What You Need to Know About Labor-Only Contracting (LOC) and DOLE Guidelines in 2018
Labor-only contracting (LOC) has been a contentious issue in the Philippines for years, with debates over its legality, benefits, and abuses. The Department of Labor and Employment (DOLE) has issued several guidelines and rulings to regulate LOC and protect workers` rights, but the implementation and enforcement of these measures have been challenged by various parties. In 2018, DOLE clarified some of its positions on LOC and issued new rules that may affect employers, contractors, and employees. This article aims to provide a brief overview of these developments and their implications for businesses that engage in LOC.
What is Labor-Only Contracting?
LOC refers to an employment arrangement wherein a principal or employer hires workers through a contractor or subcontractor, who provides only the labor service, while the principal or employer retains control over the results of the work, the methods and means of accomplishing it, and the payment of wages and benefits. LOC is different from job contracting, which involves a contractor who undertakes to perform a specific job or work, and assumes responsibility for the quality, quantity, and timeliness of the output, as well as the payment of wages and benefits. LOC is considered illegal if it is done to circumvent labor laws, evade taxes, or avoid regular employment.
What are the DOLE Guidelines on LOC?
DOLE issued Department Order No. 174, series of 2017, which amended the implementing rules and regulations of Articles 106 to 109 of the Labor Code of the Philippines. The said order defines the following:
– A legitimate contractor must have a substantial capital, equipment, and infrastructure, and an independent and distinct business operation from its principal or employer.
– A legitimate job contractor must assume full responsibility for the compliance with labor laws, safety standards, and social security contributions of its workers, and must have a valid license and registration from DOLE.
– A legitimate labor-only contractor must be prohibited, except in certain cases, from engaging in labor-only contracting, which is presumed to be unlawful, and must be considered as the employer of the workers for all legal purposes.
DOLE also issued Advisory No. 2, series of 2018, which clarified the following:
– A principal or employer may be held liable for the labor standards violations committed by its contractors or subcontractors, especially if the former exercises control or supervision over the latter`s workers or work processes, or if it fails to monitor or ensure compliance with labor laws and standards.
– A contractor or subcontractor may not charge or deduct any fee or cost from the wages and benefits due to its workers, except those allowed by law or authorized by DOLE, such as service fees, administrative costs, and union dues.
– A labor-only contractor may not engage in any kind of business or transaction other than the supply of labor to its principal or employer, nor may it be allowed to operate for more than six months, unless it obtains a special permit from DOLE.
What are the DOLE Rules on DOLE Inspection and Compliance?
DOLE issued Department Order No. 183, series of 2017, which provides for the guidelines on the conduct of OSH and labor standards inspection and compliance, and the procedures for the issuance of compliance orders and imposition of penalties or sanctions. The said order allows DOLE inspectors to:
– Conduct unannounced inspections on establishments suspected of violating labor laws, including LOC and job contracting rules, and impose penalties or sanctions for non-compliance or violation.
– Issue compliance orders or notices to correct violations or deficiencies within given periods, and conduct follow-up inspections to ensure compliance.
– Seize equipment, instruments or materials used in violation of labor laws, if necessary, and secure compliance bonds or attachments to ensure the payment of penalties or sanctions.
What are the Implications of the LOC and DOLE Guidelines in 2018?
The recent guidelines and rulings of DOLE on LOC and DOLE inspection and compliance have several implications for employers, contractors, and employees, such as:
– Employers may need to revise their contracting practices and ensure that their contractors or subcontractors are legitimate and compliant with labor laws, safety standards, and social security contributions.
– Contractors may need to comply with the requirements and standards set by DOLE for job contracting or avoid labor-only contracting, which may be risky and illegal.
– Employees may benefit from the better working conditions, wages, and benefits provided by legitimate contractors or employers, who are required to comply with labor laws and standards, and may file complaints or seek redress for violations or abuses.
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