Labor relations benefit from the good performance of all involved parties: the better the employee’s performance, the higher the company’s profits, and vice versa. However, problems often arise in this type of relationship when the employer is unable, due to cost issues (time and money), to directly supervise the employee and/or when the employee lacks the intrinsic motivation to perform their job optimally. When this happens, the cost of the employee’s poor performance is not borne by the employee, but is passed on to the employer, who must bear these costs in the form of losses or lower profits.

The most desirable structure would be one that provides employees with incentives to perform optimally. This structure could be created in part by the employer with, for instance, rewards for good performance. However, we can consider something even more basic. We are referring to a structure that creates the right motivation or incentives for the employee to do their job, not necessarily to do more than is asked of them, but to optimally perform the job for which they were hired.
We must ask ourselves, does the Labor Law create these incentives or does it work in the opposite direction? Let’s analyze this, as usual, with an example.

An employee has been working for a company for seven years, earning $4,000.00 monthly. In the last year, he has been working less, allowing work to pile up, delaying responses to customers, among other behaviors of this type. The employee, who is familiar with labor legislation, knows that none of these behaviors qualify as grounds for justified dismissal. In fact, he also knows that the grounds for dismissal are quite limited and even serious and difficult for the employer to classify and prove. He also knows that if his employer decides to terminate his employment, he has the right to severance pay and advance notice compensation, which are proportional to his yearly salary and the time he has worked for the company. Like him, this information is known to the other employees of the company, who may occasionally engage in similar conduct.

It should be noted that we are not talking about a person who has just started working for a company, nor a person who receives commissions for the work they do. We are talking about average employees with fixed salaries and considerable time working for the company. Each employee understands that the payment of their severance pay and notice would not represent a significant expense for the company.

In fact, labor legislation creates an additional negative situation: Employees who want to change jobs (for example, to earn a higher salary) and, instead of resigning, intentionally perform their work poorly in the hope of being fired “unjustifiably” and compensated. This, needless to say, is not the intention of the protection provided by the Labor Law; however, it is a harmful “advantage” that it provides to the employee.

Faced with this framework, I think we can agree that the employee has no motivation to change these behaviors or to refrain from engaging in them. They know that they will continue to receive their salary or, in the worst (best?) case scenario, receive significant compensation from the employer. In short, from this perspective, there is not much incentive for them to perform the work for which they were hired in an optimal manner. This is the situation created by our Labor Law.

The birth of a regulation is often related to—and has its raison d’être in—a national need or the socio-economic context of a particular state. Labor legislation is no exception, as it was created to protect employees who were in a situation of extreme vulnerability in which companies could take advantage of the existing workforce and then fire them, leaving them without any means of financial support. However, socio-cultural conditions change over time.

It is difficult to move away from something we are familiar with and that, as employees, often benefits us. However, if we are realistic and honest with ourselves, we can also recognize that the time when extreme protection was needed may have passed. We can see that rather than protecting employees, in most cases, this type of regulation provides them with counterproductive assurance that, instead of encouraging them to perform their work optimally, sends the message that they can do mediocre work and that the negative consequences of performing below optimal levels will not necessarily affect them.

My proposal is not to adopt labor legislation as extreme as that of the United States, where an employee can be fired at any time for any reason and where there is no job protection, unless it is contractually agreed upon. However, we do have an obligation to review and reformulate the system of incentives, or rather disincentives, that the state provides to employees through existing legislation. This can be achieved, for example, by modifying and/or relaxing the grounds for justified dismissal, or by modulating the economic protections provided.

We are aware that this situation does not only affect employee incentives, but also affects companies, which do not receive adequate incentives to invest in their businesses as a result of the costs imposed by labor legislation. Therefore, in part II of this article, we will evaluate the situation created by the labor code for the other actors in the relationship: employers.