5.1 Prohibition on Labor-Only Contracting
In the Philippines, so-called ‘Labor-Only Contracting’ is prohibited. Labor-Only Contracting refers to the situation where the contractor merely recruits, supplies or places workers to perform a job, work or service for a principal, and the following elements are present:
the contractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility and the employees recruited, supplied, or placed by the contractor are performing activities directly related to the main business of the principal; or
the contractor does not exercise the right to control the performance of the work of the contractual employee.
That is, a principal may only engage a third party to provide services, where those services go beyond the mere provision of labor. In summary, the following conditions must be satisfied:
the contracting company must carry on a distinct and independent business and undertake to perform the particular job, work or service on its own account and under its own responsibility, according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof; and
the contracting company must have substantial capital or investment.
5.2 Engagement of independent contractors
Companies may be deemed to be the legal employer of an individual who has been described as an ‘independent contractor’. Regardless of the name given by the parties to the relationship, the key factor that determines an employer-employee relationship at law is the existence of control over the manner and means of doing the work. In general, if the principal wields such control over the so-called ‘independent contractor’, then the principal will be liable as the employer of that individual.