The grace period for implementation has expired.
Venezuelan employers were required to incorporate outsourced employees into their payroll as of May 7 to meet the deadline for the 2012 Organic Law of Labor and Workers (the LOTTT).
Following the example of some other Latin American countries, in what is now likely to become a trend in the region, the LOTTT specifically addressed the issue of outsourced employees in Venezuela and required that they be incorporated into a company’s payroll regardless of the identity of the original employer. The LOTT gave a three-year grace period for employers to comply with its outsourcing requirements; during that grace period, outsourced workers were entitled to receive the same employment benefits as those of workers hired directly. The LOTTT’s prohibition against outsourcing (except in special circumstances) seeks to address Venezuelan employers’ historical abuse of outsourcing structures as a way to circumvent their obligations under Venezuelan employment laws in order to avoid costly labor regulations.
Under the LOTTT, any form of intermediary hiring structure (including through any form of employment agency, whether independent or created by an employer for that purpose) will be suspect and likely found illegal because Venezuelan authorities may perceive it to be a means to fraudulently strip employees of their rights under Venezuelan labor laws.
It is important to note that the LOTTT recognizes employers’ need to use independent contractors, whether individuals or legal entities. In this sense, the law admits the validity of independent contractors in special circumstances. The independent contractor relationship must meet certain criteria under the LOTTT, including that an independent contractor must carry out the work or services it was contracted to do with its own resources and employees. Further, if the contractor’s services are of the same nature as, or closely related to, the contracting company’s main activities , or if the amount of work and/or services that the independent contractor renders is the main source of income for the contracting company, that company will likely be jointly liable for employment obligations with its contractors.
Violations to the provisions described above may result in the need to incorporate employees into a company’s payroll and pay unpaid benefits to outsourced employees. Violators may also be subject to fines and penalties. Importantly, such actions may carry criminal liability and even result in the imprisonment of companies’ officers in cases where there is contempt of the Labor Inspector’s order to include workers on the payroll of the company. The Labor Inspector and other officials are vested with broad enforcement powers and can summon the police or military to enforce labor orders or to occupy or take over an employer’s operations when it violates the labor requirements
In light of these new requirements, companies in Venezuela should carefully review their labor practices, particularly those that involve outsourcing and other intermediary structures, to ensure compliance with the LOTTT. During this review, companies should pay particular attention to the actual services performed, the way the services are performed, and the results of performance rather than focusing on the terms of the agreements between companies and contractors.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Mark E. Zelek