a. Laws and Guiding Principles
According to the Colombian labor legislation, by virtue of the primacy of the ‘reality principle’, every agreement under which an individual obliges himself/herself to provide to another person a personal service under continuous dependence or subordination and receives remuneration for the work performed, is considered to be an employment relationship.
Therefore, the employment agreement subject to the Colombian labor regime is deemed when the three above mentioned items (rendering of personal service, continued dependence or subordination, and remuneration) occur, and an employment agreement does not cease to exist simply because of the name given to the agreement entered into by the parties or any other conditions that may be added to it.
Colombian legislation is governed by the territoriality principle, whereby it is assumed that the Colombian Labor Code is applicable to foreigners and nationals, whenever they render their services within Colombian territory.
b. The Legal Consequences of a Re-Characterisation
Re-characterization can only be declared by a labor or constitutional judge, by request of the individual who rendered the services or his/her successors. The legal consequences of a re-characterization are that the former contractor, now employee, will be entitled to all rights and prerogatives derived from an employment relationship. Though, it must be pointed out that except for some specific cases, the rights derived from the existence of an employment relationship will have a statute of limitations of three years from the date when the employee was entitled to such rights. In the case of severance payment, the statutes of limitations will begin to run as from the date of termination of the employment.
Thus, if a contractor succeeds in his/her re-characterization claims, he/she will be entitled to all benefits granted to employees, depending on the compensation that he/used to receive under his/her former services agreement. Among these benefits there are the vacations, legal bonus, severance payment and interest thereon, transportation aid and dress and footwear. In addition, the employer will have to make the corresponding contributions to social security and payroll taxes considering that the individual who rendered his / her services was an employee; payroll taxes have a statute of limitations of five years. Finally rights and obligations necessary for obtaining a pension do not have statutes of limitations.
Labor costs can amount to approximately 55% of monthly fees earned.
Moreover, in the event of an accident and/or illness and/or health condition during the performance of his / her services in Colombia, the individual and/or his / her successors may claim the payment of the assistance and economic benefits not covered by the Colombian Social Security Regime. Such benefits may vary from:
• medical expenses and/or treatments;
• medical leave payments;
• disability indemnifications;
• disability pension;
• survivors pension; and
• allowances for death expenses.
Furthermore, an individual may claim at any time in the future, payment of the pension contributions that should have been made during the time of rendering of services in Colombia, since there is no statute of limitations when dealing with pension contributions.
It must be considered that re-characterization can be done after termination of the de facto employment relationship. In this case, the dismissed employee would not only be entitled to the indemnification payments prescribed by law depending on the type of employment agreement, but he/she will also be protected by the stability (protection of employment) rights granted to pregnant employees or those with health complications. Thus, if the re-characterized employee had stability rights at the time of termination, then he/she will be entitled to reinstatement and payment of any salary due, fringe benefits and social security contributions as from the date of the dismissal until the effective reinstatement.
Moreover, when a temporary services agreement is terminated, the contracting party does not pay fringe benefits to the terminated contractor so a re-characterization of such into an employment agreement will mean that employer does not pay fringe benefits at termination.
If the constitutional or labor judge determines that fringe benefits were not paid by the re-characterized employer in bad faith, it will order the employer to pay a legal indemnification consisting of one day of salary for each day of delay as of the termination of the employment agreement. Though, it will not be necessary to prove bad faith regarding non-compliance or delays in severance payments, in this case, the indemnification of one day of salary per day of delay will be counted yearly.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
The individual may file a complaint before the ordinary labor jurisdiction or a constitutional action before any judge whenever his/her fundamental rights are being transgressed.
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
The potential risk arising from non-compliance with contributions to the health system and payroll taxes for an employee on the mandatory percentages, is that the social security entities (either health promoting entities, pension entities, or payroll entities) may initiate an investigation against the employer which may result in fines corresponding to the payment of very high default interests, plus the sums that were not paid because the company did not consider them to be salary.
Additionally, if the Pension and Payroll Taxes Control Unit (“UGPP”) initiates an investigation and finds any inaccuracy in the payments of social security system contributions or payroll taxes, it may impose fines on the employer that will range between 20% to 60% of the difference between the amounts paid and the amounts that should have been paid, plus default interests over amounts owed.
In the same order, the Ministry of Labor can impose a fine on the employer ranging from one Colombian minimum wage up to 5000 SMLMV (COP 3,688,585,000 for 2017).