outsourcing in nicaragua

The Legal Aspects of Outsourcing in Nicaragua.
For the last few years some companies in Nicaragua, have been
using outsourcing or subcontracting, as a strategy to improve the
efficiency and productivity of their business. As a result of the
constant use of this contractual mechanism by local companies,
a bill was submitted in the National Assembly in 2009 to regulate
outsourcing, however, to date such bill has not been approved.
In spite of this commercial practice, to date, outsourcing is not
specifically regulated or prohibited in Nicaragua, but there are
certain regulations provided for in the Labor Code and related
laws that must be complied with since they are related with the
common practice of outsourcing in Nicaragua.
It is important to clarify that current regulations do not provide
concepts that allow us to differentiate between outsourcing and
sub-contracting, as the proposed bill intends to do. Thus, as a
result please note that in this article whereby we will refer to the
regulations currently in force regarding outsourcing, we emphasize that each of those terms refer to the commercial contract
(not labor contract) established among a legal entity or individual
(hereinafter Contracting Party) and a legal entity (hereinafter
Outsourcing Company), whereby the Outsourcing Company
provides its services to the Contracting Party, allowing its employees to render their services at the place of business of the
Contracting Party or the location indicated in the contract.
Yury Cerrato
Senior Associate
We shall not confuse the term ¨Intermediary¨, term duly defined
and regulated as follows:
(i)
Intermediary as defined in the 2nd paragraph of article 6 of
the Labor Code of Nicaragua, is such employee or worker, that
based on the implicit nature of the Service, or the work to be
performed, as provided by the agreement among the parties or
by established practice, requires the assistance of another
person or persons; to that effect the employer of such contracted party, will also be the employer of those additional persons
hired by the employee, prior express or tacit. In this case, the
criteria usually understood is that if such intermediary does not
have its own patrimony, or i t is not a Contractor Company, the
employer of such intermediary will be the employer of the other
employees; thus, such employer acquires obligations in such
labor relationship; othewise, if the intermediary has its own patrimony, it will be considered as a Contractor, and as result
acquires obligations toward those contracted employees or
workers.
(ii)
To the Intermediary as based on Ministerial Agreement
JCHG-004-04-07 “RELATIVO A LA NORMACIÓN DEL FUNCIONAMIENTO DE LAS AGENCIAS DE EMPLEO PRIVADAS” (Regulation of the Operation of Private Employment Agencies) , pertaining to the individual or legal entity whose object is to provide
intermediation employment services, that is, its main activity is
the offer and placement of professionals or different kind as
needed in the labor market; such intermediary that does not
adopt either the condition of employer nor the condition of employee, the labor relationship will be among the person placed by
the intermediary in the requested position.
To date, the commercial practice of using outsourcing or subcontracting has being used without
major complications by the parties involved as long as the employee or worker receives all applicable labor compensations as provided for by the law. The problems arise when the outsourcing
company (Employer) does not comply with applicable legal obligations as provided in the law.
This is the point where discussions begin as to whether or not, the Contracting Party is responsible before the employee or worker subcontracted by the Contracting Party in the event of noncompliance of corresponding labor obligations. The private sector hiring the services of the Outsourcing Company sustain that the Contracting Party should not be responsible before the Outsourcing Company´s employees, since officially this company is the Employer and has the formal
labor relationship with the outsourced employees, and should be legally responsible.
However, current labor legislation in Nicaragua, expressly provides a shared responsibility among
the Outsourcing Company and Contracting Party to comply with obligations in safety and security
regulations as well as social security as subsequently explained.
Current Regulation in Nicaragua
As indicated above, in Nicaragua, there is no specific and complete regulation pertaining to
¨Outsourcing¨, instead there are some regulations established en the Labor Code and related
laws that should be utilized in this contractual modality.
Thus, we find in regulations pertaining to labor hygiene and security, Law No. 618 “Ley General
de Higiene y Seguridad del Trabajo” (General Law for Labor Safety and Hygiene ) which provides
as obligations for the employer who uses the services of contracting and subcontracting (subcontracting Company) the following :
•
Both have to be registered in the Social Security Entity (Instituto Nicaragüense de Seguridad Social (INSS), and they should comply all applicable obligations with this entity;
•
Both must comply with applicable legal obligations in preventing labor risks.
In the event of noncompliance of above mentioned obligations, the Contracting Party of the
outsourcing services will be jointly liable for damages caused to the employees or workers and
other obligations that such contracting party or subcontracting party have with their employees or
workers as per the Labor Code or the Social Security Law.
Noncompliance of the above mentioned obligations, can result in a joint responsibility for the
Contracting Party of outsourcing services; in this regard it is important to note - under the provisions of this Law– the Employer contracting using the outsourcing, even though, it is not deemed
as the direct employer of the employees or workers as far as payment of applicable labor compensations, it will be jointly liable for the obligations arising in matters related with social security
and labor safety and hygiene in the job ; such employer contracting party of the outsourcing
services may end up acquiring obligations such as (among others) : (i) fines and request for
payments as result of the non-registration of the outsourcing company as Employer before the
Social Security (INSS); (ii) fines for non-registration of employees or workers with INSS; (iii) fines
for lack of compliance by the Outsourcing Company with payments of social security quotas to
INSS; (iv) fines and sanctions for lack of compliance with obligations pertaining to labor safety
and hygiene at work; (v) payment of subsidies or compensations for employees´ or workers ´
accidents or professional illness.
Now, being clear that as far as labor safety and hygiene, as well as Social Security matters,
current legislation provides for joint responsibility for both, Contracting Party and Outsourcing
Company, as far as labor related compensation, is there any legal responsibility for the Contracting Party if the Outsourcing Company does not complies with such payments?, If so, is this legal
responsibility a joint or subsidiary responsibility?
Well, this is precisely one of the key issues being discussed and the Main reason why the current
bill pending at the National Assembly has not been approved.
If we review article 81 of the Law 815 “Código Procesal del Trabajo y de la Seguridad Social de
Nicaragua” (Labor Procedure and Social Security Code) published in the Official Gazetter No.
229 dated November 29, 2012, it is established that in the event of filing a claim in the case of a
outsourced job, the plaintiff could request from the Judicial Authority the appearance of the company main user of such service to determine in the judicial ruling if there is a subsidiary responsibility as provided for in the applicable law. However, it seems this article has been issued as lege
ferenda since to date there is no specific law that regulates this matter.
Criteria of the National Labor Appeal Court
Before the Labor and Social Security Procedure Court became into effect, the National Labor
Appeal Court issued Judicial Ruling No. 73/2012 at ten and five minutes in the morning on
march eight of the year two thousand and two, whereby it was interpreted that in the case of a
Company (Outsourcing Company) whose business was to provide employees to another Company (Contracting Party) for payment of a determined price, keeping for itself the formal quality of
Employer, the employees had a FORMAL labor relationship with the Outsourcing company, and a
REAL relationship with the Contracting Company, establishing then a kind of triangular relationship, prevailing to the Court ´s criteria, the REAL labor relationship (execution of the job itself)
thanks to the Main Principle VI of the Nicaraguan Labor Code which provides that ¨the current
regulations are concrete, objective and regulate the labor relationship in their economic and
social reality ¨; thus – following the considerations of the Court in this ruling – in these cases, the
employees have the right to sue jointly both the Outsourcing Company and the Contracting Party
for the labor compensations due to them, since both entities are jointly responsible for the payment compliance of the labor related compensation.
Based on above mentioned explanations we can conclude that outsourcing is not prohibited in
Nicaragua, and can be used without major complications, as long as, the outsourced employees
received payments of all of the labor benefits from the Outsourcing Company as provided by the
local labor laws; Otherwise, in the event of noncompliance by the Outsourcing Company, if the
employee claims from the Contracting Party such compliance, there is a high possibility that the
labor authority considers the Contracting party as responsible and having to pay those labor
benefits not received by the outsources employees, even when there is no specific regulation to
that effect.
For additional information please contact Yury Cerrato ,Senior Associate at Alvarado y Asociados ,
ycerrato@alvaradoyasociados.com.ni
_______________________________________________________________________________________________
1 This type of contracts is common in the construction sector, since the employers hires the workers and allows
them to bring their own assistants, and as result these individuals are deemed as hired (either explicitly or implicitly)
by such employers, and they are responsible for labor benefits.
2 Published in the Official Gazette No. 133 dated July 13, 2007.
3 Artos. 33, 34 y 35 of Law 618.
4 In this regard, the Labor Code established in its article 113, ítem c): Employer´s obligations are: c) indemnify
employees for the professional accidents or illness occurring in their job when no protected by the social security
regime, or not being affiliated as the case may be, or when corresponding quotas have not been timely and duly
paid : Likewise, in its article 114 it establishes: “when the employee is not covered by the social security regime, or
the employer have not register the employee in the same, then the later will have to pay the indemnifications for
death or disability due to professional accidents for illness”.
Even when above mentioned articles refer only to payment of mentioned compensations, there is the risk that both
the employer - and the Outsourcing company based on the General Hygiene and Safety Law –of the payment of
all benefits not received by the employee due to the lack of registration or affiliation to the INSS or by not paying in
due course social security payments, affecting the employees in the acquisitions of his rights before INSS.