Difficult times for employers in Latin America

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Enrique Mariano Stile
Marval, O’Farrell & Mairal, Buenos Aires, Argentina
ems@marval.com

Guillermo Matias Osorio
Marval, O’Farrell & Mairal, Buenos Aires, Argentina
gmo@marval.com

Introduction

Latin America is going through a period of political volatility and social instability. There have been radical changes in the ideologies of governments, which result in legislative reform, implemented in different directions and within short periods of time. Employers must constantly adjust to ground rules that are continuously changing.

In this article, we will summarise the main Latin American processes of the last year, their implications for the labour matrix and what employers are doing to adjust to these legislative modifications.

Overall panorama

In 2019, Argentina, Brazil and Mexico changed their governments. Under this new leadership, these countries have passed laws and decrees of great importance for employers. In the current political, social and judicial environment, the unions are powerful and strong: these governments are very protective of employees and have passed regulations minimising the scope of action available to the employer.

In Ecuador, President Lenín Moreno enacted a Tax Reform that establishes tax benefits for companies, such as a simplified tax regime for microenterprises and the exemption of VAT for inputs and industrial products. This happened in the context of protests and strikes, mainly from the indigenous sectors (Confederación de Nacionalidades Indígenas de Ecuador, ‘CONAIE’) and the trade unions.

Colombia ended 2019 with an escalation in violence, urban protests and strikes and the beginning of some structural reforms. Congress enacted a tax reform, with the main objective of attracting more investments and reducing fiscal deficit.

Recently in Chile, there has been deep social and political instability, which led the Government to decree a state of siege and curfew. Among the factors that seem to explain the recent conflicts are income inequalities and the electoral, pension and education systems. In the context of social instability, 26 April 2020 is the date set for the plebiscite in which Chileans will vote on whether or not they want a new Constitution. Although the pillars for a new Constitution are unclear, a hypothetical reform of the pension system would mean an increase in taxes for companies, earmarked for social security.

The panorama is similar in Bolivia. The political crisis was unleashed after the October presidential elections. Evo Morales won by a small margin and the opposition denounced electoral fraud. Evo Morales resigned and Jeanine Añez assumed the presidency, in her capacity as second vice president of the Senate. The Bolivian Supreme Electoral Court approved the call for presidential elections, which will take place on 3 May 2020.

The escalation of protests and union violence in some of these countries has affected employers’ assets and endangered the safety of the employees. Employers have therefore found themselves needing to promote new policies in order to minimise undesired effects. As an example, we can mention the implementation of contingency plans, home office policies and directly moving premises from the centre of a conflict. Currently, employers in Latin America must develop their businesses in a context that does not give them any certainty about the future. Consequently, they have been taking measures to navigate the political and legislative alterations, while attempting to avoid the negative impacts that often arise from such processes.

Argentina

Argentina had presidential elections in October 2019 that resulted in a change of government.

Within days of assuming office, incoming President Alberto Fernández took a series of measures with the objective of mitigating the economic crisis, demonstrating solvency vis-à-vis external creditors and giving short-term palliatives to certain sectors of the economy.

Specifically with regard to the labour market, the Government passed a Decree that establishes the duplication of the indemnification payment for employees terminated without cause. Days later, the Argentine Congress enacted the Social Solidarity and Productive Reactivation Law in the context of public emergency. The main feature of this Law was a general rise in taxes and delegation of legislative powers to the Argentine Executive. In line with the delegations established in the law, the Government enacted a decree ordering a mandatory salary increase for all employees working in the private sector.

Argentine employers have been forced to adapt. They have attempted to foresee some of these measures and act accordingly. Many of them evaluated their own situations and decided to move ahead with the intended terminations before the Government took any action.

As mentioned, economic aspects are of great significance to the Government and for employers. Companies in Argentina must constantly raise their employee’s salaries to match increasing inflation (at the end of 2019, Argentina was third in the world ranking of countries with the highest inflation, with only Venezuela and Zimbabwe ahead of it).  Many employers have waited for the Government to announce mandatory increases before raising salaries themselves.

Employers in Argentina are also used to constant fiscal pressure. Many decide to grant benefits off-the-record, considering these to be non-remunerative, in order to avoid paying the high taxes and contributions that remuneration necessitates in Argentina. Although this is often contingent on circumstances, such conduct has benefited from the fact that Argentine case law is not unanimous on the labour nature of some benefits and working tools, such as medical care, cars, mobile phones, or what might be understood as expatriate allowances.

It is important to bear in mind that Argentina has a high unionisation rate. The new Government has the support of the main labour unions. Future measures will probably be union friendly. Employers have to be aware of this situation and prioritise a good relationship with the unions, to be in a better position for negotiations.

It is necessary to mention that employers have been demanding a comprehensive labour and tax reform, but this is still uncertain.

Brazil

On 1 January 2019, Jair Bolsonaro took office in Brazil, in the context of corruption complaints against the previous administration. The Government focused on the task of launching a series of policies aimed at economic growth, the strengthening of fiscal accounts and the generation of employment.

These circumstances framed the two main measures taken in 2019 regarding the Brazilian labour market. The first was the Social Security Reform, sanctioned in October, which set a minimum retirement age of 62 years for women and 65 years for men and a minimum of 15 and 20 years of contribution respectively.

The second measure, issued in November 2019, was the passing of a decree that created a new employment contract, called ‘Verde Amarelo’. This is intended for those employees entering their first job. The maximum term is up to 24 months and contains more flexible working conditions. Among these are the reduction of employer contributions and the reduction of severance payment in the event of dismissal.

As in Argentina, employers in Brazil have also been adapting to labour changes. The new liberal Government has favoured companies. Considering the constant volatility of Brazil’s politics, many have hurried to take advantage of the latest labour reforms.

The situation with the unions in Brazil is similar to that of the Argentine case. Negotiating with them on good terms is a top priority for employers.

Although the Brazilean Decree, ‘Measure No. 905’, has yet to be ratified by the Brazilian Congress, it offers significant benefits to employers that hire people aged 18 to 28 years. This type of contract can only be used for up to 20 per cent of a company’s employees.

This Decree also incorporated new reforms to the Labour Law, in addition to the major reform sanctioned in 2016, such as the possibility of working on Sundays and holidays without authorisation and, for bank employees, the possibility of working on Saturdays.

Mexico

In 2019, the Labour Reform entered into force. Among the main provisions are changes to labour procedures, such as the following:

• the creation of federal and local Labour Courts, dependent on the judiciary, responsible for hearing and resolving labour conflicts between workers and employers;

• the creation of Federal and Local Conciliation Centres that will be in charge of the preliminary conciliation function; and

• mandatory preliminary conciliation.

The preliminary phases give employers the opportunity to manage labour conflicts at greater convenience. Many employers tend to offer amounts on top of legal indemnification in order to make an agreement in the preliminary conciliation that both benefits them and protects them from future litigation.

The Labour Reforms also include several provisions regarding the functioning of trade unions, including:

• the right to organise and elect trade union membership, which is guaranteed for all employees;

• the possibility of cancelling Union registration if the representatives engage in extortion acts against the employer, demanding payment to desist from a strike, abstain or continue with an entitlement claim;

• the right to collective bargaining, guaranteed by the personal, free and secret vote of the employees;

• the requirement of at least 30 per cent of employee representation in order to obtain the certificate of representation; and 

• the requirement for the collective labour contracts and their amendments to be approved and voted on by the employees.

As we can see, the reform prioritises trade union democracy and freedom of collective association. The reform states that workers may organise themselves into unions in any way they wish to. In this sense, each company (with the necessary and democratic intervention of the employees) must diagnose their employment scenario, designing an action plan where they must define whether or not they wish to have a union and, if they have one, what type and level of activity they would like and can sustain.

Employees are empowered to make decisions and choose their ways of association. Employers and unions must begin to democratise their respective structures and co-manage any union action (strikes, revisions and collective bargaining agreements). Although the reform is still in transition, companies and unions must prepare the ground to apply the new rules.

Finally, the reform establishes that it is in the social interest to guarantee a work environment free of discrimination and violence. The reform requires that employers implement a protocol to prevent gender discrimination and to give attention to cases of violence, harassment and sexual harassment.

Employers in Mexico and across Latin America have adjusted to the demands from vulnerable sectors, such as women, which sends a positive message.

Conclusion

The different countries of Latin America share certain common characteristics in their macroeconomic systems. This leads governments to promote measures conditioned on these economic needs, such as the need for growth, employment creation and fiscal adjustments. Short-term emergency measures are combined with attempts at structural modification.

Such volatility inevitably influences employer activity. The bases for the development of labour relations in Latin America are weak, or at least uncertain.

In recent months, we have seen how the rules of the labour market have been changed, to different ends. Employers and foreign investors must constantly monitor Latin American developments and must always direct their policies and management with possible future government measures in mind. In other words, employers will have to continue to be alert and creative to adapt to the constant change underway in Latin America.

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