Question

III. EMPLOYER-EMPLOYEE RELATIONSHIP

B. Legitimate Contracting vs. Labor-Only Contracting

A construction company, ABC Construction, entered into a service agreement with XYZ Manpower Agency for the supply of laborers for its various construction projects. Under the agreement, XYZ Manpower Agency will be responsible for recruiting, hiring, and paying the laborers, while ABC Construction will provide the necessary tools, equipment, and supervision. The agreement states that XYZ Manpower Agency is an independent contractor.

However, some laborers filed a complaint alleging that they are regular employees of ABC Construction and that the service agreement is a mere labor-only contracting arrangement. ABC Construction argues that they have a legitimate contracting arrangement with XYZ Manpower Agency.

Based on the given scenario and the provisions of the Labor Code, DOLE D.O. No. 174-17, DOLE D.C. No. 01-17, and E.O. No. 51, Series of 2018, determine the following:

1. Whether the service agreement between ABC Construction and XYZ Manpower Agency is a legitimate contracting or a labor-only contracting arrangement;
2. The factors to consider in determining the existence of legitimate contracting versus labor-only contracting;
3. The rights and benefits of laborers who are regular employees of an independent contractor engaged in legitimate contracting;
4. The penalties or sanctions imposed for engaging in labor-only contracting.