The applicability of Department Order No. 174, Series of 2017

Outsourcing rules should offer flexibility that would serve the realities of management and the work force.

With the advent of Department Order No. 174, Series of 2017, or the new rules implementing Articles 106 to 109 of the Labor Code, as amended, the question now lies on the applicability or non-applicability of the rules to different types of persons or entities in specific industries on the basis of the contractual relationships between various stakeholders and the nature of the business involved.

It was a common query in the business sector whether firms or companies in the business process outsourcing ( BPO) or knowledge process outsourcing ( KPO), and in the Construction Industry were covered by the rules of contracting and subcontracting arrangements previously embodied in Department Order No. 18-A, Series of 2011. Thus, to shed light on the issue, the Department of Labor and Employment (DoLE) issued Department Circular No. 1, Series of 2012, which clarified the non-applicability of DO No. 18-A to the aforesaid industries.

With the recent issuance of DO No. 174, various stakeholders in the business sector were, once again, fazed by uncertainties as to the applicability of the new Department Order to persons or entities in specific industries. This is of no surprise given that the DoLE made an express but solitary exclusion of contracting or subcontracting arrangements in the Construction Industry from the coverage of DO No. 174.

The DoLE, through Department Circular No. 1, Series of 2017, once again clarified the non-applicability of the new rules to BPOs or KPOs. In fact, said Department Circular made additional delineations of persons or entities in specific industries, and other contractual relationships, which are deemed excluded from the coverage of DO No. 174.

BUSINESS PROCESS OUTSOURCING

At the onset, DO No. 174 only applies to a contracting and subcontracting arrangement whereby a trilateral relationship is involved between three (3) parties consisting of a principal, a contractor, and the workers engaged by the latter to accomplish a job, work or service, which involves a generic or focused singular activity e.g., janitorial, security, merchandising, and other specific production work.

Accordingly, it does not contemplate information technologyenabled services involving an entire or specific business process such as Business Process Outsourcing, Knowledge Process Outsourcing, Legal Process Outsourcing, IT Infrastructure Outsourcing, and Back Office Operations/Support, among others. The foregoing services actually cover an entire gamut of operations which heavily utilize information technology for improving efficiency of an organization. Consequently, companies engaged in business, knowledge, or legal processes are governed by other applicable provisions under the Labor Code and the Civil Code.

CONSTRUCTION INDUSTRY

Pursuant to Presidential Decree No. 1746, Series of 1980, licensing and the exercise of regulatory powers over the construction industry is lodged with the Philippine Contractors Accreditation Board (PCAB) of the Construction Industry Authority of the Philippines (CIAP), and not with the DoLE. In this regard, Department Circular No. 1, series of 2017 expressly provides that contracting or subcontracting arrangements in the construction industry under the licensing coverage of the PCAB shall be governed by Department Order No. 19, Series of 1993 (Guidelines Governing the Employment of Workers in the Construction In-

dustry); Department Order No. 13, Series of 1998 (Guidelines Governing the Occupational Safety and Health in the Construction Industry); and the DoLE-DPWH-DILG-DTU and PCAB Memorandum of Agreement-Joint Administrative Order No. 1, Series of 2011 on coordination and harmonization of policies and programs on occupational safety and health in the construction industry.

However, it should be noted that contractors licensed by the PCAB, who are nonetheless engaged in contracting arrangements in addition to or other than construction activities, shall be required to register under DO No. 174.

PRIVATE SECURITY AGENCIES

Department Circular No. 1, series of 2017 expressly provides that except for registration requirements provided for in DO No. 174, contracting or subcontracting arrangements in the private security industry shall be governed by Department Order No. 150, Series of 2016 or the Revised Guidelines Governing the Employment and Working Conditions of Security Guards and Other Private Security Personnel in the Private Security Industry.

OTHER CONTRACTUAL RELATIONS

As previously mentioned, DO No. 174 applies only to contracting and subcontracting arrangement which involves a trilateral relationship between a principal, a contractor, and the workers of the contractor. It does not cover contractual relations such as contract of sale or purchase, contract of lease, contract of carriage, contract growing/growership agreement, toll manufacturing, contract of management, operation, and maintenance. DO No. 174 does not also cover the contracting out of a work or job to a professional, or individual with unique skills and talents who, by himself or herself, performs the job or work for the principal. This is because the hiring of a professional with unique skills would actually involve a bilateral contract between a principal and an independent contractor. In this regard, it is the Civil Code of the Philippines and other special laws which shall govern these contractual relations.

Indeed, given the right of an employer to utilize various processes that would ensure the continued viability of his business, it cannot be expected that other industries in the business sector will seek to lobby an outright exclusion from the rules of contracting and subcontracting arrangements. We may as well anticipate that certain industries utilizing complex business processes will strive to rationalize an excepted status from the aforesaid rules. In any event, the rules on outsourcing, or any law for that matter, should accommodate measures of flexibility that would aptly cater to the realities and imperatives of management and the work force.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.