Supreme Court Decision May Affect Major Companies - International Law Office

International Law Office

Company & Commercial - Venezuela

Supreme Court Decision May Affect Major Companies

November 13 2000

Facts
Decision
Conclusion


Facts

A claim was filed by a group of individuals who had been employees of Distribuidora Polar (DP), a distributing company related to the Polar Group, a prominent drinks manufacturer. Upon DP's termination of their contracts, the individuals became shareholders and officers of companies linked to DP by distribution agreements. They sought severance payment and other labour benefits, arguing that they were still employees of DP since they rendered personal services to the company.

Their relationship with the company actually consisted of the purchase of products from DP which were in turn acquired by DP from Cervecería Polar CA. The independent distributing companies then sold the products to the retailers, and the retailers sold the products to the consumer. The plaintiffs alleged that their remuneration was the difference between the purchase price of the products acquired from DP and the price of the resale to the retailer, as fixed by DP.

In its defence, DP argued that the plaintiffs had at some point been employees, but that the relationship had ended and been replaced by relationships governed by distribution contracts of a commercial nature executed between DP and the plaintiffs' distribution companies. These new relationships were in turn protected by bills of sale issued by DP to the distribution companies.

Decision

The court of second instance's decision stated that (i) a rendering of personal services between DP and the plaintiffs had not existed and (ii) the relationship was one between companies, by virtue of executed distribution contracts whereby the distribution companies bought goods from DP to be resold to retailers. Thus, the plaintiffs had not rendered personal services to DP. This is the condition necessary to apply Article 65 of the Organic Labour Law which provides that a labour relationship is presumed to exist between the individual rendering a personal service and the recipient. The judge dismissed the plaintiffs' claim and they appealed to the Supreme Court of Justice.

The Social Cassation Chamber of the Supreme Court of Justice annulled the second instance court decision, stating that the judge had erred in the interpretation of law and the Constitution by incorrectly applying the assumption of Article 65 of the Organic Labour Law.

This decision assumes that the second instance court decision had established the existence of personal services rendered by the plaintiffs to DP when, in fact, the decision stated the opposite. The Supreme Court also stated that distribution contracts and bills of sale were only opposable in the lawsuit against the parties to such contracts, in order to demand performance of the relevant obligations. This reasoning overlooked the fact that such contracts establish the existence and commercial nature of the relationship between the distribution company and DP, which could be opposed by any third party.

Extraordinary appeal
DP filed an extraordinary appeal before the Constitutional Chamber of the Supreme Court of Justice based on a provision of the Statement of Motives of the new Constitution. DP argued that the Social Chamber had (i) exceeded its legal powers and (ii) violated several of DP's constitutional rights in its decision. To date, no decision has been announced by the Constitutional Chamber.

Conclusion

If ratified by the Constitutional Chamber of the Supreme Court of Justice, the Social Cassation Chamber's decision may have consequences for individuals who are shareholders or officers of companies that comprise the distribution networks of most large multinational manufacturing companies. Such individuals could benefit from the interpretation given by the Social Cassation Chamber regarding the existence of a labour relationship between the distribution companies and DP, notwithstanding the existence of independent companies incorporated by individuals and the distribution agreements executed between them and DP. Given the generous nature of labour laws generally, the application of this interpretation could represent significantly increased costs for large companies in Venezuela.


For further information on this topic please contact Olga Nass de Massiani or Isabel Victoria Márquez at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by e-mail (onm@infoline.wtfe.com or ivm@infoline.wtfe.com).


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