Notes  on  DO  18-­‐A,  Series  of  2011  

(Issued  14  November  2011,  For  Publication)  
 
A. Issues  encountered.    
 
(1) Labor  organizations  and  workers  pointed  to  Department  Order  No.18-­‐02  as  the  
DOLE   “contractualization   of   labor   policy”   or   to   have   undermined   their   right   to  
security   of   tenure   due   to   the   proliferation   of   subcontracting   and   outsourcing  
arrangements.     In   particular,   the   Alliance   of   Progressive   Labor   (APL)   together  
with   the   other   members   of   the   Kilusan   Laban   sa   Kontrakwalisasyon   (APL,  
Makabayan,   Partido   ng   Manggagawa,   among   others)   has   stated   that   indirect  
employment   schemes,   such   as   subcontracting,   contractualization   and  
casualization,  as  well  as  the  abuses  of  the  classes  of  employment  allowed  by  law  
have   impaired   the   workers   right   to   security   of   tenure.   They   also   claimed   the  
arrangements   has   stymied   the   growth   of   unions   due   to   the   precariousness   of  
the  jobs,  and  more  and  more  workers  have  become  non-­‐regular  workers.  
 
(2) Cases   of   violations   of   labor   standards,   circumvention   of   the   security   of   tenure  
and   other   provisions   of   the   Labor   Code,   and   proliferation   of   fly-­‐by   night  
subcontractors.  
 
(3) Proliferation   of   manpower   cooperatives   in   the   subcontracting   arrangement   that  
do   not   comply   with   minimum   wage,   SSS   and   other   workers’   basic   benefits,  
including  the  curtailment  of  the  right  to  self-­‐organization.  
 
B. New  amendatory  DOLE  Department  Order.      
 
Guided   by   the   principle   of   tripartism1   and   consensus-­‐based   approach,   on   14  
November   2011,   DOLE   Secretary   Rosalinda   Dimapilis-­‐Baldoz   issued   Department   Order  
No.   18-­‐A,   Series   of   2011,   entitled:   “Rules   Implementing   Articles   106   to   109   of   the  
Labor   Code,   As   Amended”,   to   address   the   gaps   of   DO   18   on   security   of   tenure,  
compliance   with   workers’   rights   to   labor   standards   as   well   as   occupational   health   and  
safety  standards,  and  enforcement  aspect.  
 
The  new  DO  is  a  product  of  six  (6)  tripartite  consultations  and  separate  sectoral  and  
organizational   sittings,   in   addition   to   the   almost   five   (5)   years   failed   attempts   to  
review  and  amend  the  DO  18.    
 
The  new  DO  recognizes  subcontracting  as  legitimate  business  undertaking  but  tightens  
the  requirement  to  ensure  that  only  legitimate  subcontractors  can  subcontract  jobs  or  
services.     It   reiterates   the   prohibition   on   labor-­‐only   contracting   and   the   test   for  
legitimate  engagement  as  set  in  DO18-­‐02.    Specifically,  the  new  DO:    
                                                                                                                       
1
Tripartism refers to the involvement/representation of workers and employers shall in decision and policy-making bodies of
the government. The Philippine Government adopted Tripartism as a state policy, particularly by virtue of Section 3, Article
XIII (Social Justice and Human Rights) of the Philippine Constitution, Article 275 (Tripartism and Tripartite Conferences) of
the Philippine Labor Code, as amended, and by ratification of ILO Convention No. 144 (Tripartite Consultations to Promote
the Implementation of International Labor Standards). Bureau of Labor Relations website. (Accessed on 21 October 2011)
Briefing Notes on Department Order No. 18-A, Series of 2011 (Page 2 of 4)

 
1. Delineates   service   contracting/subcontracting   from   private   recruitment   and  
placement   agency   (PRPA),   by   prohibiting   contractors/subcontractors   from  
engaging  in  PRPA  activities  and  vice-­‐versa.      This  distinguishes  a  subcontractor,  
who  should  be  an  independent  employer,  from  a  PRPA  who  merely  acts  for  and  
on   behalf   of   an   employer   and   not   the   employer   of   the   recruited   and   placed  
workers  at  a  company  or  an  employer.    Thus,  effectively  removing  one  critical  
source  of  circumvention  of  the  Labor  Code  provisions.  
   
2. Sets   clear   criteria   for   legitimate   contracting   or   subcontracting   by   requiring  
compliance  with  the  following:  
 
(a) Minimum   capitalization   requirement   of   at   least   P3   Million   fully   paid   up  
capital   for   all   subcontractors   whether   corporation,   partnership   and  
cooperative;   and   a   net   worth   of   at   least   P3   Million   for   single  
proprietorship;  (Section  3[l])  
 
(b) Proof  of  ownership  or  lease  agreement  on  tools,  equipment,  machineries  
and   work   premises   actually   and   directly   used   by   the   contractor   in   the  
performance   or   completion   of   the   job,   work   or   services   contracted   out,  
subject   to   verification   inspection   prior   to   the   grant   of   registration   as  
legitimate  subcontractor;  (Section  15.  Requirements  for  registration)  
 
(c) Payment  of  P25,000.00  registration  fee;  (Ibid.)  
 
(d) Proof   of   financial   capacity   to   pay   the   wages   and   benefits   of   the   workers   in  
every  service  contract  using  the  Net  Financial  Contracting  Capacity  (NFCC)  
formula  in  government  procurement;  (Section  3[g])  
 
(e) Control     over   the   performance   of   the   work   of   the   employee   deployed   or  
assigned   to   render   the   contracted   work   or   services.   (Section   6[b]   on  
Prohibition  on  labor-­‐only  contracting)  
 
3. Induces   ethical   and   professional   subcontracting,   by   ensuring   compliance   with  
labor  standards  and  occupational  health  and  safety  standards  through:  
 
(a) Requiring   an   employment   contract   and   Service   Agreement   (Section   9.  
Required  contracts  under  the  Rules.)  
 
(b) Prescribing   a   standard   form   for   Service   Agreement   containing:   (i)   the  
description   of   the   job,   work   or   service   to   be   rendered   by   the  
subcontractor;   (ii)   place   of   work,   compliance   with   labor   standards   and  
occupational   health   and   safety,   and   a   standard   administrative   fee   of   at  
least   ten   (10)   percent;   (iii)   capacity   to   carry   out   the   contract;   (iv)   details   of  
Briefing Notes on Department Order No. 18-A, Series of 2011 (Page 3 of 4)

the   terms   of   payment;   (v)   issuance   of   bond/s   as   may   be   agreed   upon   by  

the   parties   to   the   contract;   and   (vi)   term   or   duration   of   the   Service  
Agreement.   (Section   8   on   Rights   of   contractor’s   employees   and   Section   9   on   Required  
contracts  under  the  Rules.)  
 
(c) Setting  a  standard  administrative  fee  of  at  least  ten  (10)  percent  to  prevent  
the  “race  to  the  bottom”  competition  to  the  detriment  of  workers  wages  
and  benefits.  (Section  9  [b]  )    
 
(d) Inclusion   of   cooperatives   to   observe   the   regulations   on   subcontracting   and  
the   required   registration   with   DOLE   Regional   Offices   to   ensure   their  
compliance  to  labor  standards  and  regulations.  (Section  2.  Coverage)    
 
(e) Development   of   co-­‐regulation   schemes   with   the   tripartite   stakeholders.  
(Section  33.  Financial  Relief  Program;  Tripartite  Co-­‐Regulation  Engagement.)  
 
(f) Prohibition  of  repeated  hiring  of  employees  under  an  employment  contract  
of   short   duration   (5-­‐month   employment   contract)   or   under   a   Service  
Agreement   of   short   duration   with   the   same   or   different   contractors.  
(Section  7.  Other  Prohibitions)  
 
(g) Underscoring   observance   of   security   of   tenure   by   requiring   compliance  
with  the  clear  standards  of  due  process  in  termination  cases.   (Section  11  on  
Security   of   tenure   of   contractor’s   employees,   and   Section   12   on   standards   of   due  
process  to  be  observed  termination  of  employment)  
 
4. Set  out  a  summary  administrative  remedy  in  case  of  violation  of  the  Rules  by:  
 
(a) Providing     grounds   for   cancellation   of   contractor’s   certificate   of  
registration,  i.e.,  violation  of  labor  standards  and  occupational  and  safety  
standards,   misrepresentation   or   false   statement   in   the   application   and  
documents   for   registration,   violation   of   the   rights   of   workers   including   the  
right   to   self-­‐organization   and   collective   bargaining,   non-­‐submission   of  
semi-­‐annual  reports,  among  others;  (Section  23.  Grounds  for  cancellation)  
 
(b) Providing   the   summary   procedure   and   periods   for   cancellation   of  
certificate  of  registration.  (Section  24.  Due  process  in  cancellation  of  registration.)  
 
5. Strengthens   the   engagement   of   the   tripartite   partners   in   the   implementation  
and  compliance  with  the  Rules  through:  
 
(a) Provision   for   a   “firm-­‐level   approach”   through   collective   bargaining  
agreement   negotiation,   or   “industry-­‐level   approach”   through   Voluntary  
Code   of   Good   Practices,   in   determining   functions   that   can   or   cannot   be  
subcontracted.  (Section  32.  Collective  bargaining  and/or  Industry  Tripartite  Council)  
 Briefing Notes on Department Order No. 18-A, Series of 2011 (Page 4 of 4)

 
(b) Creation   of   region-­‐based   tripartite   monitoring   team   as   subcommittee   of  
the  Regional  TIPC  and  task  to  submit  a  quarterly  regional  monitoring  report  
to   the   DOLE   Secretary   and   to   the   NTIPC,   which   exercises   oversight  
functions.   (Section   30.   Tripartite   implementation   and   monitoring   of   compliance;   Use  
of  registration  fees,  and  Section  31  on  Oversight  functions  of  the  National  TIPC.)    
 
6.   The   new   Department   Order   is   a   testament   that   the   tripartite   partners  
(government,   labor   and   employers   groups)   have   effectively   harnessed   the  
institution   of   tripartism   and   social   dialogue   in   handling   highly   contentious   and  
delicate  issues  such  as  security  of  tenure  and  subcontracting.2  
 
 
 
 

   

                                                                                                                       
2
Ibid.