CONGRESS PASSES SUBCONTRACTING LAW IMPROVING

UNCLAS QUITO 001399

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/AND, WHA/PPC, EB, AND DRL/IL. USDOL FOR CARLOS
ROMERO. GENEVA FOR JOHN CHAMBERLIN. PLEASE PASS USTR FOR V.
LOPEZ AND B. HARMON.

E.O. 12958: N/A
TAGS: ELAB PGOV EC
SUBJECT: CONGRESS PASSES SUBCONTRACTING LAW IMPROVING
TEMPORARY WORKER BENEFITS; BROADER REFORM AT RISK



1. (SBU) Summary: Congress passed a law on May 30 to
regulate subcontracting, setting a maximum 50 percent of
workers that can be hired through this mechanism. Workers
can be subcontracted for any function. Employers must
provide subcontracted workers with profit sharing and
contributions to social security and reserve funds, but
subcontracted workers can be fired at will. The President
still must approve the law by June 16 and subcontracting
companies will likely push for a veto. Meanwhile, the
Chamber of Industries has withdrawn its representative from
the tripartite National Labor Council, setting back prospects
for tripartite labor code reforms. End Summary.

Contents of the Law
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2. (U) On May 30, Congress passed a subcontracting law to
regulate this hiring mechanism, superseding an October 2004
presidential decree on subcontracting which set a maximum 75
percent for subcontracted workers. The law passed with 55
votes from the Democratic Left (ID),UDC, PRE, PSP,
Pachakutik, MPD and Socialist parties and some independents.
Banana magnate Alvaro Noboa's PRIAN party and the Social
Christian Party voted against the law.


3. (U) According to congressional sources, the law sets a 50
percent cap on the percentage of workers a company can hire
through subcontracting. During a company's start-up phase
(up to 270 days) the 50 percent cap would not be applied.
The law states that subcontracting can be used for all
activities of a company, including permanent, occasional, and
hourly work. The hiring of persons under 18 years of age as
subcontracted workers would be prohibited.


4. (U) Subcontracting companies will be required to have a
minimum of $10,000 capital in order to register with the
Ministry of Labor. This is intended to prevent ghost
companies. The Ministry of Labor will need to set up a
special inspections system to regulate subcontracting and
implement the law. According to the Ministry of Labor, 1,048
out of 2,156 subcontracting companies in the country have
registered with the MOL as required by the 2004 decree.
(Comment: We question whether the GOE will be any more
successful in getting subcontractors to register under the
proposed system. End Comment.) It is estimated that there
are approximately one million subcontracted workers in
Ecuador.

Unions Happy, Employers Hope to Block
--------------


5. (U) Labor union leader Mesias Tatamuez said he was
pleased with the passage of the law as it requires that
subcontracted workers receive their reserve funds, be
affiliated with social security, and receive company profit
sharing. The press reported however that some subcontracting
company representatives would seek a partial presidential
veto of the law and would challenge its constitutionality.
Minister of Labor Galo Chiriboga is expected to argue for the
law's passage as is.

Alleged Corruption Could Block Law
--------------


6. (SBU) In a June 1 meeting, Andres Paez, the president of
Congress' Labor Commission, told us an atmosphere of
consensus had prevailed in the tripartite National Labor
Council during discussions of the law earlier this year.
Only two articles of the 22 article bill were sent to
Congress without consensus. Once in Congress, however, Paez
alleged subcontracting companies had spent $800,000 to block
the law. He expected the same companies to spend up to $1
million to convince the President to veto the law. The
President was presented the law and must make a decision on
whether to veto it by July 16 before the law can be published
in the official register.

One Step Forward; One Step Back
--------------


7. (U) According to June 3 press reports, President of the
Guayaquil Chamber of Industries Alberto Dassum has withdrawn
the National Chamber of Industries' representative to the
National Labor Council. In a letter to the Ministry of
Labor, Dassum said he withdrew the representative not over
the subcontracting law, but rather because the chamber
disagreed with the Council's decision to raise the minimum
wage by $10 earlier this year and the recent passage of a law
to increase the employment of persons with disabilities.

Comment
--------------


8. (SBU) The passage of the subcontracting law strengthens
benefits and protections for subcontracted workers and
represents an improvement over the previous decree. It also
provides employers with greater flexibility to hire and fire
temporary workers. Should President Palacio sign it,
implementation of the law could prove difficult due to the
Ministry of Labor's limited resources. Meanwhile,
business-labor dialogue and consensus on broader reform is
now jeopardized by the Chamber of Industries' withdrawal from
the National Labor Council, and could signal a reluctance by
business leaders to consider any further labor reforms
without a real prospect for an FTA with the U.S.
JEWELL