Ecuador

A. Hiring of employees (onboarding)

Mandatory employer requirements

The employer must affiliate all its employees with the social security authorities (Instituto Ecuatoriano de Seguridad Social-IESS) from their first day of work.

All employment contracts must be registered with the Ministry of Labor online through “SUT” (Unified Worker System). This system also helps the employer to keep written records of all signed contracts.

Foreign entities wishing to hire employees in Ecuador must incorporate an Ecuadorian subsidiary or open a branch office. Additionally, entities or individuals hiring employees must obtain a Tax Payer Identification number in order to comply with social security and tax obligations.

Probation periods

Open-ended employment contracts may include a 90-day trial period during which time the parties may freely terminate the contract. Upon expiration of the trial period, the contract becomes indefinite.

Hiring checks

Medical examination
Under the current legislation, once a worker is hired, employers are responsible for the employee’s entry occupational exam, annual and exit medical exams, based on the risks to which they are exposed in their work. Such exams must not result in a cost to the employee. Employment cannot be conditional upon passing a medical exam.

Criminal background check
Employers cannot discriminate against applicants for their judicial past. Ecuadorian criminal records are in the public domain through the Ministry of Government website.

Reference and education checks
Reference and education checks are permissible. In addition, an employee may be dismissed when he/she has induced an employer to sign an employment contract by means of false certificates.

Diversity & inclusion

Employers with more than 25 employees are obligated to reserve at least 4% of their payroll for individuals with disabilities.

Employers with more than 50 workers must hire young workers (between 18 and 26 years of age) for at least 10% of their payroll, taking into account the net increase in workers generated each fiscal year.

Companies with more than 100 workers are obliged to hire interns for at least 4% of their workers who hold a professional degree.

According to the the Violet Economy Law that was published in January of 2023, companies with more than 25 employees should create plans to avoid Workplace Harassment and have specific plans to attend any related complains.

Companies with 50 or more employees must develop employment equity plans (EEPs) to eliminate gender-based disparities affecting gender equality in recruitment and employment. This plan will be valid for 4 years.

The EEPs should have been presented to the Ministry of Labor before 31 July 2024.

Types of employment contracts

The Ecuadorian Labor Code regulates a variety of employment contracts:

• Open-ended contract: The typical employment contract guaranteeing stability or permanence;
• Occasional work: For workers performing a specific task that is not a regular activity of the employer´s core business. This contract is valid for only 90 days within a year;
• Temporary/event-related work: Applicable to cover specific requirements of an employer, such as replacing staff on vacation, on sick leave, maternity leave, etc. or to meet increased workloads arising from additional demand for production or service. This type of contract is valid for only 180 days within a year; and
• Work or service undertaken as part of the business: Upon conclusion of the work or activity for which the worker has been hired, the employment relationship terminates.

Specific rules for executives

The law does not provide any specific measures for executives hired as employees.

Language requirements

The only language applicable to all employment and HR-related documents (such as employment contracts, settlement minutes, internal work regulations, policies, etc.) is Spanish.

Equal Pay

In January 2024 the Law for Equal Pay between Women and Men was approved, which aims to guarantee equal pay and any other form of economic remuneration between men and women in the performance of the same work or for work of equal value.

It stablish that all employers should present to the Ministry of Labour a yearly report detailling the actions taken to garantee equal pay and also that in case the company does not comply with the equal pay policies the employee can submit a complain before the Ministry of Labor. The Ministry of Labour must issue the corresponding Regulations establishing how this law willl be applied.

Remote Work

The Ecuadorian Labor Code included specific regulations about remote work in 2020, as a result of the COVID-19 sanitary crisis.

Remote work is defined as the performance of paid activities or service provision that utilize informatic and communication technologies as support for the contact between the employer and employee, without the need for the employee to be physically on a specific workplace.

The employer must report to the Ministry of Labor if the employee will be working remotely when registering the work contract for new hires or adding an addendum to the work contract for current employees.

The law refers to 3 types of remote workers:

1. Autonomous: The employee who works from his own house or a specific place that he/she owns (office, local, etc.) and never or almost never must go to the employer’s office.
2. Mobile: The employee who does not have a specific workplace assigned and whose primary tools to perform the work activities are mobile equipments.
3. Partial: The employee who works 2 or 3 days from home and the rest of the week from the employer’s office.
4. Occasional: The employee that performs its activities remotely in specific circumstances.

The employee and employer may agree that the work is performed in a specific place (such as the house of the employee or a personal office) but it will not be considered remote work if the place is an office or place that the employer has arranged, even if it is outside of the main office of the employer. On the other hand, if the type of work can be performed from anywhere, they can agree that there would not be a specific place where the employee must work.

The employer must provide the equipments, work elements and supplies needed for the work activities.

The salary must comply with the legal regulations and cannot be paid less than the Minimum Wage (In 2022 $425, in 2023 $450 for a full-time employment)

B. Termination of employees (offboarding)

Kinds of dismissal

An individual employment contract may be terminated for any of the following reasons:

• Termination of the period or conclusion of the work;
• Agreement between the parties;
• Unilateral decision of the worker or employer “Visto Bueno”;
• Reasons beyond the control of the parties (force majeure, death);
• Decision of the employer based on just cause (approved redundancy, dismissal); or
• Resignation, written notification from the employee to the employer advising of the termination of the employment contract.

An open-ended employment contract can be terminated based on the following concepts:

• Justified Dismissal (Visto Bueno); and
• Unjustified Dismissal (Despido Intempestivo)
  

Dismissal motivation

The employer may justifiably dismiss an employee on the following grounds:

• Repeated lack of punctuality or attendance at the work place. Abandonment of the work place without due cause for more than three consecutive days in a one-month period;
• Serious disobedience with respect to internal regulations of the company or business, or indiscipline;
• Dishonesty or immoral conduct;
• Serious offences conducted against the employer, employer´s spouse, family or employer´s legal representative;
• If the employee is incapable of performing the agreed service;
• If the employee submits an unjustified complaint against the employer to the social security office;
• If the employee fails to comply with security and hygiene measures required under the law; or for opposing medical prescriptions and/or orders;
• If the employee commits workplace harassment, either individually or in coordination with other individuals, towards a coworker, the employer, or a subordinate;
• When the employee discloses secrets or makes disclosures occasioning harm to the employer; and
• When the employee has induced the employer to sign a contract by means of false certificates.

The employer may dismiss an employee without reason (terminación por despido intempestivo), without a notice period and the obligation to inform the employee of the specific reasons for his/her dismissal.

Notice period

No notice period is required in case of dismissal without reason. The employer may dismiss the employee with immediate effect. In case of justified dismissal, an administrative procedure has to be followed, during which the employer must deposit one month’s salary to suspend the labor relationship.

Severance pay

If the administrative petition for the justified dismissal (Visto Bueno) is authorized by the Ministry of Labor, the employer is required to pay the employee only the pending amount of the employee´s salary.

If the employer decides to dismiss an employee without reason, it must indemnify for unlawful dismissal (indemnización por despedio intempestivo), in accordance with the employee´s seniority and the following range:

The employer must pay an additional legal severance indemnity (bonificación por desahucio) equivalent to 25% of the last salary that the employee earned, multiplied by the number of years he/she worked for the employer.

Dismissal formalities

When an employer wishes to justifiably dismiss an employee (Visto Bueno), it must file an administrative petition requesting the termination of the employment contract based on one or more of the grounds listed above. The termination must be authorized by the Ministry of Labor.

Once a petition to justifiably dismiss an employee has been filed by the employer, the administrative procedure known as “Visto Bueno” begins. The employer is entitled to request the suspension of the labor relationship in its initial petition, while the administrative investigation is underway. To suspend the labor relationship, the employer must deposit the equivalent of one month’s salary of the employee. The employer has a one-month term to file this petition from the occurrence of the offence by the employee.

The Labor Inspector must notify the employee of the petition and the suspension of the labor relationship, once the petition has been filed and the deposit has been made. Throughout this procedure, a labor inspector will carefully analyze the evidence and arguments that both the employer and employee have filed. Afterwards, the inspector will authorize or deny, through a grounded resolution, the employer’s petition to dismiss the employee.

This administrative procedure may lead to a subsequent judicial proceeding. The resolution issued by the Labor Inspector can only be challenged through a Labor Judge. The inspector’s resolution must be filed as evidence in this judicial proceeding.

In case of unjustified dismissal, no special process or summons apply. The dismissal may be directly notified by the employer to the employee either in writing or orally.

Special dismissal protection

Some employees enjoy special protection by the law against dismissal, as follows:

• Pregnant women and women in lactation period: Termination during this period is considered invalid and the employee may choose to be reinstated (despido ineficaz) in her job or to receive a severance equivalent to a one-year salary.
• Union leaders: Termination of union leaders is considered invalid and the employee may choose to be reinstated to his/her job or to receive a severance equivalent to a one-year salary.
• The following categories of employees enjoy special statutory protection and are entitled to additional compensation if dismissed:
  • Employees with disabilities;
  • Temporary incapacity due to non-professional illness, provided such does not exceed one year;
  • Employees obligated to attend military service or to serve in a public office; and
  • Employees dismissed due to discriminative circumstances
    

Legal means of employees

During the 3 years following his or her termination date, an employee can submit claims based on employers’ obligations.

Specific rules for executives

No specific dismissal rules apply for managing directors (Mandatarios) provided they are not bound by an employment contract. Managing directors are bound by the Civil Code and are thus not considered employees, and the respective Labor Code provisions and dismissal rules do not apply.

Collective dismissals

Collective dismissal is not regulated by Ecuadorian labor law. If an employer needs to dismiss employees collectively, regular dismissal provisions should be applied.

Get in touch
 

Manuel Cartagena
Ecuador
mcartagena@deloitte.com | +59 32 381 5100