Economy & Trade, Headlines, Labour, Latin America & the Caribbean

LABOUR-PERU: Business Fights Restrictions on Outsourcing

Milagros Salazar

LIMA, Jun 5 2008 (IPS) - The business community in Peru is pressuring the government not to sign into law new legislation that would establish full labour rights for some 400,000 subcontracted workers.

Business owners “are attacking windmills….they have come out against the law without even having read it,” Labour Minister Mario Pasco said Tuesday, in response to a threat by the business associations to file a lawsuit questioning the constitutionality of the law approved by Congress on May 28.

The president of the National Industrial Society, Eduardo Farah, argued that the spirit of the law dates back to the left-leaning government of General Juan Velasco Alvarado (1968-1975), which, he said, delayed the entrance of foreign capital into the country by 20 years.

The Lima Chamber of Commerce issued an open letter to President Alan García, asking him not to sign the new law, and asserting that “the failure of some companies, which are well-known to the labour authorities, to live up to the labour laws will not be solved by imposing rigid, obsolete legislation on the entire business community.”

To circumvent payment of workers’ benefits, some firms have created front companies merely for the purpose of recruiting personnel, who are registered as working for outsourcing companies.

But under the new law, the companies will have to place all of the subcontracted workers on their payrolls.

Prime Minister Jorge del Castillo said he supported the law because there are “cheating, profit-driven” business owners who evade the country’s labour laws and do not respect workers’ rights.

The new law not only closes down the front companies, but holds the firms that employ the subcontracted workers accountable for social security and other payments until a year after the contracts with the outsourcing company expire.

It also sets stricter conditions for registering outsourcing companies that provide services to other firms, which will now have to have more than one client and will have to present invoices for productive activities.

And for the first time, a list of businesses that use outsourcing companies will be drawn up, to enable the Labour Ministry to carry out monitoring and inspections.

IPS asked the authorities for the list of companies that have faced sanctions for violations like creating front companies, but was told that the information is not computerised.

The National Confederation of Private Business Institutions (CONFIEP), which is spearheading the legal action against the new law, argues that the new requirements will generate unemployment.

The General Confederation of Peruvian Workers (CGTP) says some 400,000 workers should benefit by the new law, including 200,000 in the construction industry, 85,000 in mining and 6,000 in the textile industry.

“We are very concerned by the business sector’s strength and power,” Julio Ortiz, the vice-president of the country’s largest mineworkers federation (FNTMMSP), told IPS. “We hope the government won’t allow itself to be intimidated. What we are asking for is the minimum: respect for our basic rights.”

But he said that while the new law is a step forward, several aspects were left pending, like prohibiting the outsourcing of key activities, such as the extraction of minerals.

If the new law does not enter into force, the union plans to call a nationwide strike on Jun. 16.

The mineworkers are also demanding approval of a draft law that would extend a profit-sharing arrangement to all mining industry employees, including subcontracted workers. The initiative has been rejected by the legislature.

Labour lawyer Javier Neves, the dean of the Catholic University Law Faculty, said the outsourcing law is an important response to workers’ demands for the elimination of irregularities that the government can no longer cover up.

“The government makes enormous concessions to the business sector, and this is just one incident in its relations with that power group, because there are glaring cases of rights violations that can not be ignored any longer,” Neves told IPS.

The government’s support so far of the new law also reflects its inability to continue turning a blind eye to the boom currently enjoyed by the mining industry as a result of the soaring mineral prices, which have brought companies enormous windfall profits.

The Cerro Verde mining company, which operates in the southern region of Arequipa, saw its net earnings increase from 103 million dollars in 2004 to 930 million dollars in 2007, according to government figures.

Barrick Gold’s net earnings climbed from 195.8 to 505.8 million dollars in the same period, while Volcan’s soared from 24 to 449 million dollars.

Labour lawyer Jorge Toyama argued, however, that the new requirements set for the registration of outsourcing companies are too stiff, and “will mainly benefit transnational corporations.”

“No one disagrees with the principle of protecting workers’ rights,” but “the bar is set too high for companies, because now no small business will be able to provide services, and that will lead to a loss of jobs,” Toyama told IPS.

Because the new law undermines free enterprise, there is a chance that CONFIEP’s constitutionality challenge will prosper, he said.

The governing Aprista party voted for both the draft law on outsourcing companies and the extension of profit-sharing.

But a faction of the leftist Nationalist Peruvian Party (PNP) voted against the draft laws, arguing that the outsourcing mechanism is illegal. The lawmakers are also opposed to the profit-sharing arrangement because it would reduce the mining industry revenues that go towards social spending in the country’s poorest regions.

Workers already receive eight percent of mining company profits, up to a ceiling of 18 monthly salaries. Anything above that level goes into a social expenditure fund for the regions.

Mineworkers, however, are demanding that the ceiling be eliminated and that the entire eight percent share be distributed among them, because the regional governments already receive funds from the mining industry, through annual concession fees.