Practice Area Articles
Venezuela
February 05, 2024
By Paul Hastings Professional
Back to International Employment Law
KEY DEVELOPMENTS FOR 2024
Calculating termination benefits
Lawsuits filed by former employees claiming that their termination benefits are not being computed correctly are on the rise. As a result of the high inflation in Venezuela between 2015 and 2019, most employers in the country developed compensation schemes where they paid their employees by providing a mix of 80% non-salary payments to 20% salary payments. Non-salary payments were paid mainly in foreign currency to protect salaries from inflation, but these payments were not considered salary due to its costs under the expensive statutory benefits system in the Venezuelan labour law. Although many employees understand the nature of these payments and their impact on a business’ employment costs, some still file claims increasing the risks for companies of having to make additional payments. Companies are looking to adapt these bonuses in 2024 to reduce the risks of future claims but are wary of the increase of the employments costs resulting from these measures. Companies therefore are looking to balance the employment costs against the risks of assuming that some benefits are not deemed salary.
Increased scrutiny regarding workplace safety regulations
Unlike many other countries, Venezuela has adopted a return to office policy. This return to office policy has attracted the scrutiny of the Labor Inspectors Office who recently promoted a new provision requiring the registration and filing of workplace safety and health protocols and policies. We expect the Labor Inspector's Office to audit employers and confirm the adoption of these workplace safety and health protocols and policies.
Oil & Gas employment opportunities
The United States Government has issued a series of Office of Foreign Assets Control licenses easing sanctions against Venezuela and the national oil company, PDVSA, allowing for the production and sale of oil and gas by Venezuela to specific markets. These licenses should allow for new investment and new business opportunities in this sector. We are already seeing an interest, especially in the gas sector, for the development of new offshore activities. This should create new employment opportunities, particularly in the western and eastern parts of the country.
It will be interesting to see if new collective bargaining agreements will be negotiated in line with these new operations and especially with the new compensation schemes in foreign currency being applied in the country.
KEY DEVELOPMENTS FOR 2023
Economy
The Venezuelan economy continues to show signs of recovery despite continued sanctions against government officials and certain public companies. This recovery is seen mainly in the retail sector. Unfortunately, the manufacturing and industrial sectors are still not showing signs of recovery mainly resulting from lack of legal certainty surrounding the Venezuelan government. We are lacking clear investment rules as well as fiscal transparency.
These signs of recovery have increased the demand of personnel as well as better compensation. However, due to legal uncertainty, employers are still concerned with impact of wages and provide “non-salary” compensation. This form of compensation has resulted in claims by employers that such compensation is salary and should be considered for purposes of determining termination benefits. We see an increase of lawsuits from employees claiming such benefits.
Sanctions
U.S. and European sanctions against members of the Venezuelan government, as well as against Venezuelan Public entities, such as the national oil company, PDVSA, limits foreign investment in the country. However, there are discussions of renewed negotiations that may relax these sanctions allowing for mainly more oil output from U.S. oil companies in the country, namely Chevron. We will see how these sanctions or lifting of these sanctions will impact the economy, but if so, we can expect some foreign investment and, perhaps, a transfer of foreign personnel back into the country.
Currently, diplomatic relations between the Venezuelan government and many countries have been paused as a result of these sanctions, making it difficult for foreign employees to obtain the necessary work or business visas to enter the country. Elections in Colombia and Brazil, Venezuela’s neighbors, have resulted in like-minded leaders that will likely allow for increased commercial transactions between Venezuelan and these countries. This may also allow for travel and transfer of Colombian and Brazilian nationals to Venezuela.
Gig economy
Venezuela was way behind in the gig economy, however, because of the COVID-19 pandemic, the gig economy caught up, and now we see an increase in offers for delivery services, car sharing, home sharing, etc. Our laws, however, have not caught up and are still drafted for a more traditional workplace. We are seeing a trend in claims from service providers or gig economy workers against these businesses claiming that they are employees. The courts have not yet provided a formal decision regarding these types of workers. We expect to see an increase in employment related claim from gig economy workers, and work accident claims in this area.
KEY DEVELOPMENTS FOR 2022
Remote working is now becoming voluntary
Remote working has become a reality since the COVID-19 pandemic. Although Venezuela’s Labour Law does not provide specific regulations for remote work, it does require employers to provide employees with the necessary tools to execute their work. This situation caught employers off-guard as they had little experience on this issue. Work conditions have changed, and employers need to adapt to these changes with the current legislation. Remote working has become a new reality and was mandatory at first, but is becoming voluntary as employers are now looking to bring workers back into the workplace.
Employers should continue to monitor developments in this area and try to establish conditions that improve the employment relationship.
Payment of wages and bonuses in foreign currency continues to increase
Due to the hyperinflation suffered by Venezuela over the past 4 to 5 years, employers started to pay bonuses to employees in foreign currency to mitigate the impact of the inflation. Payment of wages and bonuses in foreign currency continues to increase but employers are not acknowledging these payments as salary.
As these bonuses and payments are not considered as salary, employees are beginning to claim employment benefits using these payments in foreign currency as a base for computing benefits. Employers should review their compensation schemes and ensure that special payments can be deemed non-salary or otherwise determine and make provisions for employment benefits computed based on these salary payments.
KEY DEVELOPMENTS FOR 2021
Challenges relating to remote work
COVID‑19 brought upon many challenges in 2020. One of those challenges was to work remotely. Remote work is not covered in Venezuelan law and this type of work brought new types of challenges and claims to businesses (for example, challenges regarding how to supervise and discipline someone working remotely, what tools the employer would be required to provide to an employee working remotely, how far an employee should go to ensure compliance with occupational health and safety regulations while the employee is working remotely, etc.).
These are all questions that will likely have to be dealt with by employers in Venezuela as the tendency to work remotely continues as a result of the ongoing COVID‑19 pandemic.
COVID‑19 occupational safety and health compliance
Occupational safety and health compliance is always something that employers in Venezuela need to take care of. However, as a result of the COVID‑19 pandemic, there are new safety and health regulations that employers need to be compliant with and to ensure that all employees have a secure and safe environment. There are also other safety and health issues mainly related to employees' mental health that employers need to be careful of and monitor continuously. An issue that has been part of the conversation is how to grant vacation leaves during this situation. Can you grant vacation to someone working remotely? Is it truly a vacation if the country is subject to a complete lockdown? These are issues that employers need to resolve, especially considering that the Government institutions have not been helpful on these topics and have provided more questions than answers.
Increase of contractors and workers
Delivery apps have increased exponentially in the country as a result of an informal dollarization of the economy. We believe that these new types of contractors or workers will bring new types of employment claims, workers compensation, and indemnity claims, that tied together with the payment mechanisms, will bring interesting cases in our courts.
KEY DEVELOPMENTS FOR 2020
Payment of wages and benefits in multiple currencies
Inflation continues to be a problem in Venezuela as the value of the local currency, the Bolivar, continues to decrease rapidly, thereby increasing the costs of goods and services. In an attempt to control the rate of inflation, the Venezuelan Government allowed the use of foreign currencies for the payment of goods and services in 2019. As a result, employers are now required to pay their staff using foreign currency and these payments must be made in cash, given that many employees do not have offshore bank accounts. This has also opened the market for offshore pre-paid credit cards, which employers may give to employees for use in the country. The biggest concern with these payments is whether they constitute salary for the purposes of determining the statutory benefits applicable under Venezuelan law.
Workforce reductions
As the economic conditions in Venezuela continue to deteriorate, many businesses have resorted to reducing their workforce, even though this is technically prohibited by law and requires prior approval from the Government. However, the Government and Labour Inspector Offices have been more open to receiving and approving requests for workforce reductions and protecting businesses from collective bargaining claims in 2020. These requests allow for the suspension of jobs without pay, as well as the suspension of certain benefits under collective bargaining agreements.
Hiring of independent professionals continues to increase
The use of independent professionals continues to increase, and many offshore companies are hiring independent professionals to work remotely and paying them in foreign currency. It is also becoming more common for employers to pay benefits in multiple currencies, as well as with crypto-currencies.
KEY DEVELOPMENTS FOR 2019
Surge in inflation rates
The International Monetary Fund predicts that inflation in Venezuela could increase by 10 million % in 2019. This will result in frequent changes to the minimum wage and an increase of statutory benefits such as food stamps. As a result of inflation, it is becoming more and more common to purchase goods and services in US Dollars instead of using local currency. The Venezuelan Government still need to issue further regulations and clarifications relating to the payment in US Dollars as it is now necessary for almost every employer to provide some type of remuneration to their employees in US Dollars.
Enactment of special bar against dismissals
On 28 December 2018, the Government enacted a Decree on Special Bar Against Dismissals which will remain in place for two years until 28 December 2020. The decree prevents employers from dismissing an employee without just cause and prior authorization from the Office of the Labour Inspector. Failure by an employer to comply with these provisions will give an employee the right to claim reinstatement and payment of unpaid wages.
Increase in the independent professionals
Companies use of independent professionals continues to increase as a means to lower their costs. Many offshore companies are hiring independent professionals to work remotely and paying them in foreign currency.
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