Tag Archives: Ecuador

CorralRosales > Ecuador

Advantages of the simplified joint-stock company

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The main advantage of the Simplified Joint-Stock Company is its flexibility to adapt to the particularities of each business. Its formation process is very agile and its shareholders have ample freedom to establish the rules of its operation in the bylaws. Therefore, entrepreneurs can count on a legal figure that allows them to develop formal businesses that are entirely adapted to the will of the partners and the peculiarities of the businesses.

Small and medium-sized companies will be the most benefited by this new type of corporate association. Its main advantages are the following:

  1. Incorporation of the company: The creation of this company does not require a public deed, it is constituted by a private document, with the exception of those cases in which real estate property is contributed.
  2. It can be a single-member company: The company can be incorporated and exist with a single shareholder, natural or legal person.
  3. Flexible capital structure: There is no minimum capital and there is no percentage that must be paid at the time the company is incorporated. However, the term for the payment of the capital will not exceed 24 months.
  4. Multiple corporate purpose: The corporate purpose can be broad, that is, it can include many activities without being related to each other. If the corporate purpose is not specified in the act of constitution, it is understood that the company may carry out any lawful activity.
  5. Indefinite term: It is not mandatory to establish a term for the company. Failure to do so implies that it is indefinite.
  6. Principle of existence of the company: The existence of the company occurs with the registration of the contract or unilateral act of creation before the Registry of Companies of the Superintendence of Companies, Securities and Insurance. It is not required the registration before the Mercantile Registry, which simplifies the procedure and reduces costs.
  7. Free negotiation of the shares: The shares are freely negotiable unless the bylaws states the prohibition to do so. This prohibition may not last for more than 10 years.
  8. Change of control in the shareholder company: The bylaws can establish the obligation of shareholder companies to inform the Simplified Joint-Stock Company about any operation involving a change of control. In the event of a change of control, the general meeting of shareholders of the Simplified Joint-Stock Company may exclude shareholder companies in which such event has occurred.
  9. Shareholder agreements with binding force: Shareholder agreements on the transfer of shares, preference and restrictions to transfer them or to increase share capital, exercise of the right to vote, share´s representative at the meeting and any other lawful matter are mandatory for this type of company. To comply with this, such agreements must be kept in the offices where the administration of the company works. Otherwise, without affecting the force and effect between the parties, such agreements do not bind the Simplified Joint-Stock Company.
  10. Auditis optional: The existence of an audit body is not mandatory, but the bylaws may foresee its creation.

Milton Carrera
Senior Associate at CorralRosales
mcarrera@corralrosales.com

Guidelines for the application of the Law on Humanitarian Support

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On July 15th, the Ministry of Labor (hereinafter “MdT”) through Ministerial Agreements MDT-2020-132 and MDT-2020-133, issued guidelines for the establishment of the new labor categories contemplated in the “Organic law on humanitarian support to combat the health crisis arising from COVID-19”.

1. Preservation of labor sources agreements (MDT-2020-132 Agreement)

The employer must update in the online platform SUT – Humanitarian Law section – the employee’s information in accordance with the signed agreement, including its validity.

Agreements may be renewed once, for the same period for which they were originally entered.

Note: Agreements may be registered from July 31st, 2020. Employers who signed agreements with their workers prior to the issuance of Agreement 132, will have 15 working days to register the information in the online platform SUT, that is, until August 21st, 2020.

2. Emerging special employment agreement (Agreement MDT-2020-132)

The employer must register in the online platform SUT the information about the employee and the employment agreement, within 15 days from the beginning of the employment relationship.

Note: Employment agreements may be registered from July 31st, 2020. Employers who signed such agreements prior to the issuance of Agreement 132, will have 15 working days to register the information in the online platform SUT, that is, until August 21st, 2020.

3. Emerging working-day reduction (Agreement MDT-2020-133)

The employer may implement the emerging working-day reduction when facing situations of unforeseen circumstances or force majeure in the terms provided for in Article 30 of the Civil Code.

Conditions and characteristics

  • Reduction: The employer may reduce the working hours by up to 50%, prior authorization from the Ministry of Labor.
  • Term: Up to 1 year, renewable only once for an equal term. After the expiration of the term, the employee’s salary will be the same he/ she received before the measure was applied.
  • Salary: It may not be less than 55% of the salary in force before the reduction and must be proportional to the hours worked.
  • Contributions to IESS: Must be based on the salary paid.
  • Labor benefits: The thirteenth and fourteenth remunerations, reserve fund, vacations and profits shall be paid in proportion to the working-day and the income received by the employee.
  • Compensation: In case of layoff, the compensation will be calculated based on the salary received before the reduction.
  • Exceptions: Employees whose working-day have been reduced under the provision of article 47.1 of the Labor Code may not have this measure applied to them while the previous reduction remains in force.
  • Registration in the SUT: Update the worker’s data in accordance with the new working conditions, including their validity. The lack of registration will be sanctioned according to the Labor Code (US$200 fine), as well as the Constitutional Mandate 8, that is, fines from 3 to 20 minimum statutory wages (currently, from US$1,200 to US$8,000).
  • Notification: The employer must notify the employee by any means of the implementation of the measure and its conditions.

Note: Employers who have applied the working-day reduction before the issuance of Agreement 133, will have 15 working days to register the information in the online platform SUT, that is, until August 5th, 2020.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Public purchases in a state of emergency

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By Ministerial Agreement No. 00126-2020 of March 11, 2020, the Ministry of Health declared a state of sanitary emergency in Ecuador due to the COVID-19 virus pandemic. Subsequently, by Executive Decree No. 1017 of March 16, 2020, the President of the Republic declared a state of emergency throughout the national territory. Consequently, various resolutions and administrative provisions have been established to regulate public management and the relations between the Public Administration and those administered.

In this context, the National Public Procurement Service – SERCOP issued the regulations applicable to the state of exception and emergency, in order to coordinate actions to fulfill its purposes and, in particular, guarantee the rights of suppliers to avoid discretion of contracting entities during public procurement processes due to emergencies.

The following is a summary of the regulations issued by SERCOP:

  • Memorandum No. SERCOP-SERCOP-2020-0012-C of March 16, 2020 contains the following recommendations for suppliers and contracting entities:
    • Procurement will be prioritized to guarantee the normal operation of public services and emergency procurement. Special service stations with health safety measures are established to receive offers.
    • In the case of non-priority procedures, it is recommended to cancel or declare them void, depending on the status of the procedure.
    • In the absence of conditions to carry out the pre-contractual stage of planned procurement procedures, entities are encouraged not to publish them.
    • If there are contracts in the contractual execution stage, the administrator must fully comply with the functions established in the respective contracts.
    • Although recommendations do not include it, the legal provisions on unforeseen events and force majeure are applicable to public contracts. The act of authority that declared the state of emergency in the territory of Ecuador, which suppressed and limited the rights of people, among them economic operations and activities and mobility, except in certain excepted cases, constitutes an event of force majeure. These acts of authority are spearheaded by Executive Decree 1017 but include others such as Ministerial Agreement 126-2020, which establishes the health emergency and the constant provisions of the National Emergency Operations Committee (“COE”). In turn, these force majeure events originate from an unforeseen event and its effects, which go beyond the decreed state of emergency, such as the COVID-19 virus declared by the World Health Organization as a pandemic, which has also been ratified by the government of Ecuador. These events constitute extraordinary and irresistible unforeseen events, which have placed the population of Ecuador (and the world) in an emergency situation, making it impossible for the normal development of the usual commercial and productive activities of the public and private. Likewise, they have placed current obstacles to the execution of contractual relationships, which clearly exceed the control and predictability of the parties, and which could be alleged as long as they generate real and verifiable effects with the purpose of exempting the fulfillment of contractual obligations or the termination of contracts according to each case.
    • SERCOP guarantees service for procedures, claims and complaints through telematic means. Face-to-face trainings will be rescheduled.
  • Memorandum No. SERCOP-SERCOP-2020-0013-C of March 17, 2020 establishes the guidelines for submission of offers during the health emergency, and provides that contracting entities in the different contractual procedures, in a compulsory way, will indicate in the field of observations in the form, that the offers and validations can be received by the following means: physical, Courier (regular mail) or email, also indicating in the form the institutional mailing address to receive them.
  • Resolutions Nos. RE-SERCOP-2020-0104 of March 19, 2020 and RE-SERCOP-2020-0105 of April 6, 2020, which reform Resolution No. RE-SERCOP-2016-0000072, of August 31 2016, which contains the Codification and update of resolutions issued by SERCOP. These resolutions, the main aspects of which are listed below, should apply to contracts in an emergency as of March 20, 2020:
    • The contracting entity must expressly declare that there is an impossibility to carry out common procedures to overcome the emergency situation, qualifying this situation through a motivated administrative act that must be published on the PUBLIC PURCHASES Portal, and that will constitute a requirement which enables to continue with the emergency contracts.
    • The term of the emergency declaration may not be greater than 60 days unless a new Executive Decree is issued extending the state of exception.
    • For the procurement of works, goods or services in emergency situations, including consultancy, a direct and objective relationship must be verified between the emergency situation and the urgency of carrying out a procurement procedure to supply a current and emergency need that has arisen as a result of the aforementioned situation. For all emergency procurement, prior certification of budget availability will be necessary.
    • Emergency purchase will be made through a selection of suppliers in an agile, fast, transparent, and simple way, seeking to obtain the best costs. For this purpose, the entity or central governing body may consolidate the demand of all bodies or entities of any nature to carry out a single selection procedure.
    • In emergency procurement for the acquisition of drugs, medical devices or supplies, biochemical or diagnostic reagents, and other strategic goods in health, or the provision of health services or funeral; The analysis of the market offer will be considered fulfilled when the contracting entities publish their contracting needs on their institutional website; and, based on the proposals they receive, select the ones that best suit institutional interests. For these contracts, the supply and demand that exists on the market at that date will be considered as an indispensable parameter.
    • In emergency procurement carried out directly by the contracting entity (acquisition of goods abroad), verification of the absence of national production or supply will not be required, nor will import authorization by SERCOP.
    • All contracts, purchase orders or invoices generated within the framework of the emergency declaration must be done in writing through physical or electronic means. Contracting entities may improve the instruments using transmission of data messages in accordance with the provisions of the Electronic Commerce, Electronic Signatures and Data Messages Act. When in emergency contracts is impossible to access to notarial services, the contracting entity, in an exceptional and provisional manner, will endorse with administrative officials those enabling documents necessary for the signing of the contracts. The establishment of consortiums by private means will be allowed, which will be formalized by public deed once the notarial services have been restored. The contracts that by provision of the law require to be protocolized will be executed from their subscription and will be protocolized later. Currently, some notaries may protocolize these contracts.
    • For contracts in an emergency, SERCOP may, at any time, initiate the necessary control actions to guarantee compliance with the issued regulations.
    • The norms that regulate the temporary association to make corporate purchases between contracting entities will not be applicable to cases of centralized (corporate) purchases of emergency.
    • In the event of emergency declarations issued and published by the contracting entities until before the validity of the Resolutions, they will be forced to comply with and adapt to their provisions.
  • Memo No. SERCOP-SERCOP-2020-0014-C of March 26, 2020 reiterates, within the framework of the regulations issued by the state of emergency and health emergency, the obligation of the contracting entities to implement electronic signature in public procurement procedures; which will allow the opening of a new way of communication with citizens in a more agile way and will reduce the processing time of the procurement procedure, safeguarding and guaranteeing the safety of citizens.

Additionally, SERCOP maintains on its website an updated list of products and services needs in the state of emergency along with delivery conditions. They can be found in the following link:

https://www.compraspublicas.gob.ec/ProcesoContratacion/compras/EMG/EmgRegistros.cpe

It is essential that SERCOP efficiently apply in practice the provisions of the regulations issued and carry out the necessary control management for its effective compliance.

Ricardo Mancheno
Senior Associate at CorralRosales
rmancheno@corralrosales.com

Payment facilities and exceptional payment plan – IRS

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Regulations NAC-DGERCGC20-00000043 and NAC-DGERCGC20-00000044 issued on June 23, 2020 by the General Director of the Internal Revenue Service, the rules for applying the Second and Third Transitory Provisions of the Law for Humanitarian Support to Combat the Health Crisis arising from COVID-19 were established.

The Second Transitory Provision of said law and Regulation NAC-DGERCGC20-00000043 establish that those taxpayers that applied the tax amnesty provided in the Law for the Promotion of Production, and that from January 2020 to June 22, 2020 have not paid 2 or more installments of their payment facility plan, may cover the amount owed until September 30, 2020 without surcharges, interest or fines.

Furthermore, the Third Transitory Provision of said law and Regulation NAC-DGERCGC20-00000044 establish that those taxpayers that applied the exceptional payment plan provided for in the Law on Tax Simplification and Progressivity, and that as of June 22, 2020 have not paid any of their installments, may cover the amount owed in 12 equal monthly installments, which must be paid on the 28th of each month, beginning July 28, 2020, without surcharges, interest or fines.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

State of health emergency – MPH

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The Ministry of Public Health, through agreement 00024-2020, dated June 16th, 2020, has extended the state of health emergency previously declared, in all establishments of the National Health System, which includes all laboratory services, epidemiology and control units, air ambulances, medical and paramedical services, hospitalization and outpatient care, due to transmission of COVID-19 in all provinces and the possible need for hospitalization or intensive care.

Furthermore, the Ministry of Public Health:

  1. Ordered that the health establishments belonging to the Integral Public Health Network, to prioritize their economic resources and human talent, and take the measures that they deem necessary to address the health emergency while the declaration is in effect.
  2. Ordered that the National Agency for Sanitary Regulation, Control and Surveillance (ARCSA) to update the regulations regarding the national production of medicine and medical devices necessary for emergency care and, in turn, to prioritize attention to the regulatory processes under way.
  3. Issued guidelines for purchases made by the Central and the Decentralized Operational Entities of the Ministry of Public Health to attend the health emergency.
  4. Prohibited all private health insurance companies and prepaid medicine companies from limiting coverage for the proper assessment, care, and treatment of patients affected by COVID-19.

The declaration of the state of health emergency will be in force until August 13th of this year. It may be extended if it is necessary.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

El Comercio – Contractual unforeseeability resulting from the pandemic

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DATE: 12-06-2020

CORRALROSALES IN THE NEWS: 

-Ramón Paz y Miño
-Mateo Zavala

MEDIA: El Comercio

Novedades Jurídicas, the legal supplement of El Comercio, publishes an article by our Senior Associate Ramón Paz y Miño and our Associate Mateo Zavala in which they explain the contractual unforeseenness arising from the health crisis caused by Covid-19. In the “new normality”, the dispute resolution clauses incorporated in contracts will be triggered in the absence of agreements and, therefore, ordinary justice or arbitration will be used.

“In recent decades, the theory of unforeseeability – which is an ideal mechanism for facing adverse effects in the execution of contracts – has acquired greater importance and relevance in the legal world, with the exception of Ecuador, where little or nothing has been said on the matter,” our lawyers put into context in their article.

As they point out, contractual unforeseenness is incorporated in several legislations, such as in Argentina and Colombia, where the objective is to preserve the survival of a contract legally entered into by the parties and where compliance has been affected by external factors beyond their control, which could not be foreseen during the contract negotiation stage.

“In addition to ensuring the full force of the contract, the theory of unforeseeability seeks to ensure fairness in the contractual relationship and to avoid excessive costs for one of the parties, which could affect the performance of the obligations”, explain the authors of the article.

The current situation suggests that the theory of contractual unforeseeability will be used in more than one case in Ecuador. The absence of an express rule that regulates it does not prevent its application, which will make it possible to use reasonability criteria for contractual relations due to events that generate an imbalance between the contracting parties. “This does not mean that the validity of legal security is ignored, much less the reliability and effectiveness of the system, but seeking other solutions will ensure that the performance is fair,” add Paz y Miño y Zavala.

If you want to read the full article, click here

Aula Magna – The Ecuadorian Intellectual Property Office (or SENADI according to its Spanish acronym) rejected ex-officio the registration of a mark because it considered that it was applied for in order to perpetrate an act of bad faith

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DATE: 13-05-2020

CORRALROSALES IN THE NEWS: 

-Katherine González

MEDIA: Aula Magna

Through Resolution No. SENADI_2019_RS_19814, the Ecuadorian IP Office rejected the application to register the mark KRUSELINGS in Class 28, for being similar to a globally well-known mark. Therefore, it was considered that the registration was sought in bad faith so as to mislead consumers. 

A mark is any sign capable of identifying goods or services in the market. For the purposes of registration, the community and national legislation establish a series of grounds for irregistrability that must be reviewed by the intellectual property offices, in order to avoid the acceptance for registration of signs that do not comply with the minimum requirements of a mark or that affect the rights of third parties.

One of the most well-known grounds for refusal which tends to be the most common ground for denying a mark at the Ecuadorian IP Office and in general at the IP Offices around the world is when a mark is similar to a prior application or registered mark[1]. However, another of the grounds to deny a mark is when it has been applied for to mislead consumers or to perpetrate an act of unfair competition or in bad faith according to the articles 135 and 137 of the Decision 486 of the Andean Community and the article 362 of the National IP Law.

The KRUSELINGS Case:

An Ecuadorian natural person applied for the mark KRUSELINGS in March 2019, covering “games, toys; gymnastic and sporting articles not contained in other classes; decorations for Christmas trees” in Class 28.

The mentioned application was not opposed by third parties. However, when issuing its decision, the Ecuadorian IP Office considered that the applied-for mark was confusingly similar with a mark well-known globally, and therefore that the application fell within the grounds for refusal since consumers would be deceived, in addition to establishing that it was an application made in bad faith.

Within its decision, the authority made it clear that despite there not being a prior application or registration similar to KRUSELINGS in Ecuador, the relevant grounds are directed at protecting the general interest, particularly consumers.

These types of decisions are aligned with global trends in the protection of intellectual property, most notably in trademarks. In particular, a Board Resolution of the International Trademark Association[2] (INTA) has established indicators to help trademark authorities determine whether a trademark application has been made in bad faith, from which we cite the two most relevant to the current case:

  • If the mark has been applied-for primarily to appropriate a trademark well-known in other jurisdictions or to disrupt the business of a competitor;
  • If the trademark was applied for with the intention of creating confusion regarding the source, sponsorship, affiliation or endorsement of the goods or services of the applicant;

In the mentioned resolution, INTA arrived at the conclusion that “the possibility of arguing and demonstrating bad faith should be used as a tool to defeat the piracy of trademarks and other clear cases of misappropriation of trademarks”.

The decision in the case of KRUSELINGS signals progress in the protection of intellectual property in Ecuador, since arguing bad faith previously, at least in opposition proceedings, was almost always rejected or ignored, leading in many cases to the acceptance of the registration of marks that infringed the rights of third parties, under the sole pretext that the mark was not registered or applied for in Ecuador.

If you want to read this article in Spanish, click here.

[1] Article 136 section a), Decision 486 of the Andean Community
[2] Board resolution: September 22, 2009

Resumption of terms – IRS

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The Internal Revenue Service, through Regulation NAC-DGERCGC20-00000022, suspended the terms and deadlines in all administrative processes and the statute of limitations for collecting debts from March 16 to March 31, 2020. The suspension was extended until June 15, 2020 by regulation NAC-DGERCGC20-00000038.

By Regulation NAC-DGERCGC20-00000042, issued by the Director General of the Internal Revenue Service on June 16, 2020, the terms and deadlines in all administrative processes and the statute of limitations for collecting debts have been resumed, with the following exceptions:

  1. The terms and deadlines of administrative processes and the statute of limitations for collecting debts that are being attended in administrative units of the Internal Revenue Service located that are located in cities classified under “red light” remain suspended. These terms and deadlines will resume once the Emergency Operations Committee classifies the cities under “yellow or green lights”.
  2. In Quito Metropolitan District, the terms and deadlines of administrative processes and the statute of limitations for collecting debts will resume once the government institutions resume their work on-site. When this bulletin was issued, the day on which the on-site work is expected to resume is June 22, 2020.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Reinstatement of administrative procedures at the Ministry of Labor

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The Ministry of Labor (“MdT”) through Resolution No. MDT-2020-024 dated June 10th, decided to resume as of June 15, 2020, the hearings, terms, deadlines, and prescriptions that were suspended, within the following procedures:

  • “Visto Bueno” (employment termination with cause);
  • Administrative proceedings;
  • Administrative appeals;
  • Collection actions; and,
  • Other administrative procedures followed at any MdT unit.

Complaints submitted under the emergent procedure during the state of emergency will continue the on-line procedure until its completion.

Deadlines and terms of the administrative procedures for those county for which the restrictions continue to be under red light will be resumed when the restrictions change to yellow light, in accordance with the provisions issued by the county Emergency Operations Committee.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Aula Magna – Does Covid-19 pandemic constitute force majeure that justifies the termination of individual employment contract?

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DATE: 03-06-2020

CORRALROSALES IN THE NEWS: 

-Alisson Vera

MEDIA: Aula Magna

Coronavirus or Covid-19 pandemic shocked the world. All countries are reacting with various measures to mitigate the multiple consequences being generated in all scopes.

After health concerns, the economic impact is a great concern, since in addition to the closing of companies and the consequent fall in the economy, the loss of jobs will condemn a significant part of the workforce to unemployment.

The International Labor Organization ILO, in its publication “COVID-19 and the world of work: Implications and Responses[1]”, provided a preliminary assessment of the possible impact of Covid-19 on the world of work and proposed a set of measures to mitigate these repercussions. There is no doubt that this situation affects workers and employers worldwide, since there are sectors in which there is no production nor incomes, but they still have expenses (rent, suppliers, payroll, social security, etc.). Therefore, dialogue is the best tool to achieve an agreement.

On March 16, 2020, the State of Exception was decreed in Ecuador to mitigate the spread of Covid-19. Among other measures, the closing of certain sectors and social isolation were ordered. Priority and strategic industries such as health, food, basic services, telecommunications, among others are the only ones authorized to provide services in person.

Due to this situation, the Ministry of Labor, in order to comply with the restrictions ordered by the authority and maintain jobs in the country, has issued several agreements that encouraged companies to implement, to the extend possible: emergency teleworking, modifying workday, establishing vacation time, implementing the temporary suspension of work, and has even opened the possibility for employers and workers to reach agreements, taking into consideration the economic situation of the company, as long as their labor rights are not infringed.

Despite the efforts of the labor authorities, it is not possible to apply temporary measures to maintain employment contracts in all scenarios, and there are cases in which employers find it necessary to terminate employment contracts due to the effects of the Covid-19.

In this regard, section 6 of article 169 of the Labor Code, which contains the grounds for terminating the employment relationship, provides:

“Art. 169.- Causes for the termination of the individual contract.- The individual employment contract ends:… 6) By unforeseen circumstances or force majeure that makes the work impossible, such as fire, earthquake, storm, explosion, plagues of the field, war and, in general, any other extraordinary event that the contractors could not foresee or that they anticipated, they could not avoid;… (I did the underlining.) ”

Despite the fact that, on a doctrinal level, there is a difference between unforeseen circumstances and force majeure, since the term “unforeseen circumstances” should be reserved for the acts of nature, while “force majeure” refers to the events caused by man, most legal and treaty systems agree that the effects are the same. Ecuadorian regulations do not distinguish between those two[2]. Thus, the definition of force majeure is the same as that of unforeseen circumstances and is contemplated in article 30 of the Civil Code that establishes: “(…) It is called force majeure or unforeseen circumstances, the unforeseen event that it is not possible to resist.” Its effect is the exoneration of the debtor’s responsibilities[3].

Therefore, it is important to identify the fact that constitutes force majeure, since based on this, the analysis of the effects it may have on the employment relationship will be carried out. On the other hand, for force majeure to apply, as an exemption from labor responsibility, the doctrine and jurisprudence[4] establish that the following elements are necessary:

  1. Non-imputable: The constitutive act of force majeure cannot, nor should it be attributable to the party that alleges it; that is, for an event to be considered force majeure, the employer cannot have caused it, whether through fault, fraud or negligence.
  2. Unpredictability: that the fact could not have been foreseen within the ordinary calculations; and that, although it has been foreseen, it is inevitable.

In this regard, the Supreme Court of Justice – today the National Court of Justice – has said:

 “There is no doubt that the background of the closing of the company’s activities was due to the fault of the employer, for the lack of payment to the treasury. Therefore, there is no logical and legal basis for the closing of the company due to force majeure, since the situation of force majeure defined in Article 30 of the Civil Code is not presented in the case, because the closing situation of the company was foreseeable by virtue of the delay of the payments before the State. Judicial Gazette. CIII year. Series XVII. No. 8. Page 2533; Quito, May 29, 2001. ((I did the underlining.)”

In this case, the elements detailed above are not configured, since the supposed fact of force majeure; that is, the closing of the establishment was attributable to the employer for not complying with a legal obligation. Likewise, the employer could foresee the closing of the establishment, since it was one of the sanctions provided by law as a consequence of its acts.

  1. Irresistibility: “that could not have been avoided” as expressed by Coustasse[5], refers to the conduct of those who invoke the force majeure in the face of the event itself, and consists of the mechanisms used to mitigate the unforeseen event tending to avoid its harmful effects.
  2. Causation: that the damages caused are a consequence of the unforeseen event that is constituted as a unforeseen circumstance and not of another factor.
  3. Impossibility to work. – For Alberto G Spota[6]: “The unforeseen circumstance means the legal or physical impossibility of executing the due provision (…)”. This element must be configured with irresistibility, since the impossibility of rendering the service must be linked to the impossibility to overcome the harmful effects of force majeure or unforeseen circumstance alleged.

For this analysis, it is necessary to consider that, to mitigate the effects of Covid-19 on industries, the Labor Code contemplates figures such as the temporary suspension of work activities – maintaining the payment of workers’ compensation – and cease of activities by the employer. Therefore, the impossibility to work as a cause to end the employment relation should not be temporary, since, if it were temporary, it could be facing a suspension of activities or possible cease of activities by the employer and not to a termination of the employment relation.

The termination of the employment relation, under this cause, does not constitute untimely dismissal, since the dismissal is the termination of the employment relation by unilateral decision of the employer. In this  case, the breakdown of the relation occurs due to the damaging effects of force majeure – events beyond the control of the employer. In this sense, Dr. Marcucci[7] states that the effect of the unforeseen circumstance and force majeure “(…) when they are actually proven in the labor field cause the contract to cease due to the absolute impossibility of continuing to provide the service and without any of the parties taking responsibility for it. Both are victims of force majeure (…) But neither of the two contractors is guilty of the misfortune of their former counterpart, nor therefore is forced to compensate (…) ”

Therefore, although the Covid-19 pandemic, by its nature meets the requirements of being non-imputable and unpredictable, its application as a cause for termination of the employment relation, and therefore, the exemption from the payment of compensation, cannot be applied in a generalized way based on the sole existence of the pandemic (Covid-19), because despite the fact that many industries reflect losses and liquidity problems, as a consequence of Covid-19, this does not necessarily mean that work is permanently impossible or that the effects have the necessary weight for the termination of the employment relation. It is imperative to carefully analyze the harmful effects of each case, to verify if the other three elements – irresistibility, causation and impossibility to work– are configured to justify the Termination of the employment relation for this cause: “force majeure or unforeseen circumstances make impossible to work”.

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[1] Published March 18, 2020 .- https://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/documents/briefingnote/wcms_739158.pdf
[3] This effect has been contextualized by the Supreme Court of Justice, today the National Court of Justice: Judicial Gazette. CVIII year. Series XVIII, No. 4. Page 1434. (Quito, February 22, 2007); Judicial Gazette. CIV year. Series XVII. No. 11. Page 3395. (Quito, November 12, 2002); Trial N ° 228-2007-Ex Third Civil, Mercantile and Family Division. (Quito, November 5, 2009.
[4] National Court of Justice, Specialized Labor Division, Trial No. 0027-2018. (Quito, May 14, 2019); National Court of Justice, Specialized Labor Division, Trial No. 0026-2018. (Quito, February 4, 2019); National Court of Justice, Specialized Labor Chamber, Trial No. 1948-2015. (Quito, June 22, 2017)
[5] El Caso Fortuito ante el Derecho Civil, 1958  p. 114
[6] Instituciones del Derecho Civil, Contratos, volumen III, 1975, p. 538
[7] Panorama Contextualizado del Derecho Laboral Sustancial Colombiano, Marcucci Cesar, 2005, p.120
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