Yes, Outsourcing is prohibited under Venezuelan New Labour Law as long as the contracting of third parties are made to simulate or defraud with the purpose of avoiding the application of the labor legislation.
1. Definition of Outsourcing under the New Labour Law.
Outsourcing is understood to be the simulation or fraud committed by employers in order to distort, ignore or obstruct the application of the labor legislation. The administrative or judicial bodies have the competence to establish the corresponding liability.
Nevertheless, the contractor – defined as an entity that acts on its own behalf and executes work and services with its own elements, even though the work or services are rendered for the benefit of another company-, is an institution legally established pursuant to the New Labour Law.
2. Specific prohibitions.
In addition, The New Labour Law specifically bans the possibility of hiring through outsourcing in such cases, i.e., whenever the intention is to simulate or defraud the labor legislation, and therefore, the following will not be allowed:
(i) Contracting to execute works, services or activities of a permanent nature on the premises of the contracting entity, directly related to the production process of the contracting party and which, if not executed, would affect or interrupt the operations of the contracting party;
(ii) The contracting of workers through intermediaries, as well as those working entities created by the employer to evade the obligations arising from the employment relationship of the contracting party;
(iii) Creating companies or entities to avoid labour obligations.
(iv) Fraudulent contracts or agreements intended to simulate the working relationship, through the use of legal forms typical of civil or commercial law; and
(v) Any other form of labor simulation or fraud.
3. Effects of being deemed an Outsourcing.
The effects of being considered an outsourcing company, are the following:
(i) The outsourced personnel will have to be incorporated into the beneficiary of the services’ payroll within a period of no more than three (3) years counted as of the date of publication of the New Labour Law (i.e., by May 7, 2015);
(ii) The beneficiary of the services’ labor benefits and employment conditions will have to be extended to such personnel;
(iii) The outsourced personnel would be protected by the bar against dismissals until their effective incorporation into the beneficiary of the services’ payroll; and,
(iv) The beneficiary of the services would thereafter be considered the outsourced employees’ employer.
In case the Office of the Labour Inspector considers that an employer does not comply with the rules on Outsourcing, it could:
(i) Impose a fine of between 120 and 360 Tax Units;
(ii) Revoke or deny the beneficiary of the services’ labor clearance;
(iii) Order the outsourced personnel’s incorporation onto the beneficiary of the services’ payroll.
(iv) Should the beneficiary of the services fail to comply with the Labor Inspector’s Office order or payment of the fine, the employer’s representatives could be subject to imprisonment.