Endo and Labor-Only Contracting: Are Agency Workers Regular?

"Endo" is a popular word for hiring workers on short contracts, often through an agency, so that they never become regular. The law does not use the word. The legal questions behind it are:

1. Is the agency a legitimate contractor or a labor-only contractor?
2. Who controls the work?
3. Was the worker kept on probation longer than the law allows?

Article 106 of the Labor Code (its number did not change in the 2015 renumbering), as quoted by the Supreme Court in *Daguinod v. Southgate Foods* (2019), describes labor-only contracting. It exists where the person supplying workers "does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others," and the workers are "performing activities which are directly related to the principal business" of the employer.

The consequence is serious. The intermediary is "considered merely as an agent of the employer," and the employer is responsible to the workers as if it had hired them directly.

Even in legitimate contracting, the company is not free of duties. If the contractor fails to pay wages, the company is jointly and severally liable with the contractor, to the extent of the work done under the contract. See labor-only contracting for the term itself.

They look at the facts, not at labels. In *Daguinod v. Southgate Foods* (2019), a cooperative placed a cashier at a fast-food franchise. The Supreme Court found it was a labor-only contractor:

• The work was core. Taking orders, serving food and receiving payment are necessary and desirable to a fast-food restaurant, not "peripheral" work.
• Capital was not proved. One income tax return for one year, which did not appear to have been filed with the BIR, and only the notes to the audited financial statements, without the statements themselves, did not prove substantial capital.
• The company controlled the worker. The store's own manager investigated and disciplined him, and his contract left his duties blank, to be explained at the place of assignment.
• Registration was not enough. DOLE registration "is merely presumptive proof" of being a legitimate contractor.

The Court also said parties cannot fix the character of the business "by the mere expedience of a unilateral declaration in a contract." The franchise operator was deemed the direct employer, and the cooperative and the operator were held jointly and solidarily liable for the worker's awards.

No. In *Manggagawa sa Komunikasyon ng Pilipinas v. PLDT* (2024), the Supreme Court stated that "labor contracting is not illegal per se." Contracting out specific jobs does not automatically make the contractors' workers employees of the company.

In that case, DOLE had ordered the regularization of thousands of contractors' workers after an inspection. The Court set aside that order except for the workers performing installation, repair and maintenance services, whom it declared regular employees of PLDT. It sent the case back to the DOLE Regional Director for the National Capital Region to work out the effects of that regularization and to compute the money awards. The Court also said DOLE's findings must rest on substantial evidence: findings drawn from interviews of a sample of workers could not simply be applied to everyone.

Probation has a legal limit. Article 296 [281] of the Labor Code, as quoted in *C.P. Reyes Hospital v. Barbosa* (2024), says probationary employment "shall not exceed six (6) months" from the date the employee started working, unless an apprenticeship agreement sets a longer period. An employee "who is allowed to work after a probationary period shall be considered a regular employee." The Court said this change happens by force and operation of law, without any further act by the employer.

Repeated fixed-term contracts (sometimes called "5-5-5") raise separate legal questions about fixed-term employment that this page does not cover. Whether such contracts are valid depends on the facts of each case. See can a probationary employee be terminated? and probationary vs regular employee.

DOLE implements Article 106 through department orders, including Department Order No. 174, series of 2017, as the Supreme Court noted in the PLDT case. The text of that order was not reviewed for this page, so this page does not describe its rules.

These are made-up examples to show how the rules work. They are not advice for any real case.

Mark. Mark is hired by a manpower agency and assigned as a cashier at a fast-food branch. The agency has no equipment of its own, and the store manager gives him all instructions and disciplines him. Like the worker in *Daguinod*, he can argue that the agency is a labor-only contractor and the store operator is his real employer.

Lea. Lea works for a janitorial contractor that has its own supervisors, equipment and other clients, and cleans a bank's offices. Contracting out janitorial work is not illegal in itself. Unless there is evidence of labor-only contracting, such as the bank controlling her work, her employer is usually the contractor.

Leo. Leo is hired directly on probation and is still working after seven months, with no apprenticeship agreement. Under Article 296 [281], he is considered a regular employee by operation of law.

These cases turn on evidence. In *Daguinod*, the service contract, the notices to explain and who conducted the investigation showed who controlled the work. A worker can bring the issue to DOLE through the Single Entry Approach. If you were dismissed, see illegal dismissal remedies and how to file a labor complaint.

Labor-only contracting cases depend on evidence about capital, the nature of the work and control. Talk to a lawyer, your union or the Public Attorney's Office (PAO) before filing, especially if you were dismissed or if many workers are affected.

If you cannot afford a lawyer, see Free legal help in the Philippines.