Crisis in Nicaragua – What can I do with my employees?

Since the 18^th of April of 2018, Nicaragua hasn’t been the same and the repercussions of this change can be seen and felt almost everywhere.

For businesses this has especially been true. Since April of this year, various industries such as construction, tourism and transportation, among many other, have felt either a lull in customers or they haven’t had any sales – at all!

Obviously, this is worrisome, and if you have employees, with reduced or non-existent sales, you will need to make some important decisions very soon.

With that we come to the point of this article, as an employer what obligations and options do I have with my employees during this crisis?

Obligations

When you hire an employee there are obligations that both yourself and your employee’s need to keep in mind. Of course, for your employees these obligations are related to the responsibilities that they will be assigned, but for yourself as their employer, there are a different set of obligations that you have to comply with, such as:

• Paying a salary that is at least minimum wage or more;
• Paid vacation,
• 13^th month;
• Severance, and others…

Of these, one of the biggest obligations that the employer has is the payment of severance.

What does the severance consist of? 

It consists of an amount of money that varies depending on how many years the employee worked for you. As per the labor code, severance can accrue up to a maximum of 4 months and 10 days of salary if the employee has worked 5 years or more for the same employer.

So, for example, if an employee’s salary was C$ 7,000.00 a month and that person worked 5 years for you and you fired them, then you’d owe – just for severance, C$ 30,333.33, which is a considerable amount if you haven’t been saving up for it.

It is important to make note that 4 months and 10 days of salary that needs to be paid out is the maximum. There is no difference if the employee has worked 5 years or 20 years, the maximum will always be the payment of 4 months and 10 days of salary.  Also, if the employee has worked less than a year, then they are still entitled to severance – the difference is that the calculation is proportional to the time that they have worked. The only exception is with an employee that worked in management or was responsible for managerial tasks, where the severance caps out at a maximum of 6 months.

In addition to severance, the final liquidation will also have to include the payment of unused vacation time and what has accrued for the 13^th month payment. The employer will have a maximum of 10 days after the employee’s last day to pay the final liquidation of severance, unused vacation and 13^th month.

The final liquidation is non-negotiable and we recommend that it be paid in full to the employee when due, as that is what they are entitled to by law.

Options that Employers have

With current circumstances many employers are at a difficult crossroads about what to do with their personnel. So, what options do employers have? Let’s consider a few…

Suspension

Unfortunately, the labor code doesn’t mention specifically about a crisis or what can be done during one, but there are a few articles that mention similar circumstances. For example, if a business has become unprofitable and is close to becoming temporarily insolvent or if it is suffering technical difficulties, the labor code in article 38 mentions that the business can temporarily suspend its employees.

The general procedure is to solicit to the Ministry of Labor authorization before suspending personnel and after having received approval the employer will pay 6 days of salary to each employee.

It is important to keep in mind that suspension only defers your employer obligations temporarily.  It doesn’t reduce any of your obligations.  If the time comes that you will need to close your business then you will still have to pay the final liquidation to all of your employees.

Suspension is simply to take a pause, see what direction circumstances take and decide whether you can go back to business or if you’ll need to close the business. The duration of the suspension may last as long as the cause that gave origin to the crisis exists.

Finally, if you do decide to suspend your employees it is very important that both you and your employee(s) are in agreement.

Article 39 of the Labor Code mentions that the Labor Inspector that authorized the suspension will notify both parties once the cause of the suspension has been resolved.  By use of an analogy, this principle applies to all of the suspension circumstances, because the suspension is applied at the whim of the employer, there must be a cause and article 37 which are:

Individual Suspension

• The incapacity of the worker;
• Illness or non-professional accident that entails temporary incapacity of the worker;
• Pre and postnatal rest of the pregnant worker;
• Detention, arrest or preventive detention of the worker;
• Disciplinary measure of suspension of work without payment of salary according to the internal regulations of the company;
• The designation or election of the workers as representatives before the state organisms, Conciliation and Arbitration Boards, National Commission of the Minimum Wage and others according to the law and without salary in their case;
• Mutual consent

Collective Suspension 

• Lack of raw material;
• The closure of the company or work center ordered by the competent authority according to preventive or corrective reasons of hygiene and safety;
• The temporary closure of the company or work center for technical or economic reasons;
• Force majeure or fortuitous event, when they bring as a necessary, immediate and direct consequence the suspension of work.

Once any of the above causes are resolved, the suspension should be lifted. Of course, there exists the possibility for the employer to abuse of the suspension figure, but that is why the mutual consent is important. Finally, the employee isn’t defenseless either, he/she at any time can file a complaint with the Ministry of Labor, if so desired.

As per the description of the suspension figure itself, the code mentions that it is a temporary interruption of the labor contract. This means that even though he is still your employee, there shouldn’t be any payments made to the employees that are suspended.

Because then we go back to the initial cause or start of the problem, “If the allegation is that due to no-business I need to suspend employees, then why are there payments being made to them?”

That is why the employer needs make a decision, and that is why I mention it is important to consider the effects and duration of the current crisis on your business and have mutual consent (employee & employer). If you are concerned for the well-being of a specific employee or all of them, then it’s recommended to liquidate them.

If not, and this is simply a temporary situation that you and your employees will be able to pull through, then by all means, defer the liquidation and suspend. Because the premise of the suspension is that you don’t have to de-capitalize your business or worse, solicit loans, just to pay your employees liquidation, if things are going to improve, then keep the capital in the company and wait, that is the benefit of the suspension.

Layoffs

Of course, this is the most drastic option, but as the crisis continues this may be the only option. Prior to making this decision please make sure to calculate the funds that will be needed to pay to all of the personnel. If you pay the final liquidation late, then you have to compensate the employee additional monies.

Personal Decisions

Due to the extreme circumstances, there have been employers that out of goodwill, have decided to pay their employees whatever they can or what reduced sales may permit.

Again, this is a personal decision, and I can’t promise that there won’t be any repercussions later on, but this isn’t an isolated circumstance either.

Final Recommendations

When circumstances improve and the economy begins to rebuild itself the possibility may exist that the decisions that were taken during the economic downturn by an employer might be brought into question.

As a suggestion, so as to avoid any misunderstandings, we do recommend that you have records of your accounting and payroll practices so as to be able to prove to any governmental tax or judicial institutions that may want clarification on what occurred during the present crisis.

Finally, make sure that for what you decide now or in the near future, please first look for guidance from a professional so as to avoid making a decision that you may later regret.