DEPARTMENT ORDER NO. 10 between the contractor or subcontractor and its workers.

Therefore, the parties to a

(Series of 1997) contracting or subcontracting arrangement shall be the principal, the contractor or
subcontractor, and the workers engaged by the latter. The principal and the contractor
AMENDING THE RULES IMPLEMENTING BOOKS III AND VI or subcontractor may be a natural or juridical person.
OF THE LABOR CODE, AS AMENDED
"Section 4. Definition of Terms. - As used in this Rule, the following shall mean:

"(a) "Principal" refers to any employer who puts out or farms out a job, service, or work
ARTICLE I. There is hereby issued a new Rule implementing Articles 106 to 109 of Book
to a contractor or subcontractor, whether or not the arrangement is covered by a
III of the Labor Code, to be known as Rule VIII-A, Book III of the Implementing Rules, as
written contract.
follows:
"(b) "Contractor or subcontractor" refers to any person or entity engaged in a legitimate
"Rule VIII-A
contracting or subcontracting arrangement as defined in paragraph (d) hereof.
"Section 1. Guiding Principles. - This Rule is being issued in recognition of the following
"(c) "Contractual employee" includes one employed by a contractor or subcontractor to
guiding principles:
perform or complete a job, work or service pursuant to an arrangement between the
"(a) Contracting and subcontracting arrangements are expressly allowed by law, but latter and a principal as defined in paragraph (d) hereof. The term excludes employees
may be subject to regulations consistent with the promotion of employment, protection of the contractor or subcontractor engaged to perform a job, work or service not within
of workers' welfare and enhancement of industrial peace and rights of workers to self- the scope of the contract between the latter and a principal.
organization and collective bargaining; for this reason, labor-only contracting as defined
"(d) "Contracting" or "subcontracting" refers to an arrangement whereby a principal
herein shall be prohibited.
agrees to put out or farm out with a contractor or subcontractor the performance or
"(b) Contractors and subcontractors as well as their employees, are entitled to all the completion of a specific job, work or service within a definite or predetermined period,
rights and privileges, and are subject to all the duties and responsibilities which regardless of whether such job, work or service is to be performed or completed within
the Labor Code, as amended, attaches to every employee-employer relationship; or outside the premises of the principal as hereinafter qualified.

"(c) Flexibility for the purpose of increasing efficiency and streamlining operations is "Subject to the provisions of Sections 6, 7 and 8 of this Rule, contracting or
essential for every business to grow in an atmosphere of free competition; however, subcontracting shall be legitimate if the following circumstances concur:
any form of flexibility intended to circumvent or evade workers' rights shall in no case
"(i) The contractor or subcontractor carries on a distinct and independent business and
be countenanced; and
undertakes to perform the job, work or service on its own account and under its own
"(d) The establishment of an effective labor market information system is indispensable responsibility, according to its own manner and method, and free from the control and
in the formulation of policies, strategies and programs for human resource development direction of the principal in all matters connected with the performance of the work
supportive of and responsive to the needs of workers and enterprises. except as to the results thereof;

"Section 2. Coverage. - This Rule shall apply to all parties of contracting and "(ii) The contractor or subcontractor has substantial capital or investment; and
subcontracting arrangements where employee-employer relationship exists.
"(iii) The agreement between the principal and contractor or subcontractor assures the
"Section 3. Parties. - A contracting or subcontracting arrangement involves a trilateral contractual employees' entitlement to all labor and occupational safety and health
relationship under which there is a contract for a specific job, service, or work between standards, free exercise of the right to self-organization, security of tenure, and social
the principal and the contractor or subcontractor, and a contract of employment and welfare benefits.
"(e) "Substantial capital or investment" refers to the adequacy of resources actually and that substantially different skills are required for each phase, the term or duration of the
directly used by the contractor or subcontractor in the performance or completion of contractual employment may be made coextensive with each phase.
the job, work or service contracted out. It may refer to capital stocks and subscribed
"For purposes of this Rule, he phrase "substantially different skills"refer to those skills
capitalization in the case of corporations, tools, equipment, implement, machineries,
the acquisition of which requires specialized knowledge or training.
uniforms, protective gear, or safety devices actually used in the performance of the job,
work or service contracted out. It likewise includes operating costs, administrative costs "Section 6. Permissible contracting or subcontracting. - Subject to the conditions set
such as training and overhead costs, and such expenses as are necessary to enable the forth in Section 3 (d) and (e) and Section 5 hereof, the principal may engage the services
contractor or subcontractor to exercise control, supervision or direction over its of a contractor or subcontractor for the performance of any of the following;
employees in all aspects of performing or completing the job, service or work "(a) Works or services temporarily or occasionally needed to meet abnormal increase in
contracted out. The phrase, however, excludes all capital and investment the contractor the demand of products or services, provided that the normal production capacity or
or subcontractor may have which are not actually and directly used in the conduct of its regular workforce of the principal cannot reasonably cope with such demands;
business, or any gratuitous assistance, financial or otherwise, it may have received from
"(b) Works or services temporarily or occasionally needed by the principal for
the principal.
undertakings requiring expert or highly technical personnel to improve the management
"(f) "Labor-only contracting" prohibited under this Rule is an arrangement where the or operations of an enterprise;
contractor or subcontractor merely recruits, supplies or places workers to perform a
"(c) Services temporarily needed for the introduction or promotion of new products,
job, work or service for a principal and the following elements are present:
only for the duration of the introductory or promotional period;
"(i) The contractor or subcontractor does not have substantial capital or investment to
"(d) Works or services not directly related or not integral to the main business or
actually perform the job, work or service under its own account and responsibility; and
operation of the principal, including casual work, janitorial, security, landscaping, and
"(ii) The employees recruited, supplied or placed by such contractor or subcontractor messengerial services, and work not related to manufacturing processes in
are performing activities which are directly related to the main business of the principal. manufacturing establishments;
"(g) "In-house agency" refers to a contractor or subcontractor engaged in the supply of "(e) Services involving the public display of manufacturers' products which do not
labor which; involve the act of selling or issuance of receipts or invoices;
"(i) Is owned, managed or controlled by the principal; and "(f) Specialized works involving the use of some particular, unusual or peculiar skills,
"(ii) Operates solely for the principal owning, managing or controlling it. expertise, tools or equipment the performance of which is beyond the competence of
the regular workforce or production capacity of the principal; and
"(h) "Bureau" refers to the Bureau of Local Employment of the Department of Labor and
Employment. "Regional Office" refers to the offices of the Department established in "(g) Unless a reliever system is in place among the regular workforce, substitute services
each of the regions. for absent regular employees, provided that the period of service shall be coextensive
with the period of absence and the same is made clear to the substitute employee at
"Section 5. Term or duration of contractual employment. - Subject to the provisions of
the time of engagement. The phrase "absent regular employees" includes those who are
sections 6, 7 and 8 hereof, the term or duration of contractual employment shall be
serving suspensions or other disciplinary measures not amounting to termination of
coextensive with the term or duration of the contract between the principal and
employment meted out by the principal, but excludes those on strike where all the
contractor or subcontractor. However, where the contract is divisible into phases such
formal requisites for the legality of the strike have been prima facie complied with
based on the records filed with the National Conciliation and Mediation Board.
"Section 7. Prohibitions. - The following are hereby declared prohibited for being employees in the exercise of their rights to self-organization shall be unlawful and shall
contrary to law or public policy; constitute unfair labor practice.

"(a) Labor-only contracting; "Section 9. Contract between contractor or subcontractor and contractual employee. -
Notwithstanding oral or written stipulations to the contrary, the contract between the
"(b) Contracting out of work which will either displace employees of the principal from
contractor or subcontractor and the contractual employee shall include the following
their jobs or reduce their regular work hours;
terms and conditions:
"(c) Contracting out of work with a "cabo" as defined in Section 1 (ii), Rule I, Book V of
"(a) The specific description of the job, work or service to be performed by the
these Rules;
contractual employee;
"(d) Taking undue advantage of the economic situation of lack of bargaining strength of
"(b) The place of work and terms and conditions of employment, including a statement
the contractual employee, or undermining his security of tenure or basic rights, or
of the wage rate applicable to the individual contractual employee; and
circumventing the provisions of regular employment, in any of the following instances:
"(c) The term or duration of employment, which shall be coextensive with the contract
"(i) In addition to this assigned functions, requiring the contractual employee to
between the principal and contractor or subcontractor, or with the specific phase for
perform functions which are currently being performed by the regular employees of the
which the contractual employee is engaged, as the case may be.
principal or of the contractor or subcontractor;
The contractor or subcontractor shall inform the contractual employee of the foregoing
"(ii) Requiring him to sign, as a precondition to employment or continued employment,
terms and conditions on or before the first day of his employment.
an antedated resignation letter; a blank payroll; a waiver of labor standards including
minimum wages and social or welfare benefits; or a quitclaim releasing the principal, "Section 10. Duty to produce copy of contract. - The contractor or subcontractor shall
contractor or subcontractor from any liability as to payment of future claims; and submit a copy of its contract with the principal to the Regional Office of the Department
of Labor and Employment (DOLE). It shall be accompanied by a statement of the
"(iii) Requiring him to sign a contract fixing the period of employment to a term shorter
number of employees covered by the contract and, where appropriate, a description of
than the term of the contract between the principal and the contractor or
the phases of the contract and the number of employees covered in each phase. The
subcontractor, unless the latter contract is divisible into phases for which substantially
contractor or subcontractor shall be under an obligation to produce the original copy of
different skills are required and this is made known to the employee at the time of
the same in the ordinary course of inspection or when directed to do so by the Regional
engagement;
Director or his authorized representative.
"(e) Contracting out of a job, work or service through an in-house agency as defined
"The copy of the contract between the contractual employee and the contractor or
herein;
subcontractor need not be filed with DOLE. However, the contractor or subcontractor
"(f) Contracting out of a job, work or service directly related to the business or operation shall make the same available for inspection by the Regional Director or his authorized
of the principal by reason of a strike or lockout whether actual or imminent; and representative.
"(g) Contracting out of job, work or service when not justified by the exigencies of the "Further, a copy of the contract between the contractual employee and the contractor
business and the same results in the reduction or splitting of the bargaining unit. or subcontractor shall be furnished the certified bargaining agent, if there is any.
"Section 8. Unfair Labor Practice. - Contracting out of a job, work or service being "Section 11. Rights of a contractual employee. - The contractual employee shall be
performed by union members when such will interfere with, restrain or coerce entitled to all the rights and privileges due a regular employee, including but not limited
to the right to working conditions and standards, service incentive leave, rest days,
overtimes and holidays, health, safety and social and welfare benefits, self-organization "(d) When a violation of the relevant provisions of the Code has been established by the
and collective bargaining and security of tenure. Regional Director in the exercise of his enforcement powers.

"In cases of termination of employment prior to the expiration of the contract between "Section 15. Other instances of solidary liability. - In cases not covered by the last two
the principal and the contractor or subcontractor, the right of the contractual employee preceding sections, the principal shall also be deemed solidarily liable with the
to separation pay or other related benefits shall be governed by the applicable laws and contractor or subcontractor to the extent of accrued claims and benefits which the
jurisprudence on termination of employment. Where the termination results from latter may owe to its contractual employees in the following instances:
expiration of the contract between the principal and the contractor or subcontractor, or
"(a) When the certificate of registration, license or business permit of the contractor or
whom the completion of the phase of the job, work or service for which the contractual
subcontractor is cancelled, revoked or not renewed by the competent authority; or
employee is engaged, the latter shall not be entitled to separation pay. However, this
shall be without prejudice to completion bonuses or other emoluments, including "(b) When the contract between the principal and the contractor or subcontractor is
retirement pay as may be provided by law or in the contract between the principal and preterminated for reasons nor attributable to the fault of the contractor or
the contractor or subcontractor. subcontractor.

"Section 12. Employee-employer relationship. - Except in cases provided for in Sections "Section 16. Enforcement against performance bond. - In enforcing the provisions of
13, 14, 15 and 17, the contractor or subcontractor shall be considered the employer of Sections 13, 14 and 15, the Regional Director shall first proceed against the performance
the contractual employee for purposes of enforcing the provisions of the Code. bond, if any has been put up by the contractor or subcontractor, to the extent that such
bond may cover claims of the contractual employee. In case the bond is insufficient, the
"Section 13. When principal is deemed jointly and severally liable. - When the contractor
Regional Director shall proceed directly against the principal.
or subcontractor fails to pay the wages of its contractual employees, the principal shall
be jointly and severally liable with the contractor or subcontractor to such contractual "Nothing herein shall restrict the right of the principal from filing an action for
employees to the extent of the work performed under the contract, in the same manner reimbursement or damages against the contractor or subcontractor in the appropriate
and extent that the principal is liable to its direct employees. courts.

"Section 14. When principal is deemed employer who is solidarily liable. - The principal "Section 17. Effect of existence of labor-only contracting. - In case of declaration by the
shall be deemed as the direct employer of the contractual employees and, therefore, competent authority that a contractual employee is covered by a labor-only contracting
solidarily liable with the contractor or subcontractor for whatever monetary claims the arrangement, he shall be considered part of the bargaining unit of the principal.
contractual employees may have against the former, in the following cases: "Section 18. Effect of expiration of contract; manpower pool. - Where the contract
"(a) When the contractor or subcontractor is not enrolled in the registry of the Regional between the principal and the contractor or subcontractor has expired, and the latter
Office of the Bureau, or it has been delisted therefrom, or its contract with the principal remains in business as a contractor or subcontractor, the employee-employer
has not been renewed; relationship between the latter and its contractual employees shall not be automatically
terminated, but shall remain suspended for a period of six months, unless a longer
"(b) When the contractor or subcontractor is found committing any of the prohibited
period is set by the contractor or subcontractor. During this period, such employees
activities enumerated in Section 7 of this Rule;
shall become part of a manpower pool of the contractor or subcontractor. If the
"(c) When the contractor or subcontractor is declared guilty of unfair labor practice as contractor or subcontractor is unable to renew the original contract or enter into a new
specified in Section 8 of this Rule; and and similar contract requiring the skills of the employees in the pool within the six-
month period, or if the contractual employee subsequently finds employment
elsewhere, the employee-employer relationship shall be deemed terminated and the "(b) A certified copy of the license or business permit issued by the local government
employee concerned shall be taken out of the pool. unit or units where the contractor or subcontractor operates.

"The foregoing paragraph shall also apply where the contract between the contractor or "The application shall be verified and shall include an undertaking that the contractor or
subcontractor and the contractual employee has expired by reason of the completion of subcontractor shall abide by all applicable labor laws and regulations.
the phase of the contract for which the latter was engaged.
"Section 21. Filing and processing of applications. - The application and its supporting
"It shall be understood, however, that all rights and privileges which the employee may documents shall be filed in triplicate in the Regional Office where the applicant
derived out of the employer-employee relationship shall be suspended while he is part principally operates. No application for registration shall be accepted unless all the
of the pool. foregoing requirements are complied with. The contractor or subcontractor shall be
deemed registered upon payment of a registration fee of One hundred pesos (P100.00)
"Section 19. Registry of contractors or subcontractors. - There is hereby established a
to the Regional Office.
registry of contractors and subcontractors in the Regional Offices and in the Bureau, for
purposes of establishing an effective labor market information and monitoring system "Where all the supporting documents have been submitted, the Regional Office shall
on activities which are subject to contracting or subcontracting arrangements. deny or approve the application within seven (7) working days after its filing. In case of
Registration under this section shall not be synonymous with licensing, the latter being a inaction of the Regional Office beyond this period, the application shall be deemed
precondition for acquiring legal personality or engaging in business. provisionally approved subject, however, to the payment of the registration fee.

"Section 20. Requirements for registration. - A contractor or subcontractor shall be "Upon registration, the Regional Office shall return one set of the duly-stamped
enrolled in the registry of contractors and subcontractors upon completion of an application documents to the applicant, retain one set for its file, and transmit the
application form to be provided by the DOLE. The application shall state: remaining set to the Bureau. The Bureau shall devise the necessary forms for the
expeditious processing of all applications for registration.
"(a) The name and business address of the applicant and the area or areas where it
seeks to operation; "Section 22. Annual reporting. - The contractor or subcontractor shall submit in
triplicate its annual report in such forms as may be prescribed by the DOLE to the
"(b) The names and addresses of its officers, if the applicant is a corporation or
appropriate Regional Office. The report shall include:
partnership;
"(a) A list of contracts entered into during the subject reporting period; and
"(c) The nature of the applicant's business and the industry or industries where the
applicant seeks to operate; "(b) A certification from the Social Security System (SSS) and the Home Development
Mutual Fund (HDMF) that the contractor or subcontractor has been making the monthly
"(d) The list of actual contracts, if any; and
remittances due its contractual employees during the subject reporting period.
"(e) The capitalization and other assets of the applicants which are actually and directly
"The obligation to submit an annual report shall coincide with the anniversary date of
used in its operations.
registration of the contractor or subcontractor. The Regional Office shall return one set
"The application shall be supported by: of the duly-stamped report to the contractor or subcontractor, retain one set for its file,
"(a) A certified copy of the certificate of registration of firm or business name from the and transmit the remaining set to the Bureau within five (5) days from receipt thereof.
Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) or "Section 23. Delisting of registered contractor or subcontractor. - The Regional Director
from the DOLE if the applicant is a union; and shall, upon due notice, motu proprio cancel the registration of a contractor or
subcontractor if it fails to comply with the reporting requirements for three consecutive completion of the phase of the contract for which the employee was engaged but, in
years, or upon the cessation of a business of the latter. any case, subject to the requirements of due process or prior notice.

"Subject to administrative due process, the contractor or subcontractor shall be delisted "(d) In all cases of termination of employment, the following standards of due process
from the registry if it is found to have committed the prohibited activities or has been shall be substantially observed:
declared guilty of unfair labor practice as enumerated in Sections 7 and 8 hereof, or has
"For termination of employment based on just cases as defined in Article 282 of
falsified the requirements for registration it submitted to the Regional Office.
the Labor Code:
"Section 24. All existing contractors or subcontractors as defined herein shall register
"(i) A written notice served on the employee specifying the ground or grounds for
with the Regional Office within one hundred twenty (120) days from the effectivity of
termination, and giving said employee reasonable opportunity within which to explain
this Rule. In case of failure to register within this prescribed period, the provisions of this
his side.
Rule shall apply.
"(ii) A hearing or conference during which the employee concerned, with the assistance
"Section 25. Supersession. - All rules and regulations issued by the Secretary of Labor
of counsel, if he so desires, is given opportunity to respond to the charge, present his
and Employment inconsistent with the provisions of this Rule are hereby superseded.
evidence, or rebut the evidence presented against him.
Contracting or subcontracting arrangements in the construction industry, however, shall
continue to be governed by Department Order No. 19, series of 1993, as well as the "(iii) A written notice of termination served on the employee, indicating that upon due
applicable provisions of this Rule." consideration of all the circumstances, grounds have been established to justify his
termination.
ARTICLE II. Sections 7, 8 and 9, Rule VIII, Book III of the Implementing Rules are hereby
superseded. Sections 10, 11, 12, 13 and 14 of the same Rule are hereby renumbered as "For termination of employment as defined in Article 283 of the Labor Code, the
Sections 7, 8, 9, 10 and 11, respectively. requirement of due process shall be deemed complied with upon service of a written
notice to the employee and the appropriate Regional Office of the Department of Labor
ARTICLE III. Section 2, Rule I, Book VI of the Implementing Rules is hereby amended, to
and Employment at least thirty days before effectivity of the termination, specifying the
read as follows:
ground or grounds for termination.
"Section 2. Security of tenure. - (a) In cases of regular employment, the employer shall
"If the termination is brought about by the completion of a contract or phase thereof, or
not terminate the services of an employee except for just or authorized causes as
by failure of an employee to meet the standards of the employer in the case of
provided by law, and subject to the requirements of due process.
probationary employment, it shall be sufficient that a written notice is served the
"(b) The foregoing shall also apply in cases of probationary employment: Provided, employee within a reasonable time from the effective date of termination."
however, that in such cases, termination of employment due to failure of the employee
ARTICLE IV. Section 5, Rule I, Book VI of the Implementing Rules of theLabor Code is
to qualify in accordance with the standards of the employer made known to the former
hereby amended, to read as follows:
at the time of engagement may also be a ground for termination of employment.
"Section 5. (a) Regular employment. - The provisions of written agreements to the
"(c) In cases of employment covered by contracting or subcontracting arrangements, no
contrary notwithstanding and regardless of the oral agreements of the parties,
employee shall be dismissed prior to the expiration of the contract between the
employment shall be deemed regular for purposes of Book VI of the Labor Code where
principal and contractor or subcontractor as defined in Rule VIII-A, Book III of these
employee has been engaged to perform activities which are usually necessary or
Rules, unless the dismissal is for just or authorized cause, or is brought about by the
desirable in the usual business or trade of the employer, except where the employment
has been fixed for a specific project or undertaking, the completion or termination of
which has been determined at the time of the engagement of the employee or where his engagement. Where no standards are made known to the employee at that time, he
the job, work or service to be performed is seasonal in nature and the employment is shall be deemed a regular employee."
for the duration of the season.
ARTICLE VI. Effectivity. - These Rules shall take effect fifteen (15) days after completion
"(b) Casual employment. - There is casual employment where an employee is engaged of its publication in two (2) newspapers of general circulation.
to perform a job, work or service which is merely incidental to the business of the
Manila, Philippines, 30 May 1997.
employer, and such job, work or service is for a definite period made known to the
employee at the time of engagement: Provided, that any employee who has rendered at
least one year of service, whether such service is continuous or not, shall be considered
a regular employee with respect to the activity in which he is employed and his LEONARDO A. QUISUMBING
employment shall continue while such activity exists. Secretary
__________
"Notwithstanding the foregoing distinctions, every employee shall be entitled to the
rights and privileges, and shall be subject to the duties and obligations, as may be
granted by law to regular employees during the period of their actual employment."

ARTICLE V. Section 6, Rule I, Book VI of the Implementing Rules is hereby amended, to

read as follows:

"Section 6. Probationary employment. - There is probationary employment where the

employee, upon his engagement, is made to undergo a trial period during which the
employer determines his fitness to qualify for regular employment based on reasonable
standards made known to him at the time of engagement.

"Probationary employment shall be governed by the following rules:

"(a) Where the work for which the employee has been engaged is learnable or
apprenticeable in accordance with the standards prescribed by the Department of Labor
and Employment, the period of probationary employment shall be limited to the
authorized learnership or apprenticeship period, which is applicable.

"(b) Where the work is neither learnable nor apprenticeable, the period of probationary
employment shall not exceed six months reckoned from the date the employee actually
started working.

"(c) The services of an employee who has been engaged on probationary basis may be
terminated only for a just or authorized cause, when he fails to qualify as a regular
employee in accordance with reasonable standards prescribed by the employer.

"(d) In all cases of probationary employment, the employer shall make known to the
employee the standards under which he will qualify as a regular employee at the time of