EQUATORIAL GUINEA: SALARY DIFFERENCE, THE BLACK HOLE IN THE POCKET OF OIL AND GAS COMPANIES.
Recently the Minister of Mines and Hydrocarbons of Equatorial Guinea announced the winners of the EG RONDA 2019 licenses, many companies unfamiliar with the legal environment of Equatorial Guinea are preparing to enter the market.
Centurion Legal Advisor Pablo Mitogo Akele advises how new companies can avoid mistakes commonly overlooked by oil and gas companies when hiring non-local staff.
With large projects under negotiation, 27 blocks in the last round of oil and gas licenses added to the Gasmegahub project, is most likely that several companies are going to need to hire new staff or expand their current workforce in the next two years. In the same way the mining projects that are potentially going to be developed in the country will necessarily create not only a new sector of activities that is not currently contemplated in the salary decree, but will create a whole range of new jobs and new professionals that neither are in the salary decree of 2011.
Why do we talk about salaries? Many companies in the oil sector have had problems of salary differences in the past, because foreign workers had previously been paid more than to locals performing the same job. This has ended in court trials that have led to huge losses for companies, sometimes between 400 and 1200 million Franc Cefas. Most of these cases, could have been avoided.
What is salary difference?
In a very simple way; when two people do the same job, but receive different salaries for whatever reason, the salary difference occurs. The law requires that wages be equated. One of the common causes occurs when hiring non-local staff. It is important to keep in mind that there are other situations in which the salary difference can occur if the legal requirements are not observed.
For example a) errors in the calculation of the salary, b) for the duality of functions, or c) for the transfer of the worker to another work centre or country.
How the salary is calculated in Equatorial Guinea:
The legal minimum wage according to Decree No. 121/2011, dated September 5, establishes the interprofessional minimum salary of the national private sector is 117,304. (around 180 euros) equal for all those who work for others in the private sector. Except the informal sectors, domestic workers, work with friends and work with family members. However, that does not mean that it is what you must pay. This salary is multiplied by what we call “coefficient” and that coefficient varies according to the professional category and the sector of activity. For example, an accountant from sector A (oil sector) and an accountant from sector B (industrial sector, banks and insurance agencies) have the same legal minimum wage: 117,304. However, the oil sector accountant has a legal coefficient of (11) while the other has a coefficient of (4.4.)
If you multiply the minimum wage by the coefficient assigned to a category or profession, you will get the base salary. In the case of the oil sector accountant, for example, the result would be 1,290,345 XAF per month (1,985 euros). You cannot pay less than this, because it is the monthly legal minimum wage for this category in this sector. If you pay less than this, the salary difference occurs.
The central idea here is that, if you pay a worker less than they should earn, you will have to pay the remaining difference.This difference does not always exist.
On the 29th of November, the Minister of Mines and Hydrocarbons of Equatorial Guinea announced the winners of the EG RONDA 2019 licenses, so many companies unfamiliar with the legal environment of Equatorial Guinea are preparing to enter the market. Centurion Law Group has previously worked with many of them and we are willing to help our clients and new companies looking to avoid the mistakes that other oil and gas companies have made when hiring non-local staff. There are some things you should be careful with:
The difference in wages.
You can generally hire “non-local staff” to carry out your operations in Equatorial Guinea if you respect the criteria of local content. However, you should keep in mind that, in Equatorial Guinea, if two people do the same job, they should be paid the same as long as that contract is a labour contract. The mistake that many companies have made is that, when setting salaries to their non-local staff, they paid differences of more than 6 times what local worker that does the same job earns. Judges have interpreted this as salary discrimination and many companies have been heavily sanctioned and have ended up adjusting salaries after paying those remaining differences.
We have seen this happen repeatedly, when analysing some cases, we have realized that , there was no adequate justification as to why non-local workers were paid more.
In Equatorial Guinea the law allows additional salary benefits to all those who move from their country to provide their services in another. Such benefits include:
• Payment of transportation expenses to their place of destination and back to their place of origin.
• Installation costs.
• If the worker is permanent or whose contract must last at least one year, the employer must pay a salary plus based on the cost of living which cannot be less than 50% of the employee’s base salary.
• From the third month of service or at the request of the worker, the employer must pay the round-trip transfer of the family in charge of the worker.
The law does not discriminate on grounds of nationality. However, what a company should know is that, well-structured and correctly justified, a foreign worker can earn more, not because he is a foreigner but because the same benefits that the law grants to an Equatoguinean when he mustwork outside the country, apply to foreigners whenever the employment contract is governed by the labour legislation of Equatorial Guinea.
When it is not structured properly, then it seems that some are paid more than others and the judges interpret that there is discrimination against the locals and the differences in wages must be paid from the first day of work.
Another source of problems with wage differences arises when the Job descriptions are not clear enough and a worker ends up doing functions that correspond to two categories according to the salary decree. This small error can create problems for the company because a law prior to the current labour legislation interprets this situation as a duality of functions and forces the employer to make a 35% increase on the salary. The problem is that it is very difficult to realize when there is a duality of functions, so that companies that in the past have had to pay 35% more calculated since the first day of work of the worker thathad no intention of performing duality of functions. They simply did not take into account the structure of functions set by the salary decree.
Employment contract vs civil contract of service provision. The legislation in Equatorial Guinea differentiates very well between an employment contract and a civil contract of service provision. Having the right contracts can mean the difference between a big economic loss or not. Make sure you have the right contracts because the difference may be in small details, enough to overlook a new company. If you have signed a contract for the provision of services with a non-local worker, it is normal for him to earn much more wherethere would be no salary difference because what he earns technically is not salary and consequently he is not subject to the salary decree. However, both your company and that worker will have other types of tax obligations and different benefits. That is why we insist on clarity and transparency with contracts and especially with what happens in practice. Small things like paying by invoice to a worker and not by payroll, completely change the type of contract.
We address this situation because although the obligations under a service provision contract could be economically higher, keep in mind that, if this is the situation, there is no longer an obligation to match what a non-local contracted person earns with a local one Basically because they are not linked to the company under the same contractual form. In our experience, we have seen cases in which there was in practice a contract for the provision of services, but by paying the non-local worker by means of a payroll instead of an invoice, technically his income becomes a salary and the obligation to match his salary with local workers legally begins.
How to avoid these problems?
If you are a new company or you plan to venture into Equatorial Guinea to do business, especially if you are an oil and gas company, you should review both the way you contract, the types of contracts you sign with people you hire, the way you set salaries and how you pay those who work for your company. Here are some tips on how you should address some of these problems:
• Hire a labour audit. The only way to know if you have any of the problems we have mentioned, is to perform an audit. A labour audit consists of a review of compliance with labour legislation analysing very specific points in both contracts and the way in which they are applied in practice. When we performed audits in the past, even the most orderly companies that acted with full transparency and good faith realized that they had serious problems. A labour audit simply offers you a panoramic view of compliance with labour legislation. In our experience, many of the problems are usually in the contracts. For example, a situation that is repeated a lot in addition to the salary difference itself is the duality of functions. We have had to recommended to companies to change many job descriptions or restructure the functions of their employees because sometimes just one more function gave the worker the right to a 35% increase in his salary. A company can use this system to save on hiring new staff, if it pays 35% more, but if it is not what it wants, it is better that this be reviewed.
• Follow the recommendations in the audit report. The audit report is written in a very simple and practical language. It contains specific instructions on how to solve the problems that have been detected. We always offer the option to regulate everything. We review the contracts, adjust the job descriptions, review the functions that workers perform in practice and suggest changes. We have even written new internal regulations for companies because those they had left them unprotected, etc.
• Check your payroll sheet. You must justify that the reason why the non-locals earn more is due to the payment of the additional rights that the same law already establishes. Consult with a lawyer so that this process is clarified with the support of the labour authority. You must find a way to do it and be very transparent with this. Above all, for mining companies whose categories the law does not yet include, it is very important to work with the labour authorities following the procedure established by the salary decree for those functions that are not contemplated.
• Integrate ADRs in resolving conflicts with employees. If you get a demand and the object is the salary difference, we always recommend resolving it by agreement. Mediation or negotiation are perfect tools to close these types of cases. We have reduced significant amounts in the past through negotiations that have sometimes resulted in 60% less than the total amount. The labour law in Equatorial Guinea does not allow employees to renounce their rights. They cannot legally decide not to collect them and any agreement about that will be invalidated by the judge. However, they can negotiate the amounts and a judge can validate the agreement.
• Organize seminars and workshops. Invite your lawyer to give talks, it is convenient for workers to understand what they are entitled to and the things to which they are not entitled. Having uninformed workers will not help you because you run the risk that they can initiate unfounded complaints and because it is the company that must prove in most cases that workers are not entitled to what they ask for, we have seen many cases in which a company ends up paying minute complaints because it could not provide evidence against what the workers were asking for. A famous case is that of a worker who was cleaning and managed to take a picture as a mechanic with mechanic uniform, under a car, performing a reparation process. The company could not provide evidence that the man was not a mechanic because they (the company) had not even signed a formal contract with that employee. Guess what? The judges ruled that, although the photo does not imply working effectively as a mechanic, the employer had not been able to dispel the doubt of the court as to whether he was a mechanic or not. Then, in case of doubt, they (the judges) applied the principle of in dubio pro-operario, according to which, the doubts are interpreted in favour of the workers.
Many companies that have had to pay for salary differences in the past have made mistakes; But there have also been cases where there really was a difference despite the additional legal benefits. In both cases, we have realized that most of the companies did not intend to pay the locals less. To get out of doubt, there is nothing better than hiring an audit, believe me, the time and money you can lose in these types of problems is much greater.
Pablo Obama Mitogo Akele is a Legal Advisor at Centurion Law Group specialising in Alternative Dispute Resolution and Contract Negotiation.
Follow Pablo on LinkedIn.
Venturing into Equatorial Guinea? Speak to Centurion Law Group on how to do it right.
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Contact: Glenda Irvine-Smith on email@example.com / +27 11 245 5900.
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