WOLA: Advocacy for Human Rights in the Americas
10 Jul 2014 | Commentary

Cuba’s New Labor Code and Foreign Investment Law: Implications for Workers

On June 17, 2014, Cuba’s Gaceta Oficial published the country’s new labor code. While many hoped that the new code would address various questions relevant to Cuba’s changing economy—including the rights of private sector and cooperative workers— it largely fell short of expectations, leaving many Cubans to wonder how these issues will be addressed in the long run. And in March 2014, Cuba’s National Assembly passed a new foreign investment law, which raises important questions for Cuban workers.

Cuba’s Labor Code

Cuba’s labor code is the framework for legislation that regulates work in the country. In Cuba’s still strongly centralized economy, the labor code sets the basic conditions of employment for the overwhelming number of public employers, as well as for the relatively small number of private employers. Because the code sets workplace rules for the majority of workplaces and workers, it functions much like a personnel manual: it defines basic regulations for the workplace (including outlining minimum vacation days, daily rest periods, and criteria for firing workers) in addition to detailing the role of labor unions.

While there is much to criticize in Cuba’s labor relations system (and in the country’s political system writ large), Cuban workers employed by the state have historically benefitted from basic protections in the workplace. (For more information on Cuba’s labor system, see WOLA’s 2013 report “Labor Rights and Cuba’s Economic Reforms.”)

The labor code has been under review since 2011, when the Cuban government embarked on what it euphemistically refers to as an “updating” of its inefficient economic model. Cuba’s economy was built around bureaucratic centralized planning mechanisms adapted from the Soviet Union, and for years it was dependent on Soviet Union subsidies and preferential trade agreements; it has struggled for years to reorient its weak economy after the collapse of the Soviet bloc. Many of the changes proposed would directly impact workers, including reducing public sector employment substantially by laying off public sector workers; legalizing new categories of cooperatives and self-employment; and courting foreign investment.

The economic reforms have been welcomed by many Cubans, who complain bitterly of high prices, low salaries, and the inefficiencies that abound in the system and hope that the reforms will generate economic growth and improvements in their standard of living. But the changes have also engendered a great deal of uncertainty among Cubans, who for the first time in decades find themselves confronted with concerns about job security and the long-term viability of social protections that they have come to take for granted.

In the context of these reforms, the government released a draft of the new labor code in 2012 and then submitted it to popular consultations around the country.[i] According to official government statistics, the draft was discussed in nearly 7,000 local meetings by more than 2 million workers. The code was discussed at a convention of the official Cuban Workers’ Federation (Central de Trabajadores de Cuba, CTC) as well as in the country’s rubber-stamp legislative body, the National Assembly, which ultimately approved the final version of the code in December 2013. The government reported that 101 articles were modified as a result of the local-level consultations. The Cuban government’s insistence that it had consulted with large numbers of workers and listened to their demands makes it clear that officials were seeking popular buy-in for the new code.

The revised code was eventually approved by the National Assembly in December 2013, and was finally published in the Gaceta Oficial in June of this year. Cuba’s official media praised the new legislation as being essential to “recovering labor discipline” and “strengthening trade unions’ role in ensuring efficient production.” While it is true that economic growth and productivity increases are necessary to improve wage levels substantially, the rhetoric of “discipline” and “efficient production” is unlikely to satisfy discontented workers. It’s clear that workers—and even some within the CTC itself—are interested in more substantial changes to the labor system. At the CTC’s convention, members and delegates emphasized a desire for salary increases, and even the President of the CTC had called for a “more combative” labor union.

The code’s new chapter on the self-employed also leaves many questions unanswered and deals with the challenges raised by private sector employment only very superficially. On a positive note, the chapter on the private sector does mandate seven days a year of paid vacation for private sector employees (although this is significantly less than that received by state sector employees, who receive an entire month of paid vacation each year), as well as a 44 hour workweek. It also removes previous restrictions on the number of employees that a self-employed individual can hire. But more significantly, it does not specify how employees negotiate collective contracts with their employers in order to protect their economic interests, and it does not distinguish between the interests of the employer and the employee in this sector.

This is a slowly emerging issue. Official government numbers suggest that more than 85 percent of those in this sector are indeed self-employed, and fewer than 15 percent work for others. But that proportion is likely to change over time, and the Cuban labor system will need tackle the problems of unionization, labor rights, and representation for this sector.

Foreign Investment Law

In another labor-related development, the Cuban National Assembly approved a new Foreign Investment Law in March 2014. Some observers had hoped that the law would change existing rules under which foreign owned businesses or joint ventures hire workers through a Cuban state employment agency, but the hiring system was left relatively intact. Under the current arrangement, the employer pays a per employee cost to the agency, and the agency hires and places the Cuban workers. Many foreign employers would prefer direct hiring and payment. This is less an issue about employee selection or quality than about managers’ preferences for a direct employer-employee relationship.

There are serious flaws in the current system from both the workers’ and employers’ perspectives. If movement toward direct hiring does take place, it will require a broader re-examination of the labor and regulatory framework in the foreign investment sector. It is already the case that workers in the foreign investment sector are relatively privileged: they have more access to tips and bonuses than do other workers, and they are more likely to earn income in hard currency. Movement toward direct hiring would exacerbate those differences, and it might spar
k a broader debate about income inequality in Cuba.

In a signal that the issue remains, Cuba has also announced new regulations governing investment in the new port of Mariel. In the Mariel special investment zone, while foreign employers will still go through a state hiring agency, the agency will retain a smaller percent of workers’ wages—20 percent—meaning that workers will be able to earn more while costing companies less. In addition, employers will be able negotiate salaries with the agency without having to adhere to a fixed scale, and they will also be free to contract self-employed Cubans through the agency. Whether this arrangement is enough of an improvement to satisfy foreign investors remains to be seen. It is clearly a much better arrangement for the workers hired in the Mariel Zone. It is also likely to contribute to the growing discussion about wage inequality, since workers in the zone will be able to earn significantly higher salaries than average Cuban workers

Changes in Cuba’s labor code, and changing employment conditions in Cuba, are emblematic of a broader debate that is taking place throughout Cuban society and among Cuba watchers: what does economic reform mean for the social protections and structures that Cubans have taken for granted for the past five decades? Although the Cuban government argues that the socialist foundation of the Cuban system is not up for debate, the reality is that the economic reform process is changing the relationship between Cubans and the state in very real ways. As Cuba modernizes its economy, preserving the social gains of the past 50 years—free, relatively high quality healthcare and education, workplace protections, family leave, and so on—while balancing the need for material incentives with the aspiration for relative social equality—will be a major challenge. It will also be key to the long-term success of the country and to advancing the quality of life of all Cubans.

Geoff Thale is WOLA’s Program Director. 

[i] The Labor Code was first promulgated in 1984 and has been updated by a patchwork of regulations and directives. A comprehensive overhaul of the code was certainly needed, particularly in the circumstances created by layoffs and private sector openings.