US embassy cable - 05GUATEMALA280

UNCLAS SECTION 01 OF 02 GUATEMALA 000280 
 
SIPDIS 
 
USTR FOR CLATANOFF 
 
E.O. 12958: N/A 
TAGS: ELAB, ETRD, PREL, PGOV, EAID, GT 
SUBJECT: GUATEMALA'S LABOR LAW ENFORCEMENT AND COURT RULINGS 
 
REF: GUATEMALA 56 
 
1.  Summary:  The Guatemalan Labor Inspectorate has at least 
been temporarily stripped of its power to impose fines on 
employers found to be in non-compliance with labor laws, due 
to an August 2004 Constitutional Court decision.  Inspectors 
must now take their findings to labor courts for 
court-ordered sanctions.  The decision also made other 
changes, including the possible transfer of liability to 
companies (including foreign companies) for labor law 
violations committed by their contractors in Guatemala.  The 
government's inter-agency Labor Relations Working Group is 
developing proposals to replace the labor provisions lost in 
the Constitutional Court ruling.  End summary. 
 
Removing authority from the Ministry 
------------------------------------ 
 
2.  Several USG offices and agencies have discussed the 
powers of the Guatemalan Labor Inspectorate recently in 
regard to the Generalized System of Preferences (GSP) and a 
potential Central American Free Trade Agreement (CAFTA).  For 
this reason, we provide the following analysis of the labor 
law enforcement regime and the ramifications of the 
Constitutional Court's August 2004 decision. 
 
3.  The Guatemalan Labor Inspectorate does not currently have 
the authority to impose fines or other sanctions unilaterally 
upon employers found not to be in compliance with Guatemalan 
labor law.  This power stemmed from the 2001 labor reform, 
which this embassy and the International Labor Organization 
(ILO) strongly supported.  In January 2004, however, the 
umbrella business organization CACIF filed a lawsuit 
challenging this authority.  In August 2004, the 
Constitutional Court ruled in CACIF's favor and overturned 
the relevant articles of the 2001 reform.  (Note:  Employers' 
associations were displeased with the former regime due to 
the multiplicative effect of some of the fines.  Low level 
violations had correspondingly low fines, but in certain 
cases these were multiplied by the number of workers 
affected.  Thus, a factory with a 5,000 person workforce 
could end up with a huge penalty for a relatively minor 
infraction.  Fines for more serious violations ranged from 
ten to fifty times the minimum monthly wage, with possible 
additional escalations.  End note.) 
 
4.  As reported reftel, following the Court's decision, the 
Ministry continued to assess fines on non-compliant 
businesses, as the ramifications of the decision were 
unclear.  Appellate Court decisions, however, began to 
overturn the fines based on the larger Constitutional Court 
ruling.  Faced with these Appellate Court interpretations, 
the Ministry of Labor finally accepted the block to its 
powers in late November 2004.  For this reason, inspectors 
now take their findings to labor courts for court-ordered 
sanctions; a process that Ministry of Labor officials 
consider cumbersome and inefficient.  In the two months since 
this decision, Labor Courts have imposed no sanctions. 
 
5.  The Ministry of Labor is developing an options paper to 
address the situation within the inter-agency Labor Relations 
Working Group, which includes the Ministries of Foreign 
Relations and Economy, the Attorney General's Office, tax 
authorities, the Bank of Guatemala, relevant Presidential 
commissions, Congress, and other institutions.  By tradition 
-- and by ILO recommendation -- draft legislation involving 
labor law is also reviewed by the Tripartite Commission, in 
which government, employers, and unions participate. 
 
Comment:  Our reading of the legal Decision 
------------------------------------------- 
 
6.  We have spent many hours with GOG officials, business 
groups, and NGOs attempting to develop an understanding of 
the Constitutional Court's decision.  The reason the MOL 
continued its standard operations until late November 2004 is 
that the decision itself contains a number of inconsistencies 
and ambiguities.  We understand that the Labor Inspectorate's 
assessment of fines was struck down because the Constitution 
grants sole authority to levy fines and other penalties to 
the judiciary.  We further understand that it may be possible 
for the Labor Inspectorate to assess fines if it does so on 
the courts' behalf.  Many of these points are subject to 
interpretation and there have not been any test cases to 
refine the legal understanding.  The analysis below 
represents our views and is not established by writ or 
precedence in the Guatemalan Labor Code. 
 
7.  Comment continued:  The labor law sections cited below 
were directly affected by the Constitutional Court's 
decision.  For the complete text of the articles, readers are 
advised that Guatemala's labor law is available at the U.S. 
Department of Labor-funded website, leylaboral.com.  The text 
available on this website is up-to-date and includes the 
revisions from the Constitutional Court's decision. 
 
--Article 81:  The article originally noted that primary 
companies and subcontractors would each be liable for labor 
abuses.  The court decision struck out the Spanish word 
"solidariamente" in relation to the mutual liability.  This 
changes the entire meaning of the article, placing liability 
solely on the primary company.  Thus, if a U.S. company 
contracted a Guatemalan maquila to produce apparel items, any 
abuses in the workplace would be the legal responsibility of 
the U.S. company.  As virtually all Guatemalan maquilas 
produce for the U.S. market, this interpretation could have 
far-reaching consequences. 
--Article 243:  The Court struck down the final paragraph; 
however, it is unclear if the decision refers to the final 
block of text or all of subsection (c).  We believe the 
former, thus abrogating the President's ability to suspend a 
strike if he deems that it threatens essential services. 
 
--Article 269:  The right of the Labor Inspectorate to assess 
fines in the second paragraph was struck down.  Also, the 
word "administrativa" in the same paragraph was struck out. 
The latter point refers to the executive branch's authority, 
leaving behind the implication that labor courts can assess 
fines. 
 
--Article 271:  The Court struck down the phrase "General 
Labor Inspectorate" (la Inspeccion General de Trabajo) in 
subsection (b), in regard to determining a potential fine. 
Interestingly, the court did not strike down the word 
"administrativa" as in Article 269, thus still leaving the 
possibility of action by some unspecified executive branch 
actor, which would include, theoretically, the Ministry of 
Labor. 
 
--Article 364:  The Court struck down the final paragraph, 
although that paragraph appears to be merely an amplification 
of the previous paragraphs regarding judicial action in 
response to non-compliance with labor law. 
 
--Articles 209, 214, 216, 233, 272, 281, 379, and 380: 
Although noted in the Constitutional Court ruling, none of 
these articles appear to have changes. 
 
8.  Comment continued:  we continue to engage all levels of 
the GOG in regard to this issue.  Replacing the gains of the 
2001 labor reform and taking action on the pending 2004 labor 
reform, which addresses child labor, sexual harassment, 
discrimination, and domestic labor, are necessary advances. 
We are urging the GOG to re-empower the Labor Inspectorate in 
a Constitutionally acceptable manner as soon as possible, 
whether by executive decree, new legislation (which will 
probably be necessary), or a combination of both. 
HAMILTON