Colombia: Substantial labor reform on the horizon

Employer Action Code: Monitor

After nine months in office, the administration of President Gustavo Petro has embarked on a series of wide-ranging reforms to transform the regulatory framework for the economy and revamp the income tax system (both corporate and personal), social security system (pension and healthcare), and the Labor Code, not to mention reforms of the energy and mining sectors as well as the political system.

Key details

Proposed changes to the Labor Code include:

• Employment contracts would be indefinite by default. Exceptions for fixed-term and fixed-task employment contracts would only be possible for temporary business needs. Employment under one or more fixed-term contracts would be limited to two years in total.
• The use of contractors, outsourcing arrangements and temporary service companies would be restricted. Pay and benefits of contractors and subcontractors would have to equal those of ordinary employees of the enterprise contracting for services.
• Additional compensation for work on Sundays and public holidays would increase from 75% to 100% of normal pay. Night work would be defined as work between the hours of 6:00 p.m. and 6:00 a.m. (currently, night work starts at 9:00 p.m.).
• The duration of paternity leave would increase from two weeks to five weeks in 2023, eight weeks in 2024 and 12 weeks in 2025. (Pay replacement benefits during paternity leave are provided by social security.)
• Employees with family responsibilities (i.e., caring for dependent family members such as minor children and elderly, disabled or seriously ill relatives) would be entitled to request flexible work arrangements to meet these responsibilities.
• Pay of employees earning up to two times the monthly minimum wage (MMW) — 1,160,000 Colombian pesos as of January 2023 — would be subject to mandatory minimum indexation on each January 1 based on the change in the consumer price index in the year prior.
• Apprentices would be entitled to compensation equal to at least 100% of the MMW. Currently, minimum compensation is 50% of the MMW, increasing to 75% during the on-the-job phase of the agreement (100% if the apprentice is a university student).
• Employers would be required to make “reasonable adjustments” to the workplace and employment conditions to allow people with disabilities to work safely and fulfill their duties on the same basis as any other worker.
• Protections for gender equality and against sexual harassment and discrimination would be strengthened. Discrimination based on sexual orientation, gender identity or expression would be prohibited.    
• Signatory unions of enterprise collective bargaining agreements (CBAs) would be required to represent at least 20% of all employees in the company in order for the CBA to apply to all employees. The current standard is a third of the company’s workforce (otherwise CBAs only apply to unionized employees).
• Employees engaged under indefinite-term contracts would be entitled to a minimum termination notice period of 30 days (no such minimum currently applies). Severance pay would increase from a 30 days’ salary payment plus 20 days’ salary per year of service (for employees with more than one year of service) to a 45 days’ salary payment plus 45 days’ salary per year of service (for employees with more than one year of service). Provisions under which severance per year of service is lower for employees earning more than 10 times the MMW would be eliminated. Severance for early termination of a fixed-term agreement would remain equal to the salary due for the remaining period of the contract but subject to a minimum of 45 days’ salary.   
• When a position or job is eliminated due to technological changes, employers would be required to offer the affected employees another similar and suitable job within the company, if possible. If not possible, employers would need authorization from the Ministry of Labor to terminate employment.
• Dismissal of employees under protected categories (i.e., employees who are pregnant or during the postnatal period, employees who are within three years of their normal retirement age, employees on sick leave or who are disabled, and unionized employees) would require just cause and prior authorization from the labor authority or the courts.

Employer implications

The proposed labor reforms are hugely ambitious in scope, with congressional support varying considerably across the reform packages. The tax reforms were approved in late 2022, raising corporate, hydrocarbon, personal income and wealth taxes, with the proceeds estimated to bring in new tax revenue equal to approximately 1.4% of GDP in 2023 and 2024 according to the Ministry of Finance. Other reforms, such as those for pensions and healthcare that would expand the role of government as service provider while reducing the role of the private sector in that capacity, are highly controversial and have run into significant opposition. For the same reasons, it may be difficult for the government to get the labor reform package approved without significant changes. Upcoming new elections to Congress in October 2023 leave a relatively brief legislative window of opportunity. Employers should monitor the progress of the various reforms closely.