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Labor and employment law challenges in business transformations


Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

There is no specific legislation in Nicaragua regulating workforce restructuring; however, collective suspension of employment contracts which can trigger collective redundancies is governed by Art. 38 and 39 of the Labor Code of Nicaragua and its law on Oral Administrative Procedure.

The rules governing the collective suspension of employment contracts may vary subject to the number of impacted employees, the total number of employees of the company and the existence of employee representatives and collective agreements.

Required legal justification

Collective suspension of employment contracts must be justified on the following grounds:

  • Lack of raw material
  • Economic, financial or technical difficulties
  • Closure of business
  • Force majeure or act of God

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

At the outset, the employer must inform and commence negotiations with the relevant labor unions or directly with the impacted employees (in the absence of labor union at the employer) aiming at obtaining the approval of the labor administration at a later stage and limiting redundancies.

Negotiations with unions are mandatory. Although the law does not require reaching an agreement, the parties must sign a written record of the negotiations as it is an essential component of the employer’s submission to the labor authorities requesting authorization to suspend or terminate employment contracts.

There is no prescribed timeline for information and consultation process; however, it must be completed prior to suspending or terminating employment contracts.

Consultation requirements with other employee representatives

In Nicaragua, there is no specific obligation to inform and consult with other employee representatives than the relevant labor unions (for more information, see “Consultation requirements with works council/unions”). However, it is recommended to inform the Health and Safety Committee, if the restructuring has an impact on the working conditions of the employees.

Consultation requirements with employees

In the absence of labor union, the employer must inform and commence negotiation with employees aiming at obtaining their approval and limiting redundancies.

Approval/notification of the labor authorities or other government authorities

Once the information and consultation process is completed, implementation of the workforce restructuring is subject to approval by the labor authorities.

The employer must provide the labor authorities with the written record of the negotiations with unions or the impacted employees, requesting authorization to suspend or terminate the employment contracts. From the receipt of the employer’s request, the labor authorities have six business days to convene a hearing between the employer and the impacted employees. The project can move to implementation only after the approval granted by the labor authorities.

Employee selection criteria

There are no specific legally prescribed employee selection criteria. The employer is free to choose the employees to be made redundant, but can implement the contemplated workforce restructuring only after obtaining prior authorization from the labor authorities. However, typical selection criteria used by the employers in Nicaragua may include but are not limited to attendance record, disciplinary record, skills or experience, and work performance.

Certain employees including union representatives, pregnant women or ill employees enjoy special protection during restructuring processes.

Actions required to limit the negative impact and social plan

In Nicaragua, employers are not obligated to implement a social plan and/or take any actions to limit the negative impact of the workforce restructuring.

Internal alternative employment/redeployment
There is no mandatory requirement to search for any internal alternative employment or redeployment.

Other measures
Employers in Nicaragua are not required to take any other measures.

Estimated timeline

The time required to obtain the labor authorities’ approval largely depends on the number of redundancies foreseen, government priorities and the outcome of the employee information and consultation process. However, in general, the approval process may take one to three months depending on the complexity of the project.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Notice or an indemnity in lieu of if the employee is released from working during the notice period
  • Termination indemnities

Customary additional costs

There is no customary additional cost to the employer.

Hiring restrictions post-redundancy

Nicaraguan legislation does not prohibit hiring employees after the implementation of collective redundancies. Further, the employer is not obligated to give priority to rehire the terminated employees to the positions that become available corresponding to their skills.

Litigation risk

Interested parties

Litigation risk related to the redundancy process is relatively low prior to the labor authority’s approval. It is due to the fact that the impacted employees are required to exhaust all administrative procedures prior to approaching the court for relief.

The impacted employees can challenge, within one month from the date of termination of the employment contract, notably the legal justification, including but not limited to the selection criteria process.

Litigation cannot stop or slow down the collective redundancy process.

Damages and other remedies

Damages for unfair dismissal
In Nicaragua, besides reinstatement, the impacted employees cannot claim damages for termination (i.e., for unfair termination or otherwise).

In Nicaragua, reinstatement is the most common remedy available to the impacted employees.

The impacted employees are entitled to reinstatement within the company when the redundancies are declared null and void by the court. Under such circumstances, the court may order the employer to pay all backdated salaries from the date of termination of employment till the date of reinstatement. However, the employer can refuse to reinstate the impacted employees by paying twice the amount of the compensation for the length of service provided by labor law.

Criminal sanctions
There are no criminal sanctions specifically related to violation of rules on collective suspension of employment contracts. However, there are criminal sanctions in case of discrimination, which may be applicable in the context of a collective redundancy.

Country-specific issues

There are no other issues specific to Nicaragua.


Primary Contact for Nicaragua Labor and Employment Law

Santiago Alvira
Ernst & Young Nicaragua S.A.
+505 2253 8430

Global Labor and Employment Law Guide
Workforce restructuring