENT TO THE
CONTRARY NOTWITHSTANDING, AND REGARDLESS
OF ANY ORAL AGREEMENT OF THE PARTIES,
EMPLOYMENT SHALL BE DEEMED TO BE REGULAR
WHERE:

(1) THE EMPLOYEE HAS BEEN ENGAGED TO
PERFORM ACTIVITIES WHICH ARE NECESSARY

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Q)

IN THE USUAL BUSINESS OR TRADE OF THE
EMPLOYER, EXCEPT WHERE:

(A) THE WORK OR_ SERVICES TO BE
PERFORMED FALLS UNDER ALLOWABLE
FIXED-TERM EMPLOYMENT UNDER ART.
280-A, PARAGRAPHS (2), (3) AND (4); AND.

(B) THE EMPLOYEE IS UNDER PROBATIONARY
EMPLOYMENT, THE MAXIMUM PERIOD OF
PROBATION HAVING NOT YET BEEN
TERMINATED OR EXPIRED.

THE EMPLOYEE IS A LEARNER ALLOWED OR
SUFFERED TO WORK AFTER THE TERMINATION
OF TRAINING UNDER ART. 75 (D)

ARTICLE 280-A. FIXED TERM EMPLOYMENT. —
EMPLOYMENT FOR A FIXED TERM SHALL ONLY BE
ALLOWED IN CASES OF:

qa)
Q)

@)

(4)

PROJECT EMPLOYMENT UNDER ARTICLE 280-B;
SEASONAL EMPLOYMENT, WHERE THE WORK
OR SERVICES TO BE PERFORMED IS SEASONAL
IN NATURE AND THE EMPLOYMENT IS FOR THE
DURATION OF THE SEASON;

IN INDUSTRIES THAT ARE CERTIFIED BY THE
PRESIDENT, IN AN EXECUTIVE ORDER, AS
ALLOWABLE, DUE TO EXISTING AND
SUBSTANTIAL LOSSES IN THE INDUSTRY AS A
WHOLE, BROUGHT ABOUT BY AN INABILITY TO
PRICE GOODS COMPETITIVELY IN THE MARKET
DESPITE RESORT TO ALL REASONABLE
MEASURES; PROVIDED THAT SUCH
CERTIFICATION SHALL BE FOR A PERIOD OF AT
MOST FIVE (5) YEARS; PROVIDED FURTHER
THAT THE PRESIDENT MAY RENEW THE
CERTIFICATION UPON EXPIRY, SHOULD THE
CIRCUMSTANCES SUBSIST, FOR A SIMILAR
PERIOD AND SUBJECT TO SIMILAR RENEWALS;
IN THE FOLLOWING INSTANCES:

(A) REPLACEMENT OF AN EMPLOYEE WHO
IS TEMPORARILY ABSENT; PROVIDED
THAT THE ABSENCE IS NOT DUE TO A
STRIKE OR LOCKOUT;

(B) TEMPORARY INCREASE IN THE VOLUME
OF BUSINESS, WHICH EMPLOYMENT
SHALL IN NO CASE EXCEED SIX (6)
MONTHS IN A TWELVE (12) MONTH
PERIOD;

(C) TO MEET EXPANSION OF A COMPANY’S
ACTIVITY, WHICH SHALL IN NO CASE BE
LESS THAN SIX (6) MONTHS NOR MORE
THAN THREE (3) YEARS: PROVIDED, THAT
EMPLOYEES STILL HIRED AFTER THE
PROJECT EMPLOYMENT CONTRACT
SHALL BE REGULAR EMPLOYEES;

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SECTION 6.
Philippines, is

(D) PART-TIME CONTRACTS, WHERE THE
EMPLOYEE UNDERTAKES TO RENDER
SERVICES FOR A NUMBER OF HOURS OR
DAYS LESS THAN TWO THIRDS (2/3) OF
THE USUAL NUMBER OF WORKING
HOURS OR DAYS FOR THE SAME
POSITION IN THE ESTABLISHMENT;

(E) CONSTRUCTION WORK;

(F) | PROFESSIONAL SPORTS;

(G) CORPORATE OFFICERS, AND THOSE

OCCUPYING MANAGERIAL,
CONFIDENTIAL, OR TECHNICAL
POSITIONS;

(H) OVERSEAS FILIPINO WORKERS; AND
fu) OFFICIALS OF PRIVATE ACADEMIC
INSTITUTIONS.

ARTICLE 280-B. PROJECT EMPLOYMENT. - PROJECT
EMPLOYMENT EXISTS WHEN EMPLOYMENT HAS
BEEN FIXED FOR A_ SPECIFIC PROJECT OR
UNDERTAKING, SEPARATE AND DISTINCT FROM THE
USUAL BUSINESS OR TRADE OF THE EMPLOYER, THE
COMPLETION OR TERMINATION OF WHICH HAS
BEEN DETERMINED AT THE TIME OF ENGAGEMENT.

PROJECT EMPLOYMENT SHALL BE VALID IF IN
COMPLIANCE WITH REGULATIONS ISSUED BY THE
SECRETARY OF LABOR AND EMPLOYMENT, WHICH
SHALL INCLUDE THE FOLLOWING REQUIREMENTS:

. THAT THE FIXED PERIOD OF EMPLOYMENT WAS

KNOWINGLY AND VOLUNTARILY AGREED UPON BY
THE PARTIES; AND

. THAT THE EMPLOYER MUST SUBMIT A LIST OF

PROJECT EMPLOYMENT CONTRACTS TO THE DOLE
OFFICE WITH JURISDICTION OVER THE PLACE OF
WORK OF THE EMPLOYEE, PRIOR TO THEIR
EFFECTIVITY, FOR RECORD PURPOSES;

Article 281 of Presidential Decree Number 442, or the Labor Code of the

hereby amended to read as follows:

ARTICLE 281. 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. The services
of an employee who has been engaged on a probationary basis may
be terminated for a just cause 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.

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THE TERMINATION OF PROBATIONARY
EMPLOYEES SHALL NOT BE VALID IF DONE TO
PRECLUDE ACQUISITION OF SECURITY OF TENURE
BY THE EMPLOYEE. THE PRESENCE OF ANY OF THE
FOLLOWING CIRCUMSTANCES SHALL CREATE A
REBUTTABLE PRESUMPTION OF THE INTENT TO
CIRCUMVENT THE RIGHT TO SECURITY OF TENURE
OF PROBATIONARY EMPLOYEES:

1, TERMINATION OF ALL OR ALMOST ALL OF THE
PROBATIONARY EMPLOYEES AT THE END OF THE
PROBATIONARY PERIOD AND THE SUCCEEDING
HIRING OF A NEW SET OF PROBATIONARY
EMPLOYEES; AND

2. A DISPROPORTIONATELY HIGH NUMBER OF
PROBATIONARY EMPLOYEES VIS-A-VIS REGULAR
EMPLOYEES.

SECTION 7. RULES AND REGULATIONS. ~ The Department of Labor, in consultation
with the Department of Trade and Industry and other government agencies charged with the
administration and enforcement of this Act or any of its parts, shall promulgate the necessary
implementing rules and regulations within sixty (60) days from the effectivity of this Act;
provided, that such rules shall delegate the reception of evidence of losses under Article 280-A.
(3) to the Department of Labor, alone or in coordination with the Department of Trade and
Industry. Such rules and regulations shall become effective fifteen (15) days after announcement
of their adoption in newspapers of general circulation.

SECTION 8. 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.

SECTION 9. SEPARABILITY CLAUSE. - If any part or provision of this Act is declared

unconstitutional, the remaining parts or provisions not affected shall remain in full force and
effect.

SECTION 10. EFFECTIVITY CLAUSE. - This Act shall take effect fifteen (15) days from its

Publication in two (2) national newspapers of general circulation after its approval by the
President.

Approved.

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