B. Contracting or Subcontracting (DO 174, s. 2017; DC 01, s. 2017; EO 51, s. 2018)

B. Legitimate Contracting vs. Labor-Only Contracting (Labor Code, arts. 106-109; DOLE D.O. No. 174-17; DOLE D.C. No. 01-17; E.O. No. 51, Series of 2018)

Contracting or Subcontracting refers to an arrangement whereby a principal agrees to farm out to a contractor the performance or completion of a specific job or work within a definite or predetermined period, regardless of whether such work is to be performed or completed within or outside the premises of the principal. (DO 174- 17, Sec. 3(c)

Legitimate contracting or subcontracting

Contracting or subcontracting shall be legitimate if all the following circumstances occur:

• The contractor is engaged in a distinct and independent business and undertakes to perform the job or work on its own responsibility according to its own method;
• The contractor has substantial capital to carry out the job, work or service under its own account, manner and method, and investment in the form of tools, equipment, machinery and supervision;
• The contractor undertakes to perform the job, work or service on its own responsibility, according to its own manner and method, and free from control and direction of the principal in all matters connected with the performance of the work except as to the results thereof; and
• The Service Agreement ensures compliance with all the rights and benefits for all of the employees of the contractor or subcontractor under Labor laws. (D.O. No. 174-17, Sec. 8)

The three parties involved:

• Contractor / Subcontractor

Any person or entity, including a cooperative, engaged in a legitimate contracting or subcontracting arrangement.

• Contractor’s Employee

One employed by a contractor or subcontractor to perform or complete a job, work or service pursuant to an arrangement between the latter and a principal

• Principal

Any employer who puts out or farms out a job, service or work to a contractor or subcontractor (D.O. No. 174-17, Sec. 3)

THIRD ULP: CONTRACTING OUT (ART. 259 [C])

To contract out services or functions being performed by union members when such will interfere with, restrain or coerce employees in the exercise of their rights to self-organization