DO 174: Securing a Contractor License

Department Order No. 174, series of 2017 (DO 174) issued by the Department of Labor and Employment (DOLE) provides an additional set of guidelines governing contracting and subcontracting.

DO 174 prohibits labor-only contracting, referring to arrangements whereby:

  • The contractor or subcontractor does not employ their right to manage the performance of an employee’s work.
  • Employees recruited and placed by a contractor or subcontractor perform actions that are related directly to the principal’s main business operation.
  • The contractor or subcontractor does not have substantial capital.
  • The contractor or subcontractor does not possess investments in the form of equipment, tools, work premises, machinery, supervision, among others.

Other illicit forms of employment arrangements

  • Contracting out of a job due to a strike or lockout, whether actual or imminent.
  • Contracting out of a job currently being performed by union members and interfering with, restraining, or coercing employees in the exercise of their rights to self-organization.
  • Repeated hiring by the contractor or subcontractor of employees for a brief duration or under an employment contract.
  • The contractor or subcontractor or subcontractor requires employees to sign an antedated letter of resignation, waiver of labor standards, quitclaim releasing them from liability from payment of future claims, or blank payroll prior to being hired as an employee to to continue employment.
  • Such other practices, schemes or employment arrangements designed to circumvent the right of workers to security of tenure.

Significant changes introduced by DO 174

Although most of the provisions stated in previous guidelines governing contracting and subcontracting were maintained, some of the notable changes that were introduced by DO 174 include:

  • The contractor’s registration fee was increased to P100,000, and the capitalization requirement of contractors was increased to P5,000,000. The duration of effectivity for certificates of registration was also reduced to two years.
  • Requiring employees hired by a contractor or subcontractor to perform existing functions that are already being performed by the principal’s regular employees are prohibited.
  • Contracting work through an in-house cooperative, which merely provides workers to the principal is now considered a prohibited form of employment arrangement.
  • Termination of a service agreement between a contractor and a principal does not automatically result in the termination of the contractor’s employees.

Mandatory registration of contractors and subcontractors

All contractors and subcontractors are required to register under DOLE. Failure to register may be considered an indication that the contractor or subcontractor is engaging in labor-only contracting.

If the DOLE finds sufficient evidence that a contractor or subcontractor is engaged in labor-only contracting or other forms of illicit employment arrangements, the principal shall be considered the direct employer of the employees of the contractor or subcontractor. To that end, the principal will be required by DOLE to regularize these workers.

With the issuance of DO 174 and the Government’s continued campaign against contractualization, companies that are currently engaging the services of contractors or subcontractors are encouraged to ensure that their arrangements comply with the regulations and guidelines governed by DO 174.

If you need additional information regarding DO 174, talk to the experts at Duran & Duran-Schulze Law. Call us today at (+632) 478 5826 or send an email to info@duranschulze.com for more information.

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