Dear Atty. Joji,

In mid-2020 when the Covid-19 pandemic started and business transactions had to be done mostly online, our company made the decision to transform our services digitally. Our company executed a service agreement with contractor C to provide the labor needed for building up our online facilities and system migrations.

During this transition, a database analyst, X, applied with our company. Since our Company was engaging the services of C for two years, we referred X to C, who assigned X to work in our company. Six months into the service agreement with C, we were surprised to receive a labor complaint from X, stating that he should be regularized with our Company because C is a labor-only contractor who had no independent business, and that his work was integral to the business of our Company since he performed the same job as with our regular employees.

I met with C and their argument is it is a legitimate job contractor as shown by its Securities and Exchange Commission and Department of Labor registrations. Is this enough to defend against the regularization claims of X against our company?

Nova

***

Dear Nova,

Labor-only contracting is present where: (1) An entity that supplies workers to a principal does not possess substantial capital or investment in the form of tools, pieces of equipment or machinery, or work premises, among others; and (2) the workers are made to perform tasks which are directly related to the principal's business. Under the circumstances, the intermediary of the entity that assigned the workers to the principal shall be deemed as the latter's agent, and the principal shall be responsible for the workers, as if it directly hired the workers.

Therefore, to be considered a legitimate labor contractor, an entity must possess the necessary tools and premises in relation to the job or service it renders. Based solely, however, on your narration, it is not specified that C has any tool or equipment it owns and supplies X for him to be able to perform the service for your company.

Moreover, it also appears that X has been performing tasks central and necessary to the business of your company, if it is accurate that X performs the same job as your regular employees. This may indeed indicate that your company is the employer of X, unless your company will be able to show that the duties or functions performed by X under the service agreement are different, highly technical or specialized from the duties performed by your Company's regular employees.