Regional Rigidity in Latin America - Ius Laboris

Source: Latin Lawyer 

Country: United Kingdom 

Author: Marieke Breijer 

Date: January 2012 

Page: Web 

Regional Rigidity 

Practice area focus in Latin Lawyer Issue 10 

Friday, 13th January 2012 by Marieke Breijer 

Local labour and employment regulations in Latin America are a lot tougher on businesses 

compared to the laws applicable to multinationals operating in the EU or the US. Marieke Breijer 

talks to labour lawyers about what foreign companies should expect when moving into the 

region. 

It’s not often that an employee pursues legal action to see his or her salary reduced, but one 

CFO in Brazil was compelled to do so in the early 2000s when he suddenly found himself 

making more money than anyone at his company, including the CEO. 

The CFO, whose remuneration was set in US dollars but paid in local currency, received an 

unexpected pay rise when the exchange rate rocketed in the run up to Lula’s first presidential 

election. Both he, finding himself in a somewhat uncomfortable position, and the company 

wanted to reduce the salary, but found that it was legally impossible to do so – even by common 

consent. The only option was for the CFO to take the matter to court. 

Luiz Guilherme Moraes Rego Migliora, a labour partner at Veirano Advogados, has used this 

anecdote on numerous occasions to illustrate the rigidity of Brazil’s labour legislation to foreign 

clients. “Offering a prospective employee a salary without knowing the local implications could 

turn into a nightmare,” he says. 

The lack of flexibility of labour laws across Latin America comes as a surprise to many 

multinationals, and lawyers in the region say labour related matters, such as employment 

planning, labour litigation, union work and collective bargaining agreements, are only increasing 

in complexity. Foreign companies need to come to grips with the regional labour law provisions 

that affect their business in ways they might not encounter elsewhere. 

“Most of the time, US corporations come here with the idea that labour laws are the same as in 

the United States, and are implemented at will to facilitate trade, but that is not the case,” says 

Oscar de la Vega, partner at Littler, De la Vega y Conde, SC. “This lack of acknowledgement 

when they start business here is quite relevant and could lead to contingencies that they are not 

aware of at the very beginning.” De la Vega is speaking of the laws in his native Mexico, but it is 

a reality many of his peers across the region will attest to. Culturally and historically, stability in 

the workplace is held in high regard all over Latin America, and this is reflected in the region’s 

labour laws, which are generally protective of employees when seen from a business 

perspective. Vilma Kutomi, partner in the labour area of Brazil’s Demarest e Almeida 

Advogados, says that “all of Latin America is quite regulated, and you do not always see much 

flexibility,” whether it be on the individual or collective side.





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As a result, foreign investment can be hindered by labour-related dilemmas multinationals might 

not anticipate. Lawyers emphasise that local laws are not to be taken lightly, and warn anyone 

who assumes that an international business template can automatically be rolled out across 

Latin American jurisdictions that such a move could prove to be very costly. They advise 

thorough labour and employment planning to ensure business leaders are aware of the 

regulations and can adapt company strategy accordingly. Awareness of the potential pitfalls and 

properly mapping out labour law related expenditures are thus essential to setting up shop 

successfully. 

Expensive surprises 

Pitfalls and costs lie in wait in many aspects of labour legislation, and each country has its own 

versions. Take remuneration plans in Latin America, which can differ quite considerably from 

the templates multinationals work with and are therefore an important consideration when 

aiming for future cost-effectiveness. In many countries the right to bonuses on top of the basic 

salary – whether it be a 13th month of pay, holiday pay or a Christmas bonus – is governed by 

national law, and therefore mandatory and unavoidable. “We have extra bonuses in July and 

December and other legal benefits, and companies have to understand that all have to be 

complied with, and all add cost,” says José Antonio Valdez of Peru’s Estudio Olaechea. Such 

rules may interfere with company policies stipulating performance-based bonus systems, for 

example. That is not to say a company cannot still give other bonuses to its star performers, as 

long as it is aware of the potential drawbacks in doing so. Marco Durante of BDS Asesores 

explains that in Costa Rica, all bonuses are considered part of the employee’s salary, and the 

company has to make contributions towards social security based on that salary. “Add all that 

up and it is actually quite expensive to hire people,” he says. In Venezuela, already a risky 

market for foreign companies because of the government’s socialist stance and somewhat 

unpredictable behaviour, lawyers are expecting amendments to the labour law, which will most 

likely make operations for multinationals even more expensive in the future. “We have been 

waiting for this amendment for years, but everything is in the hands of the president [Hugo 

Chávez]. He is the one to say what is going to happen, there will most likely not be a national 

discussion about it, which is very troublesome,” says Oscar Torres, of Venezuela’s Travieso 

Evans Arria Rengel & Paz. 

“One thing we do a lot is ask the company up front how much money they are willing to spend 

on one employee, we can then tell him what to offer the employee per month,” says Veirano 

Advogados’ Migliora. In Argentina, long-term salary planning is made difficult as employees are 

entitled to higher salaries in relation to the country’s inflation rates, says Marval, O’Farrell & 

Mairal partner Enrique Stile. “If yearly inflation stands at 30 per cent, it is very difficult for 

companies to raise salaries with that same percentage,” he says, and, unfortunately for 

employers in the country, it is actually a very plausible scenario: the annual inflation rate stood 

at around 24 per cent in early December. (Though Argentina’s national statistics agency, 

INDEC, reports much lower inflation, some economists believe the agency under-reports actual 

rates for political gain and to trim debt payments, which, like salaries, are indexed to inflation.) 

On top of the obligatory wage increases, companies in Argentina face another challenge when it 

comes to employee retention. Stile explains: “With the high inflation rates, it is really difficult to 

keep employees happy. If competitors then offer just a little bit more, they change.” These 

practices have huge consequences for a company’s competitiveness, says Eduardo Vinales, of 

Argentina’s Funes de Rioja Abogados, advocating for a more intelligent collective bargaining 

process when it comes to salaries.





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Rigidity in personnel contracts extends to the hours the employee is hired for. In another clash 

between business cultures, regular shifts are the norm in Latin America while overtime is strictly 

controlled. Enrique Munita, partner at Philippi, Yrarrázaval, Pulido & Brunner in Chile, tells of the 

complications that arose when a client in the fast food business realised Chilean law would not 

allow it to impose flexible working shifts on its employees. Partner Enrique Uribe of Chile’s 

Uribe, Hübner & Canales Abogados presents the same view: “A very important difference with 

US law is that you have to have fixed schedules. I know a multinational that in the US has a 

weekly schedule where they can move the worker from one schedule to another to adapt 

themselves to a specific week. Here in Chile it is more difficult to move the shifts.” When the 

authorities find that rules are being broken, fines are imposed. Though the penalties are not 

very high in general, an employer can be fined “as much as is needed to convince the company 

to modify the policies,” Munita says. 

Before hiring takes place, multinationals also need to take into account that certain clauses 

incorporated in contracts might not be legal in other jurisdictions, says Juliana Giraldo, an 

associate at Colombia’s Brigard & Urrutia Abogados. Though fairly standard in today’s business 

environment, she says that non-compete, non-solicitation and confidentiality clauses are not 

enforceable in the country because they interfere with individual labour rights, which make it 

easier for employees to leave a job without cost to themselves. If an employee is fired by a 

company, however, he or she is most likely entitled to a severance fee, which includes 

proportional parts of any outstanding bonuses, and other costs. And even then, it cannot be 

guaranteed that the employee will not try to seek a larger payout, or ask to be reemployed 

through the courts. 

Further complications can arise when employers want to move employees between countries, 

which is a run-of- the-mill practice within the Central American countries, for example. “[Costa 

Rica] is a small market, and it is common for employees and expats to travel to other countries, 

but the labour laws are all different, and that poses a challenge for companies’ internal policies,” 

says BDS Asesores partner Francisco Salas. “The question is which legislation to look at when 

terminating the employee,” says Durante. “In Costa Rica we do not have legislation to regulate 

employees that work in multiple countries,” he says, adding that there are no coordinated legal 

systems for matters such as pensions and benefits, or for dismissals. When a company wants 

to terminate contracts, they usually do not have internal policies in place to deal with the matter. 

“When people find themselves terminated with the worst legislation of all, they go to the courts, 

but the judges do not have a clear view on it either,” Durante says. 

BDS Asesores is a member of global labour law network Ius Laboris, which facilitates the 

discussion of such differences in labour legislation. The network includes other firms mentioned 

in this article, including Funes de Rioja, Veirano Advogado, Philippi Yrarrázaval, Brigard & 

Urrutia and Estudio Olaechea. At the time of writing the Mexican member was Basham, Ringe y 

Correa SC, although since then Oscar de la Vega has left with his labour team to found a new 

firm so the membership may change. 

To the courts 

Compared to the US, litigation related to dismissal is a regular occurrence in Latin America. “It is 

a shock to multinationals when their employee challenges the termination process, they think 

they can terminate them at will,” says de la Vega. He adds that, in Mexico, an employee is 

entitled to all unpaid salary – without a cap – while the case is being heard, resulting in liabilities





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unheard of in other jurisdictions. “It massively increases the cost of the total operation, and one 

case alone could ruin a small corporation,” de la Vega says. 

Second to dismissal are cases related to overtime, while the breach of fundamental rights such 

as health and non-discrimination are also on the rise across the region. “Employees can give 

notice to a company to have rights respected, and if the situation doesn’t change, they can get 

money from the employer through the courts,” says BDS Asesores’ Durante of the situation in 

Central America. In Colombia, Brigard & Urrutia partner Alvaro Cala is interested to see how an 

anti-harassment and anti-discrimination law passed some six years ago will bring about further 

changes in the litigation landscape, as it has led to a mix of the criminal and labour practices. 

The Central American countries and Brazil are examples of where taking court action is easier 

for the employee, as it is free for a plaintiff to bring a case to the courts. “It is quite easy for 

employees to bring cases where they feel they’ve been wronged,” says Veirano’s Migliora of the 

situation in Brazil, adding that employees are at a relatively advantageous position cost-wise 

because their lawyers tend to operate on the basis of a success fee. “For the prospective 

plaintiff it is basically a lottery where there is nothing to lose, as such the country knows a high 

number of individual actions,” he says. 

In most cases, the associated risk of going to the courts is a lot higher for the employer. “You 

have to pay the lawyers, experts, involve managers in hearings, all of which cost you time and 

money, which isn’t good for the balance sheets,” says Marval’s Stile of the situation in 

Argentina. 

In Peru, dismissed individuals can even use the court system to be reinstated as an employee 

by means of constitutional action. Employees can only be let go if they are found to be at fault, 

which is why employers prefer to hire people on a temporary basis. However, if this is done 

through the incorrect form of contract, the court will rule it is in fact an indeterminate labour 

agreement and the employee will be allowed to go back to work. The difficulty relating to 

termination of employment is “a hot topic in Peru,” says Olaechea’s Valdez, and most of the 

time, the companies prefer to settle for a higher payout with the employee than continue the 

court procedures. 

All activity suspended 

Last November, workers at Campo Rubiales succeeded in suspending operations at what is the 

country’s largest oil field through strike action. Demanding better labour relations and job 

security, workers complained of being hired on temporary contracts through intermediaries, and 

being denied the social benefits associated with full-time employment. 

In the same month, Petrobras workers were close to a walkout over demands for better wages 

and benefits from the state-owned heavyweight. Contemplating the potentially massive cost of 

an all-out strike, the company did not waste any time and started negotiating with the Brazilian 

Oil Workers Federation (FUP), an umbrella organisation that represents some 60,000 of 

Petrobras’s 75,000 employees, and managed to avert crisis by reaching an agreement that 

satisfied the union leaders. 

Only a day before Petrobras employees called off their strike, activity at Brazil’s Santos port was 

stopped in a 24-hour surprise action. Barring ships from entering or leaving the port, the walkout 

was meant to warn port authorities of the possible consequences to the country’s export





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industry if there were a general strike. A month before that, bank employees in the country left 

their jobs for two consecutive weeks. Similarly, Argentina’s oil and gas industry has seen strikes 

throughout the year while actions in the mining sector have halted production in Peru, Chile and 

Bolivia. Clearly industrial action can be a huge problem for companies. Fuelled either by rising 

inflation and increased living costs or the need for better social benefits or improved safety 

standards, there are many different reasons why workers take action. Used widely and 

frequently, strikes are a strong bargaining tool for employees. Especially in the natural 

resources sector, strikes can represent losses of millions of dollars a day, and if a company 

does not fulfil its contractual obligations it could lose its concessions. 

The roles of unions in these actions can differ greatly between and even within countries. In 

Brazil, for example, unions tend to be stronger in the industrialised areas, making geographical 

placement of a plant a very important consideration for companies wishing to keep union 

matters to a minimum. In Peru union activity is very low, and collective bargaining only exists in 

the port and construction sectors, whereas in Chile the collective bargaining system allows 

unions to negotiate within a company, but not sector-wide, unless the employers agree, says 

Uribe. The unions in Venezuela are very strong, and employ radical tactics to stop company 

operations, says Travieso Evans’ Torres, adding that workers are known to occupy companies 

when they do not agree with the terms of a collective bargaining agreement they had agreed 

with in the past. “It is very hard to solve an issue like this, as the government does not do 

anything about it and things can get quite extreme,” Torres says. Argentina is another special 

matter, as unions – organised by sector of activity – not only fight on behalf of employees, but 

also among themselves to represent a larger proportion of the work force, and use relatively 

aggressive methods to get their way. A prominent problem at the moment is the truckers’ union, 

which argues that all truck drivers should be part of their union, even if the core business of the 

company is not related. “The truck union starts picketing the company and does not allow you to 

sell, which makes the companies lose clients and money,” says Stile. This activity has the 

potential to create further problems internally when company employees accept the truckers’ 

strikes because it will eventually be more beneficial for them to do so. Besides the truckers’ 

union, Stile says the activity is also common in the oil and gas, and mining sectors because “the 

activity is booming, and the losses of the company are much higher than the salary increase, 

which gives the unions a lot of power.” 

Overall, lawyers argue that more flexibility in labour law could help prevent some of the issues 

multinationals are faced with today and help simplify labour relations on a continent whose 

economies have steadily opened up to facilitate trade in the international markets, but where 

labour laws, for a variety of reasons, are relatively conservative. “Our labour law is very 

complex, very protective and very old,” says BDS Asesores’ Durante, admitting that he’d like to 

change “so many things” in Costa Rica. 

“We need more flexibility regarding dismissal, as well as for working hours,” says Philippi’s 

Munita of what he would change if he had the chance. Littler’s de la Vega however, says that 

while Mexico should really consider updating its labour laws to be more competitive in the global 

arena, at the same time companies should learn that having a similar system as the US is 

simply not possible, and he continues to stress that they should instead prepare themselves 

properly in advance to prevent any liabilities. These sentiments are echoed by Durante, who 

says that while the Central American countries develop their labour laws, foreign companies 

need to understand that labour systems in Central America are not as mature as in the EU or 

the US, and would be better off if they developed internal policies to overcome associated 

challenges.





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Though labour laws are meant to promote and preserve stability in the workplace, Marval’s Stile 

feels that in Argentina, conflict is increasing every day. “Our government is very pro union and 

very pro employee, which leads to a lot of conflicts and lawsuits, as the labour laws allow 

employees to find many ways of making money. “Employees need protection, but that should 

not prevent a businessman from doing business. We need to find an equilibrium,” he says. 

History has shown, however, that changing legislation is not the easiest of things. Veirano’s 

Migliora says reform of Brazil’s labour laws has been on the agenda for years, but that “it is a 

very delicate issue and the government has not found a way to deal with it” adding that it is 

constantly facing pressure from unions and business sectors alike. In Peru, a new labour code 

has just been presented to the government, but Olaechea’s Valdez emphasises that it took 10 

years of negotiations between employers and employees to get to that stage. Now, a special 

commission will review the project before the code can be enacted. Other countries, like Chile, 

have gone through changes in recent years, but Munita says he hopes that “for the health of the 

country,” there will be a bigger discussion on labour law in the future. 

On the plus side, it seems that despite the legal woes, the advantages of participating in Latin 

America’s economies still outweigh the hidden snags in their labour laws, as lawyers say the 

volume of work is higher than ever before. Working in what is arguably the most highly 

regulated country in the region, Migliora says that he is yet to see a client that wanted to do 

business in Brazil and then pulled out after encountering these obstacles; they prefer to follow 

the pathway taken by other companies in the past. “What clients are trying to do is get to grips 

with the law and become properly structured. When they look around and see that several other 

businesses have been successful here, Brazil suddenly becomes a number one market. It is 

merely a question of adapting to the labour legislation, same as with tax laws. But if you get the 

right kind of advice in advance – and there are good lawyers around – then it is in fact no big 

deal. Labour issues are not a deal breaker, as long as you do your homework upfront and know 

what the challenges are.”

Regional Rigidity in Latin America - Ius Laboris

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