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AUDIO CONFERENCE ON
Three is a Crowd: What Employers Need to Know about Employee Outsourcing and Temporary Agencies in
South America and Mexico
December 1, 2016
CERTIFICATE OF ATTENDANCE
The undersigned certifies that _________________________________ attended “Three is a Crowd: What Employers Need to Know about Employee Outsourcing and Temporary Agencies in South America and Mexico” Audio Conference sponsored by the Employment Law Alliance. The program consisted of 90 instructional minutes. The program contained no credit for continuing legal education for legal ethics; elimination of bias in the legal profession; or prevention, detection, and treatment of substance abuse.
To be completed by Attorney or Attendee after participation in the above-named activity.
By signing below, I certify that I participated in the activity described above and am entitled to claim the following continuing education credit hours:
Total Hours
Signature
Three is a Crowd: What Employers Need to Know about Employee Outsourcing and Temporary Agencies in South America and Mexico
Thursday, December 1, 2016
3
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Oscar Aitken Carey Santiago, Chile [email protected]
José Balta Rodrigo, Elías & Medrano Abogados Lima, Peru [email protected]
Speakers
5
Renato Canizares Demarest Advogados Sao Paulo, Brasil [email protected] Florencia Fitipaldo Hughes & Hughes Montevideo, Uruguay [email protected]
Speakers
6
Nadia González Santamarina y Steta Monterey, Mexico [email protected] Enrique M. Stile Marval, O'Farrell & Mairal Buenos Aires, Argentina [email protected]
Speakers
7
The General Legal Framework for Outsourcing Services and
Employee Supply by Temporary Agencies
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• Outsourcing is specifically regulated in Argentina under the Labor Contract Law (“LCL”).
• The LCL sets forth a difference between the outsourcing of activities that represent the core business of companies and the outsourcing of activities not directly related to their business.
• Section 30 of the LCL establishes that, whenever a company outsources activities corresponding to its core business, the company has to fulfill specific requirements, mainly related to the control of the activity carried out by the outsourcing company (e.g., the correct registration of their employees, the payment of social security taxes, etc.).
Argentina – Outsourcing Services
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• Companies that outsource activities that may be considered as part of their core business are jointly and severally liable with the outsourcing company.
• Lack of fulfillment on the previously mentioned regime creates direct liability for the company outsourcing its business.
• Outsourcing of non-core business shall not create any liability, as long as the outsourcing company has as many businesses providing this kind of service to other clients.
Argentina – Outsourcing Services
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• Temporary agencies are legal and regulated in the LCL, which states that, in order to provide workers to be employed by a user company, it must be authorized by the Labor Ministry and registered in a special registry.
• The user company must have a special section on the Salaries and Wages Book, containing the information related to the employee rendering services through the temporary agency.
• The user company that employs workers through a temporary agency must withhold from the payments made to the temporary agency, the contributions to the social security system corresponding to the temporary workers.
Argentina – Employees Provided by Temporary Agencies
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• This regime is characterized by the eventuality note, which implies the hiring of employees based upon specific needs or extraordinary demands of work.
• In case such eventuality note is not materialized according to the reality of facts, the LCL establishes that employees who have been hired by third parties to render services for the user company, will be considered direct employees of the company who use their services.
Argentina – Employees Provided by Temporary Agencies
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• Employees hired through companies that are not temporary agencies or do not meet the parameters mentioned above would be framed under the definition, “labor fraud in employer interjection.” In this case, the employee provided by the third party is considered an unregistered employee of the user company; thus, fines for unregistered employment will apply.
• Even though an employee provided by a third party is properly registered by it, the user company may assume the risks of fines by unregistered employment, as ratified by plenary decision, “Vásquez, Ma. Laura vs. Telefónica de Argentina S.A. and Other.”
Argentina – Employees Provided by Temporary Agencies
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• There is no legal provision setting the parameters for outsourcing.
• Superior Labor Court Precedent 331: Outsourcing cannot be related to the company’s core business (main activity), but only to ancillary activities.
• The elements of an employment relationship cannot exist: – Exclusive personal assignment; – Direct payment; – Subordination; – Regular provision of services.
Brazil
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• Bill No. 4,330/04 pending in the Brazilian Congress: – Allows the outsourcing of a company’s core business. – Recognizes employment where the elements of an
employment relationship exist are maintained. – Services agreements must be secured by the equivalent
to 4% of the contracted amount, limited to the monthly cost of the agreement (through insurance or payment withholding).
– Contracting company may make the required payments to outsourced workers through deposits in a specific account held by contracted company to this end, among other possibilities.
Brazil
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• Regulated by Federal Law #6.019/74: provides that the hiring of temporary workforce can only be made under the following circumstances: – Temporary need for personnel in times of excessive
services (e.g., temporary increase in demand for production); or
– Temporary replacement of regular employees (e.g., vacation, sick leave, maternity leave etc.).
Brazil – Workers’ Supply by Agencies
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• Main requisites for hiring temporary workforce: – Temporary agency must be registered as such with the
Ministry of Labor and Employment; – Contract between temporary worker and company
taking services must always be held in writing and cannot exceed three months, being allowed one extension upon authorization by the Ministry of Labor and Employment.
– Temporary workers are entitled to the same rights provided by law to any regular worker (including equivalent salary).
Brazil – Workers’ Supply by Agencies
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Chile – (Law No 20,123 of 2006)
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The dependent employees shall render services to an employer, known as contractor or subcontractor, by virtue of an employment contract.
The principal company shall be the owner of the work, enterprise or site in which the subcontracted services are executed.
There shall be a civil/commercial agreement between the contractor and the principal company, according to which the contractor agrees to execute, at its own risk and on its own behalf, works or services for the principal company.
The works or services shall be executed by the contractor with its employees.
The subcontracted works or services shall be permanent/periodic. Sporadic or discontinuous services are not subject to the subcontracted act.
Caselaw has sometimes disregarded the requirement concerning location and has focused on exclusiveness to consider the subcontracted services to fall under the subcontracted act.
1.Subcontracting
2. Personnel Supply The company that supplies personnel shall: • Be constituted as an EST
(Empresa de Servicios Transitorios);
• Be duly registered in the special and public registry managed by the Labor Board; and
• Provide security with the Labor Board.
Personnel supply may only be used for the cases and terms expressly stipulated in the Labor Code. Any other personnel supply arrangement is unlawful.
Chile
20
Terms and conditions
Replacement of employees under sick/maternity leave or vacations.
Extraordinary events (no more than 90 days).
New and specific projects of the user company (no more than 180 days).
Services required for the commencement of activities of
employer (no more than 180 days).
Occasional or extraordinary increase in the user company’s activity (no more
than 90 days).
Urgent and specific works, which need immediate execution (for as long as the
urgency persists).
• Outsourcing was first regulated under the Mexican Federal Labor Law as a result of the 2012 labor reform (in force since Dec. 1, 2012). – Social Security Law imposes additional obligations to
employers who outsource personnel. • Outsourcing is defined as: the work performed by
a contractor through its own personnel, in favor of a contracting party that determines the tasks to be performed by the contractor, and supervises the execution of the same.
Mexico
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• Outsourcing is subject to three conditions: – It shall not cover the totality of the activities performed at
the workplace, which means that a company can no longer subcontract 100% of its workforce, either from a sister (affiliate/subsidiary) company or from a third-party contractor (staffing agency).
– It shall be justified because of its specialized nature.
– It shall not comprise tasks similar or equal to those performed by the employees working for the contracting party.
Mexico
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• If any of the above conditions are not met, the contracting party shall be deemed the employer of the contractor’s personnel for all legal purposes, including profit sharing and social security duties.
• Outsourcing shall be agreed upon in writing.
Mexico
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• The main company delegates to the contractor one or more parts of its production cycle (integral service)
• Autonomy in the provision of the service (control and risk)
• Regulated outsourcing: continuous displacement and main activity
Peru – General Legal Framework (I)
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Main Company Outsourcing
Company (Contractor) Services agreement
Requirements
Peru – General Legal Framework (II)
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Contractor assumes an integral part of the
Main Company’s productive process
Contractor works on its account and risk
Contractor has its own financial, technical or
material resources
Employees are subordinated solely to the
contractor
Contractor is liable for the results of its
activities
Delimitation of activities
Autonomy and responsibility
On-going company (office and administrative staff)
Supervision, not way of rendering service (coordinator)
No exoneration of liability (agreement)
AUTONOMY
Characteristic elements
Peru – General Legal Framework (III)
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Several clients Equipment Way of
Compensation
• Which services can be provided? • Who can provide them? • Company’s responsibilities? • How should control be done? • Right of withholding payments? • Temporary limits on hiring? • Employees rights? • Prohibited acts?
Uruguay
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Illegal Outsourcing is defined as “fraud committed by employers to detract, deny, or create obstacles for the application of the labor law.” The following practices are not permitted under the law:
1. Hiring companies to execute permanent work, services, or activities within the facilities of the beneficiary, and that are directly related with the core business of the beneficiary;
2. Hiring of employees through intermediaries to evade labor and employment obligations;
3. Use of business entities created by the employer to evade its employments.
Venezuela – Legal vs. Illegal Outsourcing
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The Risks and Benefits of Outsourcing
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Benefits • Vehicle to hire contingent work force without increasing
headcount
• Vehicle to comply with labor, employment and social security duties when companies have no legal presence in Mexico
• Used for initial hiring as probationary period
• Relative ease to terminate outsource employees without direct liability
• Management of payroll, recruitment services
• Outsourcing has been exploited as means to administer the amount of profit sharing payable to employees
Mexico
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Risks • If one of the conditions set forth in the FLL is not met, contracting party
shall be deemed the employer of the outsourced personnel. • If the three conditions are fulfilled but the contractor fails to comply with
its labor and employment duties, the contracting party, as direct beneficiary of the services, will be jointly liable with the contractor for such compliance.
• Contractor, together with the contracting party, may be considered as a single economic unit for profit-sharing purposes.
• If the outsourced personnel is subordinated to the contracting party, an employment relationship may be deemed to exist.
• Hostile working environment when the only difference between direct hires and outsourced personnel is compensation (wages and benefits).
Mexico
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Peru
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Risks
Benefits
• Contractor’s employees will be included in Main Company’s payroll, if illegal.
• Joint and several liability, if legal.
• Fines
• Externalization of an integral part of the company’s activities
Risks: • Being held responsible for all labour and social security
related debts • Depending on the case, when labour accidents occur,
there could be criminal responsibility
Benefits: • To gain efficiency or increase the capacity of the Company • The Company can focus on those key areas with greater
added value for the firm, while the outsourced supplier is responsible for outsourced areas based on its specialization and economy
Uruguay
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Risks: • Employer must absorb/incorporate the affected employees
into its payroll and pay the same salary and employment benefits as it does to its regular employees;
• Employer is subject to a fine of up to 360 tax units per affected employee.
Benefits: • Hiring of contractors is not prohibited. • Only if there is an inherent or related connection between
the contractor and the principal, both companies are jointly liable for the employment obligations of the contractor’s employees.
Venezuela
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Joint and several liability • The LCL stipulates that whoever contracts work or services
pertaining to the “regular and specific activities of the establishment” must demand the Outsourcing Company adequate compliance with the labor and social security obligations imposed upon them.
• Additionally, the LCL establishes that non-compliance with any of the labor and security obligations shall result in joint and several liability of the user Company for the obligations of the Outsourcing Company as regards the employees rendering such works or services.
Argentina – Core Business Risks
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Direct liability • Furthermore, in the event that the Outsourcing Company is
exclusively or almost exclusively assigned to the services provided to the user Company, the outsourced employee could claim direct labor relationship with the user Company.
• After full bench decision, “Ramírez, María vs. Russo Com. and Other re Dismissal” within Buenos Aires, the outsourced employee could argue that it held an employer-employee relationship with the user Company, and thus, could claim for the payment of statutory severance, as well as special fines for unregistered employment.
Argentina – Core Business Risks
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Joint and several liability • The LCL regulates the joint and several liability between the
user company and the temporary agency for all labor obligations created in the period during which the temporary employee provided services.
• In addition, the user company could be also held jointly and severally liable for social security and union matters.
Argentina – Hiring Through Temporary Agency and/or Third-Party Risks
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Direct liability • If the typical features of a labor relationship exist, the
employee rendering the services could argue having a direct labor relationship with the user company and, while the relationship is in effect – or even after it has been terminated – could claim the existence of an unregistered labor relationship, and thus, claim certain severance and expensive fines.
Argentina – Hiring Through Temporary Agency and/or Third-Party Risks
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Risks: • Recognition of an employment relationship between the
outsourced workers and the contracting company; • Administrative penalties; • Indemnification for “Social Dumping”; • The contracting company will always be secondarily liable
for the debts of the contracted company.
Benefits: • Headcount issues; • Gain efficiency; hiring specialized services when needed; • Easier to manage.
Brazil
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Chile – Benefits
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Chile – Subcontracting Risks
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1. Direct labor relationship between the principal company and the subcontracted employees. This occurs when subordination and dependency link is shifted from the contractor to the principal company.
2. Fine for illegal personnel supply, where the contract is not truly for the provision of a service, but is more of a personnel supply, lease of employees:
User Company: 10 UTM for each employee (approx. USD$710).
User Company: 10 UTM for each employee (approx. USD$710). Supplier Company: 80 to 500 UTM. (approx. USD$567 to USD$35,455)
3. Principal company’s direct liability regarding compliance with health and safety obligations. (Special regulations for contractors and subcontractors, risk prevention department and health and safety committee).
4. Principal company’s liability for work-related accidents of the subcontracted employees.
5. Principal company’s liability for the fulfillment of the contractor company’s labor and social security obligations.
Joint liability
Subsidiary liability
Right to information
Right to withhold payment
Chile – Temporary Personnel Supply Risks
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1. Direct labor relationship between the user company and the temporary personnel. This may happen in the following cases:
When the Temporary Personnel Supply
agreement is not signed.
If a Temporary Personnel Supply agreement is signed with a company that is not
allowed to supply personnel.
If a Temporary Personnel Supply agreement is signed
and the grounds or terms are not the ones set forth in the
law.
When a supplied employee keeps rendering services to the user company after its
Temporary Personnel Supply agreement has expired.
When a Temporary Personnel Supply agreement is intended
to cover a permanent labor relationship between the user company and the employee.
2. Fine for illegal personnel supply (if a Temporary Personnel Supply agreement is signed with a company that is not allowed to supply personnel):
User Company: 10 UTM for each employee (approx. USD$710).
Supplier Company: 80 to 500 UTM. (approx. USD$567 to USD$35,455)
3. User company’s direct liability regarding compliance with health and safety obligations of supplied personnel (The user company’s internal order and health regulations are applicable to supplied personnel).
4. User company’s subsidiary liability for the fulfillment of the supplied personnel’s labor and social security obligations.
Best Practices for Employers
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Chile – Subcontracting
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Chile – Personnel Supply
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• Specialized services agreements vs. staffing services agreements.
• Contracting party’s right to audit contractor and request evidence of compliance of labor, employment and social security duties, including proof of solvency.
• Explicit labor liability provisions.
Mexico
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• Preferably enter into outsourcing agreements with staffing agencies who have international reputation and/or that are certified by external auditors.
• Avoid outsourcing involving aggressive tax schemes.
• Use outsourcing only when it is indispensable. • Explore different hiring modalities available
under the FLL instead of outsourcing.
Mexico
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• The main company should not treat the contractor’s employees as its own.
• The main company should do a background check before hiring the contractor.
• Both the main company and the contractor should be worried about the requirements’ compliance.
Peru
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• Understand that the responsibility of the company cannot be outsourced
• Be aware of the difficulties of the execution • Effective and periodic control
Uruguay
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• Hire specialized companies; • Hire companies that have a broad customer base; • Require contractor to comply with its employment
obligations; • Try not be the only customer nor the largest source
of income for the outsourcing company; • Orders and instructions given to outsourced
personnel must be given only by the outsourcing company
Venezuela
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• Employees of an outsourcing company should not use any identification or uniform that can link them to the principal company. Work tools/email addresses should be provided by the outsourcing company.
• The must be no intention of committing fraud or violating the labor law.
Venezuela
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• Decision No. 92, issued by the SCS of the Venezuelan Supreme Court, on 03/26/2016. What is outsourcing?
• Maria Rina Di Martino Patriarca Vs. Group of High and Other Dental Specialties. – The assumptions for illegal outsourcing are those
provided in article 48 of the LOTTT. – For outsourcing to be illegal, it must cause detriment to
the worker’s employment conditions. – There is no illegal outsourcing relationship between
contractor and principal.
Venezuela
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• Indemnity Clause: Contractor shall hold the company free and harmless from any liability that may arise from the rendering of the services whether civil or arising from the direct and/or joint and several liabilities.
• Hire through solvent, registered, and active companies. • Avoid any benefit and/or working tool provided by the
company to the service provider and/or its employees (i.e., email correspondence, computer, identification credentials office space, etc.).
Argentina
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• To prevent the provision of services exclusively for the company (i.e., contractor who also has other clients, avoid that contractor if the employees’ work is dedicated exclusively to the company).
• Avoid any type of treatment to the contractor and/or its employees that assimilates them to an employee (i.e., providing extraordinary benefits).
Argentina
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• The outsourcing cannot reach the company's core activities;
• The client must not have employees doing activities identical or similar to those developed by the outsourced workers; and
• No element characterizing an employment relationship can be present.
Brazil
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Contact Our Speakers for More Information
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Oscar Aitken Carey Santiago, Chile [email protected] Jose Balta Rodrigo, Elías & Medrano Lima, Peru [email protected]
Renato Canizares Demarest Advogados Sao Paulo, Brasil [email protected] Florencia Fitipaldo Hughes & Hughes Montevideo, Uruguay [email protected]
Contact Our Speakers for More Information
57
Nadia González Santamarina y Steta Monterey, Mexico [email protected] Enrique M. Stile Marval, O'Farrell & Mairal Buenos Aires, Argentina [email protected]
Maria Elena Subero Hoet Pelaez Castillo & Duque Caracas, Venezuela [email protected] John Tucker Hoet Pelaez Castillo & Duque Caracas, Venezuela [email protected]
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