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Labor Disputes and Resolution in Cabo Verde

Labor Disputes in Cabo Verde: Risk & Resolution for Investors

For foreign investors, the labor market in Cabo Verde presents a mix of constitutional protections, relatively strict rules regarding termination, and a judicial system that—while independent—suffers from significant processing delays. Understanding the mechanisms for dispute resolution and the specific financial risks associated with ending employment relationships is essential for operational planning.

1. The Risk Profile: Rigidity and Firing Costs

The primary risk factor for investors in the Cabo Verdean labor market is the difficulty and cost associated with downsizing or dismissal.

  • High Firing Costs: Regulatory assessments have historically estimated the cost of firing in Cabo Verde at approximately 91 to 93 weeks of salary, significantly higher than in many similar economies.
  • Difficulty of Firing Index: The country has recorded a score of 70 out of 100 on the "Difficulty of Firing" index (where higher means more difficult), reflecting strict regulations protecting permanent employees.
  • Compensation Requirements:
    • Objective Cause: In cases of collective dismissal or elimination of a job position (redundancy) based on market or structural reasons, the worker is entitled to compensation of 20 days of pay for every year of service.
    • Without Just Cause: If a dismissal is ruled unlawful or without just cause by a court, the compensation doubles to 40 days of base pay for every year of employment.

2. Dispute Resolution Mechanisms

When labor conflicts arise, investors must navigate a specific sequence of resolution channels, ranging from administrative mediation to judicial litigation.

A. Administrative Conciliation (The First Step)

The General Directorate of Labor (DGT) (Direção Geral do Trabalho) plays a central role in mediating labor conflicts before they reach the courts. This mechanism is frequently used and often successful.

  • Track Record: In 2019, the DGT recorded 339 conciliation processes (labor disputes). Of these, 219 were resolved with an agreement, while 96 ended without agreement.
  • Function: This body also validates contracts for foreign workers and monitors strike notices.

B. The Judicial System

If mediation fails, disputes move to the courts. While the judiciary is independent and generally free from political interference, it poses a significant operational risk due to delays.

  • Judicial Backlog: The accumulation of pending cases and procedural slowness (morosidade) are consistently identified as critical problems in the sector. This backlog creates uncertainty for businesses regarding the timeline for resolving labor liabilities.
  • Jurisdiction: Labor disputes are generally handled by courts with specific authority over labor issues or common courts where specialized ones don't exist.

C. Arbitration and Alternative Dispute Resolution (ADR)

To reduce judicial delays, the government has been actively promoting ADR mechanisms.

  • Legal Framework: Cabo Verde has a specific Arbitration Law (Lei n.º 76/VI/2005) and is a signatory to the New York Convention on the recognition of foreign arbitral awards.
  • New Initiatives: Recent strategic plans (PEDS II) prioritize establishing a National Center for Mediation and Arbitration to reduce court demands and promote social peace. This includes training mediators to handle labor and social conflicts outside traditional courtrooms.

3. Unionization and Strikes

Freedom of association is constitutionally guaranteed, and unions are active in Cabo Verde, particularly in state-owned enterprises and larger industries.

  • Strike Activity: The right to strike is recognized. In 2019, there were 24 pre-strike notices filed. Statistics indicate that a significant portion of labor disputes are resolved through conciliation, preventing strikes.
  • Union Density: Union participation varies by company. For example, within the state utility Electra, unionization rates range from 12.3% to 50.1% depending on the specific subsidiary.
  • Social Dialogue: Major labor policies, including minimum wage adjustments, are often negotiated at a national level through the Council for Social Concertation, which includes government, employer representatives, and unions.

4. Inspections and Compliance

The General Inspectorate of Labor (IGT) (Inspeção Geral do Trabalho) is responsible for monitoring compliance with labor laws.

  • Low Corruption Risk: Investors report very low incidence of corruption during labor inspections. Only about 2% of firms reported that informal payments (bribes) were expected or requested during labor inspections, which is significantly lower than requests during tax inspections (9%).

Summary Table: Managing Labor Dispute Risks

Risk Factor Investor Strategy
High Severance Costs Prioritize fixed-term contracts where legally permitted (up to 3-5 years) to avoid accumulating indefinite liability.
Judicial Delays Use the General Directorate of Labor (DGT) for mediation to resolve disputes early and avoid the court system.
Termination Rigidity Ensure all dismissals are strictly documented for "just cause" or "objective cause" to avoid the punitive 40-day/year compensation.
Strikes Engage in collective bargaining or draft internal regulations (mandatory for firms with 10+ employees) to proactively define labor relations. 

Cabo Verde Labor Disputes and Resolution

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Cabo Verde Labor Disputes and Resolution

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Cabo Verde Labor Disputes and Resolution

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