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The Labor Law Implications of COVID-19 in Central America

Companies in Central America are facing two main questions right now: How to avoid massive layoffs and how to keep businesses running, considering the economic hit in the region caused by COVID-19. These questions have implications in terms of labor law.

In this context, it is essential that BPO and software providers operating in the region understand which alternatives companies could use, based on local legislation to respond to the previous questions. These are some insights, country by country.

Costa Rica

Costa Rica is a hot destination for BPO and software services. In order to avoid massive dismissals and closing of companies, employers have looked up for solutions based on the employment legislation and criteria provided by the authorities. For example:

a) Suspension of the employment contract without salary payment: To execute this possibility, employers must demonstrate a cause of suspension, such as lack of raw material, force majeure/acts of God and/or the death or disability of the employer and the Labor Ministry must authorize it. This option is detailed in provision 74 of the Labor Code.

b) Reduction of work shifts: Recently, the Costa Rican Congress passed a bill regulating the reduction of work shifts and salaries, proportionally, for companies that are affected by the COVID-19 pandemic.  The law considers companies that report a decrease in their gross income of between 20% and 60%, in comparison with the same month of last year. The Labor Ministry must authorize this possibility.

c) Work from home: This option is regulated under local law and specifically allows the possibility to provide services remotely. Under the current context, employers must agree with the employees and must have an internal policy that includes clear guidelines on remote work.

d) Make employees take vacation days: Employers are allowed, based on Costa Rican labor law, to send employees to enjoy accrued vacation days. In cases of employees without accrued days, the Labor Ministry has determined that it is feasible to sign agreements for using vacation days in advance.

Nicaragua

Given the current political context, Nicaragua has not established specific guidelines related to employment and COVID-19. However, the following alternatives could be considered:

a) Suspension of the employment agreement: This could be done by an agreement with the employee if the suspension is individual. However, if the suspension is collective, there must be an authorization by the Labor Ministry based on force majeure. Nevertheless, it is not clear yet if the Nicaraguan government will allow COVID-19 to be considered as force majeure.

b) Reduction of work shift: It is feasible to agree with the employee a reduction of the work shift. The employer could also apply it unilaterally. However, the salary cannot be reduced.

El Salvador

El Salvador has established severe health and immigration measures. Regarding employment, there are the following alternatives, according to local labor law:

a) Suspension of the employment agreement: In El Salvador, there is no certainty if COVID-19 could be used as a cause of force majeure to suspend the employment agreement. Thus, following provision 37 of the Labor Code, it is feasible to agree on a suspension with the employees.

b) Reduction of work shift: Even though it is not legal to reduce employment conditions in El Salvador, it would be possible to agree individually with the employees about the reduction of the work shifts and salary.

c) Make employees take vacation days: It is not legal to send employees on vacation. However, for those employees who have not enjoyed their respective vacation time in the corresponding period, it would be possible to sign an agreement with them.

Honduras

Honduras country has established a curfew, and the legislation and authorities allow the following, regarding employment:

a) Suspension of the employment agreement: The Labor Code provides this possibility, and the Labor Ministry must authorize it.

b) Reduction of work shift: Like in El Salvador, it would be possible to agree with the employees, individually, the reduction of the work shift, but the salary cannot be reduced.

c) Make employees take vacation days: The government has authorized companies to make agreements with their employees to take vacation and holidays during the curfew.

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Guatemala

In Guatemala, these are the alternatives regarding employment, based on local law and government measures:

a) Suspension of employment agreement: The suspension should affect all employees or most of them, and the Labor Ministry must authorize it.

b) Reduction of work shifts: It is not legal to modify employment conditions in Guatemala. However, under the current context and the governmental dispositions, it would be possible to agree with the employees about the reduction of the work shift and salary. Despite that, the discount cannot make the employees’ wages go below the minimum salary.

Even though the alternatives are similar throughout the region, the application varies. Before implementing any of these options, it is advisable to make an internal assessment of which measure would fit better with the organization, according to the current context the company is facing.

However, in these difficult times, implementing some of these options correctly, following local labor law, could enable businesses to keep going, waiting for a better future.

Alexandra Aguilar

Alexandra is an Associate Attorney at BLP. She has extensive experience in the legal profession. Her specialty is the practice of Labor & Employment Law, where she advises national and foreign companies on various topics that include prevention, planning, internal structuring, labor regulations, compensation, benefits of executive staff, analysis of labor impacts in mergers and acquisitions, as well as in the coordination of regional labor counseling.

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