Comparative Table: DO 174, DO 18A, DO 19 and the Labor Code

Philippine Labor Code DO 174, Series of 2017 DO 18-A, Series of 2011 DO 19, Series of 1993 Remarks

Title Book III, Conditions of Employment,
Chap. III Payment of Wages
Art. 106. Contractor or
subcontractor. Whenever an employer
enters into a contract with another
person for the performance of the
former’s work, the employees of the
contractor and of the latter’s
subcontractor, if any, shall be paid in
accordance with the provisions of this
Code.
In the event that the contractor or
subcontractor fails to pay the wages of
his employees in accordance with this
Code, the employer shall be jointly and
severally liable with his contractor or
subcontractor to such employees to the
extent of the work performed under the
contract, in the same manner and extent
that he is liable to employees directly
employed by him.
The Secretary of Labor and Employment
may, by appropriate regulations, restrict
or prohibit the contracting-out of labor to
protect the rights of workers established
under this Code. In so prohibiting or
restricting, he may make appropriate
distinctions between labor-only
contracting and job contracting as well
as differentiations within these types of
contracting and determine who among
the parties involved shall be considered
the employer for purposes of this Code,
to prevent any violation or circumvention
of any provision of this Code.
There is "labor-only" contracting where
the person supplying workers to an
employer does not have substantial
capital or investment in the form of tools,
equipment, machineries, work premises,
among others, and the workers recruited
and placed by such person are
performing activities which are directly
Rules Implementing Articles 106 to 109
of the Labor Code, as amended
Rules Implementing Articles 106 to 109
of the Labor Code, as amended
Guidelines in the Employment of
Workers in the Construction Industry.
DO 174 has effectively repealed DO
18-A since it is the latest Implementing
Rules and Regulations of Art. 106-
109.


related to the principal business of such
employer. In such cases, the person or
intermediary shall be considered merely
as an agent of the employer who shall
be responsible to the workers in the
same manner and extent as if the latter
were directly employed by him.

Art. 107. Indirect employer.
The provisions of the immediately
preceding article shall likewise apply to
any person, partnership, association or
corporation which, not being an
employer, contracts with an independent
contractor for the performance of any
work, task, job or project.

Art. 108. Posting of bond.
An employer or indirect employer may
require the contractor or subcontractor to
furnish a bond equal to the cost of labor
under contract, on condition that the
bond will answer for the wages due the
employees should the contractor or
subcontractor, as the case may be, fail
to pay the same.
Section 3 Definition of Terms.
a) Bond- refers to the bond under
Art. 108 of the Labor Code that the
principal may require from the
contractor to be posted equal to the
cost of the labor under contract.

Art. 109. Solidary liability.
The provisions of existing laws to the
contrary notwithstanding, every
employer or indirect employer shall be
held responsible with his contractor or
subcontractor for any violation of any
provision of this Code. For purposes of
determining the extent of their civil
liability under this Chapter, they shall be
considered as direct employers.

Section 1. Guiding Principles.
Non-permissible forms of contracting
and sub-contracting arrangements
undermine the Constitutional and
statutory right to security of tenure of
workers.
Section 1. Guiding Principles.
Contracting and subcontracting
arrangements are expressly allowed by
law and are subject to regulations for
the promotion of employment and
observance of the rights of workers to
just and humane conditions of work,
security of tenure, self-organizaiton
and collective bargaining. Labor-only
Section 1. Coverage
This issuance shall apply to all
operations and undertakings in the
construction industry and its
subdivisions, namely: General Building
Construction, General Engineering
Construction and Special Trade
Construction, based on the
classification code of the Philippine


contracting as defined herein is
prohibited.
Construction Accreditation Board of the
Construction Industry Authority of the
Philippines; to companies and entities
involved in demolition works; and to
those falling within the construction
industry as determined by the
Secretary of Labor and Employment.

b) “Cabo” - refers to a person or group
of persons or to a labor group which, in
the guise of a labor organization,
cooperative or any entity, supplies
workers to an employer, with or without
any monetary or other consideration,
whether in the capacity of an agent of
the employer or as an ostensible
independent contractor.
b) “Cabo” - refers to a person or group
of persons or to a labor group which, in
workers to an employer, with or without
any monetary or other consideration,
whether in the capacity of an agent of
the employer or as an ostensible
independent contractor.

c) “Contracting” or “Subcontracting” –
refers to an arrangement whereby a
principal agrees to farm out to a
contractor the performance or
completion of a specific job or work
within a definite or predetermined
period, regardless of whether such job
or work is to be performed or
completed within or outside the
premises of the principal.
c) “Contracting” or “Subcontracting” –
refers to an arrangement whereby a
principal agrees to farm out to a
contractor the performance or
completion of a specific job or work
within a definite or predetermined
period, regardless of whether such job
or work is to be performed or
completed within or outside the
premises of the principal.
Section 2.
2.5 Contracting and subcontracting –
The practice of contracting out certain
phases of a construction project is
recognized by law, particularly wage
legislations and wage orders and by
industry practices. The Labor Code
and its Implementing Regulations allow
the contracting out of jobs under
certain conditions. Where such job
contracting is permissible, the
construction workers are generally
considered as employees of the
contractor or subcontractor, as the
case may be, subject to Art. 109 of the
Labor Code, as amended.

d) “Contractor – refers to any person or
entity engaged in a legitimate
contracting or subcontracting
arrangement providing services for a
specific job or undertaking farmed out
by principal under a Service
Agreement.

f) “In-house agency” – refers to a
contractor which is owned, managed ,
f) “In-house agency” – refers to a
contractor which is owned, managed ,
DO 174 falls under the definition of
“Cabo”


or controlled directly or indirectly by the
principal or one where the principal
owns/represents any share of stock,
and which operates solely or mainly for
the principal.
or controlled directly or indirectly by the
principal or one where the principal
owns/represents any share of stock,
and which operates solely or mainly for
the principal.
“Cabo” - refers to a person or group of
persons or to a labor group which, in
workers to an employer, with or
without any monetary or other
consideration, whether in the capacity
of an agent of the employer or as an
ostensible independent contractor.

g) “In-house cooperative - refers to a
cooperative which is managed , or
controlled directly or indirectly by the
principal or one where the principal or
any of its officers owns/represents any
equity or interest, and which operates
solely or mainly for the principal.
DO 174 falls under the definition of
“Cabo”
“Cabo” - refers to a person or group of

l) “Substantial Capital” – refers to paid-
up capital stock/shares at least Five
Million Pesos (P 5,000,000.00) in the
case of corporations, partnerships and
cooperatives; in the case of single
proprietorship, a net worth of at least
Five Million Pesos (P 5,000,000.00).
l) “Substantial Capital” – refers to paid-
up capital stock/shares at least Three
Million Pesos (P 3,000,000.00) in the
case of corporations, partnerships and
cooperatives; in the case of single
proprietorship, a net worth of at least
Three Million Pesos (P 3,000,000.00).
DO 174 and DO 18-A, difference of P
2,000,000.00 (increased).

Section 4. Regulation of Contracting
or Subcontracting.
The Secretary of Labor and
Employment shall regulate contracting
and subcontracting arrangement by
absolutely prohibiting labor-only
contracting, and restricting job
contracting allowed under the
provisions of the Labor Code, as
amended.

Section 5. Absolute Prohibition Section 6. Prohibition against Labor- What DO 174 strictly prohibits is the


against Labor-only Contracting.
Labor-only contracting, which is totally
prohibited, refers to an arrangement
where:
a)i. The contractor or subcontractor
does not have substantial capital, or
only Contracting.
Labor-only contracting is hereby
declared prohibited. For this purpose,
labor-only contracting shall refer to an
arrangement where:
a) The contractor does not have
substantial capital or investments in
the form of tools, equipment,
machineries, work premises, among
others, and the employees recruited
and place are performing activities
which are usually necessary or
desirable to the operation of the
company, or directly related to the
main business of the principal within
a definite or predetermined period,
regardless of whether such job,
work or service is to be performed
or completed within or outside the
premises of the principal, or
malpractice of labor-only contracting
which is already explicitly prohibited
under Art. 106 of the Labor Code

ii. The contractor or subcontractor does
not have investments in the form of
tools, equipment, machineries,
supervision, work premises, among
others, and

iii. The contractor’s or subcontractor’s
employees recruited and place are
performing activities which are directly
related to the main business operation
of the principal; or

b) The contractor or subcontractor
does not exercise the right to control
over the performance of the work of the
employee.
b) The contractor does not exercise the
right to control over the performance of
the employee.

Section 6. Other Illicit Forms of
Employment Arrangement.
In addition to Section 5 of these Rules,
the following are hereby declared
prohibited for being contrary to the law
or public policy:
a) When the principal farms out work
to a “Cabo”.
Section 7. Other Prohibitions.
Notwithstanding Section 6 of these
Rules, the following are hereby
declared prohibited for being
contrary to law or public policy:
A. Contracting out of jobs, works or
services when not done in good
faith and not justified by the
exigencies of the business such as
“Cabo” refers to a person or group of


the following:

b) Contracting out of job or work
through an in-house agency.
(1) Contracting out of jobs, works or
services when the same results in
the termination or reduction of
regular employees and reduction of
work hours or reduction or splitting
of the bargaining unit.
Also considered as Cabo

c) Contracting out of job or work
through an in-house cooperative
which merely supplies workers to the
principal.
(2) Contract out of work with a “Cabo” Also considered as Cabo

d) Contracting out of a job or work by
reason of a strike whether actual or
imminent.
(3) Taking undue advantage of the
economic situation or lack of
bargaining strength of the
contractor’s employees, or
undermining their security of tenure
or basic rights, or circumventing the
provisions of regular employment, in
any of the following instances:

Book Five, Title VI, Unfair Labor
Practices, Chap. II, Unfair Labor
Practices of Employers
Art. 259. Unfair Labor Practices of
Employers.
It shall be unlawful for an employer to
commit any of the following unfair labor
practice:
(c) To contract out services or functions
being performed by union members
when such will interfere with, restrain or
coerce employees in the exercise of their
rights to self-organizaiton.
e) Contracting out of a job or work
being performed by union members
and such will interfere with, restrain
or coerce employees in the exercise
of their rights to self-organization as
provided in Article 259 of the Labor
Code, as amended.
(i) Requiring them to perform
functions which are
currently being performed
by the regular employees of
the principal; and
DO 174 is redundant. Letter e is
already prohibited under the Labor
Code.

f) Requiring the
contractor’s/subcontractor’s
employees to perform functions
which are currently being performed
by the regular employees of the
principal.
(ii) Requiring them to sign, as a
precondition to employment
or continued employment,
an antedated resignation
letter; blank payroll; a
waiver of labor standards
including minimum wages
and social or welfare
benefits; or a quitclaim


releasing the principal,
contractor or from any
liability as to payment of
future claims.

g) Requiring the
contactor’s/subcontractor’s
employees to sign, as a precondition
to employment or continued
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 or contractor
from liability as to payment of future
claims; or require the employee to
become member of a cooperative
(4) Contracting out of a job, work or
service through an in-house
agency.

h) Repeated hiring by the
contractor/subcontractor of
employees under a employment
contract of short duration.
service that is necessary or
desirable or directly related to the
business or operation of the
principal by reason of a strike or
lockout whether actual or imminent.

i) Requiring employees under a
contracting/subcontracting
arrangement to sign a contract fixing
the period of employment to a term
shorter than the term of the Service
Agreement, unless the contract is
divisible into phases for which
substantially different skills are
required and this is made known to
the employee at the time of
engagement.
service being performed by union
members when such will interfere
with, restrain or coerce employees
in the exercise of their rights to self-
organization as provided in Art. 248
(c) of the Labor Code, as amended.
There are two (2) contracts here, the
contract between the principal and the
contractor, which is the SERVICE
CONTRACT; the employee-employer
contract between the contractor and
its employee.
Following letter i, the contractual
employee should have an employment
contract period the same as the
Service Contract Agreement. The
Service Contract Agreement is co-
terminus with the employment
contract. If the ee contract ends in the
same time as the service agreement
then there is no problem.

Art. 4. Construction in Favor of Labor.
All doubts in the implementation and
j) Such other practices, schemes or
employment arrangements designed
(7) Repeated hiring of employees
under an employment contract of
The Labor Code already provides for a
catch all phrase in terms of how the


interpretation of the provisions of this
Code, including its implementing rules
and regulations, shall be resolved in
favour of labor.
to circumvent the right of workers to
security of tenure.
short duration or under a Service
Agreement of short duration with
the same or different contractors,
which circumvents the Labor Code
provisions on Security of Tenure.
labor code will be interpreted.

(8) Requiring employees under a
subcontracting arrangement to sign
a contract fixing the period of
employment to a term shorter than
the term of the Service Agreement,
unless the contract is divisible into
phases for which substantially
different skills are required and this
is made known to the employee at
the time of engagement.

(9) Refusal to provide a copy of the
Service Agreement and the
employment contracts between the
contractor and the employees
deployed to work in the bargaining
unit of the principal’s certified
bargaining agent to the sole and
exclusive bargaining agent (SEBA)

(10) Engaging or maintaining by the
principal of subcontracted
employees in excess of those
provided for in the applicable
Collective Bargaining Agreement
(CBA) or as set by the Industry
Tripartite Council (ITC).

B. Contracting out of jobs, works or
services analogous to the above
when not done in good faith and not
justified by the exigencies of the
business.

Section 8. Permissible Contracting
or Subcontracting Arrangement.
Notwithstanding Sections 5 and 6
hereof, contracting or subcontracting
shall only be allowed if all the following
Under the DO 174, it is clear in Sec. 8
that contracting is still allowed.


circumstances concur.

a) The contractor or subcontractor is
engaged in a distinct and
independent business and
undertakes to perform the job or work
on its own responsibility, according to
its own manner and method;

b) The contractor or subcontractor
has substantial capital to carry out
the job farmed out by the principal on
his account, manner and method,
investment in the form of tools,
equipment, machinery and
supervision;

c) In performing the work farmed out,
the contractor or subcontractor is free
from the control and/or direction of
the principal in all matters connected
with the performance of the work
except as to the result thereto; and

d) The Service Agreement ensures
compliance with all the rights and
benefits for all the employees of the
contractor or subcontractor under the
labor laws.

Section 10.
Rights of
Contractor’s/Subcontractor’s
Employees.
Section 8.
Rights of Contractor’s Employees.
The employees mentioned in Section
10 is the employee of the
Contractor/Subcontractor and not the
principal hence as long as the
minimum labor standards are followed,
contractual employees are allowed.

Comments:
1. DO 174 is actually an Implementing Rules and Regulations for the strict compliance of legitimate Contractors and Subcontractors and not to eliminate contractualization. It only increased the contractor’s capital
from P 3,000,000.00 to P 5,000,000.00.
2. Other listed prohibitions are already existing prohibitions in our Labor Code.
3. A Human Resource Department who wants to avoid any problem in dealing with contractors may instead employ a fixed-term contract engagement with the employees. Fixed-term employment directly
facilitated by the employer is not prohibited. Nowhere in the DO 174 prohibits it. Fixed-term employment must substantially follow the conditions:


The Court thus laid down the criteria under which fixed-term employment could not be said to be in circumvention of the law on security of tenure,1 thus:
1. The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent; or
2. It satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms with no moral dominance exercised by the former or the latter.

1
G.R. No. 155505, 15 February 2007, EMILIO M. CAPAROSO and JOEVE P. QUINDIPAN vs. COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, COMPOSITE ENTERPRISES INCORPORATED, and EDITH
TAN

Comparative Table: DO 174, DO 18A, DO 19 and the Labor Code

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