HIRING STAFF IN CUBA – A GUIDE FOR THE FOREIGN INVESTOR
Jose Maria Viñals Camallonga
Partner and Director of International Operations
Renato A. Landeira
Senior Associate
LUPICINIO INTERNATIONAL LAW FIRM
Madrid. September 19, 2016.- Cuban Law No.118 on Foreign Investment, of 29 March 2014 –Ley de la Inversión Extranjera – (LIE) establishes that workers who provide services in any of the forms envisaged for foreign investment[1] will generally be considered permanent residents[2] in Cuba, whether they are Cuban or foreign. The LIE also permits the hiring of non-permanent residents in special circumstances.
In June 2014 the Republic of Cuba adopted a new Employment Act[3] –Código de Trabajo– which, with the exception of the matters reserved for the LIE, is the applicable law for Cuban employees of foreign companies. Although the Cuban legal system considers the possibility under very limited circumstances for foreign companies to hire the workers directly, the law generally requires that the foreign investor established in Cuba must hire workers via public agencies known as “hiring entities” –entidades empleadoras-. These institutions are authorized by the Employment and Social Security Ministry to enter into agreements with joint ventures or wholly foreign-owned enterprises in order to facilitate employment contracts. These hiring entities, and not the foreign companies, actually employ the workers. The uniqueness of the Cuban labor system allows the foreign investor to test out the worker and control his employment length, promotions at work, and training, all through the prior assessment of their work record.
There are two exceptions to the above. Firstly, in international economic association contracts the workforce is employed directly by the Cuban party involved in the foreign venture; and secondly, with totally foreign-owned enterprises where the managers and administrative personnel of the company are directly appointed and contractually linked to the foreign company.
Formally, in Cuba, the employment contract is called ‘Workforce Service Contract’ –Contrato de servicio de fuerza de trabajo-. Generally it is a written agreement between the representatives of the foreign investor and the Cuban state hiring entities. It must include the following: identification of the parties, charge and content of work to be done place, time, duration, remuneration and frequency of payments and health and safety. The salary and other compensation called ‘haberes[4]‘, will have to be settled in Cuban convertible pesos (CUCs). Therefore, it is the foreign employer who must pay the monthly wages, in freely convertible currency -CUCs- to the hiring entity in Cuba which has the responsibility to then pay the “haberes” to the worker in local pesos (CUP).
Besides the amounts paid by the hiring entity to the Cuban worker, the foreign employer has the power to grant additional bonuses to the workers as a supplement of their salary. These bonuses are not specifically regulated in the Law, but are taxed. In addition, the LIE considers a possibility that allows the employer to create an ‘economic stimulus fund’ for the worker.
Hiring a permanent resident worker
The process of hiring a worker residing permanently in Cuba is initiated through a written document setting out the interest of a foreign employer, legally established in Cuba, to recruit the worker. This document must be addressed to the hiring entity and should reflect the objective and the application or proposal of recruiting a particular worker. The representative of the foreign company must meet with the directing body of the hiring entity and then negotiate the workforce contract that will be signed by both parties. Finally, the contract must be approved by the hiring committee of the hiring entity. It is crucial to identify the workers functions and that these are covered by the proposed job category. In the case that the employer decides to change the workers assigned role, propose a transfer or change the position for which the worker was hired, he must inform the hiring entity. If the three parties -employer, agency and worker-, agree to such changes, the contract will be altered by amendment or ‘supplement’, to reflect the new functions and any other circumstances that will alter the original contract. If the worker performs different functions than those permitted by the contract this can lead to the termination of the employment relationship.
There are three models of employment contracts in Cuba: indefinite, temporary, and for the execution of a specific job. The last two concern new jobs, substitutions, training, social services and testing periods for new hires that can last between thirty and one hundred and eighty days, depending on the position offered. During this period, either party may terminate the employment relationship.
Formally, in Cuba you cannot fire a worker, but instead you ‘return’ them to the hiring entity –devolución-. The employer has the right to ‘return’ the worker to the hiring entity with just cause in which case it should compensate the employee for the time the worker has spent in the company. If the employee has worked up to nine years the compensation will be the amount of one months’ salary, up to ten through nineteen years the payment will rise to two months’ salary, and finally if the employee worked up to 25 years he will receive 3 months’ salary. The maximum amount assigned as compensation will be the equivalent to five months salary when the employee has worked over thirty years.
There won’t be such compensation when the ‘return’ is either requested by the employee or when the employer can prove negligence, indiscipline or similar behaviour attributed to the worker. In this situation, the employer can request a new employee or terminate the employment relationship with the hiring entity. In the event of the Cuban employee’s resignation, if the contract is for an indefinite period he is obliged to give the employer thirty days’ notice, with fifteen days for temporary contracts.
Although the LIE states that, in relation to foreign investment, taxation on the workforce is exempt, according to the Act nº 113 of the Cuban Tax Law labour is taxed through a progressive system that varies from 5-20% of the annual payments. If the foreign employer is subject to Decree Law No. 313 of 23 of September 2013, the Special Development Zone Mariel[5], there is an exception from the tax for a period of ten years.
Hiring non-permanent resident worker
The general rule in foreign investment is that the foreign employer hires workers who are permanent residents in the country. Despite this, the LIE gives management bodies and managing joint ventures, wholly foreign-owned enterprises or parties to international economic association contracts, the chance to hire non-permanent residents in certain top administrative positions or technical jobs. In these cases, they must specify the employment regime that will apply; the employee may provide only those services that are found under the description of the job on the document signed by the representatives of the foreign company, and the employee may only work for the employer. The LIE doesn’t set out an employment ratio of foreign and permanent residents.
It is important to note that foreign workers are subject to immigration laws and formalities. The National Office of Work Permits of the Employment and Social Security Ministry will grant work permits requested by the Commerce Chambers of Cuba, which is equivalent to the ‘temporary resident’ category expedited by the Foreign and Immigration Direction of the Ministry of the Interior. Such permits are good for one year.
Foreign workers aren’t included in the local Social Security system or the Cuban pension system[6], which are exclusively for Cuban citizens. Thus, it is imperative that the foreign worker has private insurance. For Spanish employees, they may be subject to a special agreement with the Spanish Social Security for Spanish migrants, regulated by Order TAS/2865/2003, of October 13, which regulates the special agreement of the Social Security System[7].
Hiring foreign employer not established in Cuba and cuentapropistas
For a foreign employer not established legally in Cuba it is not possible to hire workers, but this doesn’t prevent them from promoting their operations in the country through agency contracts with national entities.
Cuban legislation also provides for self-employed workers –cuentapropistas[8]– also known as ‘labor relations between workers and natural persons authorized to act as employers’. In this case the provisions that regulate the engagement with a third party are those found in the Employment Act. Therefore, a self-employed[9] worker can hire workers for those activities he is authorized to carry out. This activity is reserved for permanent residents in Cuba, who are over seventeen years old, and authorization is not transferable.
© 2016. LUPICINIO INTERNATIONAL LAW FIRM
*****
LUPICINIO INTERNATIONAL LAW FIRM, an international law firm established in 1979 with headquarters in Madrid and professional presence in Cuba since 1996 through an official correspondence agreement with BUFETE INTERNACIONAL (Havana) and a local Cuban team of lawyers with expertise in the main areas of Cuban law, especially in foreign investment on the island and the Mariel Special Development Zone.
LUPICINIO INTERNATIONAL LAW FIRM named Band 1 General Business Law – Cuba by CHAMBERS & PARTNERS GLOBAL GUIDE 2015. CHAMBERS GLOBAL names José María Viñals Camallonga as “Key Individual”. Partner and department head José María Viñals leads the team in the numerous cases it handles. His practice is heavily oriented towards project finance, asset finance and corporate law”.
The legal directories Legal 500, Chambers & Partners and IFLR 1000 have emphasized LUPICINIO INTERNATIONAL LAW FIRM as one of the best Spanish Law Firms in: General Business Law in Cuba, Real Estate, Banking and Finance, Capital Markets, Corporate and M&A, Dispute Resolution, Competition, Employment, Restructuring and insolvency, Intellectual Property, Project Finance and Tax
[1] These are; Joint Venture -article 14- International Economic Association –article 15- and Wholly Foreign-Owned Enterprise –article 16.
[2] Permanent residence in Cuba is obtained in two different ways; (i) family reasons (E-1 visa), foreigners applying to reside in Cuba with Cuban citizens, parents, children, or spouses provided that the marriage has been celebrated in accordance with Cuban laws; and (ii) for other reasons (E-2 visa) for foreigners who are not within the parameters of E-1 visa, provided they obtain the permission of the Foreign and Immigration Director. In any case permanent residents in Cuba are granted the same rights and duties as Cuban citizens and are subject to its legal system.
[3] The new Employment Act, which replaces the previous Act No. 29 of 28 of December 1984, was approved the 20th of December of 2013 by the People’s National Assembly, although it came into force on June 18th of 2014. Vid. Official Gazette of the Republic of Cuba no. 29 of June 17 2014.
[4] Haberes– includes, in addition to salary, payment for vacation periods, raises, additional payments and compensation for overtime, double shifts or work on holidays. For the purposes of Cuban Employment Act, the term salary is ‘remuneration in money the employer pays the worker, considering the quality and quantity of work performed and the actual time worked, as appropriate. It includes the accrued amount according to payment systems by performance or time, additional payments, overtime work, payment of national commemoration days and holidays, paid work break, paid annual leave and others by the law’.
[5] Vid. Official Gazette of the Republic of Cuba no. 26 of 23 of September 2013.
[6] The Republic of Cuba has not signed international agreements on these individuals.
[7] 7 Vid. BOE, num. 250, of 18 of October 2003.
[8] 9 Vid. Resolution nº 32/2010, of Employment and Social Security Ministry.
[9] 10 Vid. Article 5 Resolution nº 32/2010.
