May 16, 2017

Recent Development in Labor: DOLE Department Order 174 Series of 2017 on Contracting Arrangements

The Department of Labor and Employment (DOLE) issued Department Order No. 174 (DO 174) on 16 March 2017, which updated the rules implementing contracting arrangements under Articles 106 to 109 of the Labor Code. DO 174 superseded DO 18-A Series of 2011.

DO 174 was issued in line with President Rodrigo R. Duterte’s campaign promise to curb the illicit practice of “endo” or end of contract schemes that violate the right of employees to receive mandated wages and benefits, including their rights to security of tenure and self-organization. DO 174 aims to enhance the safeguards against prohibited forms of contracting and provide more protection to employees of contractors.

The salient features of DO 174 are as follows:

  • It expanded the forms of employment arrangements considered as labor-only contracting by including in-house cooperatives;

  • It removed the provision on the employment contract being co-terminus with the service agreement;

  • In characterizing labor-only contracting, the phrase “necessary and desirable” was removed while the phrase “directly related to the main business operation of the principal” was retained;

  • Good faith” and “exigencies of the business” are no longer mentioned in determining whether a contracting arrangement may be considered permissible;

  • The contractor’s required capital was increased from Php 3,000,000.00 to Php 5,000,000.00;

  • The contractor’s registration fee was increased from Php 25,000.00 to Php 100,000.00;

  • The validity of the contractor’s Certificate of Registration was reduced from 3 years to 2 years;

  • The appeal period for cancellation of registration was shortened from 10 days to 7 days; and

  • It prohibits the subsequent registration of a contractor whose registration was previously cancelled.

DO 174 is only a partial fulfillment of President Duterte’s campaign promise. As a mere executive issuance, DO 174 cannot amend Articles 106 to 109 of the Labor Code and totally abolish all forms of contracting arrangements. Unless the Labor Code is amended by Congress, the DOLE can only impose more stringent legal standards to regulate contracting arrangements and “endo” schemes.