Principal in Contracting

Summary

▪ Principal is the one who farms out or outsources a job or work in a contracting and subcontracting arrangement.

▪ The principal's main interests is on the desired results.

▪ The principal has no interest in supervising or controlling the contractor's employees.

▪ The principal is solidarily liable with the contractor for labor law violations.

▪ The extent of liability by the principal depends on whether there is a finding of legitimate job contracting or subcontracting.

1. Concept

Principal refers to “any natural or juridical entity, whether an employer or not, who puts out or farms out a job or work to a contractor.” (Section 3[i], DO-174)

2. Desired results

In a contracting arrangement, the main interest of a principal is on the desired results which the contractor will be accomplishing through its own manner and method, free from the control and/or direction of the principal.

Conversely, the principal should have no interest on the contractor’s employees who are performing the job or work that has been farmed out or outsourced. The principal is not the employer of these workers, who are hired, paid, and controlled by the contractor who is their employer.

3. No control

Thus, in a contracting arrangement, the principal is prohibited from exercising any form of control or supervision over the contractor’s employees. Otherwise, if the principal exercises control, the arrangement with the contractor shall be considered as labor...

 



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