Things Go Better With Coke

This article reports on two significant recent developments. The lead story centers on a national appellate court decision holding (we think unfairly) a regional Coca Cola bottler jointly liable for labor claims made against a distributor. Our second story, Shocked Back to Life?, offers some encouraging news to bondholders pursuing claims in bankruptcy.

In a decision that has left the mouths of attorneys agape, the National Labor Appeals Court has held a Coca Cola bottler jointly liable for labor claims brought by an employee of one of the bottler's distributors. In Andrada v. O'Mari S.A.,1 the appellate court determined that Coca Cola Femsa de Buenos Aires S.A. ("Femsa"), a Coca Cola bottler serving the Buenos Aires metropolitan region, was jointly liable for work-related injuries suffered by the plaintiff. The court based its ruling on Section 30 of the Employment Agreement Act.2

Section 30 is a statutory basis for respondeat superior or vicarious liability. It holds a person jointly liable, in certain instances, for employment withholding taxes, social security contributions and other labor obligations payable by subcontractors to their employees. Section 30 liability attaches when the subcontractor's work or services involve the "ordinary and specific activity" (actividad normal y específica) of the principal. Thus, the statute nullifies corporate chicanery to subcontract workers who are, in effect, employees as a means to avoid the Employment Agreement Act.

Whether a subcontracted activity meets the definition of "ordinary and specific" has been scrutinized by judges and scholars alike. A clear majority holds that joint liability follows only when the subcontracted services form part of the principal's "chain of productive activity." Thus, Section 30 liability would apply to employees of a subcontractor manufacturing cookies for a food products company. That same food products company would not, however, be liable for the obligations of outsourced security, cafeteria or cleaning service providers.

A minority of commentators takes a radically different approach to consider a business as a "global organization" that includes all subcontracted activity contributing toward a final profit motive. Under this theory, the litmus test for liability would be far more lax. A company would almost always be jointly liable for labor claims of its subcontractors' employees.

In 1993, a landmark Supreme Court decision, Rodríguez v. Compañía...