In 2015 the fixed-term employment agreement, which allowed the hiring of employees for one-or two-years, was repealed from the Labor Code. As a result, the open-term agreement became the most widespread agreement for employment relationships covered by the Labor Code.
The open-term employment agreement grants the employee a high degree of stability, since it protects him/her in the event of unilateral termination and grants him/her the right to the payment of significant severance packages.
The pandemic caused by Covid-19, and its strong impact on the Ecuadorian labor market, made it necessary for the government to regulate new contractual mechanisms that make the hiring of employees more flexible, that adjust to the reality of each company and guarantee employment rights.
Since March 2020, the following types of agreements have been regulated: (i) agreement for work or services within the core business; (ii) emerging employment agreement; (iii) employment agreement for productive sectors, among others.
This article analyzes the employment agreement for productive sectors, also known as “productive employment agreement”, regulated by the Labor Ministry on October 30, 2020, through Ministerial Agreement MDT-2020-220. The regulation seeks to promote job creation in these sectors through a mechanism that allows them to cover the different needs of their activity.
Pursuant to Article 2 of the Organic Code of Production, Commerce and Investment (“COPCI”): “Productive activity shall be considered as the process by which human activity transforms inputs into lawful, socially necessary and environmentally sustainable goods and services, including commercial and other activities that generate added value.“
As a consequence, this agreement may be implemented by companies whose purpose or activity is (i) to transform inputs into lawful goods and services; (ii) to generate commercial activities; and/or (iii) to generate added value.
The productive employment agreement subjects employment relationships to the following conditions:
- Term: The term will be equivalent to the duration of the work, service or activity to be performed, up to one year, renewable once for the same term.
The employment relationship will be terminated upon completion of the work, the service or the established term, without the need of any other formality. The employer must pay the employee the proportional amounts corresponding to the thirteenth and fourteenth remunerations and vacations, without the payment of a resignation bonus or severance payment for unfair dismissal.
If at the end of the agreed term the employment relationship continues, the agreement becomes an open-termeagreement.
- Trial period: It may provide for a trial period of up to 90 days.
- Special working hours:
- The 40 hours per week may be distributed in up to 6 days per week.
- The parties may agree to increase the hours of the daily workday in exchange for additional rest days. In no case the workday shall exceed 12 hours per day.
- If the activities performed require uninterrupted services, the parties may agree on consecutive working days, which may not exceed 20 consecutive working days.
- Night shift: If more than 50% of the workday is performed between 6:00 a.m. and 7:00 p.m., the entire workday will be considered a day shift, i.e., night shift surcharge is not applicable.
- Living expenses: When geographical characteristics limit the employee´s free mobility to their place of residence, the employer must provide employees with housing, food and transportation.
- SUT registration: The employer has 15 days to register the employment agreement in the Labor Ministry online system “SUT”.
- Severance: In the event of early termination by unilateral decision of the employer -before the culmination of the service or the expiration of the term- employees are entitled to the payment of a severance package for unfair dismissal.
In conclusion, the productive employment agreement is a flexible employment mechanism, since it allows to dynamize the labor market and with it the country´s economy. In turn, employers can hire employees in compliance with employment obligations, adjusting to their needs and without generating additional costs upon termination of the employment relationship.