In April 2014, the Federal Conciliation and Arbitration Board issued new criteria concerning subcontracting structures (the “Criteria”), which practically has the same approach as our related opinions. Basically, the Criteria consists on:
- The three conditions set forth in Article 15-A of the Federal Labor Law must be complied with; otherwise, the company that receives the services (contracting party) will be considered the employer of those employees hired by the contractor for all legal purposes, including social security obligations and profit sharing.
It is important to mention that failure to comply with one of the aforesaid conditions shall be enough for considering the contracting company as employer of the contractor’s employees.
In addition, the services agreement must be executed in writing and the contracting company must verify that the contractor has all the required documentation, sufficient and own means and that complies with all the employer related obligations regarding its personnel.
- The Criteria adds a new condition to subcontracting structures: labor relationships between contractors and its employees shall be for an indefinite period of time. The above, we believe, arises from the malpractice that outsourcing companies have adopted by constantly terminating the employment relationships with its employees in order to prevent seniority accumulation.
- Finally, the Criteria sets forth that if the contractor company does not comply with its employer obligations, but the aforesaid requirements are met, the company beneficiary of the services will be only held as jointly liable for the compliance of the labor and social security obligations that arise from the corresponding employment relationships (without including the payment of profit sharing generated by the contracting party).
It is important to mention that the Criteria intends to unify the interpretation and application of the subcontracting structure, which shall be only applicable to those litigations taking place before the Federal Conciliation and Arbitration Board.
Please find below the aforementioned Criteria:
“In the subcontracting structure, the contractor performs duties or services with its own employees in favor of an individual or company referred to as a contracting party, who has the right to establish to the contractor, the duties to be performed, supervise the development of the services or the execution of the services hired; resulting that by these features it constitutes an exception to the general rule, thus the labor relationship must be direct and for an indefinite period of time. In order for subcontracting to have full legal effects in case of litigation, the defendant must prove the existence of a written agreement, which fulfills the following requirements:
- The total or similar activities to the ones performed in the working facility must not be included.
- The specialized nature of the services to be rendered should justify such structure.
- It cannot include the same or similar duties to the ones performed by the rest of the employees hired by the contracting party.
Failure to comply with a single requirement shall produce the unnecessary study of the remaining requirements.
As a result, if in a labor litigation the defendant denies the existence of a labor relationship and argues the existence of a subcontracting structure, the Board should study the conflict in a detailed and correlated way with the evidence material provided in order to ensure the compliance of all requirements provided in Articles 15-A and 15-B of the Federal Labor Law; since, in principle, the contractor party is responsible for the compliance of all labor obligations, but in case it is determined that the later failed to comply with the salary and benefits or the social security contributions, it will be the contracting party’s obligation, as beneficiary of the executed works or services, to respond for the obligations arisen from the labor relationships.
The determination of responsibility of the contracting party shall not release the contractor party from the compliance of its obligations with its employees, in accordance with Article 13 of the Federal Labor Law.
This criteria is published for purposes of Article 615, section VII, of the Federal Labor Law.”