Issue of February 18, 2018
Mt. Province

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What is Department Order 174–17?

When Labor Sec. Silvestre H. Bello III signed Department Order 174-17 or the “Rules implementing articles 106 to 109 of the Labor Code, as amended” setting out stricter regulations over contracting practices last March 16, 2017, the bulletin was immediately greeted with protest actions from several workers’ organizations who wanted contractualization totally banned, and on the other side are the main employers’ group who are not exultant with it as well, warning it may lead to higher unemployment.

Before discussing the pros and cons of DO 174-17, we must first understand what exactly the directive is saying. Basing on discussions with labor lawyers, one must take a look at the most important points that a well-informed person, whether employer or employee, should know about DO 174-17 that took effect last April 3, 2017.

Article XIII, Sec. 3 of the 1987 Constitution guarantees “that the state shall afford full protection to labor” and workers shall be entitled to security of tenure, humane conditions of work, and a living wage.” This constitutional right is elaborated by the Labor Code and several orders of the Department of Labor and Employment, particularly DO-18 A, s. 2011.

DO 174-17 imposes a total ban on labor-only contracting, strictly regulating lawful contractual arrangements and ending the “endo” or end of contract scheme. Under endo or 555 schemes, workers renew their contracts every five months so employers can avoid the obligation of paying them as regular employees, who are afforded various benefits and privileges after six months at work. DO 174-17 superseded DO 18-A.

DO 174-17 did not abolish contractualization but it restricts or prohibits further the contracting out of workers, as well as other practices, schemes, and arrangements that are contrary to law or public policy. Labor-only contracting merely recruits, supplies, or places workers to perform a job or work for a principal is totally prohibited by law.

In DO 174-17, prohibited are the illicit forms of employment arrangement when the principal farms out work to a “cabo” (a person or group supplying workers, with or without any monetary or other consideration, whether in the capacity of the employer’s agent or an independent contractor); contracting work through an in-house agency or cooperative; contracting work because of a strike or lockout; contracting work being performed by union members; requiring employees of contractor or subcontractor to do work currently performed by regular employees of the principal; requiring them to sign 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 in paying future claims; or requiring them to become members of a cooperative; requiring them to sign a contract fixing the period of employment to a term shorter than the term of 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; repeated hiring of employees by contractor or subcontractor under a contract of short duration and other practices, schemes or employment arrangements designed to circumvent the right of workers to security of tenure.

DO 174-17 reaffirms the constitutional and statutory right to security of tenure of workers; applies to all parties in an arrangement where employer-employee relationship exists; and absolutely prohibits labor-only contracting, and specifies other illicit forms of contractual employment arrangements.

It also allows only permissible contracting and subcontracting as defined; re-enforces the rights of workers to labor standards, self-organization, collective bargaining, and security of tenure; and requires mandatory registration of contractors and subcontractors and provides clear procedures for cancellation of registration.

As part of the DOLE’s intensified efforts in abolishing unlawful contractual arrangements, Bello issued Labor Advisory 06-17 which states that employers in their respective regions must submit a letter of voluntary commitment to DOLE regional offices for a joint assessment, which will be conducted by the assigned labor law compliance officer (LLCO) or labor inspector.

In the interest of labor justice and to encourage voluntary regularization of employees, and to ensure the rights of employees to labor standards benefits, self-organization and security of tenure are observed. The LLCO assigned by the DOLE regional director will inspect the work premises, review the employment records, and interview randomly selected workers of the establishments, as well as assist the employer in preparing a voluntary commitment plan of the workers to be regularized.

The voluntary commitment plan must contain the workers’ details, including their names, status of employment, date of regularization, and their monthly report of the status of regularization. The labor advisory also states that the effectivity of the regularization must retroact from the date of deployment to the principal, subject to the rules of probationary employment if the workers had worked for less than six months.

The voluntary commitment plan of the employers must contain a statement that during the period of regularization, the employment of the deployed workers must not be terminated by the employer. Regularized workers must enjoy the benefits under existing company rules and regulations or any collective bargaining agreement.

The compliance order to regularize all employees shall become final and executory within 10 days from failure of the establishment to comply with the order.

For more information about the DO 174-17, as amended, and Labor Advisory 06-17, visit

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