Republic ofthe Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

THIRTEENTH CONGRESS
First Reguiar Session

3339

House Bill No._9

Introduced by Akbayan Representatives Mario “Mayong” Joyo Aguja,
Loretta Ann P. Rosales and Ana Theresia Hontiveros-Baraquel

NURE_AND_FOR THAT

TRE IRITY_OF
PURPOSE, AMENDING CERTAIN PROVISIONS OF PRESIDENTIAL
DECREE NO. 442

EXPLANATORY NOTE.

Arguably, the gravest threat to our workers’ right to secunty of tenure comes from
the current trend towards contractualization and de-regularization. Workers
Settle for intermittent and short term employment affecting not only their ablity to
‘eam liveltiood but also their productivity and quality of work

‘The present proposal recognizes subcontracting as a valid business practice but
also protects workers trom unscrupulous and unnecessary subcontracting
Hence, it balances legitimate business interests with the need to protect workers
from insecure employment conditions,

In particular, the present proposal is characterized by the following

1) Many of the concepts and processes contained in the proposal
reflects current practice as provided by Department Order No. 18 series of
2002 (DO 18). While some refinements have been made to D0 18
provisions, core concepts have been retained such as

+ Definition of subcontracted work and labor only contracting
+ Recognition of rights of subcontracted workers
+ Maintenance of a registration system for legitimate subcontractors


2) The Salient innovations introduced by this proposal include the

following

+ Principals can engage a maximum of 10% subcontracted
employees.

+ Violation of contracting rules is made an unfair labor practice

+ Violation of contracting rules is penalized by a fine

Hence, the support of this bills eamestly sought.

MARIO “MAYDNG" JOYO AGUJA
PEE RIE shee

auttinctdvoras—
ANA THERESIA HONTIVERDS-BARAQUEL


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

‘THIRTEENTH CONGRESS
First Regular Session

House Bilt No. _ 3339

Introduced by Akbayan Representatives Mario “Mayong” Joyo Aguja,
Loretta Ann P. Rosales and Ana Theresia Hontiveros-Baraquel

TO STRENGTHEN SECI ia ID FOR THAT
CERTAIN PROVI TIAL
DECREE NO. 442

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

Article 1. Subcontracting Article 106 of the Presidential Decree No. 442is
hereby repeated and amended to read as follows:

Article 106. Concept and Nature of Subcontracting Arrangements. In
legitimate subcontracting, there exists a tnlateral 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 these
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 contractual workers engaged by the subcontractor to
accomplish the job work or service.

For purposes of this Code, “subcontracting’ refers to an arrangement whereby

(2) principal agrees to put out or farm out with a subcontractor the
performance or completion of a specific job, work or service within 2
efinite oF 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 @
principal, contracts with a subcontractor for the performance of any
‘work, task, job or project


Article 2. Parties. Article 106-A is hereby inserted in Presidential Decree
No. 442 as follows:

Article 106 — A. Rights and Liabilities of Parties.

A. The Subcontracted Employee. In all cases, subcontracted employees shall
be entitled to all the rights and privileges due regular employees including the
following:

(a) Safe and healthful working conditions;

(b) Labor standards such as service incentive leave, rest days,
overtime pay, holiday pay, 13th month pay and separation
pay;

(c) Retirement benefits;

(d) Social security and welfare benefits;

(e) Self-organization, collective bargaining and peaceful
concerted action; and

(f) Security of tenure;

In addition, subcontracted employees shall have a right to a written
contract which shall include the following terms and conditions:

(i) The specific description of the job, work or service to be
performed by the contractual employee;

(ji) The place of work and terms and conditions of employment,
including a statement of the wage rate applicable to the
individual contractual employee; and

(ii) The term or duration of employment, which shall be
coextensive with the contract of the principal and subcontractor,
or with the specific phase for which the contractual employee is
engaged, as the case may be.

The subcontracted employee shall be informed by the subcontractor of the
foregoing terms and conditions on or before the first day of his employment.

B. The Principal and the Subcontractor. The legitimate subcontractor shall be
considered the employer of the contractual employee for purposes of
enforcing the provisions of the Labor Code and other social legislation. In all
cases of subcontracting, however, the principal or any subcontractor which
engages other subcontractors shall be solidarily liable with any subcontractor
it engages in the event of any violation of any provision of the Labor Code,
including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in
any of the following cases:

(a) where there is labor-only contracting; or
(b) in the absence of the written contract required by Article 106-A; or


(C) in cases of violation of Article 10 — B and 106-C,

In addition, the principal shall be solidarity iable with the subcontractor in case
the contract between the principal and subcontractor is preterminated for
reasons not attributable to the fault of the subcontractor.

Article 3. Prohibition against labor only contracting. Article 106-B is
hereby inserted in Presidential Decree No. 442 as follows:

Article 106-B. Prohibition against labor-only subcontracting. Engaging in
labor-only contracting or contracting with a labor-only contractor 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 are present:

}) The subcontractor does not have substantial capital and
investment which relates to the job, work or service to be
performed:

ii) the employees recruited, supplied or placed by such
subcontractor are performing activities which are directly related
to the main business of the principal; or

ji) the subcontractor does not exercise the right to control over the
performance of the work of the contractual employee.

‘As used in this Code, “substantial capital and investment" in subcontracting
arrangements refers to tools, equipment, implements, machineries and work
premises, actually and directly used by the subcontractor in the performance
‘or completion of the job, work or service contracted out. The use of the
subcontractor of the equipment, facilities, machineries, and tools of the
principal is an indication that the subcontractor has no substantial capital and
investment. The existence of capital stocks and subscribed capitalization in
relation to corporations engaged in subcontracting does not by itseff constitute
substantial capital and investment,

‘As used in this Code, the "right to controt" in subcontracting arrangements
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 4. Prohibitions, Article 108- is hereby inserted in Presidential
Decree No. 442 as follows:

Article 108-C. Prohibitions in Subcontracting Arrangements. Regardless
Cf compliance with the immediately preceding Article, the following are hereby
‘declared prohibited for being contrary to law or public policy:

(2) Engaging or maintaining by the principal of subcontracted employee:
in excess of 10% of the principal's total workforce. .


{b) Contracting out of a job, work, service, o position when rot justiied by
the exigencies of the business and the same resuits in the termination
of regular employees or reduction of work hours or reduction or spiting
of the bargaining unit

(c) Contracting out of job, work, service, or position which had previously
been declared redundant or subject of retrenchment.

(2) Contracting out of work with a "cabo". For this purpose, “cabo” refers
{10 a person or group of persons except a legitimate labor organization
which, with or without any monetary or other consideration, supplies
workers to an employer, whether in the capacity of an agent of the
‘employer or as an ostensible independent contractor.

(e) 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, in any of the folowing instances

i) In addition to his assigned functions, requiring the
contractual employee to perform functions which are
‘currently being performed by the regular employees of
the principal or of the subcontractor

ii) Requiring him to sign, as a precondition to employment
‘oF continued employment, an antedated resignation letter,
@ blank payroll, a waiver of labor standards inciuding
minimum wages and social or welfare benefits; or @
‘quitclaim releasing the principal, subcontractor from any
liability as to payment of future claims; and

ii) Requiring him to sign @ contract fixing the period of
employment to @ term shorter than the term of the
contract between the principal and the subcontractor.
Unless the latter contract is divisible into phases for which
substantially different skills are required and this is made
known to the employee at the time of engagement

(9) Contracting out of a job, work or service through an in-house agency
which refers to
‘a. subcontractor engaged in the supply of labor which is owned
managed or controlled by the principal: or
b. subcontractor in which the principal owns or otherwise
represents any share of stock: or
‘subcontractor which operates solely for the principal
(@) Contracting out ofa jod, work or service decly related to the business
(or operation of the principal by reason of a strike or lockout whether
actual or imminent
(h) Contracting out of job, work or service being performed by union
members when such will interfere with, restrain or coerce employees in
the exercise of their rights to self organization as provided in Art. 248
(c) of the Labor Code, as amended.


Article 5. Registration of Subcontractors. Article 106-D is hereby inserted
in Presidential Decree No. 442 as follows:

Article 108 -_D. Registration of Subcontractors.

1) Mandatory registration. It shall be mandatory for all persons or entities
acting as subcontractors to register under a registration system hereby
established to govern contracting arrangements and to be implemented by the
Regional Offices of the Department of Labor and Employment,

Non-registered persons or entities acting as subcontractors shall be deemed
as labor-only contractors. Mere registration, without a showing of compliance
with all requirements for legitimate subcontracting and avoidance of all
prohibitions of subcontracting, shall not indicate legitimate subcontracting

2) Requirements for registration. A subcontractor may be listed in the registry
(of subcontractors upon completion and submission of an application form
provided by the Department. In the application form, the applicant
subcontractor shall provide the following information:

(a) The name and business address of the applicant and the area or
areas where it seeks to operate;

(b)The names and addresses of officers, if the applicant is a
corporation, partnership, cooperative or union:

(c) The nature of the applicant's business and the industry or industries
where the applicant seeks to operate

(a) The number of regular workers; the list of clients, if any; the number
of personnel assigned to each client, if any and the services
provided to the client;

(@) The description of the phases of the contract and the number of
employees covered in each phase, where appropriate; and

(8 A copy of audited financial statements if the applicant is a
corporation, partnership, cooperative of a union, or copy of the
latest ITR ifthe applicant is a sole proprietorship.

‘The application shall be supported by
(a) A certified copy of a carticate of registration of frm or business
name from the Securities and Exchange Commission (SEC),
Department of Trade and Industry (OT), Cooperative Development
Authority (CDA), or from the DOLE Ifthe applicant is a union; and
(b)A certified copy ofthe license or business permit issued by the local
‘government unit or units where the subcontractor operates.

‘The application shall be verified and shall inciude an undertaking that the
subcontractor shall abide by all applicable labor laws and regulations.

3) Filing and processing of applications. The application and its supporting
documents shall be filed in trplcate in the Regional Offices where the
‘applicant principally operates. No application for registration shall be accepted
unless ail the foregoing requirements are complied with. The subcontractor


shall be deemed registered upon payment of @ registration fee to be
determined by the Regional Office.

Where all the supporting documents have been submitted, the Regional
Office may deny or approve the application within seven (7) working days
after its fling,

Upon registration, the Regional Office shall return one set of the duly-stamped
‘application documents to the applicant, retain one set for its file, and transmit
the remaining set to the Bureau of Local Employment, The Bureau shall
devise the necessary forms for the expeditious processing of all applications
for registration.

4) Annual Reporting of Registered Contractors. The subcontractor shal
submit in triplicate its annual report using a prescribed form to the appropriate
Regional Office not later than the 15th of January of the following year. The
report shall include:
{@) A list of contracts entered with the principal during the subject
reporting period;
(b) The number of workers covered by each contract withthe principal
(c) A sworn undertaking that the benefits from the Social Security
System (SSS), the Home Development Mutual Fund (HDMF),
PhilHealth, Employees Compensation Commission (ECC). and
remittances to the Bureau of Internal Revenue (BIR) due its
contractual employees have been made during the subject
reporting period :

The Regional Office shall return one set of the duly-stamped report to the
subcontractor, retain one set for its fle, and transmit the remaining set to the
Bureau of Local Employment within ive (5) days from receipt thereof.

5) Delisting of contractors or subcontractors. The Regional Director shall
cancel the registration of subcontractors based on any of the following
grounds:

(2) Non-submission of contracts between the principal and the
subcontractor when required to do so;

(®) Non-submission of annual report

(6) Engagement in abor-only contracting

{4} Violation ofthe prohibited activites provided by this Code;

{@) Non-compliance with labor standards and working conditions,

6) Renewal of registration of subcontractors. After its inital registration, every
subcontractor shall apply for renewal of registration every calendar year on or
before January 31. Failure to do so resuits in cancellation of the previous
registration without need for any act on the part of the Regional Director. For
this purpose, the Tripartite Industrial Peace Council (TIPC) as created under
Executive Order No. 49, shall serve as the oversight committee to verify and
monitor the following:



(a) Engaging in allowable contracting activities; and
(b) Compliance with administrative reporting requirements.

Article 6. Duty to Produce Contract. Article 106-E is hereby inserted in
Presidential Decree No. 442 as follows:

Article 106-E. Duty to produce copy of contract. The principal or
subcontractor shall produce a copy of the contract between the principal and
the contractor in the course of inspection. The subcontractor shall also
produce a copy of the contract of employment of subcontracted workers when
directed to do so by the Regional Director or his authorized representative.

A copy of the contract between the subcontracted employee and the
subcontractor shall be furnished the certified bargaining agent, if there is any.

Article 7. Grounds for Cancellation. Article 239 of Presidential Decree No.
442 is hereby amended to read as follows:

ART. 239. Grounds for cancellation of union registration. - The following
shall constitute grounds for cancellation of union registration:

(a) Misrepresentation, false statement or fraud in connection with the adoption
or ratification of the constitution and by-laws or amendments thereto, the
minutes of ratification and the list of members who took part in the ratification;

(b) Failure to submit the documents mentioned in the preceding paragraph
within thirty (30) days from adoption or ratification of the constitution and by-
laws or amendments thereto;

(c) Misrepresentation, false statements or fraud in connection with the election
of officers, minutes of the election of officers, the list of voters, or failure to
submit these documents together with the list of the newly elected/appointed
officers and their postal addresses within thirty (30) days from election;

(d) Failure to submit the annual financial report to the Bureau within thirty (30)
days after the closing of every fiscal year and misrepresentation, false entries
or fraud in the preparation of the financial report itself;

[(e) Acting as a labor contractor or engaging in the “cabo” system, or
otherwise engaging in any activity prohibited by law; }

(e) [(f] Entering into collective bargaining agreements which provide terms
and conditions of employment below minimum standards established by law;

(f) ((g)] Asking for or accepting attomey's fees or negotiation fees from
employers;

(g) [(h)] Other than for mandatory activities under this Code, checking off
special assessments or any other fees without duly signed individual written
authorizations of the members;

(h) {(i)] Failure to submit list of individual members to the Bureau once a year
or whenever required by the Bureau; and


() (@)) Failure to comply with requirements under Articles 237 and 238.

Article 8. Unfair Labor Practice. Article 248 of Presidential Decree No. 442
is hereby amended to read as follows

ART. 248. Unfair labor practices of employers. - It shall be unlawful for an
‘employer to commit any of the following unfair labor practice:

(a) To interfere with, restrain oF coerce employees in the exercise of their right
to self-organization;

{b) To require as a condition of employment that a person or an employee
shall not join a labor organization or shall withdraw from one to which he
belongs;

(©) To contract out services or functions being performed by MEMBERS OF
THE BARGAINING UNIT when such will interfere with, restrain or coerce
‘employees in the exercise of their rights to setf-organization;

(2) To initiate, dominate, assist or otherwise interfere with the formation oF
administration of any labor organization, including the giving of financial or
‘other support to itor its organizers or supporters;

(6) To discriminate in regard to wages, hours of work and other terms and
Conditions of employment in order to encourage or discourage membership in
any labor organization. Nothing in this Code or in any other law shall stop the
parties from requiring membership in a recognized collective bargaining agent
88 a condition for employment, except those employees who are already
members of another union at the time of the signing of the collective
bargaining agreement. Employees of an appropriate bargaining unit who are
‘not members of the recognized collective bargaining agent may be assessed
2 reasonable fee equivalent to the dues and other fees paid by members of
the recognized collective bargaining agent, i such non-union members accept
the benefits under the collective Bargaining agreement: Provided, that the
individual authorization required under Article 242, paragraph (0) of this Code
shall not apply to the non-members of the recognized collective bargaining
agent

(f) To dismiss, discharge or otherwise prejudice or discriminate against an
‘employee for having given or being about to give testimony under this Code,

(g) To violate the duty to bargain collectively as prescribed by this Code;
(h) To pay negotiation or attorney's fees to the union or its officers or agents
‘as part of the settlement of any issue in collective bargaining or any other
dispute; or

(i) To violate a collective bargaining agreement.


(J) TO VIOLATE ARTICLE 106 OR ENGAGE ANY SUBCONTRACTOR WHO
VIOLATES ARTICLE 106 OF THIS CODE.

‘The provisions of the preceding paragraph notwithstanding, only the officers
and agents of corporations, associations or partnerships who have actually
participated in, authorized or ratified unfair labor practices shall be held
criminally Kable,

Article 9, Penalties. Article 288 of Presidential Decree No. 442 is hereby
‘amended to read as follows:

ART. 288, Penalties. - Except as otherwise provided in this Code, or unless
the acts complained of hinge on a question of interpretation or implementation
Cf ambiguous provisions of an existing collective bargaining agreement, any
violation of the provisions of this Code declared 1o be unlawful or penal in
nature shall be punished with a fine of not less than One Thousand Pesos
(P1,000.00) nor more than Ten Thousand Pesos (P10,00000) or
imprisonment of not less than three months nor more than three years, or
both such fine and imprisonment at the discretion of the court.

ANY PRINCIPAL OR SU8-CONTRACTOR WHO VIOLATES ARTICLES 106,
106-A, 106-B, 106-C, 106-D AND 106-€ SHALL BE SOLIDARILY LIABLE TO
INDEMNIFY EACH SUBCONTRACTED EMPLOYEE NO LESS THAN
50,000.00 WITHOUT PREJUDICE TO OTHER MONETARY AWARDS TO
WHICH SUCH SUBCONTRACTED EMPLOYEE MAY BE ENTITLED SUCH
AS BACKWAGES, MONETARY CLAIMS AND BENEFITS UNDER AN
APPLICABLE CERTIFIED BARGAINING AGREEMENT.

In addition to such penalty, any alien found guilty shall be summarily deported
upon completion of service of sentence.

Any provision of law to the contrary notwithstanding, any criminal offense
punished in this Code, shall be under the concurrent jurisdiction of the
Municipal or City Courts and the Courts of First Instance.

Article 10. 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 or circumstances, shall not be affected thereby.

Article 11. Repealing clause. Articie 107 of the Labor Code as amended is
hereby expressly repeaied. All other provisions of existing laws, orders,
decrees, rules and regulations inconsistent herewith are hereby repealed,

Article 12, Effectivity. This Act shall take effect fifteen (15) days afler its
publication in the Official Gazette or in at least two (2) newspapers of general
Circulation,