Short answer. Yes, within limits. Article 106 of the Labor Code lets the Secretary of Labor restrict or prohibit contracting-out to protect workers' rights, and to distinguish labor-only contracting from legitimate job contracting. It is a regulatory power tied to protecting workers, not an open-ended authority to ban contracting arrangements at will.
What the law says
The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor to protect the rights of workers established under this Code.
Labor Code, Article 106 — Contractor Or Subcontractor. Read the full provision →
The power exists, and it is broad
Article 106 gives the executive branch real authority here: the Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting-out of labor to protect the rights of workers established under this Code. That is not a narrow, case-by-case power — it authorizes regulations of general application that can restrict or outright prohibit contracting-out for whole categories of work, not just intervene in individual disputes.
But it is tied to a specific purpose
The power in this article is not free-floating; it is exercised to protect the rights of workers established under this Code. That phrase is the article's own limiting principle — the regulation has to connect back to protecting statutory worker rights, rather than serving some unrelated policy goal. A prohibition issued under this article stands on the ground that it protects the rights the Labor Code itself establishes.
The article anticipates line-drawing between contracting types
Article 106 expressly contemplates that not all contracting-out looks alike. It provides that in exercising this power, the Secretary may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code. So a ban or restriction issued under this article is not necessarily a blanket rule — it can single out labor-only arrangements specifically, while treating legitimate job contracting differently.
Why the distinction between contracting types matters
The article defines labor-only contracting as arrangements 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. In that situation, the article treats the supplying party as merely an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him — which is the underlying problem the government's regulatory power under this article is aimed at correcting.