The recent amendments to Venezuela's Organic Labor Law impact local and multinational employers in many aspects, especially with regard to the practice of outsourcing. The new Organic Law of Labor and Workers (known as the "LOTTT," its Spanish acronym) became effective on May 7, 2012, and generally prohibits outsourcing, defined as "fraud or deceptive practices committed by employers, for the purpose of distorting, disregarding or impeding the implementation of labor laws." The LOTTT charges the Ministry of Labor with the responsibility of investigating alleged violations and imposing sanctions under the law.
Specifically, the LOTTT prohibits contracting through a third party for services to be performed on a permanent basis and carried out within the beneficiary's premises, when the services are directly related to the beneficiary's production process, and the beneficiary's operations would be affected or disrupted without such services. Additionally, the law prohibits hiring workers through intermediaries or entities created by the employer for the purpose of avoiding the employer's obligations or undermining the employment relationship. Therefore, neither intermediation (i.e., the simple provision of personnel) nor the use of professional services agreements is allowed when the underlying agreement is entered into with the intent to disguise an employment relationship. A requisite element for these prohibitions is the intent to defraud or evade employment obligations.
Notably, the LOTTT allows an implementation period of three years, i.e., from May 7, 2012 to May 7, 2015, for the beneficiary of the service to absorb the "outsourced" workers into the beneficiary's payroll. During the implementation period and until the date of their incorporation into the payroll, outsourced workers cannot be dismissed and are entitled to the same benefits and working conditions applicable to the beneficiary's employees.
Key Provisions of the LOTTT Concerning Outsourcing
Joint Liability for Contractor and Beneficiary of Service
It is important to note that hiring contractors is not per se prohibited under the LOTTT, as long as the service to be performed under the contract is carried out using the contractor's own resources and employees. Nonetheless the law provides that the contractor and beneficiary of the service may be held jointly liable for all employment-related obligations if the service is deemed "inherent" or "connected" to the beneficiary's...