Cuba’s new foreign investment law, part 3 - Labor

Analysis: Cuba's new foreign investment law, part 3: Labor
By José Manuel Pallí, Esq.

If you were to compare the Cuban foreign investment law (CFIL), and I
mean the one still in force (that is the old one, Ley 77/95, which will
be superseded by the new one this summer), with its many equivalents in
other parts of the developing world, you may well conclude that it is
very similar to, and even more favorable to the foreign investor than
most of its counterparts. Assuming, of course, that the slightly more
pro-investor text of the "new" one does not end being just "dead
letter," an assumption I am willing to make looking forward, despite the
many uncertainties the past compels one to feel.

That said, there has always been one glaring "distinction" that makes
the CFIL an oddity, even in a Latin America that has historically looked
at foreign investors with suspicion; and that is Chapter XI, which
establishes the guidelines foreign investors need to follow in order to
hire their Cuban employees (the regimen laboral that applies to foreign
investors in Cuba). Those guidelines require the foreign investor to
hire its Cuban employees indirectly, through a state-run Cuban
employment agency, which is the one that establishes the labor
relationship (what is called relación de dependencia in Civil Labor Law,
or relación de trabajo in Cuba) with each employee.

Chapter XI (articles 27 to 33) of the New Cuban Foreign Investment Law
(let's abbreviate it NCFIL), Ley 118/2014, deals with that same Regimen
Laboral, and in essentially the same terms the "old" law did in its own
Chapter XI (articles 30 t0 37 of Ley 77/95). As a matter of fact, both
versions of Chapter XI are almost identical, which may give the new
law's critics an easy way to dismiss it as a "gatopardian" effort at
"change for the sake of making sure that everything remains the same".

Under the NCFIL, the foreign investor can still create a fondo de
estimulación económica through which it can give its employees (or
rather those employees of the sate-run employment agency that work at
the foreign investment venture), a share in the profits. But under
article 29.1 of Ley 118/2014, there are now certain areas of the Cuban
economy where foreign investors are not allowed to create these
incentive funds (the hotel management contracts and other professional
services contracts that must take the form of a contrato de asociación
económica internacional, for example, are among the foreign investments
that cannot resort to this type of profit sharing funds).

Article 31.1 of the new law is different from its equivalent in the old
law (article 34.1 of Ley 77/95) in that it no longer states that it is
the employment agency that pays the wages owed to each employee. But
since, other than that, both laws say basically the same thing in their
respective Chapter XI, we can assume the Cuban employees will continue
to be paid by the same payers (intermediating agencies) that have paid
them in the past. And that is precisely what is found in Article 10 (c)
of Resolución No 216/2014 del Ministerio de Trabajo y Seguridad Social,
which contains a Reglamento del Regimen Laboral de la Inversión
Extranjera, the regulations for this curious setting Cuba provides for
its foreign investors to hire their personnel. Article 10 (c) says that
one of the roles the employment agencies have is to pay wages to the
employees it provides (suministra is the word used in Cuba's laws) to
the foreign investor, and pay them in Cuban pesos pursuant to Article
12. The foreign investor, on the other hand, must pay the employment
agency for the services the employees provided by the agency render to
the foreign investment venture (Article 11(a)).

It should be noted that not only Cuban employees need to be hired by the
foreign investor through these state-run employment agencies; so are
those foreigners who reside permanently in Cuba and the foreign investor
wants to hire (see Article 3(c) of the aforementioned Resolución
216/2014 del Ministerio de Trabajo y Seguridad Social).

Two contracts must pre-exist as the basis for the hiring by a foreign
investment venture in Cuba of someone who is a permanent resident in the
island: a written contract between the individual employee and an
employment agency designated as such (Article 6 of Resoluciòn 216) by
the Cuban authorities (Article 4); and a contract between the foreign
investment venture and the employment agency whereby the latter agrees
to provide the employees the foreign investment needs (Article 5), which
is characterized as a workforce provision contract, or contrato de
suministro de fuerza de trabajo.

One of the reasons behind Cuba's obduracy in keeping this special regime
for labor relations in the context of foreign investment is said to be
the perceived 'need' to preserve the Nation's social patrimony (el
patrimonio social de la nación), which includes certain items many in
Cuba identify as logros, or achievements, of the Cuban Revolution,
including free or cheaply accessible healthcare, education, housing,
and, for many years, a job for every Cuban of working age.

But it seems pretty obvious by now that Cuba cannot guarantee many jobs,
even less so many productive jobs, and my understanding of the rules
that apply to hiring practices in the incipient private sector of the
Cuban economy is that they are far more flexible than the corset imposed
by Cuban laws when it is a foreign investment venture that is doing the
hiring.

I thought that experience with allowing the hiring of employees by
cuentapropistas might be a harbinger of things to come, thus my surprise
and disappointment with Cuba's persistence in meddling in the labor
relationship between a foreign investor and its Cuban workers, which is
harshly criticized here in Miami, and deservedly so.

But, as always, it is healthy to place everything you analyze in its
proper context.

I was trained as a lawyer in a society, Argentina's, where labor laws
(derecho laboral) very strongly favored the rights of workers, mainly
because of the political role the unions played as one of the pillars of
the Peronista movement. And yet, every time I discussed most of those
laws with my seniors (those from my Dad's generation) who had been
lawyers in Cuba before Castro, they mostly found those Argie labor laws
laughable compared to Cuba's pre-revolutionary labor laws, many of them
imbedded in Cuba's 1940 Constitution, as they all invariably and proudly
pointed out.

But of course, this was years before many of these same elder colleagues
of mine — and I respect and love dearly a good number of them —became
converts to the anti-labor views of the likes of Ronald Reagan and
Maggie Thatcher. Today, many among them believe blindly in the theorem
pursuant to which if you want more and better jobs, you begin by paying
as little as you can get away with in salaries, and insist on the
imperative need to be able to easily lay-off cartloads of workers, or
else economic growth and development will stall and eventually collapse.
The corollary to this theorem is that, all along, you need to fervently
and enthusiastically rub the lamp until the genie of trickle-down
benefits for the destitute masses comes out and showers both the jobless
and the 'lucky' burger flippers, somehow compensating the growing
inequality gap.

I don't quite know for sure, but I think if you ask the Cuban people
whether they would endorse labor laws written by the disciples of say, a
Milton Friedman, they may well reject such ideas.

And the same goes for whom would the Cuban people choose to consult with
when it comes to addressing Cuba's needs regarding the inner workings of
a real estate market, a financial system and institutions, and even a
free press and media; do you think they may choose Donald Trump, Jamie
Dimon and "Sir" Rupert Murdoch, respectively, as advisors in those
matters? Because I don't…

As a matter of fact, I believe one of the reasons behind our reluctance
to bring down that arcane wall the Cuban embargo has become has to do
with our fear — an understandable one — that the Cuban people, even when
openly free to choose its future, will simply ignore us and refuse to
buy into our spiel, in search, all along, of a much better model than
ours, not to mention the one they presently toil under…

I am no expert on the present state of labor laws in Cuba, which are
said to be applicable to all Cuban workers, whether they work for the
state, for a small business in the private sector, or for a foreign
investment venture. But I will always cringe when faced with a system or
"model", political, social and economical, that fears the consequences
of allowing its people to freely make those decisions affecting their
lives (which includes negotiating their ties with those they chose to
work for). Cuba claims the intermediation by means of a state-run
employment agency is necessary to preserve the rights of Cuban workers
as well as their social security needs. But if Cuban labor laws were
strongly pro-worker, labor relations in Cuba properly regulated, and the
authorities were to decisively implement and apply those laws and
regulations, that should be enough to protect those rights and interests
of the Cuban workers. If it is enough elsewhere in the world, why not in
Cuba?

José Manuel Pallí is president of Miami-based World Wide Title. He can
be reached at jpalli@wwti.net; you can find his blog at
http://cubargiejoe.com

Source: "Analysis: Cuba's new foreign investment law, part 3: Labor «
Cuba Standard, your best source for Cuban business news" -
http://www.cubastandard.com/2014/05/07/analysis-cubas-new-foreign-investment-law-part-3-labor/