Labor Rights – South America Rodrigo Carvalho and Veirano Advogados March 31, 2011.

Labor Rights – South AmericaRodrigo Carvalho and Veirano Advogados

March 31, 2011

Labor Rights – South AmericaMarch 31, 2011

Countries

Argentina

Brazil*

Chile

Colombia

Paraguay

Peru

*Veirano Advogados


General Aspects

1) “Principle of protection”

2) Legislation: Complex and detailed

3) Intervention of the Government in the labor and

employment issues (“Matter of Public Policy”)

4) “Remuneration nature” of fringe benefits – Economic

value of the benefit - risks / liability


General Aspects – Brazil

1) “Principle of reality”

2) High Brazilian cost

3) Salaries must be stated on a monthly basis, rather than

annual

Mandatory labor rightsChristmas bonus (13th Salary)VacationVacation bonus of 1/3FGTS depositsFine of 50% over the FGTS account Social Security Contributions (INSS) INSS over the 13th Salary and Vacation BonusINSS over VacationFGTS and Fine of 50% over the 13th Salary and Vacation BonusFGTS and Fine of 50% over VacationTotal 1 (not including vacation)Total 2 (including vacation)

Appr. % of monthly remuneration8,33%8,33%2,78%8%4%27%

2,99%2,25%

1,33%1%54,43%66,01%

Labor Rights – BRAZIL


Trial PeriodEmployment contract for a Stated Term

Argentina 90 days Up to 5 years

Chile No 1 year maximumManagers: 2 years

Colombia 60 days One fifth (1/5) of the contract length not exceeding 60 days if contract is for less than one year

Paraguay 30 days: domestic service staff and unskilled workers60 days: skilled workers or apprenticesHighly skilled workers may set a different period

1 year: unskilled workers5 years: other workersExceptional in nature

Peru 3 months for ordinary employees6 months for skilled employees1 year for directors (manager positions)

Up to 5 years

Labor Rights – SOUTH AMERICA


Trial PeriodEmployment contract for a Fixed-Term

Brazil 90 days (can be divided in 2 periods, and renewed once, but not exceeding maximum of 90 days-- 45/45; 30/60; 60/30)

In special situations (services the nature or transitory condition of which justify the fixed-term), up to 2 years, renewable once, for a maximum period of 4 years



Working Hours

Argentina

Colombia

Paraguay

Peru

General rule: 48 hours per week or 8 hours per day.

Chile 45 hours per week – maximum 10 hours per dayExceptions: managers, employees not directly supervised and others.



Working Hours

BrazilGeneral rule: 44 hours per week, 8 hours per day, compensation being permitted to reach the 44 hours per week

Special conditions: -Bank employees: 6 hours per day, 30 hours per week-Telemarketing: 6 hours per day, 36 hours per week



Overtime PaymentArgentina 50% on weekdays and Saturdays up to 1

pm.

Chile 50%, maximum of two hours per day.

Colombia 25% weekdays, 75% on weekends and 75% at night.

Paraguay 50% in daytime; 100% in nighttime, Sundays and holidays.

Peru 25% the hourly rate for the first 2 hours and 35% the hourly rate for overtime.



Overtime PaymentBrazil 50% on weekdays and Saturdays; 100%

on Sundays and holidays.Night work: an additional 20%

“Bank of hours”: maximum 2 hours per day or 2,288 hours in a one-year period, and compensated within a one-year period; if more, those exceeding 2 hours per day or 2,288 hours in the one-year period must be paid as overtime.

Overtime has reflection on weekly paid rest – normally 1/6 of the overtime payment



Salary Reduction

Argentina Not possible. Only by granting reasonable consideration. The limit is not defined by law.

Chile

Colombia

Paraguay

Peru

Not unilaterally, only with the employee's express written authorization.However, the employee could argue that he was coerced into accepting the reduction because of the impossibility of waiving the labor rights.



Salary Reduction

Brazil General rule: not possible

Exception: Federal Constitution provides that salary reduction is possible through a collective bargaining agreement; however, to the reduction of salary, there should be the corresponding reduction in working hours.



Profit or Results Sharing

Argentina*

Colombia

Paraguay

Not mandatory. (*Constitutional clause only; not regulated by law)

Chile Mandatory.a) 30% of annual net profits distributed among the employees in

proportion to their remuneration; orb) 25% of the employee's annual income up to a defined limit (ensured

amount regardless of whether the company is profitable or not).

Peru Mandatory if the company has more than 20 employees. Employer must distribute among their employees a percentage of the annual net income before taxes. Telecon / industrial companies: 10%Mining companies / Retailers / Restaurants: 8%Remaining sectors: 5%



Profit or Results Sharing

BrazilNot mandatory.

Constitutional clause, regulated by law No. 10,101/00– must be negotiated between the company and its employees – either through a collective bargaining agreement or with a commission chosen by the parties, including a representative indicated by the Union



Stock Option

All Countries*

Not mandatory. Risk of compensatory nature (salary): subject to social security contribution and labor charges.

*Colombia: Parties can agree to have the benefits as a non-salary factor.



Stock Option

Brazil

No legislation on subject.

Risk of compensatory nature (salary): subject to social security contribution and labor charges.



13th Salary

Argentina Yes. Payable in two installments: June / December.

Chile Not mandatory; but it is a market practice.

ColombiaYes. It is called "prima de servicios" equivalent to one salary, payable in June and December (50% / 50%).

ParaguayYes. Equivalent to the twelfth part of every remuneration earned by the employee (salary, overtime, commissions or other).

Peru Yes (monthly salary).



13th Salary

Brazil Yes, equivalent to one-month fixed salary plus average

of variable remuneration.

Payable in two installments: November (or when

employee goes on vacation, between February and

October) / December.

Also due pro-rate upon termination (1/12 for each period

of 15-30 days)



Unemployment Severance Fund

Argentina

ParaguayNo.

ChileNot mandatory.““Unemployment Solidarity Fund” – Social Security System.

ColombiaThe “Cesantías", equivalent to one salary, which is deposited in a fund before the February 15th of the following year.

PeruCompensation for Time of Services (CTS) which is equivalent to a monthly salary for each full year of service.This is a half-yearly payment made in May and November each year (50% / 50% each month). The CTS is paid in a financial institution chosen by the employee.



Time of Service Guarantee Fund

Brazil - FGTS – monthly deposit of 8% of the employee’s

remuneration in a joint account in the employee’s and

employer’s name at a public financial institution (CEF)

- Upon dismissal without cause employer pays a fine of

50% (40% to the employee; 10% to the government)

calculated on the existing balance in the account

(deposits + monetary correction + interest)

- Balance in the account belongs to the employee –

moment when withdrawal will be permitted is what varies



Vacation Vacation Bonus

Argentina14, 21, 28 and 35 days after 1, 5, 10 and 20 years of service.

Yes, paid annual leave.Formula: monthly salary x Vacation days / 25

Chile15 workdays + an extra day every 3 years after 10 years of service.

Not mandatory.

Colombia 15 workdays per year. Not mandatory.

Paraguay12, 18 or 30 business days for employees with up to 5, 5 to 10, or more than 10 years of service respectively.

Yes.

Peru 30 days per year.Yes. Equivalent to the monthly pay.



Vacation Vacation Bonus

Brazil30 days per year (can only be divided in 2 periods, on an exceptional basis, none of which smaller than 10 days)

Employees younger than 18 or older than 50 cannot divide vacation

Calculated on the basis of anniversary of hiring date: first 12 months are acquiring period, and the following 12 months are the granting period

Also pro-rate paid upon termination

Yes, paid annual leave (one-month remuneration – fixed salary plus average of variable remuneration) plus 1/3 vacation bonus

Payment in double if vacation not taken during granting period

Employee can sell 10 days.



Restriction on Hiring Foreign Employees

Argentina

Paraguay

Foreigners must be residents. There is no limit in the percentage of national employees.

ChileCompanies with more than 25 employees: no more than 15% of foreigners.Technicians and professionals that can not be replaced in Chile are exempt from this limitation.

ColombiaCompanies with 10 or more employees: 9% of management employees and/or 8% of ordinary employees shall be Colombians.

PeruForeign workers may be hired under the following limitations: (i) 20% of the total employees, and(ii)30% of the total monthly payroll amount.



Restriction on Hiring Foreign Employees

Brazil - Work authorization must be approved by National Coordination of Immigration- Depending on type of visa, there is or there is not an employment relationship- Law of 2/3 (number of employees and amount of payroll) -> only applicable to employees; those who come without an employment contract are not counted for purposes of the Law of 2/3- Foreigners already residing in Brazil should be treated equally and should not be counted for the Law of 2/3- Nationals of Mercosul (Argentina, Paraguay and Uruguay) and of Associated Countries (Chile and Bolivia) are not counted for purposes of the Law of 2/3



Termination of Employment Contract (formal steps)

ArgentinaEmployers are legally allowed to terminate the employment agreements at any time and for no cause. Proceedings before the Ministry of Labor in the event of mass dismissal.

ChileIn general, each termination must be justified and ratified before a Notary Public or Labor Inspector (Exceptions: Managers, lawyers, agents).Termination settlement / “Finiquito” is strongly recommendable.

ColombiaThe employment agreement can be terminated (i) by mutual agreement, (ii) for cause, or (iii) without cause (severance pay applies). There is no formal proceeding in this connection.

ParaguayNotify the worker's dismissal to the Social Security Institute within the 3 (in the capital city) or 30 (in the country) days of termination.

PeruNo formal procedure applies. In case of termination for disciplinary matters, a prior disciplinary procedure must be observed.



Termination of Employment Contract (formal steps)

BrazilEmployers are legally allowed to terminate the employment agreements at any time and for no cause. In case of termination for disciplinary matters for union representatives with tenure, a prior disciplinary procedure must be observed.Termination of employees who have more than one year of time of service must be ratified by the Union.If legal deadline for severance payment is not observed (1st business day after end of notice period, if worked, or up to the 10th day after end of notice, if indemnified), employer has to pay a fine equal to one-month salaryProceedings before the Union in the event of mass dismissal (TST jurisprudence)



Severance Pay

Argentina1 month of salary per year of service or fraction greater than three months, within certain limits.

Chile1 month of salary per year of service and maximum of 11 months with determined limits.

ColombiaFor indefinite term duration contracts: 30 or 20 days of salary for the first year of services and 20 or 15 additional days for each year subsequent to the first (depending on monthly salary).

Paraguay15 daily salaries per year of service or fraction over 6 months.

PeruIndefinite term contracts: 1.5 of monthly salary per year up to a maximum of 12 monthly salaries.Definite term contracts: 1.5 of monthly salary per pending month.



Severance Pay

BrazilIndefinite term contracts: Termination without cause:- 50% fine (40%/10%) over FGTS balance- Withdrawal of FGTS- 30-day notice (attention to CBAs)- Pro-rate 13th salary (calendar year)- Accrued vacation, if any, and pro-rate vacation (anniversary date of hiring), plus 1/3 vacation bonusResignation: - Employee must give 30-day notice, under penalty of deduction- Pro-rate 13th salary (calendar year)- Accrued vacation, if any, and pro-rate vacation (anniversary date of hiring), plus 1/3 vacation bonusTermination for cause:- No notice- Accrued vacation, if any, and pro-rate vacation (Convention No. 132 of ILO), plus 1/3 vacation bonus



Severance Pay

BrazilFixed-term contracts:

--If contract provides that any party can terminate earlier by giving notice, same rule as that for an indefinite term contract applies

-- If there is no such clause:- in the case of termination without cause: payment of half of the salaries which would be due until termination, plus FGTS fine and withdrawal of FGTS funds, pro-rate 13th salary, accrued vacation, if any, pro-rate vacation, and 1/3 vacation bonus- in the case of resignation: half of the salaries which would be due until termination, pro-rate 13th salary, accrued vacation, if any, pro-rate vacation, and 1/3 vacation bonus- In the case of termination for cause: only accrued and pro-rate vacation, plus 1/3 vacation bonus



Special Bars Against Dismissal

All countries- Union members; - Pregnant women; and - Employees on sick leave.

Specific conditions- Argentina: Newly married woman.- Paraguay: Employees with over 10 years of service.



Special Bars Against Dismissal

Brazil- Union members- Pregnant women (attention to CBAs)- CIPA members- Employees returning from sick leave after work accident- Employees’ representative in companies which have more than 200 employees- Employees’ representative at the Council of the Contributors to Social Security-Employees’ representative at the Board of Trustees of the FGTS-Women suffering domestic violence- CBAs: pre-retirement / employees returning from sick leave which is not work-related / father after childbirth/ employees with age for the obligatory military service / employees with LER (repetitive strain injury) / transferred employee / SIDA





Note: None of the referred countries have ratified the ILO Convention Nº 158 regarding Termination of Employment.

Article 4“The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service”.

Article 5 The following, inter alia, shall not constitute valid reasons for termination: (a) union membership or participation in union activities outside working hours or, with the consent of the employer, within working hours; (b) seeking office as, or acting or having acted in the capacity of, a workers' representative; (c) the filing of a complaint or the participation in proceedings against an employer involving alleged violation of laws or regulations or recourse to competent administrative authorities; (d) race, colour, sex, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin; (e) absence from work during maternity leave.”



Note: Brazil ratified the ILO Convention Nº 158 regarding Termination of Employment in April 1996 but denounced it in November of the same year.

Strikes

All countriesIn all countries, strikes may be called with the purpose of a direct and exclusive protection of workers' interests after unsuccessful bargaining. Legal requirements must be fulfilled.



Strikes

BrazilSame as in all other countries: strikes may be called with the purpose of a direct and exclusive protection of workers' interests after unsuccessful bargaining. Legal requirements must be fulfilled.





Note: All of the referred countries have ratified the ILO Convention Nº 98 regarding “Right to Organise and Collective Bargaining”.

Article 1 1. Workers shall enjoy adequate protection against acts of anti-union discrimination in respect of their employment.

(...)

Article 2 1. Workers' and employers' organisations shall enjoy adequate protection against any acts of interference by each other or each other's agents or members in their establishment, functioning or administration.

(...)



Note: Brazil also ratified the ILO Convention Nº 98 regarding “Right to Organise and Collective Bargaining”, but not the ILO Convention Nº 87 regarding “Freedom of Association and Protection of the Right to Organise Convention”.

ILO Convention Nº 98

“Article 1 1. Workers shall enjoy adequate protection against acts of anti-union discrimination in respect of their employment. (...) Article 2 1. Workers' and employers' organisations shall enjoy adequate protection against any acts of interference by each other or each other's agents or members in their establishment, functioning or administration.” (...)



ILO Convention Nº 87

“Article 2 Workers and employers, without distinction whatsoever, shall have the right to establish and, subject only to the rules of the organisation concerned, to join organisations of their own choosing without previous authorisation.

Article 3 1. Workers' and employers' organisations shall have the right to draw up their constitutions and rules, to elect their representatives in full freedom, to organise their administration and activities and to formulate their programmes. 2. The public authorities shall refrain from any interference which would restrict this right or impede the lawful exercise thereof.”

Even though Brazil did not ratify Convention No. 87, Article 8 of the Brazilian Federal Constitution guarantees the right to free association and that the State cannot demand a government authorization for the organization of an Union, but forbids the existence of more than one Union to represent the interests of a same category in a same territorial base.

Outsourcing

ArgentinaThe Contracting Party is jointly responsible for any labor, tax and social security claims filed by the supplier’s employees and/or tax authorities.

ChilePossible for activities that are not part of the company's core business. Subject to special regulations and liability of the company that uses external services.

ColombiaProvided by specialized companies called "temporary services companies."

ParaguayThe Contracted Party must assume all risks and perform them with its own elements, managerial and technical autonomy. The activities should not be related to the regular activities of the contracting party.

PeruOutsourcing is only applicable if the subcontracted company provides separate (functional, administrative, economic) full service to the Contracting company. The mere provision of staff shall not be considered outsourcing.



Outsourcing

BrazilThe Contracting Party has subsidiary liability for any labor, tax and social security claims filed by the supplier’s employees and/or tax authorities.

Precedent No. 331: in case of fraud, employment relationship is declared with the Contracting Party

Nature of activity: allowed in secondary activities, but not in the main ones

Outsources services may not be rendered on a personal basis

If subordination is to a representative of the Contracted Party at the site of the Contracting Party, outsourcing may be deemed legal; if to an employee of the Contracting Party, outsourcing for sure will be deemed illegal



Employer Access to Employee’s Email

ArgentinaE-mail is not an employee's personal asset, but a work tool provided by the employer.Employer’s regulation is possible if prior written notice was given to the employee.

ChileSame.Preventive control.

ColombiaSame.Case law is ambivalent since the right to privacy is constitutionally protected (fundamental right).

ParaguaySame.The employee must be warned of any future monitoring measures. Prior knowledge and implicit approval of the employee are necessary.No case law in this regard.

PeruJudicial authorities require: (1) the employee's prior authorization; (2) guideline or policy developed / information; (3) monitoring limited to the employee's professional activities and (4) a third party (a notary) may be used to verify the correct behavior of the employer during the monitoring procedure.



Employer Access to Employee’s Email

BrazilSame rule as in most of the other South-American countries: e-mail is not an employee's personal asset, but a work tool provided by the employer.To avoid discussions, it is advisable to give written notice to employee on company’s policies on the subject.



Labor Court

ArgentinaTwo systems: (i) one intervened by a collegiate court, which only brings appeals before the Supreme Court of the province addressed therein; and (ii) a double instance system (Trial Court and the Appellate Chamber), which in exceptional cases admits intervention of the Supreme Court of the Nation.On labor matters, the court tends to be protective of workers.

Chile Trial courts with labor jurisdiction, which tend to protect the workers.

ColombiaJurisdiction consisting of Labor Judges, the District Superior Court Labor Chamber and the Supreme Court Labor Annulment Chamber. Decisions may eventually be reviewed by the Constitutional Court. The trial courts tend to protect the workers.

ParaguayTwo instances: Trial Courts and Court of Appeal. Generally the labor courts tend to decide more favorably to the worker. The Supreme Court takes account of constitutional issues.

PeruJustice system for labor issues. Parties may submit to voluntary arbitration. The Courts tend to be "pro-worker."



Labor Court

BrazilThree instances: Trial Courts and Regional Courts of Appeal: facts and law; Superior Labor Court: only law.

Exceptionally, Federal Supreme Court, for Constitutional matters.

On labor matters, the labor courts tend to be protective of workers.

No cost to employees.



Statute of Limitation

Argentina2 years from the termination date.

Chile2 years for legal rights in general6 months for overtime pay both counted from the date when became due 6 months for extra-legal rights (contractual benefits) and 60 working days for unjustified dismissal, both counted from the completion of services.

Colombia3 years counted from the breach of right.

Paraguay60 days to claim for unpaid prior notice and compensation for dismissal without cause. 1 year for any other claim.

Peru 4 years from the termination date.



Statute of Limitation

Brazil5 years, but claim must be filed within 2 years from the termination date




Trends

Trends


Increase of protective tendency.

Review of labor law / effectiveness of “the non-waiver principle”.

Judiciary: employees "representing" others, even without being affiliated to a recognized union deserve protection against dismissal without cause.

Trends


Generalization re. Violation of worker's fundamental rights /

Fines imposed to employers.

Collective right: legal reform to improve the workers'

representation through unions / mandatory collective

bargaining.

Trends


Labor Law is to be every day more protective to workers,

especially through the case law of the Constitutional Court.

Support for the disabled, pregnant women and "family-chief-

mothers“.

Outsourcing / Associated Worker Cooperatives / Labor

Claims.

Trends


Fines related to omission by employers to contribute to

social security.

Possible elimination of the protection against dismissal

without cause figure after 10 years of uninterrupted service.

Youth employment / Labor Market.

Trends


Possible definition of an uniform rate (10%) for the

mandatory delivery of legal earnings.

Gradual implementation of the new labor procedure law (the

current rule is applicable only in some judicial districts -

Tacna, Arequipa, Cusco and others).

Trends


Father’s rights: Increase of paternity leave from 5 to 15 days and tenure of 30 days after childbirth (Bill No. 3935/2008); and for the parent solely responsible for financial support of family, and provided he/she has been working for the same company for more than one year, tenure from moment pregnancy is confirmed until 6 months after childbirth, limited to two children (Bill No. 454/2008)

Extension of maternity leave from 120 to 180 days: tax incentive for companies who voluntarily give the 180-day maternity leave (Law No. 11.770/2008);

PEC 64/07 approved by the Brazilian Senate in August/2010 and pending approval by Congress extends maternity leave to 180 days to all employees

Trends


Outsourcing: law regulating the matter / joint and several liability

Deregulation / increased power to negotiations with Unions

Regulation of mass dismissals

Moral damages

Vale’s Legal Department Labor, Employment and Social Security Area


Rafael Grassi – General Manager

[email protected] – T. 55 21 3814-4544

Cláudia Ahmed – Legal Coordinator


Rodrigo Carvalho – Legal Coordinator


Note: This presentation was drafted with the assistance of following law firms:

• Trench, Rossi and Watanabe (General concept and info re. Argentina, Chile and Colombia)

• Payet, Rey, Cauvi Abogados (Info re. Peru)

• Ferrere Abogadoss (Info re. Paraguay)

• . Veirano Advogados (Info re. Brazil)

mailto:[email protected]



Veirano Advogados


Maria Luisa Soter - Partner


Labor Rights – South America Rodrigo Carvalho and Veirano Advogados March 31, 2011.

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Transcript of Labor Rights – South America Rodrigo Carvalho and Veirano Advogados March 31, 2011.