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Cuban foreign investment law (CFIL), and I mean the one still in force (that is the old one, Ley 77/95, which will be superseded by the new one this summer), with its many equivalents in other parts of the developing world, you may well conclude that it is very similar to, and even more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

 

 

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