Proposal to ban bad labor practices in outsourcing

For workers, receiving labor benefits can be a long road; sometimes they must face outsourcing in the employment relationship. In the business world, it is better known as Outsourcing– Subcontracting through third parties. By abusing this practice, employers attempt to evade their responsibility to pay the benefits required by law.

one of the Outsourcing Best known in the corporate world, Amazon manages inquiries through outsourced call centers and customer service firms around the world; however, their working conditions are the same as those the company offers to all its employees and are subject to labor rights-compliant oversight and transparency.

Discussions on competition law initiatives opened up the possibility of including the prevention of abusive subcontracting and other practices that distort the application of labour legislation and undermine competitive conditions.

When outsourcing was simulated, workers took the labour claims process to the end in court, but at the moment of receiving a verdict, they found themselves facing a satellite company that lacked assets and bank accounts, making it almost impossible for them to get paid, the lawyer said, commenting that this increased impunity in labour courts.

Labor lawyer René Girón, co-author of the book Policy Briefs «How competition law can improve labor market conditions in Guatemala», published by the Office Oxfamexplains that among the initiatives proposed in Congress, it is proposed to include in the definitions confidentiality and non-compete commitments; compliance system and economic unit or single employer.

According to the proposal, in labor and social security cases, companies or groups of companies with a common work address must be considered as “a single employer, provided that the following conditions exist at the same time: similarity or complementarity of products or services or the existence of a common controller, which is understood to be the institution or business entity that directs them in all aspects.

According to Giron, the concept of economic units, which has been developed in other countries such as Mexico, Chile or Colombia, is a way to overcome the simulation of outsourcing services, recognizing that outsourcing or the use of outsourcing is not entirely a bad thing, since many times it responds to the economic decision of the company to hire external services such as cleaning or security.

It is worth discussing these aspects in competition law initiatives, as some companies use mechanisms to conceal profits, which has implications for social security, fiscal and business areas. “Part of the challenge is to overcome the lack of information on the labor market and make visible the correlation between competences and labor rights,” said Giron.

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Transparent contracts

“Non-compete agreements and confidentiality clauses are documents signed by workers and become a mechanism designed to discipline them and limit their ability to provide services to other employers in the same industry. Progress can be made by making these agreements transparent and classifying them as anti-competitive practices. This move is intended to protect workers and stimulate the development of the labor market,” the lawyer said.

Luis Linares, former Secretary of Labor and Social Security, commented that companies seek legal certainty, but this certainty must be given to everyone: workers, customers, suppliers, tenants, etc., all those involved who must know for sure who they are dealing with.

He said that in the country, simulations often appear as independent companies or companies that have no connection with each other, recognizing that there are known cases of disguised outsourcing, where workers “move from company X to company Y, but they continue to do the same thing in the same place, the same economic unit.

Informal workers lose job competitiveness

In the country, a large part of the workforce is employed in an informal and precarious mode, the report shows, with data for 2021 showing an informality rate of 70.8%, while “formal companies, while offering better conditions,” extract extraordinary labour wages, it is estimated, accounting for only 20% of the value added, while gross profits account for 80%.

In this study, also presented by Oxfam, «Productivity, wages, and competition in Guatemala: an opportunity to build a more prosperous and equitable country», in which Juan Alberto Fuentes Knight analyses the unequal distribution of labour productivity among different economic activities and the existing conditions of competition.

Supported by these results, Gillon argues that, according to different criteria, it is possible to identify analog schemes for service outsourcing, which are usually developed by large companies, whose implementation is facilitated because they have the resources and advice to integrate these structures.

Part of the analysis conducted is related to the costs of procedures: registration with the Guatemalan Social Security Institute (IGSS), payment of benefits (Bono 14 and bonuses) and provision of funds to pay workers.

Companies with dominant positions — those that can take actions that undermine free competition in a market without competitors being able to counter, according to the policy brief — have an advantage because occupation means high profits, yes. They can comply with labor laws, but other competitors face barriers to entry and high paperwork costs, he added.

Certain aspects of the workplace affect productivity and relevance to competition: “A company that manages to reduce costs through mechanisms that hide profits has consequences for social security (IGSS), the labor market, business and the treasury.” », concludes Giron.

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The document proposes to amend Articles 4 and 7 of Legal Initiative No. 5074, which contain definitions and relevant anti-competitive practices. In addition, Article “99” will contain the administrative procedure for filing complaints with the competition authority, applicable in cases of requests for information from economic agents.

Documents to be submitted include proof of the employer’s filing of reports with the Department of Labor; updated organizational chart and position profiles; internal regulations; authorized employment contracts, signed sworn declarations of confidentiality or non-compete commitments; IGSS payment forms; information on income tax withholding for salaried workers, and a list of the locations of the corporate and tax headquarters and its branches.

When it comes to good business practices, the proposal includes a compliance program with a code of conduct consistent with fair competition and respect for labor rights, employee training, a confidential complaints mechanism for workers to report anti-competitive behavior, and regular audits of these issues.

Part of the fines levied by the competition authority must be used to strengthen general labour inspection (IGT), which will make the use of these resources public.

So far, the document has been communicated to the economic and labor ministries; in addition to representatives of Semila and the Labor Committee of the Parliament.

Linares believes that it is time to discuss competition issues from a labor perspective and seek mechanisms to guarantee a legal framework and certainty. The Political Constitution of the Republic prohibits monopolies, but competition law is needed to regulate them.