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### Viewing cable 06QUITO1399, CONGRESS PASSES SUBCONTRACTING LAW IMPROVING

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06QUITO1399 | 2006-06-07 21:31 | 2011-05-02 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Quito

`

    VZCZCXYZ0002
    OO RUEHWEB

    DE RUEHQT #1399/01 1582131
    ZNR UUUUU ZZH
    O 072131Z JUN 06
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 4535
    INFO RUEHC/DEPT OF LABOR WASHDC PRIORITY
    RUEHBO/AMEMBASSY BOGOTA 5670
    RUEHCV/AMEMBASSY CARACAS 1776
    RUEHLP/AMEMBASSY LA PAZ JUN LIMA 0641
    RUEHGL/AMCONSUL GUAYAQUIL 0599
    RUEHGV/USMISSION GENEVA 0337

` `

    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    Chamber of Industries has withdrawn its representative from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
    -------------------

    ¶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

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