To understand the controversy, let`s take a hard look at what is legal and what illegal employment contracts are. `For the purposes of Article 106 of the Labour Code, a contract of pure employment is a prohibited act, an agreement whereby the entrepreneur, who does not have significant capital or investment in the form of tools, equipment, machinery, workspaces and the like, makes workers available to an employer and the recruited workers carry out activities directly related to that employer`s main activity.` (Petron Corporation v. Caberte, G.R. No. 182255, June 15, 2015) In Consolidated Building Maintenance Inc. v. Asprec Jr. (GR 217301, 6. June 2018) “The award of the contract shall be considered legitimate and admissible if the contractor has significant capital or investment and operates an independent undertaking free from the control of the contracting entity.

This “substantial capital” requirement applies to paid-up capital/shares of at least 5 million pesos for companies and partnerships and net assets of at least 5 million pesos for sole proprietorships. In the case of a pure employment contract, the law creates an employer-employee relationship with an overall purpose: to prevent circumvention of labour law. The contractor is considered only to be the representative of the principal employer, and the principal employer is liable to the employees of the sole contractor as if those employees had been employed directly by the principal employer. The establishment of a “pure employment contract” is equivalent to establishing the existence of an employer-employee relationship between the company and the employee of the employment contract, the relationship being provided for by the law itself. (From a technical point of view, the main employer is jointly and severally liable with the contractor reserved for the workers for all legitimate claims of the employees). “It is clear from the foregoing that (the principal) Petron has not discharged its burden of proof that (contractor) ABC is not a pure contractor. Consequently, the Court declares ABC to be purely contracting according to the facts. “To conclude that a contractor is a `pure agent of employment` is to conclude that there is an employer-employee relationship between the principal and the employees of the alleged contractor and that the contractor is considered to be a mere representative of the principal, the true employer.” Accordingly, in this case, Petron is declared to be the true employer of the respondents, who are considered regular employees, since they have regularly engaged for several years in activities necessary and desirable for Petron`s ordinary business.

(Petron Corporation v. Caberte, G.R. No. 182255, June 15, 2015) It seems that today`s company presidents, CEOs, COOs and business operations managers are better advised to stay away from what has always been demonized, and this is the reprehensible practice of employment contracts. As early as 1974, the Labour Code destroyed this notorious practice of certain night shifters who quickly earn money at the expense of workers` sweat and tears. These middlemen are harshly called “cabo” and their practices have long been considered illegal, immoral and ruthless as they are remnants of the long-banned slave trade and involuntary servitude. This law is not new. But the High Court and DOLE have given it more momentum lately. Authorized contracts or subcontractors have been distinguished from pure employment contracts in the sense that authorized contracts of employment or subcontracting means an agreement by which a procuring entity undertakes to award or award to a contractor or subcontractor the performance or completion of a specific work, work or service within a specified or predetermined period of time; that the work or service is to be performed or completed inside or outside the principal`s premises, whereas a pure contract of employment, on the other hand, is a contract under which the contractor or subcontractor merely recruits, provides or negotiates workers to perform work, work or service for a principal. (Allied Banking Corporation v.

Calumpag, G.R. No. 219435, 17. January 2018) according to Departmental Decree No. 174 (2017 series) of the Department of Labor and Employment (DOLE), a pure employment contract occurs if the contractor or subcontractor does not have (1) “substantial capital [at least 5 million pesos] OR (2) . Investments in the form of tools, equipment, machinery, monitoring, workspaces, etc. AND (3) . Workers recruited or placed carry out activities directly related to the main activity of the contracting authority. This also happens when “the contractor . does not practice . Control of the performance of the employee`s work. According to Departmental Decree No. 174, Series of 2017 (DO-174), issued by the Department of Labor and Employment (DOLE), the mere awarding of employment contracts is prohibited.

The impact of these supply agreements varies considerably. According to the Labour Code, in the case of pure employment contracts, the person or intermediary acting as a contractor is considered only as the client`s representative. The customer remains liable to the employees in the same way and to the same extent as if they were directly employed by him. Therefore, the client pays all salaries, benefits and other claims arising from the employer-employee relationship. However, in the case of statutory employment contracts, the joint and several liability of the contractor and the client exists only for the limited purpose of paying the wages of the contractor`s employees assigned to the principal under an employment contract. Even if the contractor`s employees resort to the client in the event of non-payment, there is no employer-employee relationship between the employees and the client.