Short answer. Your real employer becomes the company you actually work for, not the agency. Article 106 treats labor-only contracting as if the agency were merely an agent of the employer, so the principal is responsible to the workers in the same manner and extent as if the latter were directly employed by him.
What the law says
There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer.
Labor Code, Article 106 — Contractor Or Subcontractor. Read the full provision →
What makes contracting 'labor-only'
Article 106 defines the problem before it defines the fix. There is labor-only contracting where the entity supplying workers does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, and the workers it places are doing work directly related to the principal business of the company they are actually stationed at. In practice, that describes an agency that exists mainly to supply workers rather than to run an independent business of its own — one that is thinly capitalized and whose workers are doing the client company's core work rather than some genuinely separate service.
The agency is treated as a mere intermediary
Once that description fits, Article 106 does not simply penalize the agency and leave your employment status untouched. It reclassifies the relationship: the agency or intermediary is treated merely as an agent of the employer, meaning the company that actually benefits from your work — the principal — is the one legally responsible for you, in the same manner and extent as if you had been directly employed by that principal all along. The agency does not disappear from the picture entirely, but it stops being treated as your real employer for purposes of the Code.
What this can mean for your job and your claims
The practical effect is that obligations toward you — wages, and the other protections this Code affords a directly hired employee — attach to the principal, not just to the agency that placed you there. If the agency fails to meet its obligations, the article separately makes the employer jointly and severally liable for wages owed to the extent of the work performed under the contract. A DOLE finding of labor-only contracting is, in that sense, a finding about who has been your real employer, which affects who you can hold accountable rather than automatically ending your job.