Legal aspects of the assignment of workers between companies in Nicaragua

Posted by: Yury Cerrato | Senior Associate at Alvarado y Asociados

On previous occasions we wrote about the international assignment of workers, referring to those cases in which workers of a foreign company were sent to Nicaragua to work for a Nicaraguan company. On this occasion we will refer to the assignment of workers among Nicaraguan companies, understanding as such the change of employer in Nicaragua.

It is usually the case that a company that employs certain workers, because they have sold part of their business to another company, or for any other reason, have to assign those workers to the other company which will be the new employer of these workers in Nicaragua.

In our legal practice we have noticed that companies believe that the only way to proceed with an assignment of workers and substitution of an employer in this country is through the article 45 of the Labor Code of Nicaragua, that is, through a labor dismissal that implies the payment of the corresponding labor severances and the celebration of new labor contracts with the new employer. However, it is important to know that our Labor Code also allows workers to be assigned in accordance with the provisions of article 11 of said code, which allows the employer to be replaced without the need to terminate the current employment contracts and therefore, without the need to pay labor severances at the moment of the workers´ assignment.

Then, we have that there are two options or strategies to assign workers in accordance with our Labor Code. Below, we will mention relevant aspects that companies should take into account on each of these strategies to assess what would be the appropriate strategy to proceed with the assignment of workers.

  1. Assignment of workers by termination of labor contracts.

This strategy implies to proceed with the termination of the work contracts of the employees that will be assigned from one company to another and the execution of new contracts with the new company. Such dismissal would be based on article 45 of the Labor Code of Nicaragua, which allows the employer to terminate the undetermined work contract without justified cause, but paying the corresponding labor severances to those workers to be transferred, that is, it shall pay the indemnity for seniority and the proportional amounts of vacation and thirteenth month accrued.

From a financial point of view, the payment of labor severances could be seen as a disadvantage compared to option B, which we will address later on, due to the fact that through dismissals and re-hiring, it could incur in an expenditure that could be paid doubly; we refer specifically to the indemnity for seniority established in article 45 of the Labor Code, which has a maximum limit of five months of salary to be paid to a worker under this concept regardless of the number of years that the employee has been working under the same contract, that is, a worker stops accumulating compensation for seniority from the seventh year of work. If the employer proceeds to dismiss a worker who has been working under the same contract for several years, or who has already stopped accumulating seniority, and later the employee is rehired, seniority starts from zero with the new contract.

Notwithstanding the foregoing, this strategy could be a good option when the company that will receive the workers finds that the employment contracts executed with the company that assigns these workers establish conditions or benefits that are very costly or inconvenient for the interests of the assignee company—For example, that those work contracts establish the payment of bonuses or work incentives that the new employer cannot or is not willing to pay for, or that these contracts establish work schedules shorter than the ordinary hours allowed by the Labor Code, which prevents to increase the ordinary hours without increasing the salary. In these cases, it would be convenient to proceed with the termination of those work contracts with the former employer and to execute new work contracts with the new employer with the working conditions that the new employer decides, conditions that could be different to those that existed with the former employer, even establishing benefits lower than those established with the former employer (as long as said benefits do not violate the minimum guarantees established by the Labor Code of Nicaragua).

  1. Assignment of workers by substitution of employer.

This strategy is based on article 11 of the Labor Code of Nicaragua. This article establishes the possibility that one or more workers are transferred from one company to another and that the employer is replaced by a new one without the need to terminate employment contracts, and therefore, without the need to pay labor severances at the time of the assignment of such contracts, which in financial terms could mean an advantage over the strategy explained in letter A above.

The substitution of an employer based on article 11 of the Labor Code of Nicaragua implies the following:

  1. a) Existing labor contracts are not terminated, that is, labor severances are not paid to proceed with this assignment.
  2. b) The replaced employer shall be jointly liable with the new employer for up to six months for the obligations arising from labor relations born before the date of substitution. This means that the worker can sue both the new and the old employer within these six months for any failure to pay his salary or labor severance in case his contract ends within this term.
  3. c) After six months of the assignment, the new employer is solely liable for the labor obligations of the workers acquired since the beginning of labor relations with the former employer.
  4. d) There must be acceptance of the workers to be assigned to proceed with this modality, such acceptance must be in writing. Our recommendation is always to execute a tripartite agreement that must be signed by the former employer, the new employer and the worker or workers assigned. It is important to execute this document in order to further support the substitution of the employer before the Nicaraguan Social Security Institute, since when making the change before said Institute, it must be explained that it was done in this way and not by dismissal and re-hiring, as it is very probable that said Institute will request the payment of the social contributions for what it respects to the payment of vacation that is usually paid when terminating an employee.

The disadvantage of this strategy could be that the assigned work contracts contain too many benefits that are not affordable for the new employer, because we know that in accordance with the Law of Acquired Labor Rights the new employer cannot reduce or remove them while maintaining the same labor contracts in effect.

As you can see, it is always important to review with a lawyer regarding the best strategy to follow when assigning workers from one company to another and thus avoid labor contingencies or costs that were not thought at the time of assigning the workers.

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