It is a fact that the new labor reform presented by the National Government, which has not yet been approved by the Congress of the Republic, proposes substantial changes to the labor regulations currently in force. One of these substantial changes is what is known as "limits on the use of the service provision contract," which seeks to prevent employers from entering into service provision contracts with natural persons to carry out permanent and subordinate activities in private companies.
It should be noted that currently, service provision contracts are regulated by civil or commercial regulations. This means that the parties have broad contractual freedom and greater autonomy when executing the contract and fulfilling the obligations set forth therein. On the contrary, the employment contract is regulated by labor legislation, which implies that there is a fundamental element involved, which is subordination, which broadly limits the freedom and autonomy of the parties to perform and execute the contract and imposes special obligations on the employer, such as the payment of Social Security, social benefits, recognition of vacations, among others.
That being so, the main differentiating aspect between a service provision contract and an employment contract is the subordination that occurs in the latter, which denotes a thin line between one and the other. Consequently, currently many companies and natural persons use the service provision contract to hide the fact that it is actually an employment relationship, which has caused numerous lawsuits to be filed requesting that the actual contract be declared with all the consequences that this entails.
Now, what is proposed in Article 15 of the new labor reform presented by the National Government is that service provision contracts or any type of civil or commercial contract with natural persons may not be entered into to carry out permanent and subordinate activities in private companies. Any affiliation that disregards this prohibition shall be ineffective, understanding, for all legal purposes, that from the beginning there has been an employment relationship with the right to payment of salaries, benefits, and other legal or extra-legal benefits, as well as contributions to the Social Security system under the terms established by Law for any subordinate worker.
The foregoing suggests that the aim is to prohibit the use of the service provision contract by private companies to hire persons who will carry out permanent and subordinate activities. However, as explained, the service provision contract does not imply subordination. On the contrary, it implies freedom and autonomy in the performance of the contract. That being so, currently the jurisprudence of the Constitutional Court and the Supreme Court of Justice have reiterated on various occasions that if a natural person is hired through a service provision contract of a civil or commercial nature, but in reality responds to a hierarchical superior or subordination is evident, this person may go to the jurisdiction and the judge may declare the actual contract, that is, may declare that the contract initially agreed as a service provision contract is actually an employment contract with all the implications that a contract of this nature entails.
The consequence is that the contractor who thereafter becomes the employer must pay everything that was not paid to the worker from the date on which the existence of the employment contract is recognized, and among those concepts we have social benefits (Service bonus, Severance pay, Interest on severance pay, Clothing allowance), and also recognize vacations, parafiscal contributions, Social Security, and if the service contract had been terminated, it is likely that even the judge will recognize an unjustified dismissal with the corresponding obligation to pay the respective compensation. In conclusion, although the labor reform presented establishes the prohibition on the use of the service provision contract to hire persons who will execute or develop permanent and subordinate activities, currently this is already prohibited, because as indicated, the service provision contract should not be used for activities where subordination is evident, otherwise, in judicial instances, the primacy of reality may be declared and consequently the employment contract with all its implications.