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CONTRACTING
ARRANGEMENTS
Articles 106-109 of the Labor Code
Relationships under a
Legitimate
Job Contracting Arrangement
1. Contract for specific job, work or service, between
the principal and the contractor/ subcontractor
2. Contract of employment between the contractor/
subcontractor and the hired workers
In effect
The principal employer becomes jointly and
severally liable with the job contractor for the
payment of the employees' wages only
whenever the contractor fails to pay the same.
In such case, the law creates an employeremployee relationship between the principal
employer and the job contractor's employees
for a LIMITED PURPOSE, that is, to ensure that
the employees are paid their wages.
Labor-only Contracting
An arrangement where the contractor or
subcontractor merely recruits, supplies or
places workers to perform a job, work or
service for a principal, who is deemed the
actual employer of the workers.
How?
There is no apparent employer-employee
relationship between the principal and the
workers
Precludes the employee from acquiring regular
status, the work being done on a periodic basis
with the same employee being juggled from
one employment contract to another; hiring
and re-hiring workers over a period of time
without considering them as regular employees
TESTS:
Illustrative Examples
Jolli-Mac Restaurant Company (Jolli-Mac) owns and operates the
largest food chain in the country. It engaged Matiyaga Manpower
Services, Inc. (MMSI), a job contractor registered with the
Department of Labor and Employment, to provide its restaurants the
necessary personnel, consisting of cashiers, motorcycle delivery
boys and food servers, in its operations. The Service Agreement
warrants, among others, that MMSI has a paid- up capital of
P2,000,000.00; that it would train and determine the qualification
and fitness of all personnel to be assigned to Jolli- Mac; that it would
provide these personnel with proper Jolli-Mac uniforms; and that it is
exclusively responsible to these personnel for their respective
salaries and all other mandatory statutory benefits. After the
contract was signed, it was revealed, based on research conducted,
that MMSI had no other clients except Jolli- Mac, and one of its major
owners was a member of the Board of Directors of Jolli-Mac.
Illustrative Examples
A golf and country club outsourced the jobs in its food
and beverage department and offered the affected
employees an early retirement package of 1 months
pay for each year of service. The employees who
accepted the package executed quitclaims. Thereafter,
employees of a service contractor performed their jobs.
Subsequently, the management contracted with other
job contractors to provide other services like the
maintenance of physical facilities, golf operations, and
administrative and support services. Some of the
separated employees who signed quitclaims later filed
complaints for illegal dismissal.
Illustrative Examples
Reach-All, a marketing firm with operating capital
of
P100,000,
supplied
sales
persons
to
pharmaceutical companies to promote their
products in hospitals and doctors' offices. ReachAll trained these sales persons in the art of selling
but it is the client companies that taught them
the pharmacological qualities of their products.
Reach-Alls
roving
supervisors
monitored,
assessed, and supervised their work performance.
Reach-All directly paid their salaries out of
contractor's fees it received.
PERMISSIBLE/
LEGITIMATE
JOB CONTRACTING
LABOR ONLY
CONTRACTING
PROVIDES SERVICES
PROVIDES
MANPOWER
TECHNICALLY, NO
ER-EE
RELATIONSHIP
THERE IS ER-EE
RELATIONSHIP
LIABILITY OF
PRINCIPAL LIMITED
TO UNPAID WAGES
PRINCIPAL IS LIABLE
FOR ALL CLAIMS
DUE THE EMPLOYEE
Right to reimbursement
Article 108
Failure of the principal to require the
contractor to post a bond should not be
construed as a waiver on its part to seek
reimbursement from the contractor for the
amount paid to the employees