Department Order No. 174 Series of 2017: Atty. Nepomuceno A. Leano Ii, CPA

DEPARTMENT ORDER No.
174
Series of 2017
Atty. NEPOMUCENO A. LEANO II,

CPA
OIC-Director II, MUNTAPARLAS Field
Office, DOLE-NCR
06 APRIL 2017
GUIDING PRINCIPLE
Non-permissible forms of
contracting and subcontracting
arrangements undermine the
Constitutional and statutory right
to security of tenure of
workers
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.
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.
SERVICE AGREEMENT
Refers to the contract between the

principal and contractor containing the
terms and conditions governing the
performance or completion of a specific
job or work being farmed out for a
definite or predetermined period.
LABOR-ONLY
CONTRACTING
Refers to arrangement where the contractor or
subcontractor merely recruits, supplies or places
workers to perform a job or work for a principal,
and the following elements are present:
 the contractor or subcontractor does not have
substantial capital or does not have investments
in the form of tools, equipment, machineries,
supervision, work premises, among others;
Recruited and placed are performing activities
which are directly related to the main business
operation of the principal
MOST IMPORTANT
The contractor or subcontractor does

not exercise the right to control
over the performance of the work of
the employee.
Labor-only contracting is wrong and
prohibited because it is an attempt to
evade the obligations of an employer. The
employer is using as front, a person who
poses as employer although he is not. The
scheme evades employer’s obligations to
respect the employees’ right to unionize,
the right to employment standards,
including SSS EC membership, and the
right to security of tenure. (Comment of
Author C.A. Azucena, The Labor Code with
Comments and Cases, Volume One, page
262,)
OTHER ILLICIT FORMS OF
EMPLOYMENT ARRANGEMENTS
The following are hereby declared
prohibited for being contrary to law and
public policy:
A) when the principal farms out work to a
“cabo”;
B) contracting out of job or work through an
in-house agency or in-house cooperative;
C) contracting out of job by reason of a
strike or lock-out whether actual or
imminent;
D) contracting out of job being performed
by union members as such interferes with,
E) requiring the contractor’s employees to perform
functions which are currently being performed by the
regular employees of principal;
F) requiring contractor’s employees to sign, as
precondition of employment or continued
employment an antedated resignation letter, a black
payroll, a waiver of labor standards, social and
welfare benefits, a quitclaim, or to require the
employee to become member of a cooperative
G) repeated hiring by the contractor/subcontractor of
employees under an employment contract for short
duration;
H) requiring employees under a contracting
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;
Such other practices, scheme or
employment arrangements designated to
circumvent the rights of workers to
security of tenure
PERMISSIBLE CONTRACTING
ARRANGEMENTS
1.) The contractor is engaged in a distinct and independent
business and undertakes to perform the job on its own
responsibility, according to its own manner and method;
2.) The contractor has substantial capital to carry out the
job farmed our by the principal on his account, manner and
method, investment in the form of tools, equipment,
machinery and supervision;
3.) 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
The Service Agreement ensures compliance with all the
rights and benefits for all the employees of the contractor
or subcontactor under the labor laws
SUBSTANTIAL CAPITAL
Refers to paid up capital stock/shares at least
FIVE MILLION PESOS (P5,000,000.00) in the
case of corporations, partnership and
cooperatives, corporations, partnership and
cooperatives.
In the case of single proprietorship, a net

worth of at least FIVE MILLION PESOS
(P5,000,000.00)
REGISTRATION FEE
Section 19. –
Payment of registration fee of ONE HUNDRED

THOUSAND PESOS (P100,000.00) shall be
required upon approval of the application.
VALIDITY OF CERTIFICATION OF
REGISTRATION
The Certificate of Registration shall be

effective for two (2) years, unless cancelled
after due process. The same shall be valid
in the region where it is registered.
GROUNDS FOR
CANCELLATION
1) Misrepresentation of facts in the application;
2.) Submission of falsified or tampered application;
3.) Non-submission of Service Agreement between
the principal and contractor when required;
4.) Non-submission of Semi-Annual Report (list of
contract entered with principals; number of workers
covered in each contract; proof of payment of SSS,
PhilHealth, Pag-IBIG, ECC, BIR, and amortization of
declared loans from each employees)
5.) Non-compliance with labor standards and working
conditions
6.) findings of violation on rights to
contractor’s employees and required
contracts;
7.) Non-compliance with SSS, Phil-Health,
ECC, Pag-IBIG, HDMF;
8.) Collecting fees not authorized by law
and other applicable rules and regulations;
9.) Violations of any provisions of the Labor
Code
SOLIDARY LIABILITY
In the event of violation of any provisions of

the Labor Code, including the failure to pay
wages, there exists a solidary liability on the
part of the principal and the contractor for
purposes of enforcing the provisions of the
Labor Code and other social legislations, to
the extent of the work performed under the
employment contract
RENEWAL OF REGISTRATION
All registered contractors shall apply for
renewal of their Certificate of Registration
thirty (30) days before the expiration of their
registration to remain in the roster of
legitimate service contractors. The applicant
shall pay a registration renewal fee of One
Hundred Thousand Pesos (P100,000.00) to
the DOLE Regional Office
THANK YOU

Department Order No. 174 Series of 2017: Atty. Nepomuceno A. Leano Ii, CPA

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Department Order No. 174 Series of 2017: Atty. Nepomuceno A. Leano Ii, CPA

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DEPARTMENT ORDER No.

Atty. NEPOMUCENO A. LEANO II,

Refers to any person or entity engaged in a

Refers to the contract between the

The contractor or subcontractor does

In the case of single proprietorship, a net

Payment of registration fee of ONE HUNDRED

The Certificate of Registration shall be

In the event of violation of any provisions of

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