Nearshore Americas

Employee Protectionism: Not Made in the USA

The mere mention of laws to protect US workers from losing their jobs to cheaper labor locations incites strong opposition from US corporations, from companies involved in helping to move jobs offshore, and, of course, from cheap labor locations. However, the US is behind the rest of the world in protecting its valuable tax base — i.e., its workers. Employee protectionism is a dirty term when referring to preventing American jobs from being bled off to offshore locations.

So, where are the protectionist laws in place? You’ll be surprised to know that the popular cheap labor locations have the most employee protection laws.

Some of those protection laws might prevent you from terminating employees due to the high cost of doing so. For this article, we’ll examine the protectionist laws of India, Brazil, Argentina, Chile, Cost Rica, and Mexico as they relate to employee termination and required benefits. Since India is such a popular place for expatriated jobs, it’s included for comparison to Nearshore locations.


Workers with five years or more employment with a company must be given two months’ notice of a layoff and one month’s notice for workers with fewer than five years. Employers who don’t want to give notice have the option of paying the employee one month’s salary for every year with the company. Layoff severance is one month’s salary for every year of service.

Employees receive one month’s salary as a bonus that’s split into two payments (June and December). Vacation is 14 days for the first five years of service, 21 days for five to 10 years, 28 days for 10 to 20 years, and 35 days for more than 20 years of service. Paid sick leave for up to three months for workers with less than 10 years of service and up to six months after 10 years. Sick leave doubles for employees with dependents.


Law requires employers to provide oral or written termination notice. For workers paid weekly, 8 days notice is required, 30 days notice for those paid every two weeks or monthly and for those who’ve worked at the company for more than one year.

No formal severance is paid to terminated workers; however, employers must deposit 8 percent of a worker’s monthly earnings into a savings account in the worker’s name. The worker receives the full amount of the account for voluntary or involuntary separation from the company. Employers pay workers a 13th salary in December of each year. Workers may ask for an advance on this bonus for vacation use. Every worker receives full tenure after one continuous year of employment and is entitled to 30 days of paid vacation. You can figure about 41 paid days off per year per employee.


Law requires written notice of termination with an explanation of the reason(s) for termination. A copy of the notice is also sent to the Labor Inspectorate. The worker receives 30 days written notice or 30 days pay in lieu of the notice.

Severance is paid at the rate of 30 days for each year of employment up to a maximum of 330 days of pay. Each worker has the right to 15 working days of vacation per year. Employers must provide a minimum of one day of rest per week plus any national holidays. Workers must be paid profit sharing.

Costa Rica

Justifiable dismissal requires the employer to pay wages for worked time, proportional vacation benefits, and the Christmas bonus. Employees are entitled to written notice of termination. One week notice is required if the employee has worked from three to six months, two weeks for six months to one year of employment, and one month notice for tenure over one year. Employers may choose to pay the equivalent notice time in wages if termination is immediate.

Severance pay is paid to employees regardless of reason for separation from the company at the rate of one week’s pay for three to six months service, two weeks’ pay for six months to one year of service, and 20 days’ wages for each year worked up to a maximum of eight years. Employees are given two weeks of vacation per year. Christmas bonus, equivalent to one month regular salary, is paid to each employee during December.


Thirty days written notification is required for termination. Workers have the right to sue for reinstatement if they have two or more years of employment. Reinstated employees receive back pay and punitive damages.

Firms are required to pay employees 10 percent of annual profits. The Christmas bonus must be at least two weeks’ regular pay. Six days of vacation are given after one year of service and two additional days for every year thereafter up to five years. After five years employees must receive two more days of vacation for each five years of service. Employers also must pay a five percent payroll tax for housing and two percent to an employee retirement fund.

Severance pay varies from three months’ salary plus 20 days’ pay per year of service for workers terminated without just cause to 12 days’ pay per year of service for workers with 15 years or more of service with a company.


Law requires 30 days formal written notice and employees must be given sufficient warning and opportunity to respond. Additionally, companies with more than 100 employees must also file dismissal forms with the government and the notice time stretches to 90 days or payment in lieu of the notification time. The government must give permission to terminate. Unfair dismissal results in reinstatement.

Employees terminated for economic or employee incapacity must be given 15 days for each year of service completed. Employees are paid a bonus of at least 8.33 percent of their annual salaries or 100 Rupees (whichever is greater). Employers also must pay between 10 and 12 percent of an employee’s salary into the employee’s retirement fund. India has 12 days of annual leave as well as 16 public holidays, which makes it the top holiday country in the world.

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The facts are in: US workers spend more time at work, enjoy fewer public holidays, and take less time off than workers in any other country. There is no government-mandated severance requirement, no minimum vacation entitlement, no mandatory Christmas bonus, and yet American companies are fighting to lay off American workers to hire offshore resources. And, we have no real employee protection legislation in place because it is, after all, a dirty word. So, why do we bleed jobs to other countries, you ask? Because the labor is cheaper.

Supporting Information

LexUniversal: Global Virtual Law Connection

Organisation for Economic Co-operation and Development

International Labour Organization

Ken Hess is a technical analyst, author, and consultant. He writes regularly for Linux Magazine and ServerWatch.

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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  • Labor laws in these countries were put in place years ago to protect farm workers, domestic workers, factory workers, mine workers, and other laborers not the knowledge workers of today. These laws have not matured at all to be appropriate for 2011 technology workers like IT professionals. At Vision TRE, I hire software developers in Brazil who typically work on my projects for 6 to 18 months and leave for better opportunities. Why? A software developer that gets 6 months experience working with a new technologies like Teradata, Informatica, or IPhone app development for example, is 6 months more valuable in the market. They are professionals like lawyers, doctors, and accountants but by law are seen the same as factory workers. This is not protecting them, this is limiting them because they can not easily be hired for the 9 month project with no guarantee of success, where they will get the growth opportunity of working with a new technology on a short term project which is common in this industry. A senior developer in Chile can not easily start their own company and hire a few junior developers based on a few projects and the hope of getting others because he has to guarantee benefits in a world with no guarantees.

    Most new jobs in the U.S. come from small businesses that are taking risk. To start a new business under labor laws that force you to make guarantees of employment and benefits would force most of the bootstrap entrepreneurs in the U.S. to keep there day jobs. In the U.S. economy and corporate culture, no professional that a company has invested in and depends on can be gone for a 20-30 day vacation every year as required by law in Brazil, things change much too quickly.

    The U.S. is not behind and our work ethic is a large part of the reason that we are and will stay ahead.