Challenges and risks involved in subcontracting

With the Contractor Management Workshop organised by Achilles in Santiago, Chile only a few days away, we spoke with Cristián Aguayo, a lawyer specialising in labour issues and founding partner of the Aguayo, Ecclefield & Martínez law firm, who will be speaking at the event and discussing risks involved in subcontracting.

We took this opportunity to look further at the current scenario faced by buying organisations some 10 years or more on from the law on subcontracting coming into force in Chile (Law governing subcontracted work, the operation of temporary services companies and the temporary services employment contract), at the challenges and different alternatives for minimising risks and at the impact caused by breach of duties.

What have been the main benefits of the law on subcontracting for companies and workers in legal terms?

Subcontracting work is that carried out under an employment contract by a worker for an employer, known as the contractor or subcontractor, who by reason of a contractual agreement provides works or services at his own risk and expense and with workers for whom he is responsible, for a third individual or legal entity that owns the works, company or site, known as the main company.

In this context, it could be said that the main benefits of correct implementation and application of this law are that it aims to establish safeguards to ensure compliance with the labour and social security law which is applicable to all the workers involved.

Workers are therefore afforded greater peace of mind irrespective of who directly employs them. At the same time it enables the main companies to align themselves with contractors or subcontractors offering vital assurance in terms of their actual solvency, reliability and commitment to their services and the workers providing them.

In this context, what challenges are companies currently facing? Could you give us some examples?

Because of workers suing their direct employers, the main companies are exposed to verdicts which could make them joint and severally and/or vicariously liable, which means they need to have a system of monitoring that gives them tighter control. Only in this way can they protect themselves against the unknown.

What do the sanctions for non-compliance involve?

Current labour law establishes two types of liability for the main company: vicarious liability and joint and several liability. The difference between the two is that vicarious liability only occurs when the main company exercises the rights of information and retention with respect to its contractors or subcontractors, as the case may be. On the contrary, joint and several liability occurs when the main company does not exercise those rights.

The main company is obliged to take the necessary measures to effectively protect the life and health of all the workers occupied on its works, company or site, irrespective of who employs them.

What should companies not forget in order to minimise the risks?

Contractors and subcontractors must exercise information rights, also known as control and payment rights, which is what enables the main company to request information from contractors and subcontractors regarding their compliance with labour and social security obligations for their workers. Contractors have the same right regarding their subcontractors.

Contractors and subcontractors are also able to exercise the right of retention, which enables the main company to withhold payments due to contractors who fail to provide evidence of full compliance with their labour and social security obligations, for which costs it is responsible, and to assume payment to the worker or social security institution to which it is due. Contractors have the same right regarding their subcontractors.

The contractor must provide evidence to the main company of the amount and present status of its labour and social security obligations by means of certificates issued by the respective Labour Inspectorate, or by other suitable means regulated by the Ministry of Labour and Social Security, within 90 days of publication of the law.

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Challenges and risks involved in subcontracting

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