Bustamante & Bustamante Law Firm

1

GENERAL PRINCIPLES

Forums For Adjudicating Employment Disputes

For individual employment contracts, the Ministry of Labour handles certain aspects relating to the employer-employee relationship, such as individual hiring and authorization for dismissal with or without cause. Once the individual employment contract is finished, with or without cause, in the first instance, labour courts have jurisdiction over disputes. Appeals are heard in the Superior Court. The Superior Court does have a specialized labour court. For matters related to collective hiring, the Ministry of Labour is the ultimate authority. For collective labour disputes, a special conciliation and arbitration court is formed for each particular case. In accordance with recent administrative amendments, the Ministry of Labour has a Mediation Department (not an arbitration department) for the resolution of labour disputes.


The Main Sources Of Employment Law

The main sources of employment law in Ecuador are the Constitution, the Labour Code, International Treaties duly approved by Ecuador, Ministerial Agreements and Resolutions issued by the Ministry of Labor, and, when applicable, the Civil Code.


National Law And Employees Working For Foreign Companies

National Law, including international treaties duly approved by Ecuador, will apply equally to national and non-national employees working in Ecuador.


National Law And Employees Of National Companies Working In Another Jurisdiction

Labor legislation is territorial and does not apply abroad. Ecuadorian companies operating abroad must comply with the labor regulations of the country in which they operate.


Data privacy

The Constitution recognizes and guarantees individuals the right to the protection of personal data, Collection, filing, processing, distribution or dissemination of this information data shall require the owner's authorization. To date, the Law for the Protection of Personal Data has been approved by the National Assembly and is awaiting the approval or veto of the President.

2

HIRING THE EMPLOYEE

Legal Requirements As To The Form Of Agreement

Most labor contracts are required to be in writing and registered with the Ministry of Labor. However, contracts can be implied. A contract of employment is understood to exist when a person undertakes with another person to render his lawful and personal services, under his dependence, for a remuneration fixed by agreement, law, collective bargaining agreement or custom.


Mandatory Requirements
  • Trial Period

    • The law provides for a trial period of 90 days, but the parties may waive the trial period.

  • Hours Of Work

    • Unless a special work shift or agreed overtime, employees cannot work more than 40 hours per week. The standard workday is 8 hours a day, Monday through Friday.

  • Special Rules For Part-time Work

    • Although there is no provision on part-time work, there are contracts in which part-time work can be applied, among others: agriculture, tourism, cultural sector. In exceptional cases, upon agreement between the parties duly authorized from the Ministry of Labor, for a six months period, renewable for six more months on a single occasion, working hours may be reduced to 30 hours per week.

  • Earnings

    • Minimum wages and salaries are set by the Labour Authority. The National Wage and Labor Council, composed of representatives of workers and employers, must reach an agreement in the last quarter of each year to fix the remuneration for the following year. If there is no agreement, the Ministry of Labor fixes it and the increase is made according to the projected inflation. In addition to normal monthly pay, employees are entitled to the following:

      1. Christmas Bonus or Thirteenth Salary: This is the equivalent to 1/12 of what the worker earned in the twelve months from December 1 of the previous year until November 30 of the year in which payment is made.
      2. School bonus or Fourteenth Salary: This is one unified base salary and is paid once a year.
      3. Also, the employer or company must pay their employees fifteen percent (15%) of the Company’s net profits. Ten percent (10%) is distributed amongst the company’s employees regardless of their salaries for the corresponding year. The remaining five percent (5%) is paid directly to the company’s employees in proportion to their dependants, which are the employee’s spouse, children under eighteen and disabled children regardless of age.
      4. Reserve Funds: Any worker who has provided services for more than one year is entitled to payment by the employer, either directly or through the Social Security Institute, of a sum equal to one month’s salary or wages for each complete year after the first year of employment. These sums will be paid monthly.
      5. “A decent salary” is higher than the base salary and must at least cover the basic needs of the individual and his family. It is based on the basket of foods set each year by the appropriate authority and is monetary compensation paid by employers from the year’s profits to their employees, before paying dividends. Although this payment reduces the employer’s profits for the following fiscal year, it is a deductible expense.

     

  • Holidays/Rest Periods

    • Employees are entitled to Saturdays, Sundays and holidays of the country/region off. Employees are also entitled to 15 calendar days annual leave per year; an additional day per year of service if the employee has worked for the same employer for more than five years, up to a maximum of 30 calendar days of vacation in total. Public sector workers are entitled to 30 calendar days annual leave.

  • Minimum/Maximum Age

    • With specific exceptions, the minimum age is 16. The minimum age for retirement is 65.

  • Illness/Disability

    • Employees must provide notice to the employer when they miss work because of a just cause. In the case of illness or disability, the employee must submit a doctor’s certificate in which the time of leave is determined and whether or not the leave should be paid.

    When the worker satisfies the prescribed minimum requirements, the employer must pay the employee the benefits of general personal and family health insurance from the Ecuadorian Institute of Social Security (IESS). Furthermore, the employer must pay 50 percent of the worker’s salary or wages for the first three days of illness when not work-related.

  • Location Of Work/Mobility

    • There is no express provision to cover transportation costs, however, by custom initiated when the Law did provide for this right, whe employee must move outside their usual residence, the employer must provide transportation or pay for transportation.

  • Pension Plans

    • The employer is obligated to discount from the worker’s salary the amount corresponding to the worker’s personal contributions to the Ecuadorian Institute of Social Security (IESS). This is 9.35% of the worker’s salary in general. The employer’s contribution is 11.15%. In addition, workers employed for at least twenty-five years on a continuous or interrupted basis are entitled to receive an employer-paid pension; this pension is also paid in the case of dismissal without just cause if the employee has worked for the same employer for 20 years or more.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)

    • Maternity leave consists of two (2) weeks before giving birth and 10 weeks following birth; recent modifications to the Labour Code grants 10 additional days of maternity leave for multiple births.

    There is Paternal leave of ten (10) days with an additional eight (8) days in the case of a Caesarean or complicated birth, and 25 days if the child is born with a severe illness. If the mother dies during labour or while she is on maternity leave, the father is entitled to the total or remaining leave. There is also leave for adoptive parents equal to 15 days from the day the child is given to them. Finally, there is special leave, equivalent to 25 days, for parents with a child that has a degenerative illness; both parents can use this leave simultaneously or individually.

    At the end of the above-mentioned paid maternity or paternity leave period, the father or mother may request an optional and voluntary unpaid leave of absence for up to 9 additional months.

    Maternity leave and shortened workday for nursing biological mothers is available. Other “family friendly” rights include maternity leave for adoption parents, parental leave for fathers when the baby is born and leave for both parents when the child has a degenerative illness or are caring for children or parents with disabilities

  • Compulsory Terms

    • Contracts and the way they are executed must be governed by the law, so there is very little that can be freely agreed between the parties. However, everything that is in favor of the employee and improves what is contemplated by law can be agreed upon.

  • Non-Compulsory Terms

    • Non-compulsory terms can be agreed in addition to the minimum rights that are established by the Labour Code.


Types Of Agreement

As a general rule, the employment contract will be indefinite. However, the Law contemplates special employment contracts for certain sectors such as agriculture, livestock, floriculture, tourism, culture, telecommuting, for specific work or service within the line of business, new ventures, and other sectors of the economy.


Secrecy/Confidentiality

An employee is under an implied duty of secrecy/confidentiality but these rules can be further expanded in the employment agreement./p>

Ownership of Inventions/Other Intellectual Property (IP) Rights

The rules are contained in Intellectual Property Law as opposed to the Labour Law. It is advisable to include these specific rules in the labour contract, especially if the employer wants to benefit from some of the benefits that according to the mentioned law would correspond to the holder of the intellectual right.


Pre-Employment Considerations

As long as no person is directly or indirectly discriminated against, the company may establish special requirements for hiring. In the law, there are few; among others, minors under 18 years of age cannot perform underground activities, internship contracts must include the time for the intern to continue with the studies, medical examinations.


Hiring Non-Nationals

It is possible to hire non-nationals but non-nationals must obtain a work permit from the Ministry of Labour. As a general rule, a minimum of 80% of employees must be Ecuadorian and therefore only 20% may be foreigners.


Hiring Specified Categories Of Individuals

At least 4% of an employer’s work force should be disabled. Instead of hiring a disabled person, an employer may hire an individual who has a disabled person under his care. In this case, the work shift is reduced to 6 hours and severance pay for dismissal is higher. The number of men and women hired should be equal.


Outsourcing And/Or Sub-Contracting/Temporary Agency Work

Outsourcing for activities related directly to the purpose of the main business of the company is prohibited. The employer can, however, contract specialized services for specific services not related with the business’ main purpose such as security, cleaning and messenger services. Specialized technical services can be sub-contracted under civil contracts if the provider is an independent party and the service is not part of the main purpose of the business.

3

MAINTAINING THE EMPLOYEE RELATIONSHIP

Changes To The Contract

Changes in the employment contract can be made with the employee's acceptance. These changes cannot affect the employee's acquired rights.


Change In Ownership Of The Business

The new owner has to keep the employees and respect their acquired rights. Any change, even if the change benefits the employee, requires the employee’s consent.


Social Security Contributions

Social security contributions are required by employees and employers as indicated previously when referring to pension plans.


Accidents At Work

In addition to the rules stated in the Labour Code, if the business has 10 or more employees it must have regulations for safety and hygiene which both the employee and employer must follow. If there is an accident at work, Social Security must be notified, and they will assume expenses. If the accident is the liability of the employer, Social Security can require the employer to reimburse them. First aid must be provided by the employer.


Discipline And Grievance

Labour Law includes certain disciplinary and grievance rules. The employer must include these rules in their internal regulations, duly approved by the Labour authorities. If the rules are violated either party may request authorization to terminate the labour contract. If the employer was at fault the employee may seek compensation.


Harassment/Discrimination/Equal pay

No employee is to be discriminated because of gender, creed, marital status, etc. Equal pay must be given to male and female employees who do the same work. Although it is not fully complied with, an equal number of men and women must be hired.


Compulsory Training Obligations

Unless agreed in an individual employment contract or collective bargaining contract there is no obligation to provide training and education to employees; however there are certain types of contracts, such as apprenticeship contracts and internship contracts, in which the employer must provide training,


Offsetting Earnings

As a general rule it is forbidden by law; however, earnings may be offset against an employee’s debts but only if sanctioned by a court order in the case of paying child support.


Payments For Maternity And Disability Leave

To receive payments for maternity and disability leave the employee must be enrolled with Social Security. For maternity leave, the employer pays 25% and Social Security the remaining 75% for the 12 weeks of maternity leave. The employee is allowed to work two hours less than the regular working day to take care of her child. A day care centre must be provided for employees’ children under 6 in accordance with the Labour Code. Recent labour law amendments grant parental leave for the father when his child is born and for both parents in the case of adoption and degenerative illness.

To receive paid disability leave, the employee must obtain a doctor’s certificate which sets out the amount of time the employee should have off and whether he/she should receive payment.


Compulsory Insurance

The only compulsory insurance is with the Ecuadorian Institute of Social Security.


Absence For Military Or Public Service Duties

Absence is permitted but without pay.


Works Councils or Trade Unions

Both the Constitution and the law recognize the freedom of association of employees and employers. Its conformation is regulated by law; those must be approved and register by the Ministry of Labor. For the purposes of associations within the same company, at least 30 employees are required; the association of employers must have at least three employees.


Employees’ Right To Strike

Employees have the right to strike. The main circumstances under which employees strike are when none of the petitions by employees have been granted, dismissal with or without cause for several employees, when a Conciliation and Arbitration Court is not formed, if conciliation is not reached, if an attempt is made to disassemble the workplace.


Employees On Strike

Employer must respect all the rights of the workers; employees on strike can even suspend their own and their co-workers' work. Although the Law prohibits dismissal during the formation of a labour organization or when there is a strike, employees may be fired. This would be a cause for a strike in which workers take over the workplace and the employer must pay extra compensation if the dismissal is without just cause.


Employers’ Responsibility For Actions Of Their Employees

The employer is only responsible for the actions of its employees during the ordinary course of their work and performed in good faith.

4

FIRING THE EMPLOYEE

Procedures For Terminating the Agreement

Special labour contracts that allow for a fixed-term contract, the contract may be terminated when the term expires. In the event of a fair reason, the procedure called “Visto Bueno” is applied, in which the Labour Inspector must decide on whether the employment agreement may be terminated. In the absence of this authorization, it is understood that there is a dismissal without just cause and the employee must be compensated.


Instant Dismissal

Instant dismissal is not permitted. This would imply a dismissal without cause.


Employee's Resignation

The employee may submit his resignation at any time and he will be entitled to a bonus for the time of service if he serves notice through the Labour Authority at least 15 days in advance.


Termination On Notice

Except for certain special contracts, the termination of the employment contract may only be carried out with the authorization of the competent authority.


Termination By Reason Of The Employee's Age

This is not permitted.


Automatic Termination In Cases Of Force Majeure

Automatic termination in cases of force majeure does occur but it is rare. An example of where the contract will be terminated in a case of force majeure would be on the death of an employee. If an employer intends to dismiss employees due to force majeure, according to an interpretation made by the National Assembly, it is allowed to do so only if, as a consequence of the force majeure, the whole enterprise will closed down.


Collective Dismissals

Collective dismissal of employees is not prohibited but would be considered a dismissal without just cause, subject to severance pay and possibly a strike.


Termination By Parties’ Agreement

On the basis of mutual agreement, the parties may terminate the contract without cause whenever they wish.


Directors Or Other Senior Officers

There are no special rules that apply when dismissing a director or other senior office. However, the actions of a director or senior officer’s legal representative, is governed by civil and commercial law as opposed to labour law.


Special Rules For Categories Of Employee

If a union leader is fired without cause, he/she is entitled to enhanced compensation. When an employee is dismissed whilst on sick leave or maternity or parental leave, he or she will be entitled to additional compensation. If the dismissed employee has a disability or subrogates a disabled dependent who is unable to work, he/she is entitled to additional compensation.


Specific Rules For Companies in Financial Difficulties

Obligations due to the employees have preference over other obligations. Only taxes and payments to the IESS (Ecuadorian Social Security Institute) have to be paid before money owed to the employees. Any other debt is paid after having satisfied any debts owed to the employees.


Restricting Future Activities

An employer cannot restrict employees’ future activities. However, for high level positions a special clause may be stipulated in the employment contract and then in the severance agreement which does restrict an employee’s future activities. This will be enforceable more as a confidentiality obligation than a restriction in labour activities.


Whistleblower Laws

There are no specific rules in this regard. However, a false report may lead to criminal liability.


Special Rules For Garden Leave

There are no standards in this regard. It could be agreed upon if both parties so agree.


Severance Payments

The employee receives a bonus equal to 25% of his or her last monthly salary for each year of service.

The severance pays corresponding to a dismissal without cause, in addition to the bonus for a dismissal with a “visto bueno” explained above, includes the following:

    1. Up to three (3) years of service: three months’ salary; and
    2. Over three (3) years of service: one month’s salary per each year of service up to a maximum of 25 months’ salary.

If the fired worker had been employed by the same company between 20 and 25 years on a continuous or interrupted basis, he or she will receive the proportional part of the retirement pension.

Severance agreements require approval from the Labour Inspector and must be submitted no later than 30 days following the termination of the contract.

If a disabled individual or an individual with a disabled person under his care who was hired in the disabled person’s place, is dismissed without cause, special severance pay equal to 18 months’ remuneration must be paid.

On the other hand, the employee who has been affiliated for more than 6 months to the Ecuadorian Social Security Institute and does not find a job and for more than 60 days, may apply for a payment from the Institute.


Special Tax Provisions And Severance Payments

Severance payments are not subject to income tax.


Allowances Payable To Employees After Termination

There are no allowances that are payable to employees after termination.


Time Limits For Claims Following Termination

Claims following termination must be made within three (3) years, except retirement pension and obligations by the Ecuadorian Institute of Social Security which are not subject to any time limits.

5

GENERAL

Specific Matters Which Are Important Or Unique To This Jurisdiction

Ecuadorian labor legislation, like others in the region, in defense of employees, contemplates the pro-worker principle, which implies that in case of doubt, the judge must rule in favor of the employee.



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Contact a Contributing Author:
Patricia Ponce
Bustamante & Bustamante Law Firm
Ecuador


Disclaimer:

© 2021, Bustamante & Bustamante Law Firm. All rights reserved by Bustamante & Bustamante Law Firm as author and the owner of the copyright in this chapter. Bustamante & Bustamante Law Firm has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021