Services agreements cannot be used on a permanent basis

Author: María del Pilar Duplat Molano

Description

Services agreements have been traditionally used to avoid the payment of premiums, contributions and other benefits inherent to labor relationships in accordance with Colombian labor law; as a result, Colombian labor case law has been consistent in applying the constitutional principle of “reality contract” whereby the judicial authorities in Colombia must evaluate the evidence in a joint manner and according to the principles of “good judgment”, in order to determine when there actually exists an independent rendering services relationship or a labor contract.

Accordingly, judges must determine beyond the formal aspects, whether there is an underlying labor relationship, which can only be achieved through a deep analysis of the circumstances under which the contract was developed, in order to ensure that what has been agreed between the parties actually corresponds to the reality.

Labor law and case law provide certain protections for the employee considering his/her situation of subordination in relation to the employer. As a consequence, the employer has to undertake certain payments which do not exist under a services relationship, such as the payment of premiums, social security contributions, severance payments, interest over severance, paid holidays, among others. As a consequence, certain employers have used the services contractual figure to avoid these payments and to obtain the hired services with a lesser cost.

The Supreme Court of Justice determined on its judgment passed on February 20, 2019 that the temporality and exceptional nature of the contract is an essential element of services agreements. The Court further indicated that, when the hired activities require a higher or indefinite duration which overflows its transience, the contracting party must adopt a more permanent contractual figure, i.e. an employment contract.

The economic consequences of the declaration of the existence of a labor relationship can be very costly, since they entail retroactive payments of premiums, social security contributions and severance payments that should have been paid to the contractor in addition to the penalties that are applicable according to the applicable law. Consequently, when deciding which contractual figure is best to engage an individual, it is key to determine whether the hired services are of a permanent or a temporary and exceptional nature.