Short orientation

“Project-based” employment is a recognized and lawful form of employment in the Philippines. But it is also one of the most abused labels—often used to avoid regularization, security of tenure, and the full suite of statutory benefits.

DOLE Department Order No. 174, Series of 2017 (DO 174) does not abolish project employment. What it does is regulate contracting and subcontracting arrangements and aggressively targets labor-only contracting and other schemes used to defeat workers’ rights. In real disputes, the question is usually not “Is project employment allowed?” but rather:

Is the worker truly a project employee (as defined by labor law and jurisprudence)?
Is the work arrangement actually an illegal contracting scheme under DO 174, making the worker an employee of the principal and/or entitled to regularization?

This article maps out “all there is to know” in Philippine practice: the governing rules, the common red flags, and what regularization looks like when project status or contracting arrangements fail legal scrutiny.

1) The legal framework (how the rules fit together)

A. Regular employment and security of tenure (core rule)

Under the Labor Code (now commonly cited as Article 295 [formerly Article 280]), employees are generally regular if they are engaged to perform activities that are usually necessary or desirable in the employer’s usual business or trade, except for categories recognized by law, including project employment.

Regular employment matters because it carries security of tenure: a regular employee can be terminated only for just causes (e.g., serious misconduct) or authorized causes (e.g., redundancy, retrenchment), and with due process and statutory requirements.

B. Project employment (recognized exception)

Project employment is lawful when the employment is coterminous with a specific project or undertaking, and the completion/termination of employment is determined at the time of engagement.

Project employment is not automatically “non-regular forever.” A worker repeatedly labeled “project” can still be declared regular if the legal indicators show the engagement is actually for continuing, necessary work rather than a genuinely distinct project.

C. DO 174 (where it comes in)

DO 174 governs contracting and subcontracting. It sets the rules for legitimate job contracting and identifies forms of illegal contracting, especially labor-only contracting. Its policy aim is to prevent arrangements that:

erode security of tenure,
depress wages/benefits, or
evade labor standards and rights, through the use of contractors, manpower agencies, and intermediaries.

Key point: DO 174 becomes central when a so-called “project-based employee” is engaged through—or affected by—contracting/subcontracting arrangements, or when “project” is used as a label to mask an unlawful setup.

2) What makes project employment legally valid (Philippine standards)

Philippine labor practice uses a set of recurring criteria. No single document controls; tribunals look at the totality of circumstances.

A. The essential elements

A project employment is generally valid when:

A specific project or undertaking exists The “project” is identifiable and distinct (e.g., a defined construction package, a time-bound rollout, a particular client deliverable).
The employee is engaged for that project The employee’s role is tied to that project’s requirements.
The duration/termination is determined at hiring The employee is informed—at the time of engagement—that employment ends upon project completion or phase completion, and the “project” is not left vague or open-ended.
Project completion ends the employment Termination happens because the project ends, not because the employer simply chooses not to renew while business continues unchanged.

B. Practical documentary expectations

In disputes, employers typically must be able to show:

A project employment contract or appointment stating:
- the specific project/undertaking,
- role assignment, and
- the coterminous nature of employment.
Evidence the project is real: project plans, work orders, client contracts, bill of quantities, scope documents, etc.
In many industries (notably construction), DOLE practice often expects compliance steps such as project reporting/termination reporting (where applicable), though outcomes still turn on substance, not form.

Important: A contract that merely states “project employee” without a real, defined project is weak evidence.

3) When “project-based” turns into regular employment

Even if the contract says “project,” regularization can occur if the facts show the worker is actually performing continuing work integral to the business.

A. Common indicators of misclassified project employment

Regularization risk increases when:

No specific project is clearly identified at hiring (the “project” is just “operations,” “production,” “admin,” “sales,” etc.).
The worker performs tasks that are continuing and integral to the employer’s usual business (e.g., regular plant operations, routine HR/admin, ongoing warehouse operations).
The worker is repeatedly rehired for successive “projects” that are essentially the employer’s continuous business, with little/no break, or with breaks that appear engineered to avoid regularization.
The “project” never really ends; the employee keeps working and the company simply issues new “project assignments” indefinitely.
The employee is subject to the employer’s normal supervision and scheduling as if part of the regular workforce, with no meaningful project boundaries.

B. The “repeated rehiring” pattern

Philippine jurisprudence often treats repeated engagements as evidence that:

the worker’s tasks are necessary/desirable and continuing, and
the “project” label is being used to avoid regular employment.

The closer the pattern resembles permanent staffing, the higher the likelihood of being declared regular.

C. Breaks in service: not a magic shield

Artificial breaks do not automatically prevent regularization. Decision-makers assess whether breaks are genuine (project truly ended) or contrived (work remains).

4) DO 174’s role: when project-based status is entangled with contracting/subcontracting

Many “project-based” workers are hired by:

manpower agencies,
service contractors,
subcontractors, then deployed to a principal (the client company).

Here DO 174 becomes crucial.

A. Legitimate job contracting vs labor-only contracting

Under DO 174, a contractor must generally operate as an independent business and not merely supply bodies.

Legitimate contracting (in concept) involves a contractor that:

has substantial capital or investment,
carries on an independent business,
controls the means and methods of work (not just the result), and
undertakes a specific job/service for the principal.

Labor-only contracting exists (in concept) when:

the contractor lacks substantial capital/investment, and
the workers perform activities directly related to the principal’s main business, and/or
the contractor does not exercise real control (the principal effectively directs the workers like its own employees).

When labor-only contracting is found, the legal effect is severe: the law treats the workers as employees of the principal (the client) for purposes of rights and liabilities, and the contractor is treated as an agent/intermediary.

B. “Project-based” + contracting: typical illegal patterns DO 174 targets

Examples of red-flag setups:

A manpower agency labels deployed workers as “project-based” tied to vague “client requirements,” but the workers perform the principal’s day-to-day core functions.
The principal interviews, hires, disciplines, schedules, and directly supervises the workers, while the contractor mainly processes payroll.
The contractor rotates workers among principals without a real independent service business, using “project contracts” as disposable staffing.

Under DO 174, such arrangements risk being declared illegal contracting—making the principal the employer, and opening the door to regularization depending on the nature and continuity of the work.

5) What “regularization” can mean in project/DO 174 disputes

Regularization outcomes vary based on what legal defect is found.

Scenario 1: The “project employee” is actually a regular employee of the same employer

If a tribunal finds the “project” designation is a sham (no real project; work is necessary/desirable and continuing), the worker may be declared:

regular employee of the direct employer, entitled to:
- reinstatement (or separation pay in lieu if reinstatement is no longer feasible), and
- full backwages for illegal dismissal, if termination was improper.

Scenario 2: The worker is employed by a contractor—but the arrangement is labor-only contracting

If DO 174 illegal contracting is found, the worker may be treated as:

employee of the principal (client company).

From there, regularization analysis applies to the principal:

If the worker performs the principal’s necessary/desirable activities and meets legal standards, regular status may attach.
Even before regularization is formally declared, the principal can be held liable for labor standards violations and illegal dismissal remedies.

Scenario 3: Legitimate contracting, but project status is misused within the contractor’s workforce

Even if contracting is legitimate, a contractor cannot escape labor law by calling everyone “project.” Workers can still be declared regular employees of the contractor depending on the nature and continuity of their work.

6) End of project vs dismissal: the difference matters

A. Valid project completion termination

A genuine project employee may be terminated upon:

project completion, or
completion of the phase for which the employee was engaged, provided the project nature and coterminous term were established at engagement.

This is not treated as a “dismissal for cause”; it is the natural expiration of the engagement.

B. Early termination before project completion

If the employer ends the employment before project completion, it becomes a dismissal and must be justified by:

just causes or authorized causes, with due process, as applicable.

C. Separation pay

As a general principle, employees terminated due to project completion are not automatically entitled to separation pay simply because the project ended—unlike authorized causes such as redundancy/retrenchment/closure where separation pay rules apply. But liabilities can arise if the “completion” is not genuine or if other violations exist.

7) Rights and benefits of project-based employees (baseline protections still apply)

Even as non-regular employees, project employees are still entitled to labor standards, including:

minimum wage and wage-related benefits (as applicable),
overtime, holiday pay, premium pay (subject to rules and exemptions),
13th month pay (subject to coverage rules),
SSS/PhilHealth/Pag-IBIG contributions,
occupational safety and health protections,
protection against unlawful dismissal (they cannot be terminated mid-project without valid cause),
the right to self-organization (subject to lawful unit determination).

Project status affects tenure, not basic labor standards.

8) DO 174 compliance mechanics that often matter in disputes

A. Contractor registration and legitimacy signals

DO 174 sets requirements for contractors (registration, minimum capitalization/investment indicators, business independence, etc.). Non-compliance can be evidence supporting illegality, though the core test remains the actual relationship and control.

B. Prohibited/illegal contracting acts

DO 174 identifies prohibited practices (e.g., contracting that results in reduced labor standards, interferes with union rights, and other indicia of labor-only contracting). If these are present, the arrangement can be struck down.

C. Liability structure

Even in legitimate contracting, principals can have joint/solidary liabilities in certain labor standards contexts, and DO 174 is designed to prevent “passing the buck” when workers’ rights are violated.

9) How cases are assessed: the control test and the totality of circumstances

In Philippine labor adjudication, the “employer-employee” question commonly turns on:

who has the power to hire,
who pays wages,
who has the power to dismiss, and
who controls the means and methods of work (often the most important).

For DO 174 issues, adjudicators also examine:

whether the contractor has a real business and investments,
whether the service is legitimately outsourced,
whether the principal is essentially running the workers as its own,
whether the arrangement undermines security of tenure.

10) Industry notes (where “project-based” is most common)

Construction and project-oriented industries

Construction is the classic “project employment” setting. Project employment is often valid there, but misclassification still happens—especially where workers are continuously rehired across projects performing the same ongoing roles under the same employer.

IT/rollouts/BPO deployments

“Project-based” labels are also common for implementations, migrations, campaigns, and client ramp-ups. Validity depends on whether the role is genuinely tied to a finite deliverable or simply staffing a continuing function.

11) Practical compliance guide (Philippine best practice)

For employers using project employment

A defensible project employment setup typically includes:

Clear, written project engagement at hiring (project name, scope, expected duration or completion condition).
Documentation showing the project’s actual existence and boundaries.
Consistent HR practice: project completion ends the engagement; repeated rehiring is justified by genuinely distinct projects, not continuous staffing needs.
Avoiding “evergreen” project labels for permanent operational roles.

For principals outsourcing work under DO 174

Risk-reduction measures typically include:

Contracting only with genuinely independent contractors with real business capacity.
Structuring the relationship around outputs/services—not manpower supply.
Ensuring contractor supervision is real (the principal manages results, not day-to-day worker methods).
Avoiding direct hiring-like control (discipline, schedules, performance management) over deployed workers.

For employees assessing whether “project-based” is legitimate

Common questions that reveal misclassification:

What exactly is the project? Was it identified at hiring?
Does it have a real endpoint?
Are you doing the company’s routine, core business work?
Have you been repeatedly rehired for the same role under “new projects” that look identical to regular operations?
Who actually supervises your daily work: the contractor or the principal?

12) Remedies and outcomes when violations are found

Depending on the findings, outcomes may include:

declaration of regular employment (with the direct employer or the principal),
reinstatement and backwages if illegal dismissal is established,
payment of wage differentials and benefits,
damages and attorney’s fees in appropriate cases,
DOLE compliance orders and administrative consequences under DO 174 for illegal contracting.

Key takeaway

Project employment is lawful in the Philippines—but only when it is genuinely tied to a specific, pre-identified project with a real endpoint. DO 174 becomes decisive when “project-based” labels are used within contracting/subcontracting arrangements to defeat security of tenure. Regularization typically results when the “project” is not real, not defined at hiring, or is merely a rotating label for continuous work necessary or desirable to the business—or when the arrangement is actually labor-only contracting that makes the principal the true employer.

General information only; not legal advice.