The nullity of the foreign investment contracts due to an illicit
cause : To defraud the cuban worker.
By: Alberto Luzárraga.
During the course of the past several years, diverse private and
publicly owned foreign companies have signed contracts with Cuban
government owned companies in order to establish the terms and
conditions under which they invest in Cuba. Joint venture contracts
regulate among other things the way that profits are shared, but
parallel to these contracts, there exists another contract undertaken
with a Cuban government company that furnishes the workers. The
structure of both contracts is such that they are null and void from
inception due to the fact that they are based on an illicit cause,
namely: to make the Cuban workforce an object of commerce in bulk and to
defraud the Cuban worker of most of his wages.
Present Cuban law demands that the hiring of workers be made through a
Cuban government owned company and that the wages be paid to that
company in convertible currency i.e., dollars. Such wages are not passed
on to the worker that delivers the service. The Cuban Government company
delivers to the worker a sum, in Cuban currency, that is the local going
wage in pesos; but retains for itself the dollar wage.
An example shows the effects: Assume an exchange rate of 20 pesos per
dollar, and a Cuban that works for a foreign company and receives 400
pesos per month as his wages. Assume for the sake of simplicity that the
Cuban state charges the foreign investor the same sum in dollars i.e.
$400.00. The worker is in fact receiving only 5% of what the Cuban State
charges the foreign investor, i.e. 400 dollars or 8000 pesos. In
practice the relationship is worse, as the average salary is about 250
pesos per month and the average dollar wage collected by the government
The Cuban government entity that hires the workers is a company with an
illicit purpose. It has been created only to harm and defraud a third
party, namely the Cuban work force. It is a sham.
Why would an investor enter into this type of agreement? Plain greed is
the answer, joined to a quick return of the capital invested thereby
eliminating the risk.
But the investor also hopes that the Cuban state will have to honor
these contracts in the future regardless of who governs. It would be
argued that the present totalitarian government validly obligated the
Investment treaties between Cuba and the countries of origin of the
foreign investor would be shown as "prima facie" support of this
position and the "good faith" of the other contracting party who will no
doubt claim the status of injured and innocent third party in the event
their actions are questioned. The fact that investment insurance has
been granted to several investors would no doubt be used as a further
complication in that the grantor of the insurance, usually a foreign
government entity would attempt to claim damages from the Cuban
government that succeeded Castro should it affect the investor in any
The validity of the traditional theory that an acting administration
validly obligates a state, is seriously in question when applied to the
acts of a notoriously totalitarian system that acts in the interest of a
few and not of the nation. In the writer's opinion it is a non
However the object of this paper is not to discuss that topic, but a
more focused issue, i.e. the validity of the contracts into which the
parties have entered, regardless of the position that one might take vis
a vis the obligations or lack thereof of the Cuban state.
Work contracts that provide for the payment of wages to a third party
whose only existence is to provide a subterfuge and not pay wages fully
and directly to the worker are null and void. An international labor
convention ratified by Cuba and all of the investors' countries of
origin prohibits specifically this type of hiring. The work contract
really exists between the foreign company and the Cuban worker. The
third party is a company with no business capability and a sham, in that
it is a useless intermediary in the labor relationship.
The foreign investor is perfectly aware of and accepts the system
because it allows him to obtain labor at prices substantially lower than
the international market. The system also assures a compliant labor
force that lacks the right to unionize and independently choose their
In spite of the attempt to create this sham, daily reality tells the
truth. Diverse employer acts of a juridical nature vis à vis their
employees evidence the existence of a true labor relationship. It is a
general principle of labor law that contracts are interpreted in the
benefit of the worker when doubts exist.
Such labor contracts are the consequence of investment contracts for
joint or fully owned investments. The investment or joint venture
contracts are also affected by the same vice, since it is clear that the
low wage component is an essential element of the contract.
Art. 39 of Cuba's foreign investment law establishes a tax "for
utilization of the labor force", at a rate of eleven percent (11%).
Thus, in a rather shameless way the Cuban government publicly
acknowledges (and notifies the foreign investor) that labor is a bulk
commodity owned and supplied by itself.
The civil legislation and jurisprudence of which Cuba is an heir have
always considered as null and void those contracts that have an illicit
and or immoral cause. This tradition goes back to Roman Law, the
precursor of all modern western law, and the "Leyes de Partidas" the
medieval laws of King Alfonso the Wise of Spain, traditions that are
more than 2000 and 800 years old respectively.
The civil consequence of nullity is the return of the things that were
the object of the contract, or the equivalent in cash if the return in
kind is impossible as in the case of the work performed.
In this case however, the matter is further complicated because we are
looking at a nullity arising from a criminal act. The crime is committed
by the Cuban administrative elite, using the vehicle of a company that
provides workers to the foreign investors. They are joined in this act
by the foreign investor. Both the persons involved and their juridical
vehicles are co-authors of the crime of robbery and illegal takings.
There exists robbery because the property of a third party has been
taken away with violence to persons or things, a definition that exists
in all criminal codes including the Cuban. The violence to persons
consists in the violence applied to the Cuban workers by the state
security, who incarcerates anybody that does not remain silent and
accepts the status quo. Independent labor leaders have been
systematically persecuted and jailed in order to provide an example to
anybody that dares question this unjust system.
Contractual nullity that results from the commission of a felony has
different consequences. The culpable parties that are the co-authors,
(in this case the Cuban rulers, their sham employment company, and the
foreign investor) may not demand from each other the fulfillment of the
criminal object of the contract; and the assets that are the object of
the crime are seized and held to indemnify the damages caused by the
commission of the crime.
The non-culpable and damaged party is the Cuban worker that has a "de
facto" unwritten labor contract with the foreign employer that has
imposed abusive conditions taking advantage of the workers' lack of
alternatives and protection. This worker retains his civil action to
demand damages from the party that employed him subject to abusive
conditions. He may demand his back wages plus legal interest, at the
rate applied by the international market for the type of work performed,
plus any other punitive damages that are deemed appropriate.
And the Cuban nation is also a party that can claim damages inasmuch as
the system described perpetuated a tyranny and instituted an unfair
system of employment that subjected its citizens to a demeaning work
The venue for these actions is the Cuban court system. It is a clear
jurisdictional matter, in that the contracts were perfected in Cuba and
the parties either reside or are in business in that jurisdiction.
I- CUBA'S FOREIGN INVESTMENT LAW.
Law #77 of 5 September 1995 regulates foreign investment. Article 33,
which we quote, establishes the system that we have described. Note:
Translation issued by the Cuban government.
Article 33.1. The workers in joint ventures who are Cuban or permanent
residents in Cuba, with the exception of the members of the management
or administration, shall be contracted by an employing entity proposed
by the Ministry of Foreign Investment and Economic Cooperation, and
authorized by the Ministry of Labor and Social Security.
Article 33.3. In totally foreign capital companies, the services of
Cuban workers and foreign workers residing permanently in Cuba, with the
exception of the members of the management and administrative body,
shall be hired through a contract between the company and an employing
entity proposed by the Ministry of Foreign Investment and Economic
Cooperation, and authorized by the Ministry of Labor and Social
The members of the management and administration of the totally foreign
capital company shall be designated by the company and directly hired by
Article 33.4. Payments to Cuban workers and foreign workers residing
permanently in Cuba shall be made in national currency, which must be
obtained beforehand from convertible foreign currency.
Article 34.1. The employing entity discussed in the previous Article
individually contracts and directly hires Cuban workers and permanent
residents. This employing entity pays those workers their wages.
Article 34.2. When a joint venture or totally foreign capital company
considers that a specific worker does not meet the requirements of the
job, it can request that the employing entity replace that worker with
another. Any labor dispute shall be settled with the employing entity,
which shall pay the worker, at its own expense, the indemnification to
which he or she is entitled, determined by the competent authorities. In
pertinent cases, the joint venture or totally foreign capital company
shall compensate the employing entity for such payments, in accordance
with the procedure established, and always in compliance with existing
The texts quoted leave no room for doubt. There exists an interposed
company and payments to the Cuban worker are made in Cuban currency that
must be obtained from the prior conversion of foreign currency.
Dismissals are processed through this intermediary who pays severance
expenses. Only by exception does the foreign company pay expenses.
There is more however. The system discriminates against Cubans. Articles
33.1 and 33.3 establish that the members of the management of a company
fully owned by foreign investors or those of mixed capital are
designated by the general shareholders meeting and hired directly by
such companies. Obviously the managers ( usually foreign nationals) are
not going to work for payment in worthless pesos and they are
consequently authorized to contract directly with the investor.
Therefore, a regime that boasts of defending national sovereignty and
the rights of workers, makes Cubans second class citizens in their own
country, gives preference to foreigners and is so concerned with keeping
the foreign capitalist happy that it normally pays the severance for
dismissed workers! The Cuban government guarantees the "quality" of the
persons it sends to work. In practice it proclaims that they are
This abhorrent practice is motivated by a need of the system: to profit
from and intimidate and control the labor force.
A work relationship with an independent third party would give rise to
some economic independence from the state, and perhaps unions and the
possibility of negotiations. These are dangerous practices for a
totalitarian regime in that they are contagious.
We mentioned before in that the workers' direct labor relation with the
foreign company cannot be denied in spite of the articles of the foreign
investment law. With the typical juridical incompetence of the regimes
that do not recognize any law except force, the law contradicts itself
and creates certain direct remuneration systems that belie and vitiate
its attempt to institute a sham.
Were we to apply what in law is known as the doctrine of the "piercing
of the veil" it would not be difficult to demonstrate that this
"employment company" is nothing but a subterfuge. Presumably this
anti-juridical "stew" was cooked to find a way to reward the faithful
party members and the "nomenklatura" that work in middle and upper
management in the mixed capital enterprises. The text of article 32 that
follows illustrates our assertion.
Article 32.1. Joint ventures, the parties to international
economic-association contracts and totally foreign capital companies may
be authorized to create an economic stimulus fund for Cubans or
permanent residents in Cuba who are working in activities corresponding
to foreign investments.
Article 32.2. The contributions to the economic stimulus fund shall be
made out of earned profits. The amount of these contributions shall be
agreed upon between the joint ventures, foreign investors and national
investors who are party to international economic-association contracts,
and totally foreign capital companies, on the one hand, and the Ministry
of Foreign Investment and Economic Cooperation, on the other hand.
Communism's "new man" is not so new after all. He wants his share and
wants it now. Apparently, "bourgeois cupidity" again raises its ugly
head. What would Marx and Lenin have to say!
Completing the picture of unscrupulous exploitation, working hours for
the tourist industry (where the most important investments are) have
been extended to 64 hours a week for ordinary jobs and 72 hours for
certain specific ones. Further, workers are to donate "spontaneously"
the lion's share of their tips to the State.
Finally at the request of hotel investors the resolution of 5 September
1995 of the CETSS (State Committee for Work and Social Security) granted
said companies and their managers ample powers to suspend, transfer or
dismiss any employee. A "commission" that is headed by the manager of
the company, always a foreigner, must confirm such measures. If any
doubts remained as to with whom the actual labor relationship exists,
these rules clarify the issue.
II-THE INTERNATIONAL LABOR CONVENTIONS.
We have described the damages inflicted on the Cuban worker and how the
As we mentioned, article 39 shamelessly considers the work force a
commodity owned by the government of Cuba available to be exploited at
will and grants a "discount" on a tax imposed on the "use" of the work
"Article 39. For the purpose of this Act, the payment of taxes by the
persons and companies mentioned in the previous Article carries the
c) In regard to the tax on utilization of the labor force and social
security contributions, the following is established:
1. For utilization of the labor force, a discount is granted in the
current taxation rate, to a rate of eleven percent (11%)."
It is notable that all of this is taking place in flagrant violation of
International Labor Conventions ratified by Cuba and the countries of
origin of the investors.
Labor Convention #95 of the International Labor Organization of June 8
1949, refers to the protection that should be accorded to the workers
salary. Cuba ratified this Convention on 24 September 1959.
Article 9 regulates withholdings. "Any deduction from wages with a view
to insuring a direct or indirect payment for the purpose of obtaining or
retaining employment, made by a worker to an employer or his
representative or to any intermediary (such as a labor contractor or
recruiter) shall be prohibited."
It almost appears written for Cuba's' present situation. There exists an
intermediary imposed by the government that the worker tolerates because
it the only way that one can obtain or hold employment in this type of
company. The choice is stark: either hold on to your job or live in
Article 6 reinforces the concept by saying: "employers shall be
prohibited from limiting in any manner the freedom of the worker to
dispose of his wages." What worse limitation than to impose a
confiscatory wage rate!
Let us continue. Convention #111 of 4 June 1958, ratified by Cuba on 15
September 1960 prohibits discrimination in employment.
Article 1 defines the term discrimination as follows: "For the purpose
of this Convention the term discrimination includes any distinction,
exclusion or preference made on the basis of race, color sex, religion,
political opinion, national extraction or social origin, which has the
effect of nullifying or impairing equality of opportunity or treatment
in employment or occupation."
We have shown that members of management may contract directly with the
company without going through the Cuban government hiring company. But,
composition of management is twofold. It consists of foreigners or
Cubans that agree with the party ideology. Clearly, there is
discrimination for reason of national origin or political ideology. It
should be mentioned that the ILO has already brought the issue of labor
discrimination to the attention of the Cuban government, asking
questions as to whether Cuba is violating the Convention. The issue was
that labor preferences were granted to party members. As was to be
expected, Cuba responded with mind numbing memorandums that
"interpreted" the local law and promised to look into matters later on,
while the forbidden practices continue.
Convention # 87 refers to union freedom and the protection of the right
to unionize. Cuba ratified it in 1952. Freedom to unionize is regulated
by article 3, which we transcribe.
Article 3.1. Workers' and employers' organizations shall have the right
to draw up their constitutions and rules, to elect their representatives
in full freedom, to organize their administration and activities and to
formulate their programs.
Article 3.2. The public authorities shall refrain from any interference,
which would restrict this right or impede the lawful exercise thereof.
The ILO has also formulated observations to Cuba having to do with the
violation of this article, and made specific reference to the
"interference of the Communist Party of Cuba in the election of labor
Other observations made to Cuba have to do with the violation of several
other Conventions, as for example:
convention dealing with the prohibition of forced labor; (convention
#105 of 1957 ratified by Cuba in 1958 and convention # 29 of 1930,
ratified by Cuba on 1953)
convention dealing with employment policy, (#122 of 1964 ratified by
Cuba in 1971)
convention on paid vacations, that incredibly Cuba also violates (#52 of
1936 ratified by Cuba in 1953).
We are then facing a situation wherein basic workers rights are ignored
by the Cuban regime, and this is a matter of public record, given the
fact that the ILO files are open to the public. Ignorance cannot be used
as an excuse. The foreign investor contracts with a tyrannical regime
and is complicit with it in the illegal exploitation of workers. The
intention to take advantage of the situation in order to effect personal
gain is evident.
As an aggravating circumstance we should mention that many of these
conventions were ratified by Cuba many years ago (more than 60 years in
some cases), all of which proves the labor vocation of the Cuban worker
who is not unaware of his rights but only sees them repressed. The
dissident press in Cuba has published articles referring specifically to
the abuse of rights under convention #95. The international press and
the Internet have picked up these denunciations. Therefore the employer
not only has access to public records but also to widely disseminated
III- NULLITY AND ITS CONSEQUENCES.
There is no doubt that an illicit and immoral cause exists in these
contracts. A service is contracted against all international norms and
conventions. An investment is made and companies are created in order to
operate under this system. The motive is transparent: to obtain an
attractive profit through the payment of an inferior wage, even after
including in the computation the amount that the foreign investor pays
the government hiring company. Indeed the literature and websites of
promoters paid by the Cuban government to solicit investors describe
Cuba "as the opportunity of the century."
The most important investments are concentrated in the tourist and
extractive industries. The meager circumstances of the Cuban people and
economy require that tourism be attracted by bargain prices, in spite of
which the rate of repeat visits is very small. In the case of the
extractive and agricultural industries, price is also a paramount
requirement in order to compete in world markets. In both cases this
competitive price is borne by the Cuban worker on his back, as he makes
it possible by performing work that is remunerated at a fraction of its
The Cuban administration directly and through its employment agent
participates in this scheme with one condition: share in the spoils. Its
share consists in a portion of the profits and the wage differential
that it keeps in dollars. It acts sometimes directly and sometimes
through others, but its responsibility is the same. It does not act as
government responsible for the welfare of a nation, it acts as a
criminal enterprise intent on maintaining its power, privileges and
To take with violence somebody else's property is defined as robbery by
criminal legislations around the world. There exists violence, because
the government intimidates and incarcerates anybody that dares to
protest against the status quo. The unions are not independent, as the
ILO points out. Its leaders are dependent on the Cuban Communist Party
who imposes its hand picked candidates. Thus the pattern of violence is
complete, affecting the worker and the unions that are supposed to
defend and represent him.
An association to deprive somebody else of his property and obtain an
unjust enrichment is what defines the felony and the contractual
nullity. Legal systems around the world regulate nullity in similar
terms, i.e. by denying validity to the acts involved. From a legal
standpoint the contract never existed and since it never existed its
defects cannot be cured nor can the contract be confirmed.
The Spanish Civil Code of 1889, that was applied in Cuba for almost one
hundred years regulates the matter in its article 1275. It stated:
"Contracts without cause or with an illicit cause do not produce any
effects. The cause is illicit when it is contrary to the laws or to
morals." (Said code was substituted by the actual one, the legality of
which is not acceptable, even if it shares the same principles)
Later on it declares in article 1305: "When nullity results from an
illicit cause or an illicit object, if the actions involved constitute a
felony, committed by both parties, then they shall not have any action
to sue each other. Proceedings shall be instituted against the parties,
giving to the things or moneys object of the contract the disposition
that the penal code establishes for the assets or instruments involved
in the felony."
In any case regardless of the choice of law we are dealing here with a
general principle of Civil Law that has been in place for 2000 years.
The juridical consequences established by all penal codes (including the
communists) are the same:
Seizure of the assets and the profits obtained (notwithstanding the
conversions that may exist) and their sale, applying the product so
obtained to cover the civil responsibilities of the culprits.
These responsibilities would be the back wages at market rates due to
the Cuban work force plus interest, in addition to the damages that the
court may determine.
Article 1305 continues to say; "This rule is applicable to the case in
which there would be criminal action only on the part of one of the
parties; but the innocent party may ask for the return of what he gave,
and shall not be obligated to fulfill that which he had promised." In
The investment contract is null and void.
The investor and the Cuban Administration and or its agent or sham
companies have no action to sue each other.
The worker (inasmuch as he is not complicit to the scheme) retains his
actions, as he is not a culpable party.
The employment contract with the Cuban worker (whose existence is
covered up by the attempt of sham through the interposed company) is
also null, but the innocent party has the right to sue and demand what
he delivered, that is, payment for his labor at a fair price.
The Cuban Nation represented by the appropriate public advocate has an
action against the investor, its agents and the members of the Cuban "nomenklatura"
and management elite that implemented this scheme.
A democratic Cuba that respects property rights and its international
undertakings would never confiscate property arbitrarily à la Castro.
However, it could not validate passively the rape of the Cuban labor
force during the Castro years. That would not be justice, but precisely
the opposite. If tolerated it would:
Ignore the fact that a notorious and public felony has been committed.
Reward the investors that showed no scruples, by granting them an
advantage in time and in the amount of their investment.
It should be noted that present investors have come in at low asset
prices, another advantage of their complicit behavior. To protect the
low entry point costs of those investments would give the unscrupulous
investor a competitive advantage to the detriment of those that would
wish to invest in a democratic Cuba in the future, inasmuch as new
investments would be made at market prices, and labor would have to be
remunerated at a higher rate from inception.
Further, from the standpoint of international law it cannot be tolerated
that international conventions be scoffed at. The countries that engage
in investment treaties and provide investment insurance to investors
doing business with the Castro administration are going against their
prior acts as they are signatories of the international labor
conventions previously referred to. These are multilateral treaties that
cannot be violated in daily practice. Such countries should have to
denounce the previous multilateral labor treaties that they signed,
since the breach of a multilateral treaty affects the other signatories
by diminishing the value of the convention, in that it is mocked. To my
knowledge no signatory of these conventions has done that for obvious
There is ample precedent for stern action. The penal legislation of most
countries already punishes crimes committed against the rights of
workers. These are crimes that the investors are well aware of. For
example: the largest investors in Cuba have been Spaniards. Spain's
Penal Code of 1995 in its article 311 imposes penalties that can range
from six months to three years in prison to those that by "abuse of need
(to work) impose on workers at their service labor conditions that harm,
take away, restrict or suppress rights granted to them by legislation,
collective contracts or private contracts."
It goes on to apply the same penalty to those who accept those
conditions when imposed by another and increases the penalty if there is
violence or intimidation. Clearly then in their own country they could
not do what they do in Cuba. But apparently for many of these investors
Cubans are a different type of workers, they are fair game.
It is therefore juridically and morally correct for the future
government of the island to declare the nullity of these contracts, with
its attendant consequences. Cuba would not be inventing crimes or
penalties. It would proceed according to the rule of law.
What we have explained, renders hollow the protests against the
measures, imposed by the government and the congress of the United
States, that punish those who traffic in stolen property sold or leased
by the Cuban government.
The protests against the alleged infringement of rights of the persons
and companies affected by said measures are usually supported by self
serving interpretations of international law. Blatant abuses of the same
international law are dismissed even when they result in grave labor
injustices. Unfortunately for the Cuban nation these injustices are what
make the foreign investments "attractive." The contravention of
international agreements ratified by Cuba, bears no contrary argument.
The country has been publicly called to account for their breach. The
governments of the foreign investors that have signed the same
conventions have a public record in front of them to which they choose
to pay no attention.
A similar argument can be applied to those that advocate a
liberalization of Cuba's commerce with the U.S. without a quid pro quo.
They must ponder an essential basic issue: The Cuban worker is the one
that needs freedom to contract his work and thus collect a fair wage.
Politically the arguments are even stronger. The resentment for the
injustice is such that a future Cuba could not be governed with labor
peace if the abuse is nor remedied. It is the type of issue that does
not go away easily. The investors that plan to take shelter in the
doctrine of the acts of the state, or in international treaties signed
with Cuba in order to protect investments, forget one thing: doctrines
and treaties do not exist to protect acts that violate clearly
established rights that exist in all civilized nations.
A totalitarian and self perpetuating administration represents itself
and nobody else, notwithstanding all the legal camouflage that may be
appended. The outrage is of such import that it cannot withstand a
serious argument before a fair and independent tribunal.
Present investors have only one solution. Cease and desist. Otherwise
they are complicit with a tyranny that exploits its own people.