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SOCIALIST CUBA
THE NULLITY OF THE FOREIGN INVESTMENT CONTRACTS
DUE TO AN ILLICIT CAUSE: DEFRAUD THE CUBAN WORKER
By: Dr. Alberto Luzárraga.
Guaracabuya.org
SUMMARY
During the course of the past several years, diverse private and publicly
owned companies have signed contracts with Cuban government owned companies in order to
establish the terms and conditions under which they invest in Cuba. Joint venture
contracts regulate among other things the way that profits are shared, but parallel to
these contracts, there exists another contract undertaken with a Cuban government company
that furnishes the workers. The structure of both contracts is such that they are null and
void from inception due to the fact that they are based on an illicit cause, namely: to
defraud the Cuban worker of most of his wages.
Present Cuban law demands that the hiring of workers be made through a
Cuban Government owned company and that the wages be paid to that company in convertible
currency i.e. dollars. Such wages are not passed on to the worker that delivers the
service. The Cuban State delivers to the worker a sum, in Cuban currency, that is
numerically equal to the agreed salary in dollars; but retains for itself the exchange
differential that has fluctuated between 20 and 30 pesos per dollar. In this manner,
assuming an exchange rate of 20 pesos per dollar, a Cuban worker that receives 400 pesos
per month as his wages, is in fact only receiving 5% of what the Cuban State charges the
foreign investor, i.e. 400 dollars or 8000 pesos.
The Cuban government entity that hires the workers is a company with an
illicit purpose. It has been created only to harm and defraud a third party, namely the
Cuban worker. It is a sham.
Work contracts that provide for the payment of wages to a third party
whose only existence is to provide a subterfuge and not pay wages fully and directly to
the worker are null and void. An international labor convention ratified by Cuba prohibits
specifically this type of hiring. The real contract exists between the foreign company and
the Cuban worker. The third party is a company with no business capability and a sham, in
that it is a useless intermediary in the labor relationship.
The foreign investor is perfectly aware of the system, and accepts it
because it allows him to obtain labor at prices substantially lower than the international
market. It is also assured of a compliant labor force that lacks the right to unionize
independently and be represented by leaders of their choice. In spite of the attempt to
create this sham, daily reality tells the truth. Diverse employer acts of a juridical
nature vis à vis their employees evidence the existence of a true labor relationship.
The civil legislation and jurisprudence of which Cuba is an heir have
always considered as null and void those contracts that have an illicit and or immoral
cause. This tradition goes back to Roman Law, (the precursor of all modern western law)
and the medieval laws of King Alfonso the Wise of Spain, traditions that are more than
2000 and 800 years old respectively.
The civil consequence of nullity is the return of the things that were the
object of the contract, or the equivalent in cash if the return in kind is impossible as
in the case of the work performed.
In this case however, we are looking at a nullity arising from a crime.
The crime is committed by the Cuban Company that provides workers to the foreign
investors, joined in this act by the foreign investor. Both are co-authors of the crime of
robbery. There exists robbery because the property of a third party has been taken away
with violence to persons or things, a definition that exists in all criminal Codes
including the Cuban. The violence to persons consists in the violence applied to the Cuban
workers by the State Security, who incarcerates anybody that does not remain silent and
accepts the status quo.
Contractual nullity that results from the commission of a felony has
different consequences. The culpable parties that are the co-authors, (in this case the
Cuban government and/or its sham employment company, and the foreign investor) may not
demand from each other the fulfillment of the criminal object of the contract; and the
assets that are the object of the crime are seized and held to indemnify the damages
caused by the commission of the crime.
The non-culpable and damaged party is the Cuban worker that has a "de
facto" unwritten labor contract with the foreign employer that has imposed abusive
conditions taking advantage of the workers' lack of alternatives and protection. This
worker retains his civil action to demand damages from the party that employed him subject
to abusive conditions. He may demand his back wages plus legal interest, at the rate
applied by the international market for the type of work performed, plus any other
punitive damages that are deemed appropriate.
I- CUBA'S FOREIGN INVESTMENT LAW
Law #77 of 5 September 1955 regulates foreign investment. Article 33,
which we quote, establishes the system that we have described. Note: Translation
issued by the Cuban government.
Article 33.1. The workers in joint ventures who are Cuban or permanent
residents in Cuba, with the exception of the members of the management or administration,
shall be contracted by an employing entity proposed by the Ministry of Foreign Investment
and Economic Cooperation, and authorized by the Ministry of Labor and Social Security.
Article 33.3. In totally foreign capital companies, the services of Cuban
workers and foreign workers residing permanently in Cuba, with the exception of the
members of the management and administrative body, shall be hired through a contract
between the company and an employing entity proposed by the Ministry of Foreign Investment
and Economic Cooperation, and authorized by the Ministry of Labor and Social Security.
The members of the management and administration of the totally foreign
capital company shall be designated by the company and directly hired by it.
Article 33.4. Payments to Cuban workers and foreign workers residing
permanently in Cuba shall be made in national currency, which must be obtained beforehand
from convertible foreign currency.
Article 34.1. The employing entity discussed in the previous Article
individually contracts and directly hires Cuban workers and permanent residents. This
employing entity pays those workers their wages.
Article 34.2. When a joint venture or totally foreign capital company
considers that a specific worker does not meet the requirements of the job, it can request
that the employing entity replace that worker with another. Any labor dispute shall be
settled with the employing entity, which shall pay the worker, at its own expense, the
indemnification to which he or she is entitled, determined by the competent authorities.
In pertinent cases, the joint venture or totally foreign capital company shall compensate
the employing entity for such payments, in accordance with the procedure established, and
always in compliance with existing legislation.
The texts quoted leave no room for doubt. There exists an interposed
company and payments to the Cuban worker are made in Cuban currency that must be obtained
from the prior conversion of foreign currency. Dismissals are processed through this
intermediary who pays severance expenses. Only by exception does the foreign company pay
expenses.
There is more however. The system discriminates against Cubans. Art 33.1
and 33.3 establishes that the members of the management of a company fully owned by
foreign investors or those of mixed capital are designated by the general shareholders
meeting and hired directly by such companies. Obviously the managers are not going to work
for payment in worthless pesos and they are consequently authorized to contract directly.
Therefore, a regime that boasts of defending national sovereignty and the
rights of workers, makes Cubans second class citizens in their own country, gives
preference to foreigners and is so concerned with keeping the foreign capitalist happy
that it normally pays the severance for dismissed workers! In a way the Cuban government
guarantees the "quality" of the persons it sends to work, an unprecedented
practice that is motivated by a need of the system: to intimidate and control even more
the labor force.
We mentioned before in the summary, that the workers' direct labor
relation with the foreign company cannot be denied in spite of the articles of the foreign
investment law. With the typical juridical incompetence of the regimes that do not
recognize any law except force, the law contradicts itself and creates certain direct
remuneration systems that belie and vitiate its attempt to institute a sham.
Were we to apply what in law is known as the doctrine of the
"piercing of the veil" it would not be difficult to demonstrate that this
"employment company" is nothing but a subterfuge. It is a gross scheme.
Presumably this anti-juridical "stew" was cooked to find a way
to reward the faithful party members and the "nomenklatura" that work in middle
and upper management in the mixed capital enterprises. The text or article 32 that follows
illustrates our assertion.
Article 32.1. Joint ventures, the parties to international
economic-association contracts and totally foreign capital companies may be authorized to
create an economic stimulus fund for Cubans or permanent residents in Cuba who are working
in activities corresponding to foreign investments.
Article 32.2. The contributions to the economic stimulus fund shall be
made out of earned profits. The amount of these contributions shall be agreed upon between
the joint ventures, foreign investors and national investors who are party to
international economic-association contracts, and totally foreign capital companies, on
the one hand, and the Ministry of Foreign Investment and Economic Cooperation, on the
other hand.
Communism's "new man" is not so new after all. He wants his
share and wants it now. Apparently, "bourgeois cupidity" again raises its ugly
head. What would Marx and Lenin have to say!
Completing the picture of unscrupulous exploitation, working hours for the
tourist industry (where the most important investments are) have been extended to 64 hours
a week for ordinary jobs and 72 hours for certain specific ones. Further, workers are to
donate "spontaneously" the lion's share of their tips to the State.
Finally at the request of the hotel investors the resolution of 5
September 1995 of the CETSS (State Committee for Work and Social Security) granted said
companies and their managers ample powers to suspend, transfer or dismiss any employee. A
"commission" that is headed by the manager of the company, always a foreigner,
must confirm such measures. If any doubts remained as to the where the actual labor
contract exists, these rules clarify the issue.
II-THE INTERNATIONAL LABOR CONVENTIONS
We have described the damages inflicted on the Cuban worker and how the
system works. However it is notable that all of this is taking place in flagrant violation
of International Labor Conventions ratified by Cuba.
For example: Labor Convention #95 of the International Labor Organization
of June 8 1949 refers to the protection that should be accorded to the workers salary.
Cuba ratified this Convention on 24 September 1959.
Article 9 regulates withholdings. "Any deduction from wages with a
view to insuring a direct or indirect payment for the purpose of obtaining or retaining
employment, made by a worker to an employer or his representative or to any intermediary
(such as a labor contractor or recruiter) shall be prohibited."
It almost appears written for Cuba's' present situation. There exists an
intermediary imposed by the government that the worker tolerates because it the only way
that one can obtain or hold employment in this type of company. The choice is stark:
either hold on to your job or live in abject poverty.
Article 6 reinforces the concept by saying: "employers shall be
prohibited from limiting in any manner the freedom of the worker to dispose of his
wages." What worse limitation than to impose a confiscatory exchange rate!
Let us continue. Convention #111 of 4 June 1958, ratified by Cuba on 15
September 1960 prohibits discrimination in employment.
Article 1 defines the term discrimination as follows: "For the
purpose of this Convention the term discrimination includes any distinction,
exclusion or preference made on the basis of race, color sex, religion, political opinion,
national extraction or social origin, which has the effect of nullifying or impairing
equality of opportunity or treatment in employment or occupation."
We have shown that members of management may contract directly with the
company without going through the Cuban government hiring company. But, composition of
management is twofold. It consists of foreigners or Cubans that agree with the party
ideology. Clearly, there is discrimination for reason of national origin or political
ideology. It should be mentioned that the ILO has already brought the issue of labor
discrimination to the attention of the Cuban government, asking questions as to whether
Cuba is violating the Convention. The issue was that labor preferences were granted to
party members. As is to be expected, Cuba responds with mind numbing memorandums that
"interpret" the local law and promise to look into things later on, while the
forbidden practices continue.
Convention # 87 refers to union freedom and the protection of the right to
unionize. Cuba ratified it in 1952. Freedom to unionize is regulated by article 3, which
we transcribe.
Article 3.1. Workers' and employers' organizations shall have the right to
draw up their constitutions and rules, to elect their representatives in full freedom, to
organize their administration and activities and to formulate their programs.
Article 3.2. The public authorities shall refrain from any interference,
which would restrict this right or impede the lawful exercise thereof.
The ILO has also formulated observations to Cuba having to do with the
violation of this article, and made specific reference to the "interference of the
Communist Party of Cuba in the election of labor leaders."
Other observations made to Cuba have to do with the violation of several
other Conventions, as for example: the ones dealing with the prohibition of forced labor;
(convention #105 of 1957 ratified by Cuba in 1958 and convention # 29 of 1930, ratified by
Cuba on 1953); convention dealing with employment policy, (#122 of 1964 ratified by Cuba
in1971); and convention on paid vacations, that incredibly Cuba also violates (#52 of 1936
ratified by Cuba in 1953).
We are then facing a situation wherein basic worker's rights are ignored
by the Cuban regime, and this is a matter of public record, given the fact that the ILO
files are open to the public. Ignorance cannot be used as an excuse. The foreign
investor contracts with a tyrannical regime and is complicit with it in the illegal
exploitation of workers. The intention to take advantage of the situation in order to
effect personal gain is evident.
As an aggravating circumstance we should mention that many of these
conventions were ratified by Cuba many years ago (more than 60 years in some cases), all
of which proves the labor vocation of the Cuban worker who is not unaware of his rights
but only sees them repressed. The dissident press in Cuba has published articles referring
specifically to the abuse of rights under convention #95. The international press and the
Internet have picked up these denunciations. Therefore the employer not only has access to
public records but also to widely disseminated information.
III- NULLITY AND ITS CONSEQUENCES
There is no doubt that an illicit and immoral cause exists in these
contracts. A service is contracted against all international norms and conventions.
The motive is transparent: to obtain an attractive profit through the payment of an
inferior wage, even after including in the computation the amount that the foreign
investor pays the government hiring company.
The most important investments are concentrated in the tourist and
extractive industries. The meager circumstances of the Cuban people and economy require
that tourism be attracted by bargain prices, in spite of which the rate of repeat visits
is very small. In the case of the extractive and agricultural industries, price is also a
paramount requirement in order to compete in world markets. In both cases this competitive
price is borne by the Cuban worker on his back, as he makes it possible by performing work
that is remunerated at a fraction of its market value.
The Cuban government directly and through its employment agent
participates in this scheme with one condition: share in the spoils. Its share consists in
a portion of the profits and the exchange differential that it keeps as a result of its
abusive conversion of foreign exchange. To do this it acts sometimes directly and
sometimes through others, but its responsibility is the same.
To take with violence somebody else's property is defined as robbery by
all criminal legislation's around the world. There exists violence, because the government
intimidates and incarcerates anybody that dares to protest against the status quo. The
unions are not independent, as the ILO points out. Its leaders are dependent on the Cuban
Communist Party who imposes its hand picked candidates. Thus the pattern of violence is
complete, affecting the worker and the unions that are supposed to defend and represent
him.
An association to deprive somebody else of his property and obtain an
unjust enrichment is what defines the felony and the contractual nullity. Legal systems
around the world regulate nullity in similar terms, i.e. by denying validity to the acts
involved. From a legal standpoint the contract never existed and since it never existed
its defects cannot be cured nor can the contract be confirmed.
The Spanish Civil Code of 1889, that was applied in Cuba for more than
three hundred years until it was substituted by the actual one (the legality of which is
not acceptable albeit that it accepts the same principles), regulates the matter in its
article 1275. It stated: "Contracts without cause or with an illicit cause do not
produce any effects. The cause is illicit when it is contrary to the laws or to
morals."
Later on it declares in article 1305: "When nullity results from an
illicit cause or an illicit object, if the actions involved constitute a felony, committed
by both parties, then they shall not have any action to sue each other. Proceedings shall
be instituted against the parties, giving to the things or moneys object of the contract
the disposition that the penal code establishes for the assets or instruments involved in
the felony."
The juridical consequences established by all penal codes (including the
communists) are the same. Seizure of the assets and the profits obtained (notwithstanding
the conversions that may exist) and their sale, applying the product so obtained to cover
the civil responsibilities of the culprits. These responsibilities would be the back wages
at market rates due to the Cuban worker plus interest, in addition to the damages that the
court may determine.
Article 1305 continues to say; "This rule is applicable to the case
in which there would be criminal action only on the part of one of the parties; but the
innocent party may ask for the return of what he gave, and shall not be obligated to
fulfill that which he had promised."
In sum the investment contract is null and void. The investor and the
Cuban State and or its agent or sham companies have no action to sue each other. The
worker retains his actions, as he is not a culpable party. The employment contract with
the Cuban worker (whose existence is covered up by the attempt of sham through the
interposed company) is also null, but the innocent party has the right to sue and demand
what he delivered, that is, payment for his labor at a fair price.
IV- CONCLUSION
A democratic Cuba that respects property rights and its international
undertakings would never confiscate property arbitrarily à la Castro. However, it could
not validate passively the rape of the Cuban labor force during the Castro years. That
would not be justice, but precisely the opposite. If tolerated it would:
a) Ignore the fact that a notorious and public felony has been committed.
b) Reward the investors that showed no scruples, by granting them an
advantage in time and in the amount of their investment. It should be noted that present
investors have come in at low prices, another advantage of their complicit behavior.
To maintain the costs of those investments would give the unscrupulous
investor a competitive advantage to the detriment of those that would wish to invest in a
democratic Cuba in the future; inasmuch as new investments would be made at market prices,
and labor would have to be remunerated at a higher rate from inception.
One cannot tolerate that international conventions be scoffed at, and
applied only when no harm accrues to the most voracious.
There is ample precedent for stern action. The penal legislation of most
countries already punishes crimes committed against the rights of workers. These are
crimes that the investors are well aware of. For example: the biggest investor's in Cuba
have been Spaniards. Spain's Penal Code of 1995 punishes those that by "abuse of
necessity impose on workers at their service labor conditions that harm, take away,
restrict or suppress rights granted to them by legislation, collective contracts or
private contracts."
It is therefore juridically and morally correct for the future government
of the island to declare the nullity of these contracts, with its attendant consequences.
Cuba would not be inventing crimes or penalties. It would proceed according to the rule of
law.
What we have explained, renders hollow the protests against the
measures, imposed by the government and the congress of the United States, against those
who traffic with the Cuban government. Heated protests against the alleged infringement of
rights of the persons and companies affected by said measures are supposedly buttressed by
interpretations of international law, that at a minimum are highly arguable.
However, grave labor injustices that bear no argument are ignored,
notwithstanding the fact that they contravene international agreements ratified by Cuba
who has been called to account for their breach.
The same can be said of those that advocate the liberalization of Cuba
commerce with the U.S. without pausing to ponder one basic issue: The Cuban worker is
the one that needs freedom to contract his work and thus collect a fair wage.
Politically the arguments are even stronger. The resentment for the
injustice is such that a future Cuba could not be governed with labor peace if the abuse
is nor remedied. The investors that plan to take shelter in the doctrine of the continuity
of the acts of the state, or in international treaties signed with Cuba in order to
protect investments, forget one thing: doctrines and treaties do not exist to protect
criminal acts. The outrage is of such import that it cannot withstand a serious argument
before an independent tribunal.
Present investors have only one solution. Do the right thing. Pay now the
back wages that are due, and demand the right to contract directly with the worker. Otherwise
you are complicit with a tyranny in exploiting the weak.
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