Outsourcing in the Dominican Republic

Outsourcing is the practice of transferring resources and certain tasks of one business to another independent business, which provides specialized services.

Introduction

In the outsourcing process, a business function is carried out by a third party service provider. The hiring business transfers part of its operational management to an outsourcing firm. In this way, the outsourcing firm can operate away from the normal relation of the hiring business and its clients.

Many companies use specialized businesses to manage their most promising business activities. These include areas such as IT, human resources, asset management, real estate and accounting. Many businesses also outsource technical user support as well as telephone call handling, manufacturing and engineering.

The service costs are usually lower if these areas are outsourced. Allowing many businesses, in service and consumer goods industries, to shut down their own customer relation centers and contract these out to a third party.

The main goal of outsourcing is to reduce production costs. But, outsourcing is also a source of competition: as it allows businesses to reduce production costs by outsourcing to firms which offer the best quality at a lower price.

The hiring business no longer has to sustain the costs of running a specialized function, which is a fixed cost. This is replaced by a variable cost, by employing a firm which has already borne these fixed costs. Moreover, the outsourcing firm is more specialized in this function. For the outsourcing firms, this results in an increased market reach and greater specialization in the outsourced task.

Due to this demand, customer service call centers have increased significantly in the Caribbean. This has especially been the case in the Dominican Republic.

Labor Code and the Outsourcing in the Dominican Republic

In the Dominican Republic, national labor laws provide a high level of protection for employees. In particular, Dominican law seeks to ensure that their employers are solvent. Solvency is ensured giving the employee protection by making several businesses jointly responsible for labor debts.

Because of this rule, you need to look closer at the different models of labor relations which can give rise to outsourcing.

Here are the various forms:

a) The subcontracting business. This is a business which relies on another firm to provide goods and services. This firm agrees to carry out the work at their own risk and with their own financial, material and human resources.

b) Labor market intermediation. This brings in an apparent employer between the worker and the actual user or recipient of its services. There are three types of such labor market intermediation:

1) Traditional labor market intermediation. This is carried out by employment agencies, which act only as a contact between the job seeker and the employer and does not get involved in the employment relation. In this type of intermediation, you maintain a two-way relationship, not a three-way relationship.

2) Placement agency. This is where an intermediary, becomes not only the contact between the employer and the employee, but also remains in the employment relation, as the apparent employer.

3) Supply of temporary labor. This is carried out by temporary work agencies, which hire workers and send them to other businesses. These businesses later determine the temporary workers’ duties and supervise their work. The staffing firm has a more limited role. It selects staff, supplies its clients with workers, and pays these workers wages (which are ultimately paid on behalf of their business clients).

In the Dominican Republic, there are different types of contracts used to govern labor relations for outsourcing contracts. But, depending on the circumstances of the contract – even though it is a commercial contract, this could be considered a labor subcontract.

A. The subcontracting business.

In the case of a subcontracting business, there is no employment relation between the service recipient and the subcontracted worker. This is possible because of how a subcontracting business operates. In most instances, it offers services externally. In other words, outside the client’s headquarters. It works with its own budget, its own administration, and without any obvious connection with the service recipient.

In the Dominican Republic, the subcontracting business occurs mainly in the free zone sector where there are subcontracting businesses (textiles, voice and data services) which supply services to large multinational companies and form part of their global outsourcing chain.

In the practical application of Dominican labor law, no labor disputes have arisen involving a service recipient business.

B. Intermediation.

Within these forms, we have commercial subcontracting arrangements which are:

i) Traditional labor market intermediary;
ii) Apparent employer;
iii) Supplier of temporary labor.

Below, we will examine each one of these:

B1. Traditional labor market intermediary.

An intermediary’s role is limited to managing and placing staff on assignments. At no point does this intermediary carry out or take part in the performance of the employment contract. The intermediary takes part in this agreement in return for a commission or fee for every job processed, until the end of the assignment.

This type of outsourcing is governed by article 7 of the Labor Code which states:

… are deemed […] intermediaries those who use workers for jobs in other companies.

This type of outsourcing has not resulted in any disputes in Dominican labor relations. In general, this type of outsourcing is common in large and medium-sized businesses.

B2. Apparent employer

This type of outsourcing is governed by articles 7 – 12 of the Dominican Labor Code.

The first paragraph of Article 7 of the Dominican Labor Code establishes that an intermediation goes beyond that of a typical work placement. It treats the intermediary as one who employs and at the same time involves itself in the performance of the employment contract; and this intermediary even becomes involved in directing any work carried out by the hired workers.

In such conditions, this intermediary becomes an “apparent employer” for all the contracted workers who were generally unaware of their “actual employer”.

But, article 12 of the Dominican Labor Code states that:

Intermediaries are those who do not have all the elements or their own arrangements to fulfill the obligations arising out of the relations with their workers and, are jointly responsible with the contractor or principal employer.

Articles 7 – 12 of the Labor Code intends to regulate labor subcontract; its goal is to assure the workers’ rights by establishing a shared responsibility between all those who take part in the outsourcing chain.

Dominican law permits that both the owner of the work (or ultimate beneficiary) and the contractor may resort to subcontracting of workforce. But does not permit that such outsourcing falls into the hands of a person without solvency.

Let’s turn back to the issue of the intermediary, in particular, the apparent employer. If outsourcing is established, the provision in article 12 of the Labor Code makes jointly responsible all those who are involved in the outsourcing chain.

The same Dominican Supreme Court of Justice established that:

It is the responsibility of the owner of the work, when sued for payment of these fees for contracted workers by a contractor or subcontractor, to prove, not only the existence of the construction contract, but also the financial solvency of these and their independent status. (3rd Chamber, Supreme Court of Justice, January 19th 2005, Judicial Bulletin 1130, page 713).

In fact, take the example of an employee who receives instructions from the business where he is physically working and is paid a salary from this business. In these circumstances, the employee is well within their rights to sue that business regardless of those agreements which have been reached with the sub-contractor.

B3. Supply of Temporary Labor

In the Dominican Republic, are not intermediaries, but employers, those who take on work or part of work in favor of others and carry out this work by themselves, working independently.

In the concierge business, there are businesses that provide cleaning services to homes and businesses from various sectors of the economy. This is also typical in the private security industry, where many surveillance businesses provide services to both homes and businesses.

These business services have operated adequately and have not led to any litigation which has challenged the authenticity of the commercial contract between the supplier of services and the ultimate beneficiary. Nor have the workers involved in this arrangement challenged the status of the supplier.

Suppliers of labor, such as those in the concierge and surveillance business, have operated with independence in their business dealings with their clients. Moreover, the solvency of such businesses has not been challenged, at least in the labor disputes which have taken place so far.

While we said earlier, there have not been any issues because we were dealing solvent companies. Yet, if the intermediary were an insolvent company, we understand that the courts would make the service recipients jointly responsible for the payment of employment benefits.

Conclusion

To sum up, in the Dominican Republic, employees receive a high level of protection from labor laws. The law gives the employee protection by ensuring that businesses are held jointly responsible for their employment, to guarantee the financial safety of their work benefits.

For this reason, it is advised that when you commit to outsourcing contracts of any form, the labor implications should be examined carefully by a legal expert.