Severance or Unemployment Insurance? Neither, the solution is to eliminate layoffs

This article refers to the Dominican Labor Code.

In the Dominican Republic, Severance Aid is a mandatory contribution made by the employer when they unilaterally terminate an employee's contract after at least 3 months (Article 80, Dominican Labor Code). Also, the employer is responsible when a labor jurisdiction deems a dismissal unjustified (Article 95, Idem) or the resignation justified (Article 101, Idem). Severance should not be presumed a burden for the employer due to its very nature as a contingent right, as it is a labor provision, not an acquired right.

Is there a difference between a contingent right and an acquired right? The difference lies in that labor benefits only apply to workers whose indefinite-term contract ends through layoffs (Articles 76 and 80, Idem) or those terminated via unjustified dismissal or justified resignation, making it an uncertain right. In contrast, acquired rights always belong to the worker regardless of the reason for the termination of the indefinite-term contract (Articles 177, 219, 223, and 228, Idem).

In practice, it is normal for the terms “contingent rights” and “acquired rights” to be used indiscriminately to refer to one thing or another; this includes many labor lawyers.

However, there is a very large conceptual difference between both institutions. While the Dominican Labor Code does provide for indemnities for the parties involved in a labor relationship (either for the provision of the service or in case of termination of the contract). Usually those generated during the provision of the service are called Acquired Rights, and correspond normally with Vacations, Christmas Salary, Participation in the Benefits of the Company, and the Tip. And although they are granted mandatory at the end of the contract, it is not done because it has ended, but because they belong to the employee.

Those that are generated exclusively at the end of the contract, either by layoffs, unjustified dismissal, or justified resignation are Labor Benefits and are composed of: Severance Aid and Notice.

The elimination of Severance Aid is a request from the business sector aiming to liberalize employment contracts, using the promise of more jobs as bait[1]. This implies that employees sacrificing personal gains contribute to employment progress, which is far from the truth. Severance Aid offers relief to employees, ensuring they are compensated before their contract is terminated. It also serves as an economic deterrent for employers, who must prove valid reasons to dismiss an employee, safeguarding workers' rights.

The concept in theory works correctly until evicting an employee is imminent, then the company will not skimp on paying all random or acquired rights to get rid of the problem.

This leads us to think that what is needed is not to ask if Unemployment should be limited or eliminated, or if work insurance should be created. Work insurance under the light of Law No. 87-01 does not exist since the paragraph of article 50 that addresses the issue does not create the institution but rather the government is urged to meet for the purposes of creating it. This would imply repealing laws and this could not be done by regulation, ordinance, or decree.

The real question is should layoffs be eliminated? And if, layoffs, which is an ad nutum [2] dismissal, that is, without reason, has no place in a Social Democratic State of Law like the one in the Dominican Republic in since 2010.

Why? Very simple because we are facing the greatest obstacle to the development of equal working conditions without the need for unionism. Because if in exchange for a price, the employer can silence dissident voices (and non-unionized ones, because unionism should be another option but not always the mandatory option). If so, employment is worthless and there can never be substantial improvements that do not start from a consensus forced by protests and with the iron hand in a silk glove of the State to support it.

The disappearance of layoffs does not necessarily mean the disappearance of aleatory rights, since they can be maintained as rights that are generated by justified resignation and unjustified dismissal and even mutual consent. This leads us to understand that there would be no need for work insurance, which in countries with lax institutions like the Dominican Republic has proven to encourage laziness and hinder any progress towards reducing unemployment. As a reliable example we can cite Spain's case where with 6 years of contribution to unemployment insurance the beneficiary can receive up to 80% of their average salary for 24 months. Who would actually look for a job when you can take 2 years off?

“Should the company assume a tax burden of 26,764,466.40 per month so that the business community is not responsible for a random right?”

In addition, unemployment insurance would substantially increase what an employee would have received in severance pay due to a layoff, which in principle seems like an achievement, but it is not. If we take the legal minimum wage at the time of issuing this opinion, which is USD$245.13, and we assume that the worker had 6 years of work, he would receive USD$1,419.53 from his former employer only for the severance pay[3].

If a Spain-style unemployment insurance was established, then the worker would earn 70% of the salary, which in this example would be USD$171.59 per month, for up to 38 months[4], for a total of USD$6,520.39. Under the assumption that the dismissed person has not found employment. Society as a whole would be carrying a 79% more expensive responsibility. Should society assume a tax burden of USD$486,626.66 per month so that the business community is not responsible for a random right? 24 months [5]. Who would actually look for a job when you can take 2 years off?

If, on the other hand, a six-month salary model like the North American model is assumed [6], the unemployed would receive USD$1,498 in total, which is 3.5% more than their Severance. Although apparently benefited, they are not, since the State still would run with gross figures exceeding USD$695,180.95 per month.

If less is paid, then it would be detrimental to what the former employee would have received for the Severance. This is not acceptable either, since it constitutes a veiled diminution of the right and at the same time a disengagement from it.

In summary, our thesis is that the elimination of the figure of layoffs would strengthen labor ties since the employer no longer has a price on the means of subsistence of a non-unionized dissident voice. At the same time, the employer, retains the right to dismissal for violations to the contract because of any causes of article 88 of the Dominican Labor Code. For the employee who does not want to remain within the economic unit, the figure of resignation may be included in the legislation; or the reverse-layoffs carried out by the employee may be maintained, making the necessary modifications to prevent the worker from leaving his job without being duly replaced.

The dilemma, in our opinion, is not layoffs because the employer who pays a certain salary is because he has the capacity to do so; and if he does not have a way to respond to the layoff he should not have exercised it.  Better yet, he can always go to the restructuring of the company and adhering to the law that governs the matter and allows the staggered payment of benefits (Article. 124, Law 141-15).

The problem is actually neoliberal businessmen who do not want the State to have a say in how they manage their companies; and at the same time it is that same business community that wants the State to create institutions and allocate funds for employment and subsidies in order to rescue them. A responsibility that is specific to each economic unit and not to society as a whole. The wealth generated, which is what makes any company meaningful, after taxes and the participation in the profits that workers accrue as an acquired right, remains in the hands of its shareholders, not of society in general. So It is only logical that it is the company that has to respond, since there is no layoff if there is no dismissal without reason, or rather layoff.

By Phillips J. Díaz-Vicioso, LL.M.

Further reading:

[1] Senior Fernandez, J. M. (2019, abril 25). The necessary unemployment reform. Retrieved from El Dinero: https://www.eldinero.com.do/82281/la-necesaria-reforma-de-la-cesantia/

[2]Alburquerque, R. F. (2003). Derecho del Trabajo, Tomo I, Introduccion, Los Sujetos del Derecho del Trabajo (Vol. I). Santo Domingo de Guzman: Ediciones Juridicas Trajano Potentini.

[3]USD$245.13 divided by 23.83 equals a daily pay of USD$10.29 multiply by 23 days of Unemployment Rights multiply by 6 years equals to USD$1,419.53

[4]https://www.mites.gob.es/es/mundo/consejerias/paisesbajos/pensiones/contenidos/prestaciones/04WW.htm

[5]Ministerio de Trabajo. (2019). Government statics 2019. Retrieved from Ministerio de Trabajo: https://mt.gob.do/transparencia/index.php/estadisticas/category/estadisticas-institucionales-2019

[6]https://fileunemployment.org/calculator/