Ian Alfredo Magno  FROM a colloquial perspective, the law of supply and demand dictates that the more there is of something, the cheaper it gets.  When supply exceeds demand, the surplus logically loses significant value.  Hence, the lowered price tags.  The same principle runs true in our labor sector. In the Philippines where skills and professional literacy exceed job opportunities, labor is cheap.  As a matter of surplusage, unemployment and underemployment have unfortunately plagued the populace.  One of its ill effects is the disintegration of families as loved ones fly to seek employment elsewhere abroad.  Ironically, still they are considered the lucky ones for receiving above the standard peso rate.  On the other hand, an immense majority of those who remain in the country have to contend with difficult or cheap, if not oppressive, work conditions.  Among these appalling practices is the contracting out of services to contractors who circumvent labor laws and pay so little to workers. Recently, the Department of Labor and Employment (Dole) issued Labor Advisory no. 10, series of 2016 reiterating the prohibition of labor-only contracting. Contracting or subcontracting refers to an arrangement whereby the employer agrees to farm out with a contractor or subcontractor the performance of a specific job, work or service within a predetermined period. However, it must be clearly noted that not all job contracting is illegal.  There is legitimate or permissible job contracting and, the other, labor-only contracting.  The latter is deemed illegal.  Meanwhile, the former is reasonably legal where the law recognizes the employer-employee relationship between the contractor and the contractual employee. In the case of Manila Water vs. Pena G.R. No. 158255 dated 8 July 2004, the Supreme Court said that contracting is permissible only if the following conditions are met:
  1. The contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method
  2. The contractor is free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and
  3. The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of the business.
Meanwhile, Section 5 of Dole Department Order No. 18-02, Rules Implementing 106-109 of the Labor Code laid down the telltale signs of labor-only contracting, to wit:
  1. The contractor or subcontractor does not have substantial capital or investment, and the employees placed by the contractor or subcontractor are performing activities which are directly related to the main business of the principal; or
  2. The contractor does not exercise the right to control over the performance of the work of the contractual employee.
In the case of Alilin vs. Petron G.R. No. 177592 9 June 2014, the Supreme Court held that: “Generally, the contractor is presumed to be a labor-only contractor, unless such contractor overcomes the burden of proving that it has the substantial capital, investment, tools and the like.  However, where the principal is the one claiming that the contractor is a legitimate contractor, as in the present case, said principal has the burden of proving that supposed status.” What then is the effect when there is a finding of labor-only contracting? As such, the contractor is considered merely an agent of the principal employer.  Therefore, the principal employer is directly responsible to the contractual employees as if the principal employer directly hired them.  This serves to protect the contractual employees who are given recourse against the principal employer, rather than the labor-only contractor who has no substantial funds in the first place.  Hence, Section 2 of Dole Labor Advisory 10, series of 2016 holds that: “Workers of Labor-only contractor /subcontractor are considered employees of the principal.”   (Lawyer Ian Alfredo T. Magno is an associate at Atty. Francis U. Ku & Associates, and deputy legal officer at Philhealth.)