Short answer. The Secretary of Labor and Employment. The Labor Code empowers the Secretary to issue regulations restricting or prohibiting contracting-out, drawing the line between labor-only contracting and legitimate job contracting, and determining who counts as the employer in each case.
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. In so prohibiting or restricting, he 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, to prevent any violation or circumvention of any provision of this Code.
Labor Code, Article 106 — Contractor Or Subcontractor. Read the full provision →
The Secretary's rule-making authority is the source of the line
Article 106 places the authority to draw the line between labor-only contracting and legitimate job contracting squarely with the Secretary of Labor and Employment, acting through appropriate regulations. This is not a determination the Code itself finalizes down to every detail — it authorizes the Secretary to restrict or prohibit contracting-out arrangements specifically to protect workers' rights, and to make the distinctions and differentiations needed to do that.
The statutory definition the Secretary's regulations build on
Article 106 itself supplies the core definition the Secretary's regulations work from: "labor-only" contracting exists where the person supplying workers to an employer lacks substantial capital or investment in tools, equipment, machinery, or work premises, and the workers supplied perform activities directly related to the principal business of that employer. Where both elements are present, the supplier is treated as merely an agent of the employer, who becomes responsible to the workers as if it had employed them directly.
Why joint and several liability matters regardless of the label
Article 106 also fixes a separate, related consequence that applies even outside the labor-only question: if a contractor or subcontractor fails to pay its employees' wages as the Code requires, the employer who engaged them is jointly and severally liable with the contractor or subcontractor, to the extent of the work performed under the contract — in the same way the employer is liable to its own directly hired employees. This wage-payment liability exists whether or not the arrangement is ultimately classified as labor-only contracting.
What this means for your staffing arrangement
If you are trying to determine whether your staffing arrangement crosses into illegal labor-only contracting, the authoritative source is the regulations the Secretary of Labor and Employment has issued under this article, applying the substantial-capital and directly-related-activities test the statute sets out, together with whatever further distinctions those regulations make. Article 106 is the legal basis for that authority; it is the Secretary's regulations, not a case-by-case reading of the Code alone, that spell out the operative details.