Regional Rigidity in Latin America - Ius Laboris

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Source: Latin Lawyer Country: United Kingdom Author: Marieke Breijer Date: January 2012 Page: Web 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.
Source: Latin Lawyer Country: United Kingdom Author: Marieke Breijer Date: January 2012 Page: Web 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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Regional Rigidity in Latin America - Ius Laboris

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