THE NULLITY OF THE FOREIGN INVESTMENT CONTRACTS
DUE TO AN ILLICIT CAUSE: DEFRAUD THE CUBAN WORKER
By: Alberto Luzárraga.
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
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
The members of the management and administration of the totally foreign
capital company shall be designated by the company and directly hired by
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.
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
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.