Labor-only contracting vs labor-plus contracting

HOT in the public mind nowadays is the issue on contractualization and the differentiation between labor-only contracting and labor-plus contracting.

A number of Social Security System employees and officials (including friends from the public and private sector) want me to clarify the meaning of contractualization and the basic distinction between labor-only contracting and labor-plus contracting.

This column is written especially in response to the said timely queries.

Labor-only contracting and labor-plus contracting are both forms of contractualization.  In both forms, two employers are involved, the genuine employer and the fictitious employer. 

In labor-only contracting, the genuine employer enters into a service contract with a labor contractor to hire employees or laborers in such a number as his business or workplace may need.  This kind of labor contractor has no sufficient capital to maintain his own work force or work equipment to be used by the employees and laborers he hires and deploys to work with the genuine employer.  He only provides labor that is the reason for the term “labor-only” contracting. 

Under the service contract, which the genuine employer and the labor-only contractor sign, the labor-only contractor is the employer of the workers he deploys to the genuine employer.  The arrangement is illegal under Article 106 of the Labor Code and the aggrieved or underpaid deployed workers may sue the genuine employer before the National Labor Relations Commission (NLRC) for nonpayment or underpayment of correct wages and labor standard benefits.

Labor-plus contractors, unlike labor-only contractors, are required by Article 106 of the Labor Code to be sufficiently capitalized or to possess their own equipment for use by the workers as they work in the premises of the genuine employer.  Labor-plus contractors also execute a service contract with the genuine employer stating that the former is the employer of the deployed workers and that the labor-plus contractors can pull out any deployed worker anytime for any cause and reassign him to other or vacant positions in the contractors’ other clients.  This kind of arrangement is legal and is allowed under Article 106 of the Labor Code.

The labor unions all over the archipelago are vehemently against the genuine employer-labor-plus contracting. To the labor unions, this is a worse form of contractualization.  The first form, labor-only contracting, is not much of a headache to the labor unions because in the first place, it is already illegal.  In the second place, the deployed workers have the effective remedy of suing the genuine employer for correct wages and benefits since the labor-only contracting camouflage has time and again been undressed and trounced by our
labor tribunals. 

On the other hand, because of its legal cover, the second form of contractualization, the genuine employer-labor-plus contracting has thrived in the labor horizon and there seems to be no stopping its growth, like a kamote plant on fertile soil.

This form of contractualization has lessened the members of labor federations and labor centers and has weakened their political power.  Deployed workers may form labor unions under the fictitious employer but being penniless, so to speak, how can the deployed workers economically benefit from organizing a labor union as employees of the fictitious employer? 

Moreover, to save on costs and to avoid labor unions, there exists an undeniable temptation for the genuine employer to create or finance its own fictitious labor-only or labor-plus contractor.

Article 106 of the Labor Code allows contractualization of the second variety, genuine employer-labor-plus variety.  On the other hand, Article 280 of the same Code allows the hiring of contractuals and endos

Palliative department orders have been and will be issued by the Department of Labor and Employment in order to placate the workers and labor unions affected by the endo and contractualization arrangements.  However, until and unless Article 106 and 280 of the Labor Code are repealed or amended, endo and contractualization will continue to dominate the Philippine industrial landscape.


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