#835 – The Expat Files: Navigating Labor Laws and Legal Risks in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] South of the border down Mexico way That's where I fell in love when the stars above came out to play and now as I wonder Hello there all you ex-pat wannabes. I'm Johnny Mueller and you're listening to the expat files living in Latin America The show that tells you just what it's like to live work play and or retire down here in Latin America It's a mix of the good the bad the ugly and the great and it's all right here. So let's get started Alright today We're gonna talk about something that affects every ex-pat gringo gonna be wanna be and people down here already and for sure It's gonna sadden some people especially those who are thinking about opening a business Or these people planning on or finding themselves forced to hiring Latin employees

[00:49] So that's the topic you could call it the dangers and pitfalls of hiring Latin employees And even if you're coming down to Latin America with your plan B Just to retire hang out by the pool and suck down margaritas. This will affect you, too Luckily the negative and the positive things I'm going to talk about today vary from Latin country to Latin country So today you'll get the dope on the best and worst Latin countries to be a gringo employer the boss, man Let's get started with an article that just came out I'm gonna read most of it to you some of it I'll paraphrase and I'll comment along the way instead of running through the whole thing and trying to backtrack But I have to mention this could be one of the most important shows I've done in a long long time So pay attention Maybe you want to hear it twice now this article that I'm talking about comes from an English language rag coming out of Ecuador

[01:38] Of course, you've heard me say before that everywhere There are gringos are English language gringo rags aimed at the 99% of the gringo expat and tourist population that speak no Spanish now the thing about these English language blogs websites rags and tourism pamphlets is that Unfortunately, you'll find that all of them have a very positive upbeat slant on whatever Latin country. They're originating from Why because they're supported by gringo and expat? Advertisers, so on practically every page you'll find ads for restaurants bed and breakfast tours house car rentals riding stables Help wanted classified as the works aimed at English-speaking expats and tourists Obviously, and of course the advertisers want the publication to put positive spins on everything

[02:23] They want to increase tourism not screw it up so the editorial policy of the gringo rags and such is to Play down all the bad crap and pump up the good stuff because after all when a new gringo expat or tourist arrives at one Of these destinations first thing they do is pick up one of the local English language rags That's what 99% of visitors do in their Spanish sucks. Yep. They go right for the English tourists publication It's a quick way to see what's happening where the action is and for low-budget tourists and backpackers Where the cheap eats are and the two for one happy hours now about those English language feel good pamphlets and rags You'll find them all over the place in hotels cafes restaurants bars even in the airport and they're free I'm talking about the printed versions now They're all over the place and of course each one's got its companion website

[03:09] so you can stay a bit connected if you want to once the vacation is over and you get back to Jersey or Cleveland and The point is just know that Anywhere you are in Latin America when you come across one of those English language tourists publications pamphlets magazines flyers glossy real estate stuff They're gonna spin everything and anything especially news to the positive So even if you read an article that seems a bit negative For example how to remain safe on public transportation or how not to get robbed on a chicken bus You can bet they're probably sugarcoating it and the reason why the article exists at all It's because there's been a rash of chicken bus muggings, but they won't put it that way They'll put a happy face on it somehow. So what's that got to do with what we're gonna talk about today Well, just know when I read this article, it's probably worse than it stated. In fact, you can bet on it

[03:58] So here goes and this article is really up-to-date. It just came out on February 24th 2019. This is 2019, right? Alright, then as mentioned all paraphrased and my own comments as we go along the title is expats Are you thinking of hiring a maid gardener or construction worker? If so, you need to know this Starts out almost every gringo and expat arriving in Ecuador. In fact in Latin America has heard this pitch It goes something like this. You can hire a maid gardener cook, whatever for a fraction of what you'd pay in North America or Europe Yes, this is true though. The cost has gone up considerably in recent years. Alright me Johnny gonna throw my two cents in here Notice how it doesn't say why the cost has gone up

[04:44] Well, it turns out it's almost all as a result of the influx of expats and gringos to certain tourist areas And note a lot of these so-called tourist areas were not on the gringo tourist trail even 10 years ago But they are now again The steady hikes in labor costs are almost a hundred percent due to the influx of gringos and expats Now the author of this article is writing from the viewpoint of someone who lives in Ecuador and who's had experience hiring locals himself So keep in mind all this is happening in Ecuador right now and it's reason three thousand six hundred and forty six Why I'd never want to live there. So then he says although it's true. The cost of living has gone up Considerably, especially with labor what you don't hear

[05:29] However, is that there are strings attached in the form of new and existing labor laws that many employers both Expats and Ecuadorians are unaware of or simply choose to ignore at their own peril What most expats don't know is that those employers? Potentially that would be you who violate the law often paid dearly in one recent case For example an expat couple who fired a caretaker on their property That would be a maintenance guy or gardener was ordered by the Ecuadorian labor court to pay him $28,000 that's no typo $28,000 which works out to be around 10 years salary for the guy in another case

[06:17] Homeowner who got rid of his maid and hired another he had to compensate her the one he got rid of she went to court and got An order against him to the tune of 17,000 bucks. That's right 17,000 bucks about 10 years of salary for her too. Now if you think that's Ridiculous or even crazy it gets worse Then he says what you need to know is Ecuador's labor laws cover much more than just maids gardeners and guards Of course expats who hire Ecuadorians for other purposes including construction or building laborers That would be working either full or part-time Also really need to understand the legal requirements Then he quotes a Cuenca attorney saying the number of legal cases against gringo and expat employers is growing rapidly

[07:03] He says I've been to court a number of times recently to represent expats and in most of those cases The expat didn't understand the law at all and almost always he ended up paying then there's this from an Ecuadorian labor lawyer He says quote the first thing that employers should understand is that the labor law of Ecuador protects workers much more than it protects Employers, it's pretty much one-sided. It's been that way for years She says but it was never really enforced not before the recent big influx of gringos Anyway, what has changed recently is that the government is now much more aggressive than ever before in enforcing labor laws that are already on the books And enforcing the new ones that have just been enacted and there are now many more labor inspectors checking employment arrangements

[07:52] Hmm. Alright, I'll jump in here again. So this crackdown on enforcing labor law is an Ecuador. That's just popped up recently Well, the truth is in some land countries There's absolutely nothing new about that not when you're on or near the gringo tourist trail Turns out when gringos arrive in numbers all that changes For example when I was in Costa Rica many years ago They were cracking down on gringos and expats were picking up a little work here and there Mostly backpacker types with a lot of time on their hands. We really like the country They try to pick up some extra work as bartenders or front desk clerks at mom-and-pop hotels Even as employees at cafe internets, but I'll tell you that didn't last long soon enough There were labor police patrol in those places kind of like a mini work permit Gestapo your papers and work permit

[08:40] Please and of course, it's virtually impossible for Transitory gringo going through a Latin country to get a work permit for that you have to be a resident That's usually a year-long process and cost a lot of dough. Anyway, it's well out of the range of a backpacker So I personally saw a lot of nice calm backpacker types get booted out of the country Simply because they were banning the front desk of a mom-and-pop hotel when the labor cops showed up and believe me Normally the Latin labor cops are a bunch of lard ass slugs like the cops and the rest of Latin bureaucrats Except in the case of gringos and expats working for cash Obviously without a permit. It was a very common and pervasive belief that they were stealing jobs from the locals thus Who do you think would be dialing up that 800 number to report a gringo working without papers?

[09:27] Why it was always an out-of-work Latino or one that had just been laid off or fired I'll tell you it was the easiest way for a local worker who'd been fired or laid off to get revenge on his old employer Just dial up that number and sick the labor police on him That would ruin your day and that kind of stuff was happening over 20 years ago in Costa Rica And then it spread to Panama the next big gringo tourist destination touted by rags like international living Who else and of course it's always been like that and the big tourist destinations in Mexico like Cancun and now predictably? It's hit Ecuador. Oh and in Panama and Costa Rica Here's what happened next the labor police would find the small business men usually a gringo or expat who owned a mom-and-pop Hotel or restaurant and even way back when it was a pretty hefty fine at that if I recall it was

[10:17] 500 bucks or so even back then and worse yet the labor cops had the power to shut your business down until you Showed up in court and a court date in Latin America, man That could have weeks if not months after you got the summons So those are some of the secondary effects when gringo is piled into a country All right So then the author says in this article in the past many labor agreements made by a gringo and expat employers With their employees were on a casual personal basis Especially with household workers like maids and day laborers But today doing things this way is dangerous and can cost you a hell of a lot of money Problem is gringos and expats think they don't have to worry about the rules with maids who only work for two or three hours a week

[11:03] But this is a mistake and for that reason the author says this is what employers gringos and expats need to know before hiring Any Ecuadorian even if it's just a maid who comes in a couple hours a week all right? first gringos and expats need to understand the difference between casual labor hiring and Hiring a person for work that entitles an employee to labor protections benefits including social security pensions healthcare and Unemployment compensation. Yes, you must pay for all of those or at least contribute Then it says hiring casual labor involves hiring for work for specific short-term projects with no preset working hours a worker For example moving furniture dig in a garden clearing a vacant lot washing cars that would be considered casual labor

[11:51] On the other hand if you hire someone Performing repetitive tasks on a regular schedule even if it's only for a few hours a week That person is protected by strict Ecuadorian labor laws And that person is entitled to certain benefits paid for by you the employer Although you as an expat or gringo employer might think the contribution to your workers benefit package is small Especially when the employee works short hours because it's probated on a 40-hour work week However the paperwork and filing requirements are the same as for full-time employees and can be daunting and they're in Spanish So you'll need someone to help you fill them out Then it says most households who have maze Whether the employers or gringo or latino have not paid benefits for those maids

[12:41] But they legally should with more and more maids and gardeners even ones who can't read or write Taking their bosses to labor court and winning settlements and get this many times the workers will tell you the employer The gringo or the latino that you should pay them directly what they would pay into their social security Healthcare and retirement fund they'll say don't worry pay me And I'll make the contribution myself that way you the employer won't have to fill out all that crazy paperwork Hmm. All right me Johnny here again. If you believe that I got a Rottweiler that lays golden eggs You want to buy them? Let's put it this way. It's just like Americans if there weren't tax withholdings from your check Unjust rip off or not. How would you come up with the thousands of bucks?

[13:27] You owe in taxes at the end of the year. How many people do you know that would have that kind of ready cash? Try none. I mean look haven't you heard recently that 50% of Americans couldn't come up with? $500 cash if there was a real emergency or the lives depended on it Well, let me tell you when it comes to Latin Americans. It's pretty much the same thing But for them it would be more like 50 bucks So what he's saying in this article is don't fall for the old gambit where your employee says just pay me the whole thing I'll take care of that. So security deposits. You don't want to fall for that one Not an Ecuador, you know a deal like that starts out with good intentions But it just ain't gonna happen and you know who's gonna get fined or dragged over the coals not the employee But the employer because you remember the labor laws in Latin countries

[14:13] Especially in Ecuador Costa Rica and where gringos hang out are heavily weighted in the employees favor So for example, even if you drew up a contract that both you and your employees sign That said you made a deal to hand over the dough to him to pay his social security and benefits package Under Ecuador's new labor laws. The employee cannot waive the employer's Obligation and the employer is still liable for deductions that are supposed to go to the government's Social Security Healthcare and retirement fund So what if it's like throwing money down the toilet as bankrupt and inefficient and thoroughly corrupt as those organizations are? Hmm sound familiar. Oh and one thing your employees will always remind you about the two extra payments a year That every employee in Ecuador gets it's called

[15:01] Decimals and that's true with almost all Latin countries though Some call it Alginaldo or Bono Cattor say turns out for employees working on the books They get two extra salaries a year one usually in December around Christmas and one in August All right me Johnny here again You know that might sound like a big hassle and you're thinking what they get two extra salaries a year But in a way the secondary effect of that has been a boon for gringos and expats If you're in the market for a high-priced household item like a flat-screen TV washer dryer Whatever because you see every August all of December to all the big clothing and department stores including Costco and Walmart All of them have what they call decimal Bona Cattor say or Alginaldo fire sales offering huge

[15:48] Discounts on big items like refrigerators TVs AC units computers microwave ovens even new cars and motorcycles That's why it's always a good idea to hold off on big Purchases if you can till August or December So that's the positive secondary effect of having two salary payouts a year for employees on the books Which again reinforces the fact that the average Latino can't scrape together 50 bucks at one time But when he gets those two extra salaries one in August and one in December He suddenly flush and ready to spend again So it would seem anyway, but as human nature would have it most that money spent long before they get it But for now, we're talking about the labor laws in Ecuador and how they're being strictly enforced That is when it comes to gringos and expats. Anyway, I'll bet you didn't know that besides the two extra salaries

[16:37] Which is common in all Latin American countries. You have to pay for vacations and Profit-sharing if you own a business So then let's talk a bit about that profit-sharing law Did you know and this from many gringos and expats is a deal-breaker when they find out about it Anyway, that little Ecuador is one of the only countries in Latin America where the law requires that 15% of all your profits be divided among your workers. Let me say that again In Ecuador the law requires that 15% of all your profits be divided amongst your workers Now let that sink in along with the fact that there have been cases Where gringos and expats have been fined tens of thousands of dollars when maids gardeners and maintenance men have taken their gringo employers

[17:27] To court after they've been fired for stealing that should say it all Oh and one more thing about sharing 15% of your profits with your employees Well 15% doesn't sound so bad. The thing is it's your business So any kind of profit-sharing plan should be voluntary but the real kicker is the amount of paperwork you'll have to keep up with and file and Speaking of paperwork, suppose you're in Ecuador. You've retired. It's your plan B you'll need to keep up with the paperwork even if you have a gardener or maid a couple hours a week a Contract must be drawn up and you can get it from a lawyer's office It must be signed by both the employee and the employer stipulating conditions of employment and compensation and then it must be registered with the Ministry of Labor Alright, let me chime in here for a second It's good to know that in countries that are considered way off the gringo tourist trail

[18:15] Like Honduras, Salvador, Guatemala, Bolivia, Uruguay even Belize people just don't have to go through all that That's not to say that I don't know a lot of gringles and expats in Those off the tourist trail countries that don't have their maids gardeners, etc on the books. They do Sure, there are many maids and gardeners off the books and we'll talk about that later But when they're on the books, you pay what are called Prestaciones that would be their government social security health care, etc But enforcement is very weak and you don't hear of labor police. That's just not an issue Now I have heard of some cases where a maid or a gardener has taken a gringo to court to try to squeeze them Even in countries way off the gringo tourist trail and that usually happens when you've fired one of them for stealing no less

[19:00] Isn't that funny? So you think after they've stolen something you fire them and they're on their way and that's the end of it So you'd think well, you know if you're living on or near the gringo tourist trail You're a so-called wealthy gringo and you will be a target However, the farther off the gringo tourist trail the less likely that is to happen In any case, you've heard me say many times you've got to have a lawyer Meaning not just skip around from lawyer to lawyer depending on what job you have him do You know have one for residency one for drawing up a rental contract one for checking out paperwork and title on a used car That's not a good idea. You want to have one lawyer do all that stuff for you And he's the guy you should lean on before you hire a maid or a gardener He'll know exactly how to keep you on the right side of the labor laws and get this because Latin lawyers know that most labor laws

[19:49] Favor the employee in whatever Latin country you're in. Well, because they are lawyers. They've figured little legal dodges around that stuff That's what lawyers do they look for loopholes, right? So bottom line consult your lawyer and if you don't have a lawyer and you try to do all this stuff on your own You could be in some deep doo-doo, man Especially if you're living in a gringo wise country you're on the gringo tourist trail like Ecuador All right, but talking about Ecuador again article goes on to say very good record-keeping of payments to employees is critical You must keep a detailed payroll document that shows all payments including salary payments to the social security and healthcare system and Your proof of vacation pay and the payment of the two extra salaries required every year Then it says simple notes You may have that show payment cancel checks or receipts are not valid proof of payment as far as the government is concerned

[20:41] All right me Johnny here again Let me explain that means that lots of gringos and expats in countries like Costa Rica Panama and now Ecuador are gonna have to hire a local Latino accountant to make sure you're following the letter of the labor law for that maid that comes in four hours a week Oh, oh worse yet get this in Ecuador early this year They passed a new labor law turns out before an employer could sign a contract with a worker for a specific period of time But now even if an employee and employer know that the job will finish at a particular time Let's say in one month or two weeks or one year The employee is considered full-time and the employer is liable not only for social security and healthcare payments But for full termination benefits when the job ends

[21:29] Hmm. So what are termination benefits? Listen to this Well, according to Latin labor law when you terminate an employee or the job ends you have to pay him additional funds determination of employment can be very expensive for employers and is the subject of most of the Unemployment cases that end up in court, which is something else almost no fresh green gringos and expats No, we're even considered by the way when those cases end up in court It's almost always the employer that ends up paying why because somewhere along the way Maybe months after you've terminated your lowly maid who's been stealing from you She walks into court with a practiced labor lawyer who knows exactly What buttons to push with the judge to get a settlement for her? All right

[22:14] So what about termination benefits or what you might call in the states severance pay? All right, let's read on here in Ecuador There are a number of expenses an employer must pay when a worker's employment is terminated whether it's by resignation or you fire him or her benefits can range from a few hundred dollars to Thousands of dollars depending on the length of employment and circumstances of termination under Ecuador's labor law workers accumulate credit for time worked and are entitled to additional pay when they leave the job or If they're fired even for one year's full-time employment This can range from a thousand to two thousand dollars out of the employer's pocket And that's after an employee being on the job only one year or so with every year

[23:01] They're after racking up additional termination or severance costs for the employer Now if an employer fires an employee severance costs are even higher Which doesn't make sense, but this is Latin America even in the case where an employee is caught red-handed in the cookie jar In a case like this since it's considered a crime. There must be a court record showing Conviction of the employee which is almost impossible Problem is if you go after an employee for stealing the court case may drag on for months even years Knowing that most employers will just skip it and they'll show up in court saying they fired him because he was a known thief Then it's just the employer's word against the employee and the court will generally rule in favor of the employee as an example of the

[23:49] Consequences of a recent firing. There's a case in which a Cuenca bank fired an employee of 15 years and Didn't go to court ahead of time to prosecute him as a thief. The bank was ordered to pay him $70,000 in severance pay about 20 years pay for the guy, of course employment disputes can be settled out of court, too Although the final settlement has to be approved by the Ministry of Labor and that takes time One lawyer says he had a case a few months ago where an expat couple decided to return to the United States and had to Lay their maid off because they were leaving the maid had worked for them for four years at a salary of a hundred fifty Dollars a month the maid wanted to sue them for what they considered was excessive severance pay Instead they settled out of court for

[24:36] 2,500 bucks almost two years of her salary However, the real problem is if you lay off a maid a gardener Whatever decide to return back to the states and if there's a dispute over the severance pay the labor court will block your passport They'll put what they call an embargo or a reglo on your passport And you won't be able to leave the country until it's settled So as you may have figured out already the labor courts and your employees have a hell of a lot of power Especially if they can block your passport and leave you a stock in Ecuador Oh, and by the way, if you want to see a complete list of Ecuador's labor laws You can go to the Ministry of Labor's website. Www dot Trabajo. That's t r a b a j o dot gob gob Dec so if you need a little scare or a wake-up call about now have a look

[25:26] Hey, I know all this stuff is scary, but what are you supposed to do? Well, if you want to contract part-time household workers Like maids and gardeners and such you could contract with a company that provides those services They'll handle all the government stuff and paperwork you just pay the company But you'll be paying twice or even three times what the going rate is for a maid or gardener Whatever after all that's how they make their dough They've got all kinds of so-called Latin America temp services now They've popped up all over the place especially where there are lots of gringos and expats go figure, huh? Mostly due to stricter and stricter government labor laws Alright, so now you're thinking so what if I got to pay six eight or even ten bucks an hour for a maid That's a gift compared to what you'd have to pay up in the states. Ah, but there's a catch

[26:12] It says in Ecuadorian law when working with such a contractor a Latin so-called temp service The employer that be you has the responsibility to make sure the company that would be the temp service Your contracting is up to date on its contribution to the workers social security and health care accounts. What the How in the hell are you supposed to keep track of a third party's? Contributions on your behalf according to Ecuadorian government labor laws if the company the temp service isn't up to date with its payments The employer that you can be liable for injuries that occur not only on your property But on their property by the way It says on the Ecuadorian government's Ministry of Labor website Which is by the way totally in Spanish and a real cluster

[26:59] If you know what I mean, even if you happen to know Spanish after all it is a government website Lord help us if you use such a temp service for your maids gardeners Whatever you must ask for a copy of the paperwork that proves they are making payments to the government And if there is any uncertainty about this You'll need to get an accountant or a labor lawyer to review those documents for you again. I say what that All right, we're running out of time here. So on that sour note, we'll get into part two next show So you've been listening to the expat files living in Latin America If you need some help with your own plan B, you can schedule a one-on-one phone call with me But first download my free plan B questionnaire at www.thenewexpat.com

[27:46] Better yet if you want to get your plan B going from right up there in the states Just sign up for my 9-hour expat essentials course get the perfect plan B blueprint by going to the expat files.com Academy