Labor Severance Pay Deductions Applicable in Nicaragua

Feb 5, 2020 | English Blog

On many occasions we have received inquiries from clients, in most cases –unfortunately—until the employment relationship is going to end, asking if certain deductions can be applied to the severance pay of the employee resulting from loans granted by the employer or by a Bank to the employee, for amounts paid by the employer in training or studies received by the employee, for employer equipment  given to the employee for the performance of his/her work that is not returned at the end of the employment relationship, etc.

We say that unfortunately it is until the moment in which the employment relationship is going to end that in most cases we are asked these questions when it is ideal to seek employment advice before the loan is granted to the employee, before it is invested in studies or costly training for the employee, or before the company´s equipment is delivered to the employee for the performance of his/her work.

It is known by all how common these situations are in the workplace. The employee often needs to receive loans; the company needs to train or invest in employee´s studies to achieve greater productivity and competition in the market; the employee wishes to acquire more knowledge and studies in different subjects; etc. However, on many occasions there is a fear on the part of the employer that granting these loans to the employee or making those investments in the employee´s training or delivering those equipment for the use of the employee may result in losses for the company due to the risk of being unable to recover the amounts allocated to it.

How many times have we seen cases where the company invests a lot of money in trainings for the employee and he/she resigns immediately after receiving them, resulting in inefficient the investment made by the employer? Or on the other side, cases where the employee wishes to pursue studies or training to acquire better knowledge about certain subjects and the company does not pay for these studies for fear that the employee leaves the company and seeks a better paid job once he/she has culminated those studies?

All these issues can be overcome if the parties know their rights and what the law allows.

Let´s see then how these issues are handled in the Nicaraguan legal field.

We must note, in principle, that the issue of deductions to labor severance pay has been undergoing different nuances over the years in Nicaragua. At first, it was possible to observe the labor criteria that clearly stated that the employees´ benefits were untouchable and that, therefore, the only thing that was allowed to deduct from the salary and vacations paid in the labor severance pay was that corresponding to income tax and social security contributions. This criteria was covered by provisions contained in the Labor Code (articles 88 and 89) and in the Political Constitution of Nicaragua (article 82 numeral 3) that establish that the salary, the payment of vacations not taken, the thirteenth month and the compensation for risk or accident at work, enjoy the privilege of being preferred to any other credit, except for the food of the employee´s relatives declared judicially. Criteria such as this was reflected in judgments of the National Labor Court of Appeals of Nicaragua (TNLA) such as Judgment No. 74/2012 of ten minutes past ten on the morning of March 8, two thousand twelve and Judgment No. 191/2015 of the ten minutes past three on the afternoon of January thirty two thousand fifteen.

However, with the passage of time we observe that the TNLA has opened up a little more the range of possibilities regarding labor deductions. Thus, we find Judgment 937/2015 of the nine and fifty minutes of the morning of December 9 of two thousand and fifteen in which said Court considered that it was allowed to deduct from the labor severance the amounts for goods and equipment lent to the employee for the performance of his/her functions that were not restored at the end of the employment relationship to the employer. The Court based its judgment on the provisions of article 18, subparagraph f) of the Labor Code that establishes the obligation of the employee to use the goods, resources and materials with due care, for the purposes that were intended and to restore them once concluded the work for which they were provided. It also based its consideration on the fact that the deduction applied had been previously agreed by the parties.

In the same sense, the TNLA pronounced in Judgment No. 763/2016 of ten in the morning of June 9 of two thousand sixteen, considering that it was allowed to deduct amounts invested by the employer in training the employee if he/she left the company in a short time after receiving these trainings, as long as this has been accepted by both parties. This criterion can be seen from a positive point of view, since it allows companies to be encouraged to invest in their employees, improving their productivity and competitiveness in national trade; if this deduction is not allowed, it would limit companies´ spirit of making investments like this in their employees, because due to the fact that Nicaraguan labor legislation allows employees to terminate indefinite contracts, which are the ones that are commonly executed, by means of written notification fifteen days in advance, employers suffered the risk of losing what was invested in training their workers if, after paying studies for them, they quit their jobs, and worse, they were going to work for competing companies.

Finally, by means of Judgment 973/2016 of the ten and ten minutes of the morning of August 5 of the two thousand sixteen, the TNLA came to open even more the floodgate of possibilities to apply deductions to the labor severance pay, because through this sentence the Court considered as legal a deduction applied to labor severance pay for loans granted to the employee, based on the consideration that said deduction had been agreed by the parties previously.

As can be seen, the TNLA criteria regarding labor deductions have been based, among other things, on the agreement and acceptance of the parties for their application; therefore, it will always be advisable for the parties that come before a labor lawyer to advise them in the best possible way before executing each action, in order to effectively document any agreement that the parties wish to conclude in relation to this issue.