As COVID-19 begins to spread in Latin America, we have seen countries begin to adopt measures to protect their citizens and residents. Some countries have been on lock down since last month, requiring all but essential workers to stay in place (e.g., Argentina, Bolivia, Colombia, El Salvador, Peru and Venezuela). Last week, Mexico canceled all non-essential activities and urged its citizens “Quédate en Casa” (Stay at Home). Other countries have extensive curfews (e.g., Dominican Republic, Ecuador, Guatemala, Honduras, Paraguay).
Below are some trends we are seeing in Latin America in response to COVID-19 as they relate to employers:
Suspension of Contracts & Changed Working Conditions: Throughout the region, LATAM nations have declared a state of emergency to facilitate the adoption of measures to confront COVID-19. In some cases, these measures include increased flexibility to change working conditions or suspend employment contracts. When it comes to essential workers, the focus of these measures is ensuring the workers’ availability. For example, Argentina expressly forbids any terminations “without cause” or terminations or suspensions due to force majeure until the end of May 2020. However, employers are authorized to unilaterally change labor conditions and the workday to ensure continuity of essential services. For non-essential workers who are unable to telework, the focus is on mitigating the cost of maintaining a non-productive workforce. For example, Panama has adopted a procedure that allows employers to petition to suspend employment contracts because of COVID-19. If approved, employees are not required to provide services and employers are not required to pay them. The suspension does not terminate the employment contracts and does not negate seniority. Costa Rica has adopted similar but separate procedures for employers to petition to suspend labor contracts or reduce the workday. Government approval covers a three-month period and is renewable, as necessary, up to two times. Brazil allows employers to temporarily suspend employment contracts while paying up to 30% of the employees’ salary and continuing benefits; during the suspension the government will pay an “emergency employment and income preservation benefit” up to certain limits.
In Mexico, the government’s decision to declare a state of emergency due to a force majeure precludes application of a provision that would have otherwise permitted the suspension of employment contracts with an obligation to pay only minimum daily wage. Instead, employers are advised that employment contracts remain in effect and cannot be changed unilaterally. However, employers are advised to engage their employees (and unions, as applicable) to make appropriate adjustments to reflect the current state of emergency.
Government Support: Throughout LATAM, we are seeing governments adjust their budgets and adopt other special measures to improve liquidity and provide a social safety net for its citizens (particularly those populations who are most vulnerable). For example, in El Salvador, employers have been advised to apply for a line of credit at preferential rates to cover the costs of providing paid leave to employees. An electronic form for pre-qualifying for credit incentives is posted to the government website (https://covid19.mtps.gob.sv/credito). In Peru, employees whose pay is reduced are permitted to take a partial withdrawal from the temporary unemployment fund (Compensación de Tiempo de Servicio). Chile has also provided that partial unemployment benefits are available in the case of a suspension of employment contracts and a supplemental benefit from the unemployment fund in the case of reduced working hours. The Argentine government created the Emergency Assistance Program for Employment and Production, under which the government will provide several benefits to employers, including a compensatory allowance paid to the company for each employee, the amount of which depends on the size of the enterprise; the amount is reduced by 25% for employees who are temporarily suspended).
Outside of the employment context, some countries have expanded the social safety network. For example, Bolivia has authorized a one-time food benefit for vulnerable populations (pensioners, disabled person and pregnant / new mothers), a weekly family benefit for those with school age children and the payment of 100% of the cost of electricity for the months of April, May and June (up to a limit; with a sliding benefit for amounts above the limit). Similarly, Panama has approved a four-month suspension, without interest, for vulnerable populations (e.g., pensioners, low-income individuals) and those who have lost employment due to COVID-19, on the obligation to pay for fixed and mobile telephone services, internet and electricity.
For now, except for a few hotspots, the number of confirmed COVID-19 cases in LATAM are relatively low. We hope the measures are effective in safeguarding the people and the businesses on which they rely.