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

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.

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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”.

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


[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

Reforms to Ministry of Labor guidelines on the application of reduction, modification or emergency suspension of work activities

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On March 28, the Ministry of Labor amended the Ministerial Agreement MDT-2020-077, regarding guidelines on the application of reduction, modification or emergency suspension of work activities during the sanitary emergency.

Working-day schedule modification

Employer that modifies working schedule due to the sanitary emergency, must allow their workers to rest for 2 consecutive days.

Suspension of work activities 

  • Employer is entitled to recover the period on which activities were suspended, increasing the working schedule up to 12 hours during the week and 8 hours on Saturdays.
  • Employer and workers may agree on a wage payment schedule during the period on which activities are suspended.

Emergency vacation planning

During the health emergency, employer may require its workers to take any vacations days they have available. Employer may also agree with their workers to take early vacations, to do so, the corresponding vacation request must be submitted.

Working conditions modifications 

Employer and workers may agree on work alternatives established in the existing regulations, due to conditions arising from the Covid-19 pandemic, such as the mobilization impossibility, prevention infection risks and employer´s financial status. All these must not imply a waiver to workers’ rights.

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DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

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Ecuador: New measures against Covid-19

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Since March 17, new limitations apply to mobility and the development of economic activities.

I. Measures enforced throughout the country

The President of Ecuador, through Executive Decree 1017, declared a state of emergency throughout Ecuador, further declaring the Covid-19 (coronavirus) as a pandemic and issued additional control measures.

  1. Freedom of movement and mobility of people in the country have been limited and in-person work activities on public and private sector were suspended from March 17 to 24.
  2. Exceptionally, the mobility of people will be allowed in the following cases:
    • Workers and employees of entities that provide basic services relating to health, security, fire, airports, terminals (maritime, river), banking, food supply; the export sector and its logistics chain, strategic sector, those related to animal care and breeding, consular services accredited in the country.
    • Members of the National Police and Armed Forces.
    • Medical, health or relief personnel
    • Public and private transportation of entities authorized to operate.
    • People who must commute for emergency reasons.
    • People who need to stock up on food, medicine or fuel.
  3. Curfew has been established prohibiting any circulation of vehicles and people from 9:00p.m. to 5:00 a.m. each day, except for the cases listed in a. to f. of Paragraph 2.
  4. From midnight on Tuesday 17 to April 5, domestic air operations are suspended. Exclusive air cargo operations, domestic and international, are permitted and operational.
  5. Since Wednesday, March 18 vehicle circulation is restricted for people who commute to stock up on food, medicine or fuel. Circulation is limited to:
Day

License plate ending on:

Monday, Wednesday, Friday, and Sunday 1 – 3 – 5 – 7 – 9
Tuesday, Thursday and Saturday 0 – 2 – 4 – 6 – 8

II. Measures enforced in the Metropolitan District of Quito

The Mayor of M.D. of Quito announced additional control measures applicable exclusively in M.D. of Quito from 5:00 am of March 17 until March 31:

  1. Suspension of the use of public spaces including sidewalks, streets, parks, pedestrian bridges, passages, among others. Only the mobility of the persons listed in Section I.2 above is allowed with certain additions.
  2. Suspension of business activity licenses. Licenses for food and medicine sales activities are exempted.
  3. Full restriction for private vehicles´ circulation and buses (motorcycles, bicycles, trolleybus, Ecovía, Metrovía systems). Motorcycles that transport food and medicines with a maximum of one passenger are allowed to circulate.
  4. Taxis can circulate to transport authorized persons, with limitation established by the Mayor.
  5. Closure of land terminals and airports, except for cargo operations.
  6. Circulation of children, senior citizens or people with disabilities is not allowed.

III. Public sector operation and the judicial function

  1. The suspension of in-person work activities includes the public sector, which will limit its activity to what can be carried out by teleworking. This means that the majority of processes are suspended.
  2. Several public entities such as the Internal Revenue Service, the National Customs Service of Ecuador, the Superintendence of Companies, the Superintendence of Control of Market Power, Ministry of Labor have expressly suspended the terms within pending administrative proceedings.
  3. The Judicial Branch suspended activities while the state of emergency established by the President of the Republic lasts. Likewise, judicial processes dates and terms are suspended.

 

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DISCLAIMER: The previous text has been prepared for informational purposes. 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 additional determined situation requires the specific opinion and concept of the firm.

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