working with labor laws - samson pp2-51

Working With Labor Laws

The policy of the State to give maximum aid and protectionto labor is embodied in Article 3 of the Labor Code as follows:

Art. 3. Declaration of Basic Policy: The State shall af-ford protection to labor, promote full employment, ensureequal work opportunities regardless of sex, race or creedand regulate the relations between workers and employ-ers. The State shall assure the rights of workers toself-organization, collective bargaining, security of ten-ure, and just and humane conditions of work.

While the Constitution is committed to the policy of socialjustice and the protection of the working class, it should not besupposed that every dispute will be automatically decided infavor of labor. The employer, or management, also has rightswhich are entitled to respect and enforcement in the interest ofsimple fair play. Although the Supreme Court has been moreoften inclined toward the employee and has upheld his cause inhis conflicts with the employer, such favoritism has not blindedthe Supreme Court to rule that justice is in every case for thedeserving, to be dispensed in the light of the established factsand the applicable lawand doctrine."

II. A LIBERAL INTERPRETATION OF THE LABOR CODEAND ITS IMPLEMENTING RULES

Under the policy of social justice, the law bends over backwardsto accommodate the interests of the working class on the hu-mane justification that those with less privileges in life should----- "'----- ~--have more privileges in law." Thus, when conflicting interests of~ .labor and capital are weighed on the scales of social justice, the

3 Cruz P. 11011. Mml/nn, 01 al., G.R. No. 73053, 15 September 1989.II Dttnn /I. "lIfII/lllilll' Ooorseas and Employment Administration et al.,

:.H. Nil. '/11'1/)0. :\ I)m;('mbcr 1990.

General Principles of the Labor Code 3

(b.eavier influence of the employer should be counter-balanced bythe law which must accord sympathy and compassion to theunderprivileged employee]

As such, any doubt concerning the rights of labor should beresolved in favor of labor, pursuant to the social justice policy. 6

A. Liberal Interpretation Only in Case of Doubt

The mandate of the law is that all doubts in the implementationand interpretation of the provisions of the Labor Code and itsImplementing Rules and Regulations should be ~~.lp favorof labor,"----~

For example, although the New Rules of Procedure of theNational Labor Relations Commission (NLRC) provides that thesubmission of position papers of the employer and the employeeshall be simultaneous, the delay of the employee in the submis-sion of his position paper is not a ground for the dismissal of hiscomplaint. This stance is in accord with the policy of the LaborCode, which resolves all doubts in the interpretation of the lawand its implementing rules and regulations in favor of labor. 8

B. Where the Law is Clear, the Lawis to be Applied to the Facts of the Case

The doctrine of liberal construction cannot be applied wherethe law invoked is clear, unequivocal and leaves no room forinterpretation or construction. Where the law is clear, it should

5 Philippine Telegraph and Telephone Corporation u. National Labor Rela-tions Commission, 183 SCRA451 [1990].

6 Marcopper Mining Corporation u. National Labor Relations Commis-sion, et aI., G.R. No. 103525, 29 March 1996.

7 Article 4, Labor Code; Section 3, Preliminary Provisions, OmnibusRules Implementing the Labor Code.

8 Fern's Elegance Lodging House, et al. u. Hon. Murillo, et al., G.R. Nos.117442-43, 11 January 1995.

4 Working With labor laws

be applied to the facts of the case. Otherwise, it will contravenethe purpose for which the law was enacted, and will defeat theends which it seeks to attain. 9

For example, where the law expressly excluded services ren-dered on a per diem basis in crediting the length of service forretirement purposes, the said services cannot be included in thecomputation of retirement benefits on the ground that lawsshould be construed in favor of employees.t?

Furthermore, to disregard the employer's own rights andinterests solely on the basis of concern and solicitude for laboris unjust and unacceptable.!' Justice is not fully served by sus-taining the contention of the poor simply because he is poor.Justice is done by properly applying the law regardless of thestation in life of the contending parties.P

III. PRINCIPLE OF NON-DIMINUTION OF BENEFITS

In order to further protect the interest of employees and pro-mote social justice, the principle of non-diminution of benefitsis embodied in Article 100 of the Labor Code.

The principle of non-diminution of benefits prohibits theelimination of supplements or other benefits already enjoyed bythe employees under existing laws, decrees, executive orders,company policy or practice, or any agreement or contract be-tween the employer and employees.P

In other words, supplements or benefits enjoyed by employ-ees by virtue of:

9 Government Service Insurance System v. Civil Service Commission, etal., G.R. No. 98395, 28 October 1994.

10 Ibid.11 Soriano v. Offshore Shipping and Manning Corporation, et aI., G.R. No.

78409, 14 September 1989.12 Villavilla, et al. v. Court of Appeals, et al., G.R. No. 79664, 11 August

1992.1:1 M( iele 100, Labor Code; American Express Philippines Local Employ-

111.'11I\S.'1or;/ntion u. Leogardo, et a/., G.R. No. 75906, 18 May 1993.

General Principles of the labor Code 5

1. law;2. an agreement between the employer and the employee;

and3. those which have ripened into company practice can no

longer be unilaterally withdrawn, reduced, diminished,discontinued or eliminated by the employer.

A. Meaning of Supplements or Benefits

Supplements or benefits constitute extra remuneration. Theyare special privileges given to or received by the employees overand above their ordinary earnings or wages.!"

Supplements or benefits include, but are not restricted to:lS

1. pay for vacation and special holidays not worked;2. paid sick leave;3. overtime rate in excess of what is required by law;4. profit-sharing;5. family allowances;6. Christmas and cost-of-living bonuses; or7. bonuses other than those paid as a reward for extra

output or time spent on the job.

B. Indicators that Benefits have Ripenedinto Company Practice

In order that benefits may be deemed to have ripened intocompany practice, the following indicators are considered.!"

1. the employer's knowledge that he is not required toextend such benefit to his employees;

14 States Marine Corporation and Royal Line Inc. v. Cebu Seamen's Asso-ciation, G.R. No. L-12444, February 28, 1963.

15 Philippine National Bank v. Philippine National Bank Employees' Asso-ciation, et al., G.R. No. L-30279, 30 July 1982.

16 Republic Planters Bank v. National Labor Relations Commission, G.R.No. 117460,6 January 1997; Manila Electric Company v. Secretary of

.R. No. 12758,27 January] 999.


19 Yap v. Hon. Inciong, et al., G.R. No. 51314, 21 June 1990.20 San Miguel Brewery Sales Force Union (PTGWO) v. Hon. Ople, et al.,

G.R. No. 53515, 8 February 1989.21 Ibid; Wise and Co., Inc. v. Wise & Co., Inc. Employees Union-Natu, et

al., G.R. No. 87672, 13 October 1989.

General Principles of the labor Code 7

2. the granting of the benefits is consistent and deliberate;and

3. the employer continues to grant his employees the ben-efit for several years.

The considerable length of time that benefits have beengranted by the employer to the employees indicates a ~_'!~ voluntary act on its Rart, sufficient in itself to negate anyclaim of a mistake."?

For example, where the employer, for a period of six years,freely, voluntarily and continuously included in.the computationof his employees' 13th-month pay, the payments for sick, vaca-tion and maternity leaves, premiums for work done on rest daysand special holidays, and pay for regular holidays, while the"13th-Month Pay Law" requires only a month's basic salary as13th-month pay, the considerable length of time that the pay-ment for leaves and premiums for rest days and holidays wasincluded by the employer in the computation of the 13th-monthpay indicates a unilateral and voluntary act on the part of theemployer, sufficient in itself to negate any claim of mistake. Assuch, a company practice favorable to the employees has beenestablished and has ripened into a benefit enjoyed by them.Under the principle of non-diminution of benefits, this benefitcannot be reduced, diminished, discontinued or eliminated bythe employer.l"

management prerogatives. This is also known as the free will ofthe employer to conduct his own business affairs to achieve hispurpose. 19

An employer is free.to regulate, according to his own discre-tion and judgment, all aspects of employment, includingr'"

1. hiring;2. work assignments;3. working methods;4. time, place and manner of work;5. tools to be used;6. processes to be followed;7. supervision of employees;8. working regulations;9. transfer of employees;10. work supervision;11. the lay-off of employees; arid12. the discipline, dismissal and recall of work.

Management prerogative is based on the established rulethat the labor law does not authorize the substitution of thejudgment of the employer in the conduct of his business. Everybusiness enterprise endeavors to increase its profits. In the pro-cess, the employer may adopt or devise means designed towardthat goal.

Management prerogative may be availed of without fear ofany liability so long as the following conditions are met.?'

1. It is exercised in good faith for the advancement of the)1 -- -

employer's interest and not for the purpose of defeatingor circumventing the rights of employees under speciallaws or a valid agreement; and

IV. PREROGATIVE OF MANAGEMENT TO REGULATEAll ASPECTS OF EMPLOYMENT

AND THE CONDUCT OF ITS BUSINESS

Even as the law is solicitous of the welfare of employees, it mustalso protect the right of an employer to exercise what are clearly

17 Davao Fruits Corporation v. Associated Labor Unions (ALU), et al., G.R.No. 85073, 24 August 1993.

I n Ibid.

General Principles of the labor Code 98 Working With labor laws

2. It is not exercised in a malicious, harsh" oppressive,vindictive or wanton manlier or out of malice or spite.

company. An employee's right to security of tenure does not} ,

give him such a vested right in his position as would deprive theemployer of his prerogative to change his assignment or transferhim where he will be most useful. When his transfer is notunreasonable, inconvenient, or prejudicial to him, and if it doesnot involve a demotion in rank or a diminution of his salaries,benefits, and other privileges, the employee may not complainthat the transfer amounts to a constructive dismissal. 24

However, like all other rights, there are limits. The manage-ment prerogative to transfer personnel must be exercised withoutgrave abuse of discretion, but by putting to mind the basicelements of justice and fair play. This is because having the rightshould not be confused with the manner in which that rightmust be exercised. Thus, the transfer of employees cannot beused as a subterfuge by the employer to rid himself of an unde-sirable employee or to penalize an employee for his union activitiesand thereby defeat his right to self-organization. 25

A. Management Prerogative to Hire and Fire Personnel

The hiring and firing of personnel is a management~t _However, it is not without limitation. The limitation is embod-ied in the constitutional requirement for the protection of laborand the promotion of social justice, which tilts the scales ofjustice, whenever there is doubt, in favor of the employee.P

Moreover, with regard to the dismissal of employees, cer-tain mandatory requirements laid down by the law must becomplied with to ensure that this management prerogative isexercised without ~i-tFa-r-i-rress>or abuse ofCOiscreticm Hence,both the reason for dismissal and the manner of dismissing anemployee must be appropriate. Otherwise, the termination itselfis gravely defective and may be declared unlawful. This is be-cause an employee's job is considered a property right and istherefore within the constitutional mantle of protection that enoperson shall be deprived of life, liberty or property without dueprocess of law; nor shall any person be denied the equal protec-tion of the laws~'23

24 Cruz v. Ron. Medina, et al., G.R. No. 73053, 15 September1989.25 Philippine Telegraph and Telephone Corporation v. Laplana, et al., G.R.

No. 76645,23 July 1991.

B. Management Prerogative to Transfer Personnel

It is the employer's prerogative, based on his assessment of hisemployees' qualifications, aptitudes, and competence, to movethe employees around in the various areas of his business opera-tions so that they will function with maximum benefit to the

22 Employees Association of the Philippine American Life Insurance Com-pany (EMAPALICO), et al. v. National Labor Relations Commission, etaI., G.R. No. 82976, 26 July 1991.

23 Brahm Industries, Inc. v. National Labor Relations Commission, et al.,G.R. No. 118853, 16 October 1997.

2EMPLOYMENTRELATIONSHIP V.INDEPENDENTCONTRACTORSHIP u-

I

I. WHEN AN EMPLOYMENT RELATIONSHIP IS PRESENT

An employee is defined as a person who performs services foran employer in which either or both mental and physical effortsare used and who receives compensation for such services, wherethere is an employer-employee relationship."

A. The Fourfold Test

To determine the existence of an employer-employee relation-ship, the following fourfold test is applied:"

1. the selection and engagement of the employee;2. the payment of wages;3. the po;'er of dismissal; and4. the power to control the employee's conduct.

B. The Right-of-Control Test

The power to control the employee's conduct or the right-of-control test [where the person for whom the services are

1 Villavilla, et al. v. Court of Appeals, et aI., G.R. No. 79664, 11 August1992.

2 Escario v. National Labor Relations Commission, G.R. No. 124055, 8June 2000.

10

Employment Relationship v. Independent Contractorship 11

performed reserves a right to control not only the end to beachieved, but also the means to be used in reaching such end:generally assumes primacy in the overall consideration of whetheror not an employer-employee relationship exists between theparties."

If the power to control the employee's conduct is absent, noemployment relationshipmay b~nsidered as existing betweenthe parties." The power to control the ~mployee'~ conduCt isdeemed to be such an important factor that the other requisites(selection and engagement of employee, payment of wages andpower of dismissal) may even be disregarded. 5

B.l. Sufficiency of the mere existence of the power to controlThe power of control refers to the existence of the power tocontrol the employee's conduct and not necessarily to the actualexercise of that power. In other words, it is not essential for theemployer to actually supervise the performance of duties of theemployee; it is enough that the employer has the right to wieldthat power" in order that an employer-employee relationshipmay be considered as existing between the parties.

II. NO EMPLOYMENT RELATIONSHIP:INDEPENDENT CONTRACTORSHIP

There may be cases when an independent contractors hip andnot an employment relationship exists between the parties.

An independent contractor is one who has contracted todo the work according to his own methods and without being

3 Villuga, et al. v. National Labor Relations Commission, et al., G.R. No.75038, 23 August 1993.

4 Sara, et al. v. Agarrado, et al., G.R. No. L-73199, 26 October 1988.5 Sandigan Savings and Loan Bank, Inc., et a!. v. National Labor Relations

Commission, G.R. No. 112877, 26 February 1996.6 Equitable Banking Corporation v. National Labor Relations Commission,

273 SeRA 352.

Employment Relationship v. Independent Contractorship 13Working With labor laws

ubjcct to the control of the employer except as to the resultthe work.?

every form of control that the principal reserves to himself 'overthe conduct of the person whose services are engaged may beaccorded the effect of establishing an employer-employee rela-tionship between them. A line must be drawn somewhere, if therecognized distinction between an employee and an individualcontractor is not to vanish altogether. This is because realisti-cally, it would be a rare contract of service that gives untrammeledfreedom to the person whose services are engaged and eschewsany intervention whatsoever in his performance of the work. 10

A. Test of an Independent Contractorship

In determining whether the relationship is that of employer andemployee or one of an independent contractor, each case mustbe determined on its own facts and all the features of the rela-tionship considered."

The significant factor in determining the relationship of theparties is the presence or absence of a supervisory_.Row~control the method and_detail of performance of the seryice,and the degree to which the~erson for whom the services areperformed may intervene to exercise such control. The presenceof the power of control is indicative of an employment relation-ship and the absence of such power is indicative of independentcontractorship.?

In other words, where the person for whom the services areperformed, or the principal, reserves the right to control boththe end to be achieved and the manner and means to be used inreaching the end, an employer-employee relationship exists be-tween the parties. Where the principal is interested only in theend to be achieved or the results of the work, an independentcontractor relationship exists between the parties.

A.2. There is no control when guidelines do not dictate themethods to achieve the desired results.

The line should be drawn between rules that merely serve asguidelines toward the achievement of the mutually desired re-sult without dictating the means or methods to be employed inattaining it, and those that control or fix the methodology andbind or restrict the party hired to the use of such means. Thefirst, which aim only to promote the result, create no employer-employee relationship unlike the second, which address boththe result and the means used to achieve it. 11

The distinction between rules that merely serve as guidelinestoward the achievement of a mutually desired result and rulesthat the person hired is bound to follow acquires particularrelevance in the case of an enterprise that affects public inter-est, such as the business of insurance, which is subject toregulation by the State with respect to the relations betweenthe insurer and the insured, and the internal affairs of theinsurance company. In the business of insurance, rules andregulations governing the conduct of the business are providedfor in the Insurance Code and are enforced by the InsuranceCommissioner. 12

A.l. Not every form of control will establishan employment relationship.

The principal may establish guidelines to be followed by theperson whose services are engaged. This will not necessarilycreate an employment relationship between them because not

7 Yiliuga, et al. v. National Labor Relations Commission, et aI., G.R. No.75038, 23 August 1993.

8 Ibid.9 AFP Mutual Benefit Association, Inc. v. National Labor Relations Com-

mission, G.R. No. 102199,28 January 1997.

10 Insular Life Assurance Co., Ltd. v. National Labor Relations Commis-sion, et aI., G.R. No. 84484, 15 November1989.

11 Ibid.12 Ibid.

Employment Relationship v. Independent Contractorship 13Working With Labor Laws

subject to the control of the employer except as to the resultthe work."

every form of control that the principal reserves to himself 'overthe conduct of the person whose services are engaged may beaccorded the effect of establishing an employer-employee rela-tionship between them. A line must be drawn somewhere, if therecognized distinction between an employee and an individualcontractor is not to vanish altogether. This is because realisti-cally, it would be a rare contract of service that gives untrammeledfreedom to the person whose services are engaged and eschewsany intervention whatsoever in his performance of the work. 10

A. Test of an Independent Contractorship

In determining whether the relationship is that of employer andemployee or one of an independent contractor, each case mustbe determined on its own facts and all the features of the rela-tionship considered."

The significant factor in determining the relationship of theparties is the presence or absence of a sup~rvisory_.Ro~co~trol the method _and detail of performance of the s~ryi~and the degree to which they-erson for whom the services areperformed may intervene to exercise such control. The presenceof the power of control is indicative of an employment relation-ship and the absence of such power is indicative of independentcontractorship.?

In other words, where the person for whom the services areperformed, or the principal, reserves the right to control boththe end to be achieved and the manner and means to be used inreaching the end, an employer-employee relationship exists be-tween the parties. Where the principal is interested only in theend to be achieved or the results of the work, an independentcontractor relationship exists between the parties.

A.2. There is no control when guidelines do not dictate themethods to achieve the desired results.

The line should be drawn between rules that merely serve asguidelines toward the achievement of the mutually desired re-sult without dictating the means or methods to be employed inattaining it, and those that control or fix the methodology andbind or restrict the party hired to the use of such means. Thefirst, which aim only to promote the result, create no employer-employee relationship unlike the second, which address boththe result and the means used to achieve it.!'

The distinction between rules that merely serve as guidelinestoward the achievement of a mutually desired result and rulesthat the person hired is bound to follow acquires particularrelevance in the case of an enterprise that affects public inter-est, such as the business of insurance, which is subject toregulation by the State with respect to the relations betweenthe insurer and the insured, and the internal affairs of theinsurance company. In the business of insurance, rules andregulations governing the conduct of the business are providedfor in the Insurance Code and are enforced by the InsuranceCommissioner. 12

A.l. Not every form of control will establishan employment relationship.

The principal may establish guidelines to be followed by theperson whose services are engaged. This will not necessarilycreate an employment relationship between them because not

7 Villuga, et al. v. National Labor Relations Commission, et al., G.R. No.75038, 23 August 1993.

8 Ibid.9 AFP Mutual Benefit Association, Inc. v. National Labor Relations Com-

mission, C.R. No. 102199,28 January 1997.

10 Insular Life Assurance Co., Ltd. v. National Labor Relations Commis-sion, et al., G.R. No. 84484, 15 November 1989.

11 Ibid.12 Ibid.

Employment Relationship v, Independent Contractorship1514 Working With Labor Laws

Hence, it is usual and expected for an insurance company topromulgate a set of rules to guide its commission agents inselling its policies so that they will not violate the law. Thefollowing are considered as guidelines to achieve the desiredresults: '\

1. rules which prescribe the qualifications of persons whomay be insured;

2. subjecting insurance applications to processing and ap-proval by the company; and

3. reserving to the company the determination of the pre-miums to be paid and the schedules of payment.

No control is present in the above-enumerated guidelines foras long as the agent's contractual prerogative to adopt his ownselling methods or to sell insurance at his own time and conve-nience is not invaded.P

reality one of employment. This is because the employmentstatus of a person is defined and prescribed by law and not bywhat the parties say it is. In determining the status of a con-tract, the fourfold test of employment, specifically theright-of-control test, has to be applied.:"

BJ Job Contracting

A.3. The dealer is an independent contractor.Similarly, a person engaged to sell soft drinks for the principal,using a truck supplied by the principal, but with the right toemploy his own workers, to sell according to his own methods,subject only to prearranged routes, observing no working hoursfixed by the principal and obliged to secure his own licenses anddefray his own selling expenses, all in consideration of a peddler'sdiscount given by the principal for at least 250 cases of soft drinkssold daily, is not an employee but an independent contractor."

A.4. An express provision in the contract that an employee is anindependent contractor cannot negate an employmentrelationship.

The existence of an employer-employee relationship cannot benegated by expressly repudiating it in the contract and stipulat-ing that the employee is an independent contractor when theterms of the contract clearly indicate that the relationship is in

Independent contractors may engage in permissible job con-tracting if the following conditions are met.!"

1. The contractor carries on an independent business andundertakes the contract work on his own account, un-der his own responsibility, and according to his ownmanner and method, free from the control and directionof his principal in all matters connected with the perfor-mance of the work, except as to the results of the work;

2. The contractor has substantial capital or investment inthe form of tools, equipment, machineries, work pre-mises, and other materials which are necessary in theconduct of his business; and

3. The employees recruited and placed by the contractorare not performing activities which are directly relatedto the principal business of the principal.

Department Order No. 10-97, which was issued on 30 May1997, superseded the Omnibus Rules Implementing the LaborCode provisions on permissible job contracting and labor-onlycontracting, or Articles 106 to 109.

13 Ibid.1'1 Ibid.

15 Insular Life Assurance Co., Ltd. v. National Labor Relations Commis-sion, G.R.No. 119930, 12 March 1998; LVN Pictures, Inc. v. PhilippineMusicians Guild (FFW), G.R. Nos. L-12582 and L-12598, 28 Janu-ary 1961.

16 Pilipinas Shell Petroleum Corporation v. the Honorable Court of Appeals,G.R. No. 104658, 7 April 1993; Neri, et al. v. National Labor Rela-lions Commission, ot (II., C.R. Nos. 97008-09, 23 July 1

16 Working With Labor Laws

On 8 May 2001, Department Order No. 03-01, "RevokingDepartment Order No. 10, Series of 1997, and Continuing to.Prohibit Labor-Only Contracting," was issued.

On 21 February 2002, Department Order No. 18-02, "RulesImplementing Articles 106 to. 109 of the Labar Code, asAmended" was issued.

~ The trilateral relationship in contracting agreements,",Cantracting arrangements are expressly allawed by law but are

subject to. regulation in order to. promote employment and to.observe the rights of employees to. just and humane conditionsof work, security of tenure, self-organization and collective bar-gaining. Labor-only contracting is prohibited.l"

In legitimate contracting, there exists a trilateral relation-ship under which there is a contract far a specific jab, work orservice between the principal and the contractor; and a contractof employment between the contractor and its employees. Hence,there are three parties involved in legitimate contracting ar-

J.ill1gements:18 ----

1. The principal, which decides to. farm aut a jab, work orservice to. the contractor;

2. The cantractor, which has the capacity to. independently---undertake the performance of the jab, work or service;and

3. The contractual employees engaged by the can tractor to.~plIsh the jab-:-work or service.

B.t.a.Definitions of contracting. principal, contractor andcontractual employee"

i. Contracting refers to. an rarra!!~~whereby the prin-cipal agrees to. put out or Ka~~--?ut to. a contractor the

17 Section 1, Department Order No. 18-02.18 Section 3, Ibid.19 Section 4, Ibid.


performance or completion of a specific jab, work orservice within a .definite or predetermined period, re-gardless of whether such jab, work or service is to. beperformed or completed within or outside the premisesof the principal.

ii, Principal refers to. any employer who. puts aut or farmsaut i!....jab, service or work to. a contractor, ------iii. Contractor refers to. any person or entity engaged in a~itimate cantractillg_ arrangement,

iv. A contractual employee includes one employed by a con.tractor pursuant to. an arrangement between the contractorand the principal.

B.2. Terms and conditions of a contract between a contractorand a contractual employee

The can tract between a contractor and a contractual employeeshould be in writing. The contract should include the followingterms and conditions, notwithstanding oral or written stipula-tions to. the contraryr?

1. A specific description of the jab, work or service to. beperformed by the contractual employee;

2. The place of work and terms and conditions of employ-ment, including a statement of the wage rate applicableto. the individual contractual employee; and

3. The term or duration of employment, which shall becoextensive with the can tract of the principal and thecontractor; or with the specific phase far which the can-tractual employee is engaged, as the case may be.

The contractor shall inform the contractual employee of theabove terms and conditions, an or before the first day of hisemployment.

20 Section 9, Ibid.


(B.3.) Rights of contractual employeesTn{contractual employee shall be entitled to all the rights andprivileges due a regular employee as provided for in the LaborCode, including the following.'"

1.' safe and healthful working conditions;2. labor standards such as service incentive leave, rest days,

overtime pay, holiday pay, 13th month pay and separa-tion pay;

3. social security and welfare benefits;4. self-organization, collective bargaining and peaceful con-

certed action; and5. security of tenure.

B.4. Duty to produce a copy of the contract between theprincipal and the contractor

The principal or the contractor has the obligation to produce acopy of the contract between them in the ordinary course of aninspection conducted by the Regional Director. Moreover, thecontractor has the obligation to produce a copy of the contract ofemployment of the contractual employees when directed to do soby the Regional Director or his authorized representative. 22

@ Labor-only Contracting

Labor-only contracting is prohibited. Labor-only contracting re-fers to an arrangement where the contracj:or l!lerel)LLe.CIJJ.!!?,supplies or places.workers.tc.pertorm.a.jcb, work or service for~ principal, and if any of the following elements are present.>"

1. The contractor does not have substantial capital or in-vestment which relates to the job, work or-se~ice to beperformed;

21 Section 8, Ibid.22 Section 14, Ibid.23 Section 5, par. 1, Ibid.


2. The employees recruited, supplied or placed by the con-tractor are performing activities which are directly relatedto the main business of the principal; or

3. The contractor does not exercise the right of controlover the performance of the work of the contractualemployee.

Substantial capital or investment refers to capital, stocksand su~cr~d capitalization in the case of corporations, andto the tools, equipment, implements, machinery and workpremises actually and directly used by the contractor in theperformance or completion of the job, work or service con-tracted out.>"

D. Distinction Between a Job Contractorand a Labor-only Contractor

The main distinction between a job contractor and a labor-onlycontractor is that the legitimate job contractor yrovides ser-vices, while the labor-only contractor, which is essentiallyprohibited by law as mentioned earlier, provides manpower0Eb'. The legitimate job contractor undertakes to perform aspecific job for the principal, while the labor-only contractormerely provides the personnel who will work for the principal.

A legitimate job contractor validly provides services as itcarries on an independent business and has substantial capitalor investment. Also, the personnel recruited and placed by thecontractor with the principal do not perform activities directlyrelated to the main business of the principal. On the other hand,the labor-only contractor only provides manpower since it doesnot have substantial capital or investment. Moreover, the per-sonnel supplied by the latter contractor perform activities directlyrelated to the main business of the principal.

24 Section 5, par. 3, Ibid.


E. Extent of Liability of Principalsof Job Contractors

and labor-only Contractors

In legitimate job contracting, the principal is considered only asan indirect employer of the contractual employees. The contrac-tor is the direct employer of the contractual employees.

In labor-only contracting, the principal is considered thedirect employer of the contractual employees. The contractor isconsidered as a mere agent of the principal.

E.1. The principal of the job contractor is an indirect employer.In legitimate job contracting, no employer-employee relation-ship exists between the contractual employees and the principal.However, when the job contractor fails to pay the wages of hiscontractual employees in accordance with the Labor Code, theprincipal becomes solidarily liable with his contractor to thecontractual employees to the extent of the work performed un-der the contract, as though the contractual employees weredirectly employed by the principal. 25. ~ (

Solidary liability means "joint and several liability~" A sol-idary liability is one in which each debtor is liable for the entireobligation. Hence, with solidary liability, the liability of the prin-cipal and the contractor for unpaid wages may be enforcedagainst them both by a joint action; or against any of them by anindividual action.s" In other words, if the wages of the contrac-tual employee are not paid, both the principal and the jobcontractor may be held liable for the full amount.

In sum, the law itself establishes an employer-employee rela-tionship between the principal and the contractual employeesfor a limited purpose: to ensure that the contractual employees

•

25 Article 106, par. 2, Labor Code.26 Industrial Management International Development Corp. (INlMACO) v.

National Labor Relations Commission, et aI., G.R. No. 101723, 11May 2000.


are paid the wages due them.F For as long as the work, task,job or project has been performed for the principal's benefit,the liability accrues for such period even if, later on, the con-tractual employees are eventually transferred or reassignedelsewhere by the contractor.

The principal's liability to the contractual employees extendsonly to the period during which the contractual employees workfor the principal. The fact that they are reassigned to anotherprincipal necessarily ends such responsibility. 28

E.l.a. Rationale for the solidary liabilityof a job contractor and_a_pri..ncipal

The solidary liability of the job contractor and the principal wasenacted to ensure compliance with the provisions of the LaborCode, principally those on statutory minimum wage. The jobcontractor is made liable by virtue of his status as a directemployer. On the other hand, the principal is liable as the indi-rect employer of the contractual employees. This solidary liabilityfacilitates, or if not, guarantees, payment of the employees'compensation. The 1987 Constitution mandates that employeesbe given ample protection.P?

The imposition of solidary liability is not unduly burden-some to the principal. The principal is made liable to thecontractual employees because he can protect himself from irre-sponsible job contractors by withholding such sums and payingthem directly to the contractual employees, or by requiring abond from the job contractor for this purpose.P?

27 Philippine Bank of Communications v. National Labor Relations Com-mission, G.R. No. L-66598, 19 December 1986; Section 7,Department Order No. 18-02.

28 Rosewood Processing, Inc. v. National Labor Relations Commission, etal., G_R.Nos. 116476-84, 21 May 1998.

29 Ibid.30 Ibid; Article 108, Labor Cod".


E.J.b. Right of reimbursement from the job contractorWhile the principal and the job contractor are solidarily liablefor the payment of wages of the contractual employees, theprincipal has the right of reimbursement from the job contrac-tor in case he pays the obligation to the contractual employees."

E.2. The principal of the labor-only contractoris a direct employer.

In labor-only contracting, an employer-employee relationship iscreated by law between the principal and the contractual em-ployees. The principal is responsible to the contractual employees,as though such employees were directly employed by him. Inthis case, the labor-only contractor is considered merely an agentof the principal. 32

In labor-only contracting, the principal becomes solidarilyliable with the labor-only contractor for all the rightful claims ofthe contractual employees.P This should be distinguished fromthe liability of the principal of a job contractor, whose liability islimited to the wages of the contractual employees for workdone for the benefit of the principal.

E.2.a. Rationale of the liability of principalsof labor-only contractors

Where labor-only contracting exists, the law establishes an em-ployer-employee relationship between the principal and thecontractual employees for a comprehensive purpose-to pre-vent any violation or circumvention of any provision of theLabor Code and to safeguard the employees' rights under theLabor Code.

31 Philippine Fisheries Development Authority v. National Labor RelationsCommission, G.R. No. 94825, 4 September 1992.

32 Article 106, par. 4, Labor Code.33 PCI Automation Center, Inc. v. National Labor Relations Commission,

G.R. No. 115920,29 January 1996; Articles 106, par. 4 and Article107, Labor Code.


The Supreme Court has observed that businessmen, with theaid of lawyers, have tried to avoid bringing about an employer-employee relationship in some of their enterprises because thatjuridical relationship spawns obligations connected withworkmen's compensation, social security, Medicare, minimumwage, termination pay and unionism.v'

@Prohibited Acts

Even if a contractor met all the requirements for legitimate jobcontracting, the following acts are prohibited for being contraryto law or public policy.:"

1. Contracting out of a job, work or service when not donein good faith/ and not justified by the exigencies of thebusiness, and the contracting results in the terminationof regular employees and the reduction of work hours orthe reduction or splitting of the bargaining unit;

2. Contracting out of work with a "cabo,"/or a person,group of persons or to a labor group which, in the guiseof a labor organization, supplies workers to an employer,with or without monetary or other consideration, whetherin the capacity of an agent of the employer or as anostensibly independent contractor;

3. Taking undue advantage of the economic situation orlack of bargaining strength of the contractual employe1or undermining his security of tenure or basic rights, orcircumventing the provisions of regular employment, inany of the following instances:

a. in addition to his assigned functions, requiring thecontractual employee to perform functions which are

34 Crisologo, et al., v. National Labor Relations Commission, G.R. Nos.92777-78, et al., 13 March 1991-

35 Section 6, Department Order No. 10-02.


currently being performed by the regular employeesof the principal .or of the contractor;

b. requiring him to sign, as a precondition to employ-ment or continued employment, any of the followingdocuments:

i. an antedated resignation letter;ii. a blank payroll;iii.a waiver of labor standards including minimum

wages and social welfare benefits; oriv. a quitclaim releasing the principal or contractor from

any liability as to payment of future claims; and

c. requiring him to sign a contract fixing the period ofemployment to a term shorter than the term of thecontract between the principal and the contractor,unless the latter contract is divisible into phases forwhich substantially different skills are required, andthis is made known to the employee at the time ofengagement.

4. Contracting out a job, work or service through an in-house agency,fwhich refers to a contractor engaged inthe supply of labor which is owned, managed or con-trolled by the principal, and operates solely for theprincipal;

5. Contracting out a job, work or service directly related tothe business or operation of the principal by reason of astrike or lockout, whether actual or imminent; and

6. Contracting out of a job, work or service being Q..er-formed by union members .when such will interfere with,restrain or coerce employees in the exercise of their,rights to self-organization.

G. Registration of Contractors

A registration system to govern contracting arrangementsand the registration of contractors is established by the DOLE

Employment Relationship v, Independent Contractorship 25

for effective labor market information and monitoring. Failureof a contractor to register shall give rise to the presumption thatthe contractor is engaged in labor-only contracting.:"

A contractor shall be listed in the registry of contractorsupon completion of an application form to be provided by theDOLE. The application shall be verified and shall include anundertaking that the contractor shall abide by all applicablelabor laws and regulations.P? The application and its supportingdocuments shall be filed with the Regional Offices of the DOLEwhere the applicant principally operates.i"

All registered contractors or subcontractors may apply forthe renewal of registration every three years.:"

H. Annual Reporting of Registered Contractors

Using a prescribed form, the contractor shall submit its annualreport to the Regional Office not later than the 15th of Januaryof the following year.

The report shall include/Indicate:"?

1. a list of contracts entered with the principal during thesubject reporting period;

2. the number of employees covered by each contract withthe principal; and

3. a sworn undertaking that the benefits from the SocialSecurity System (555), the Home Development MutualFund (HDMF), PhilHealth, Employees Compensation Com-mission (ECC), and remittances to the Bureau of InternalRevenue (BIR) due the contractual employees have beenmade during the subject reporting period.

36 Section 11, Ibid.37 Section 12, Ibid.38 Section 13, Ibid.39 Section 17, Ibid.o Section ] 5, Ibid.


I. Delisting of Contractors

Subject to due process, the Regional Director shall cancel theregistration of contractors based on any of the followinggrounds.:"

1. non-submission of contracts between the principal andthe contractor when required to do so;

2. non-submission of annual report;3. findings through arbitration that the contractor has en-

gaged in labor-only contracting and prohibited acts; and4. non-compliance with labor standards and working condi-

tions.

CD Solidary liability

The principal shall be deemed as the direct employer of thecontractual employees and is therefore solidarily liable with thecontractor for whatever monetary claims the contractual em-ployees may have against the contractor in case of violations inthe following instances.v'

1. labor-only contracting;2. prohibited acts;3. rights of contractual employees;4. delisting; and5. pretermination of the contract between the principal and

contractor for reasons not attributable to a fault of thecontractor.

41 Section 16, Ibid.42 Section 19, Ibid.

3WORKING CONDITIONSAND RESTPERIODS

I. NORMAL HOURS OF WORK

The normal hours of work of employees shall not exceed eight~in a day.'

A. Coverage

All employees are covered by the eight-hour work day exceptthe following employees."

1. government employees;2. managerial employees;3 . officers and members of the managerial staff;4. field personnel;5. employer's family members;6. domestic helpers and persons in the personal service of

another; and7. workers paid by result: pakyaw and piece-rate workers.

1 Article 83, par. 1, Labor Code.2 Article 82, par. 1, Ibid.; Section 2, Rule I, Book III, Omnibus Rules

Implementing the Labor Code.

II Working With Labor Laws

A. I. Definition of government employees, managerial employees,officers and members of the managerial staff, field personnel,employer's family members, domestic helpers and workerspaid by result

a. Govemme.n.Lfillll2k!JLee!c refer to those employed by theNational Government or any of its political subdivisions,including those employed in government-owned and/orcontrolled corporations. 3

b. Managerial employe.!!§. refer to those whose primary dutyconsists of the management of the establishment, or adepartment or subdivision of the establishment in whichthey are employed, including other officers or membersof the managerial staff. 4

Employees shall be considered as managerial employees, ifthey meet all of the following conditions:"

i. Their primary duty consists of the management of theestablishment in which they are employed, or of adepartment or subdivision of the establishment;

ii. They customarily and regularly direct the work oftwo or more employees in the establishment, or adepartment or subdivision of the establishment; and

iii. They have the authority to hire or fire employees oflower rank; or their suggestions and recommenda-tions as to hiring and firing, or the promotion or anyother change of status of other employees, is givenparticular weight.

Employees shall be considered as officers or members of themanagerial staff if they perform the following duties and respon-sibilities:"

3 Section 2(a), Rule I, Book III, Omnibus Rules Implementing the LaborCode.

4 Article 82, par. 2, Labor Code.5 Section 2(b), Rule I, Book III, Omnibus Rules Implementing the Labor

Code.6 Section 2(c), Ibid.

Working Conditions and Rest Periods 29

i. Their primary duty consists of the performance ofwork directly related to the management policies oftheir employer;

ii. They customarily and regularly exercise discretion andindependent judgment;

iii. They either:

(a)regularly and directly assist a proprietor or a mana-gerial employee;

(b)execute under general supervision work along spe-.cialized or technical lines requiring special training,experience, or knowledge; or

(c) execute, under general supervision, special assign-ments and tasks.

iv. They do not devote more than 20 percent of theirhours worked in a workweek to activities which arenot directly and closely related to the performanceof the work described in paragraphs (a), (b) and (c)above.

c. Field personnel refer to non-agricultural employees who-regularly perform their duties away from the principalplace of business or branch office of the employer, andwhose actual hours of work in the field cannot be deter-mined with reasonable certainty. 7

d. The term "~ily. members" refers to themembers of the family of the employer who are depen-dent on the employer for support. 8

e. The terms "domestic hel.Qers" and "persons in thepersonal service of another" refer to those who performservices in the employer's home which are usually neces-sary or desirable for the maintenance and enjoyment ofthe home, or who minister to the personal comfort,

7 Article 82, par. 3, Labor Code; Section 2(f), Rule I, Book III, OmnibusRules Implementing the Labor Code.

8 Article 82, par. 1, Labor Code.


convenience, or safety of the employer as well as themembers of his household."

f. The term "workers paid by result" refers to those who-- =are paid on piece-work, takau, pakyaw or task basis, and

other non-timed work. 10

B. What Hours Worked Includes

Hours worked shall include: 11

1. all the time during which an employee is required to beon duty or to be at a prescribed workplace; and

2. all the time during which an employee is suffered orpermitted to work.

For example, if an unscheduled brownout occurs for onehour in the establishment of the employer and the employeesare required to remain in their posts while waiting for power toresume, the one-hour period is considered working time be-cause the employees are required to be at the prescribedworkplace.

B.l. Broken shiftsThe employer and employee may agree on the schedule of theworking hours of the employee. If the established working hoursof an employee run from 8 a.m. to 12 noon and then from 4p.m. to 8 p.m., the employee may only be compensated for theactual hours worked. The period from 12 noon to 4 p.m. is notconsidered as working time as he is not required to be at theprescribed workplace during this four-hour period.

9 Section 2(d), Rule I, Book III, Omnibus Rules Implementing the LaborCode.

10 Section 2(e), Ibid.11 Article 84, par. 1, Labor Code; Section 3, Rule I, Book III, Omnibus

Rules Implementing the Labor Code.


C. Principles in Determining Hours Worked

The following general principles shall govern the determinationof whether the time spent by an employee is considered "hoursworked":

1. All hours are hours worked which the employee isrequired to give his employer, regardless of whetheror not such hours are spent in productive labor, orinvolve physical or mental exertion.P

2. An employee need not leave the premises of the work-place in order that his rest period will not be countedas hours worked. It is enough that he stop working, mayrest completely and may leave his workplace to go else-where, whether within or outside the premises of hisworkplace.P However, rest periods of short duration,running from 5 to 20 minutes during working hours,shall be considered as hours worked.I"

3. If the work performed was necessary, if it benefitedthe employer, or if the employee could not abandon hiswork at the end of his normal working hours because hehad no replacement, then all the time he spent for suchwork shall be considered as hours worked, if the workwas with the knowledge of his employer or immediatesupervisor. 15

4. The time during which an employee is inactive byreason of interruptions in his work beyond his con-trol shall be considered working time if the imminenceof the resumption of work requires the employee's

12 Section 4(a), Rule I, Book III, Omnibus Rules Implementing the LaborCode.

13 Section 4(b), Ibid.14 Article 84, par. 2, Labor Code; Section 7, par. 2, Rule I, Book III,

Omnibus Rules Implementing the Labor Code.15 Section 4(c), Rule I, Book III, Omnibus Rules Implementing the Labor

Code.


presence at the place of work, or if the interval is toobrief to be utilized effectivelyand gainfully for the employee'sown interest;"

D. When Waiting Time is Working Time

Waiting time spent by an employee shall be considered as work-ing time in the following instances.!?

1. when waiting is an integral part of his work; or2. the employee is required or engaged by the employer to

wait.

For example, a company driver who brings the manager to ameeting, waits for the manager, and after the m.eeting, drivesthe manager back to the establishment of the employer, is con-sidered to be working while waiting.

E. When Being On Call is Working Time

An employee required to remain on call in the employer's pre-mises or so close to the premises that he cannot use the timeeffectively and gainfully for his own purpose shall be consideredas working while on call. 18

For example, an X-ray technician who is required to remainin the premises of the hospital at night so that should there beany X-ray case or surgical operation during his "on call" dutyhours does not actually stop working. Although the small num-ber of X-ray and operation cases during the night shift mayenable him to take a rest, this is not complete rest becauseanytime, he can be jolted into the reality of work by a call for anX-ray or an operation.P

16 Section 4(d), Ibid.17 Section 5(a), Ibid.18 Section 5(b), Ibid.1 9 San Pedro Hospital Employees Union-FFW v. San Pedro Hospital, Inc.,

Case No. CA-218-RBXI-06-02-90, 1 October 1990.


However, an employee is not working while on call when heis not required to leave word at his home or with companyofficials as to where he may be reached.i"

F. When Attendance at Lectures, Meetingsor Training Programs is not Working Time

Attendance at lectures, meetings, training programs, and othersimilar activities shall not be counted as working time if all ofthe following conditions are metr"

1. attendance is outside of the employee's regular workinghours;

2 . attendance is in fact voluntary; and3. the employee does not perform any productive work

during such attendance.

For example, meetings conducted by employees to organizethemselves to form a union is not working time. Similarly, atten-dance at a company outing is not working time unless attendanceis compulsory.

II. MEAL PERIOD

A meal period or a meal break is a period consisting of 60rr:inutes or one hour of time-off given by employers to employ-ees for their re~ meals.P

The one-hour meal break is not considered working time.PHence, it is not compensable ..---=-----20 Section 5(b), Rule I, Book III, Omnibus Rules Implementing the Labor

Code.21 Section 6, Rule I, Book III, Omnibus Rules Implementing the Labor

Code.22 Article 85, Labor Code; Section 7, Rule I, Book III, Omnibus Rules

Implementing the Labor Code.23 Philippine Airlines, Inc. v. National Labor Relations Commission, et al.,

G.R. No. 132805, 2 February 1999.


A. Coverage

All employees, except for the following, are entitled to a mealperiod or meal break.>"

1. government employees;2. managerial employees;3. officers and members of the managerial staff;4. field personnel;5. the employer's family members;6. domestic helpers and persons in the personal service of


A.1. Non-diminution of benefitsIf the exempted employees are already enjoying a meal periodeither by agreement between the employer and the employees,or because of an established company practice, this benefit maynot be eliminated or reduced because of the principle of non-diminution of benefits.

Also, applying the principle of non-diminution of benefits, ifthe covered employees are enjoying a meal period longer thanthe 60 minutes prescribed by law, the meal period cannot beshortened to 60 minutes. If the meal period is compensable, itcannot become non-compensable.

B. Meals May Be TakenOutside the Premises of the Employer

Meals need not be taken within the premises of the company.Even if an employee is obliged to stay in the company premisesfor eight hours, there is nothing in the law which states thatemployees must take their meals within the company premises.

24 Article 82, par. 1, Labor Code; Section 2, Rule I, Book III, OmnibusRules Implementing the Labor Code.


Employees are not prohibited from leaving the premises as longas they return to their posts on time'.25

C. Exception to the 60-minute Meal Period:The 20-minute Meal Period

In the following cases, a meal period of at least 20 minutes maybe given by the employer. However, this much shorter mealperiod is credited as compensable hours worked by the em-ployee in the following situationsr"

1. Where the nature of the work is non-manual or does notinvolve strenuous physical exertion;

2. Where the establishment regularly operates at least 16hours a day;

3. In cases of actual or impending emergencies or if thereis urgent work to be done on machinery, equipment orinstallations to avoid serious loss which the employerwould otherwise suffer; and

4. Where the work is necessary to prevent serious loss ofperishable goods.

III. REST PERIODS

Rest periods or coffee breaks are periods of short duration,running from 5 to 20, minutes during working hours.F'

Rest periods or coffee breaks are counted as hours worked.Hence, they are considered as compensable working time.P"

25 Philippine Airlines, Inc. v. National Labor Relations Commission, et al. ,G.R. No. 132805, 2 February 1999.

26 Section 7, par. 1, Rule I, Book III, Omnibus Rules Implementing theLabor Code.

2 7 Section 7, par. 2, Ibid.28 Article 84, par. 2, Labor Code; Section 7, par. 2, Rule I, Book III,

Omnibus Rules Implementing the Labor Code.


A. Coverage

All employees, except for the following, are entitled to restperiods or coffee breaks.>?



A.1. Non-diminution of benefitsIf the exempted employees already enjoy rest periods or coffeebreaks either by agreement between the employer and the em-ployees, or because of its being an established company practice,this benefit may not be eliminated or reduced because of theprinciple of non-diminution of benefits.

Also, applying the principle of non-diminution of benefits, ifthe covered employees enjoy compensable rest periods or coffeebreaks longer than the 5- to 20-minute periods prescribed bylaw, these rest periods or coffee breaks cannot be reduced.

IV. NIGHT-SHIFT DIFFERENTIAL

Night-shift differential is the additional compensation paid toemployees for each hour of work performed between 10 p.J~:a~30

A night-shift differential is paid for work done during the"graveyard shift" because an employee must contend with night- -"..29 Article 82, par. 1, Labor Code; Section 2, Rule I, Book III, Omnibus

Rules Implementing the Labor Code.30 Article 86, Labor Code; Section 2, Rule II, Book III, Omnibus Rules

Implementing the Labor Code.


work inconveniences and disadvantages such as the disarrange-ment of his social life, the loss of recreation or activities forleisure, and the ordinary associ~tion of normal family relations,the work time's adverse effect upon efficiency and output, andits remotely injurious effect on his health, consonant with thecommon saying among wage-earning people that the night wasmade for rest and sleep, and not for work. 31

A. Coverage

All employees, except for the following, are entitled to a night-shift differentialr'"


another;7. workers paid by result: pakyaw and piece-rate workers;

and8. employees of retail and service establishments with only

five employees or less.

A.1. Definition of retail and service establishments

a. A retail establishment is one principally engaged in the saleof goods to end-users for personal or household use.P"

b. A service establishment is one primarily engaged in thesale of service to individuals for their own use or forhousehold use.?"

31 San Pedro Hospital Employees Union-FFW v. San Pedro Hospital, Inc.,Case No. CA-218-RBXI-06-02-90, 1 October 1990.

32 Article 82, par. 1, Labor Code; Section 1, Rule II, Book III, OmnibusRules Implementing the Labor Code.

33 Section(f), Definition of terms, Rules Implementing R.A. 6727.34 Section(g), Ibid.

1/1 Work",!; With labor laws

A.'J.. Non-diminution of benefitsII the exempted employees are being paid a night-shift differen-tial for work performed between 10 p.m. to 6 a.m. either byagreement between the employer and employees, or because ofan established company practice, this benefit may not be elimi-nated because of the principle of non-diminution of benefits.

Also, applying the principle of non-diminution of benefits, ifthe night-shift differential rate of covered employees is higherthan that prescribed by law, it cannot be reduced.

B. The Night-shift Differential Rateon a Regular Working Day

Night-shift differential per hour of work rendered from 10 p.m.to 6 a.m. is equivalent to at least 10 percent of the regular wageof the employee. 35

Hence, NIGHT-SHIFTDIFFERENTIAL= ADDITIONALPAYMENTOFATLEAST10 PERCENTOFTHERATEPERHOUR

Illustration: If an employee's rate per day is P500.00, how muchshould the employee be paid on a regular working day from 2p.m. to 11 p.m., with a meal break from 7 p.m. to 8 p.m.?

Solution: 2 p.m. to 11 p.m. is 9 hours less 1 hour of non-compensable meal break = 8 hours.

The employee's rate per hour on a regular day is P62.50(P500.00 divided by 8 hours).

For work done from 10 p.m. to 11p.m., the employee isentitled to:

P+ P

P

62.506.25

68.75

(rate per hour on a regular day)(10% of P62.50)


P 312.50+ P 0.00+ P 125.00+ P 68.75

(P62.50 x 5) (2 p.m. to 7 p.m. [5 hours])(7 p.m. to 8 p.m. [not compensable])(P62.50 x 2) (8 p.m. to 10 p.m. [2 hours])(10 p.m. to 11 p.m. [regular rate perhour + night-shift differential])

Hence, for work done from 2 p.m. to 11 p.m., the em-ployee is entitled to:

35 Article 86, Labor Code; Section2, Rule II, BookIII, Omnibus RulesImplementingthe LaborCode.

P 506.25

V. OVERTIME PAY-----Overtime pay is the additional compensation given to employeesfor each hour of work performed in excess of the normal work-i~g hours of eight hours a day. 36 -

An employee who works beyond the regular working hours isentitled to overtime pay because he is made to work longer thanthe agreed upon working hours. When an employee spends addi-tional time on his work, the effect on him is multi-faceted: he putsin more physical and/or mental effort; he experiences a delay ingoing home to his family to enjoy the comforts of his home; hemight have no time for relaxation, amusement or sports; he mightmiss important pre-arranged engagements. It is the additional work,labor or service employed and the adverse effects of his longerstay in his place of work that justify overtime pay."?

A. Coverage

All employees, except for the following, are entitled to over-time payr"

1. government employees;2. managerial employees;3. officers and members of the managerial staff;4. field personnel;

36 Article 87, Labor Code; Section 8, Rule I, Book III, Omnibus RulesImplementingthe LaborCode.

37 Philippine National Bank v. Philippine National Bank Employees Asso-ciation, et al., G.R. No. L-30279, 30 July 1982.

38 Article 82, par. 1, Labor Code; Section2, Rule I, BookIII, OmnibusRulesImplementingthe LaborCode.

Working Conditions and Rest Periods 41III Will hhm Willi Labor Laws

[I Ihe employer's family members;f,), domestic helpers and persons in the personal service of

another; andworkers paid by result: pakyaw and piece-rate workers,

A.1. Non-diminution of benefitsIf the exempted employees receive overtime pay for work per-formed in excess of eight hours a day either per an agreementbetween the employer and the employees, or because of anestablished company practice, this benefit may not be elimi-nated because of the principle of non-diminution of benefits,

Also, applying the principle of non-diminution of benefits,even if the overtime rate of covered employees is higher thanthat prescribed by law, it cannot be reduced.

1, When the country is at war or when any other nationalor local emergency has been declared by Congress or bythe President of the Philippines;

2, When it is necessary to prevent loss of life or property,or in case of imminent danger to public safety due to anactual or impending emergency in the locality caused byserious accidents, fires, floods, typhoons, earthquakes,epidemics or other disasters or calamities;

3, When there is urgent work to be performed on machines,on an installation or equipment, in order to avoid seri-ous loss or damage to the employer; or some other causeof a similar nature;

4. When the work is necessary to prevent loss or damage toperishable goods;

5. Where the completion or continuation of the work startedbefore the eighth hour is necessary to prevent seriousobstruction or prejudice to the business or operations ofthe employer; and

6. When the overtime work is necessary to avail of favor-able weather or environmental conditions where theperformance or quality of work is dependent on theweather or environmental conditions.

In cases not falling under any of the above enumeration, anemployee may not be made to work beyond 8 hours eight dayagainst his will."!

B. When the Meal Period is Considered Overtime

Where during the meal period the employees are required to standby for emergency work, or where the one-hour meal period is notone of complete rest, the meal period is considered overtime. 39

A meal period is considered as overtime work in the follow-ing instances:

1. When an employee is required to stand by for emergencywork and if he happened to be unavailable when called,he was reprimanded by the supervisor; or

2. When the employee is called from his meals or told tohurry eating to perform work during the meal period.

C. Compulsory Overtime Work

Subject to the giving of the additional compensation requiredfor overtime work, any employee may be required by the em-ployer to perform overtime work in any of the following cases."?

D. Overtime Pay On A Regular Working Day

Overtime pay on a regular working day is equivalent to at leastth~ regular wage of the emplozee.p us at least 25 percent of theregular wage.42

39 Pan American World Airways System (Philippines) v. Pan American Em-ployees Association, G.R. No, L-16275, 23 February 1961.

40 Article 89, Labor Code; Section 10, Rule I, Book III, Omnibus RulesImplementing the Labor Code.

41 Section 10, par. 2, Rule I, Book III, Omnibus Rules Implementing theLabor Code.

42 Article 87, Labor Code; Section 8, Rule I, Book III, Omnibus RulesImplementing the Lnbor

P+ P

P

(rate per hour on a regular day)(25% of P62.50)

(125% of rate per hour on a regular day[P62.50 x 125%])

Working Conditions and Rest Periods 4342 Working With labor laws

lienee, OVERTIME PAY is computed thus:

HA.TEFOR REGULAR WORKING DAY +25 PERCENT OF REGULAR WAGE = 125 PERCENT

Hence, OVERTIME PAY FOR WORK RENDERED BETWEEN 10 P.M.

TO 6 A.M. is computed thus:

OVERTIME RATE +10 PERCENT OF OVERTIME RATE = 137.5 PERCENT

Illustration: If an employee's rate per day is P500.00, howmuch should the employee be paid on a regular working day forwork done from 8 a.m. to 7 p.m., with a meal break from 12noon to 1 p.m.?

Solution: 8 a.m. to 7 p.m. is 11 hours, less 1 hour of non-compensable meal break = 10 hours.

The employee's rate per hour on a regular day is P62.50(P500.00 divided by 8 hours).

For the overtime work done from 5 p.m. to 7 p.m., theemployee is entitled to:

62.5015.625

78.125

Illustration: If an employee's rate per day is P500.00, howmuch should the employee be paid on a regular working dayfrom 1 p.m. to 12 midnight, with a meal break from 6 p.m. to7 p.m.?

Solution: 1 p.m. to 12 midnight is 11 hours, less 1 hour for anon-compensable meal break = 10 hours.

The employee's rate per hour on a regular day is P62.50;overtime rate per hour on a regular day is P78.125.

For overtime work done from 10 p.m. to 12 midnight, anemployee is entitled to:

P 78.125 (overtime rate per hour)+ P 7.8125 (10% of P78.125)

P 85.9375(137.5% of rate per hour[P62.50 x 137.5%] )

Hence, for work done from 8 a.m. to 7 p.m., the employeeis entitled to:

P 500.00+ P 156.25

P 656.25

(8 a.m. to 5 p.m. [8 working hours])(P78.125 [overtime pay per hour] x 2)

Hence, for work done from 1 p.m. to 12 midnight on aregular working day, an employee is entitled to:

P+ P

P

500.00171.875

671.875

(1 p.m. to 10 p.m. [8 working hours])(10 p.m. to 12 mn. [(P85.9375 x 2])

E. Overtime Pay on a Regular Working Day WhenOvertime Work is Rendered from 10 P.M. to 6 A.M. F. Undertime Cannot be Offset by Overtime Work

Undertime work on any particular day shal~t byovertime work on any other day. Permission given to the em-ployee to go-on leave on some other day of the week shall notexempt the employer from paying the premium for overtime work.44

Where an employee renders overtime work between 10 p.m. to6 a.m. on a regular working day, he shall be entitled to hisovertime rate and an additional amount of at least 10 percent ofthe overtime rate for each hour of work performed. 43

43 Section 3, Rule II, Book III, Omnibus Rules Implementing Labor Code. Article 88, Labor Cede.


The legal prohibition to offset overtime against undertimeIpplles only to undertime incurred and overtime work renderedI~ different days, because the employee would be deprived of

idditional pay for overtime work rendered. Hence, an employeewho was late by 30 minutes on a regular working day lastingfrom 8 a.m. to 5 p.m. and rendered work until 7 p.m. on thesame day is entitled to only 1 1/2 hours of overtime pay due tohis 30-minute tardiness.

VI. WEEKLY REST PERIOD

A weekly rest period, or a rest day, is a rest period of not less,..----than 24 consecutive hours or one day, after every six consecu-

- . '-'"tive normal workdays.:"

A. Coverage

All employees, except for the following, are entitled to a weeklyrest dayr'"

1. government employees;2. managerial employees;3 . officers and members of the managerial staff;4. field personnel;5. the employer's family members;6. domestic helpers and persons in the personal service of


A.1. Non-diminution of benefitsIf the exempted employees enjoy a weekly rest period eitherbecause of an agreement between the employer and employees,

45 Article 91, par. 1, Labor Code; Section 3, Rule III, Book III, OmnibusRules Implementing the Labor Code.

46 Article 82, par. 1, Labor Code.


or because of an established company practice, this benefit maynot be eliminated because of the principle of non-diminution ofbenefits.

Also, applying the principle of non-diminution of benefits, ifthe covered employees enjoy a weekly rest period longer thanthe 24 hours prescribed by law, then the weekly rest periodcannot be shortened to 24 hours. If the weekly rest period iscompensable, it cannot become non-compensable.

B. Business on Sundays and Holidays

All establishments and enterprises may operate or open for busi-ness on Sundays and holidays, provided that the coveredemployees are given a weekly rest day. 47

An employee shall be entitled to additional compensation forwork performed on a Sunday, only when Sunday is his estab-lished rest day. 48

C. Determination of Weekly Rest Dayand Preference of Employee

The employer shall determine and schedule the weekly rest dayof the employee, subject to the agreement entered into by theparties.:" However, the employer shall respect the preference ofthe employee as to his weekly rest day, when the preference isbased on religious grounds.t? The employee shall make knownhis rest day preference to the employer in writing at least sevendays before the desired effectivity of the initial rest day pre-ferred.

47 Section 3, Rule III, Book III, Omnibus Rules Implementing the LaborCode.

48 Article 93(a), Labor Code; Section 7(a), Rule III, Book III, OmnibusRules Implementing the Labor Code.

49 Article 91, par. 2, Labor Code.50 Ibid.


However, where the choice of the employee as to his restday based on religious grounds will inevitably result in seriousprejudice or obstruction to the operations of the establishmentof the employer, and the employer cannot normally be expectedto resort to other remedial measures, the employer may sched-ule the weekly rest day chosen by the employee for at least twodays a month. 51

For example, an employee from the Iglesia ni Cristo sectmay request for Thursday as his rest day. However, if having theemployee take his rest day every Thursday of the month willprejudice the operations of the establishment of the employer,the employee may schedule the employee's rest day for twoweeks on a Thursday. Meanwhile, for the other two weeks ofthe month, the employer's preference will be followed.

D. Exception to the 48-hour Workweek

As a normal work day lasts eight hours,. a normal workweek ofan employee lasts 48 hours. However, an establishment mayhave a 40-hour workweek in the following cases:

1. when there is an agreement between the employer andemployee; and

2. when health personnel are involved.

0.1. The 40-hour workweek by agreementNormally, Saturday is not a rest day or "day off." However, theemployer and employee may agree on a regular workweek ofonly 40 hours, or eight hours a day for five days. Hence,when an employee is required to render work on a Saturday inexcess of the 40 hours of a regular workweek, the employeemay be considered as performing overtime work on that par-ticular Saturday. 52

51 Section 4, Rule III, Book III, Omnibus Rules Implementing the LaborCode.

52 CaltexRegular Employees v. Caltex (Philippines, Inc.), G.R. No. 111359,15 August 1995.


0.2. The 40-hour workweek for health personnelHealth personnel in cities or municipalities with a population ofat least one million, or in hospitals or clinics with a bed capacityof at least one hundred, are required to hold regular officehours for eight hours a day, five days a week, exclusive of timefor meals. However, health personnel may work for six days or48 hours per week, when the exigencies of the service so re-quire. For work done on the sixth day, health personnel shall beentitled to an additional compensation of at least 30 percent oftheir regular wage.53

Health personnel include resident physicians, nurses, nutri-tionists, dieticians, pharmacists, social workers, laboratorytechnicians, paramedical technicians, psychologists, midwives,attendants and all other hospital or clinic personnel. 54

D.2.a. Rationale for the 40-hour workweek for health personnelCompared to other employees, hospital and health clinic person-nel are overworked despite the fact that their duties are moredelicate in nature. The fact that hospitals and health clinic per-sonnel perform duties which are directly concerned with thehealth and lives of people does not mean that they should workfor longer periods than most employees. Making them worklonger than is necessary may endanger, rather than protect, thehealth of their patients. 55

E. Compulsory Work on a Rest Day

The employer may require an employee to work on his rest dayin any of the following casesr"

53 Article 83, par. 2, Labor Code; Rule I-A, Book III, Omnibus RulesImplementing the Labor Code.

54 Ibid.55 San Juan de Dios Hospital Employees Association-AF'Tt\f,et a/. v. National

Labor Relations Commission, et a/., G.R. No. 126383, 28 November1997.

6 Article 92, Labor Code; Section 6, Rule III, Book III, Omnibus RulesImplementing the Labor Code.


1. In case of actual or impending emergencies caused byserious accidents, fires, floods, typhoons, earthquakes,epidemics or other disasters or calamities, to preventloss of life and property or imminent danger to publicsafety;

2. In cases of urgent work to be performed on machinery,equipment or an installation, to avoid serious loss whichthe employer would otherwise suffer;

3. In the event of abnormal pressure from work due tospecial circumstances, where the employer cannot ordi-narily be expected to resort to other measures;

4. To prevent loss or damage to perishable goods;5. Where the nature of the work requires continuous op-

erations for seven days a week and the stoppage of workmay result in irreparable injury or loss to the employer,as in the case of the crew members of a vessel to com-plete a voyage, and in other similar cases; and

6. When the work is necessary to avail of favorable weatheror environmental conditions, where the performance orquality of the work is dependent on the weather or envi-ronmental conditions.

An employee cannot be required to work against his willon his scheduled rest day, except under the above circum-stances. When an employee volunteers to work on his rest dayunder other circumstances, he shall express such desire in writ-ing, and shall be given additional compensation for work doneon a rest day. 57

F. Rest Day Pay

Rest day pay is equivalent to at least the regular wage of theemployee plus at least 30 percent of the regular wage. 58

57 Section 6, par. 2, Ibid.58 Article 93(a), Labor Code; Section 7 (a), Rule III, Book III, Omnibus

Rules Implementing the Labor Code.

I-to;.:0)::-::0-<


Hence, the formula for REST DAYPAYis as follows:

RATEFORREGULARDAY+30 PERCENTOF REGULARWAGE== 130 PERCENT

Illustration: If an employee's rate per day is P500.00, howmuch should the employee be paid for working 8 hours on aSunday, assuming that Sunday were his scheduled rest day?

Solution: For work done on a Sunday, the employee is entitled to:

P 500.00+ P 150.00

P 650.00

(rate per day)(30% of P500.00)

(130% of rate per day [P500 x 130%])

G. Overtime Work on a Rest Day

For overtime work on a rest day, an employee is entitled to anadditional compensation of at least 30 percent of his wage on arest day."?

Hence, OVERTIMEPAYON A RESTDAYis computed thus:

RATEFOR RESTDAY(130 PERCENT)+30 PERCENTOF WAGEFOR THERESTDAY == 169 PERCENT

Illustration: If an employee's rate per day is P500.00, howmuch should the employee be paid for working 10 hours on aSunday, assuming that Sunday is his scheduled rest day?

Solution: The employee's rate per hour on a Sunday is P81.25(P650.00 divided by 8 hours).

For work done in excess of 8 hours, the employee is en-titled to:

P+ P

P

81.2524.375

105.625

(rate per hour on a Sunday)(30% of P81.25)

per hour(169% of rate per hour [P62.50 x 169%])

Article 87, Labor Code; Section 9(a), Rule I, Book III, Omnibus RulesImplementing the Labor Code.

50 W••rkhl~\ Will. l ahor Laws

111~11I~t). I()J 10 hours of work on a Sunday, an employee isIII II1I11~dIn:

P 650.00P 211.25

P 861.25

(rate for 8 hours on a Sunday)(P105.625 x 2)

H. Overtime Work on a Rest DayRendered from 10 P.M. to 6 A.M.

When an employee renders overtime work between 10 p.m. to6 a.m. on a rest day, he shall be given compensation equivalentto his overtime rate on a rest day and an additional amount of

I

not less than 10 percent of the overtime rate on a rest day, foreach hour of work performed. 60

Hence, PAY FOR OVERTIME WORK ON A REST DAY RENDEREDFROM 10 P.M. TO 6 A.M. is computed thus:

OVERTIME RATE ON A REST DAY + 10 PERCENT OFOVERTIME RATE ON A REST DAY = 185.9 PERCENT

Illustration: If an employee's rate per day is P500.00, how muchshould the employee be paid for 10 hours of work on a Sunday,assuming that Sunday is his scheduled rest day, if the 2 hours ofovertime work were rendered between 10 p.m. and 6 a.m.?

Solution: The employee's rate per hour on a Sunday is P81.25;overtime rate per hour on a Sunday is P105.625.

For overtime work done from 10 p.m. to 6 a.m., an em-ployee is entitled to:

P 105.625+ P 10.5625

P 116.1875

(overtime rate per hour on a Sunday)(10% of P105.625)

per hour (185.9% of rate per hour[P62.50 x 185.9%])

60 Section 4, Rule II, Book III, Omnibus Rules Implementing the LaborCode.


Hence, for 10 hours of work on a Sunday, with overtimerendered from 10 p.m. to 6 a.m., an employee is entitled to:

P 650.00 (rate on a Sunday)+ P 232.375 (Pl16.1875 x 2)

P 882.375

I. Compressed Workweek61

The compressed workweek scheme was originally conceived forestablishments wishing to save on energy costs, to promote greaterwork efficiency and lower the rate of employee absenteeism, amongothers. Employees favor the scheme because it translates to sav-ings on the increasing cost of transportation fare for at least oneday a week, savings on meal and snack expenses; longer week-ends, or an additional 52 off-days a year, that can be devoted torest, leisure, family responsibilities, studies and other personalmatters. It will also spare them for at least another day in a weekfrom certain inconveniences that are the normal incidents of em-ployment, such as commuting to and from the workplace, traveltime spent, exposure to dust and motor vehicle fumes, and dress-ing up for work. Thus, under the compressed workweek scheme,the generally observed workweek of six days is shortened to fivedays, but the working hours from Monday to Friday are prolongedwithout the employer's being obliged to give overtime premiumcompensation for work performed in excess of eight hours onweekdays, in exchange for the benefits mentioned above that willaccrue to the employees.

Considering the acceptability of the compressed workweekscheme in several establishments, and considering further thepresent energy situation, the DOLE,after consultations with therepresentatives of management and labor, recommended theadoption of the compressed workweek scheme by an establish-ment on a voluntary basis.

61 Department Order No. 021-90, "Guidelines on the Implementation ofCompressed Workweek," 31 Auzust 1990.

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