The cost of a labor lawsuit for a company in Bolivia

Do not start a war you cannot win

Published in El Pais, 9 February 2019.

When an employee is fired or changes his job, he has the right to his termination payout. Although it is a lot of money and it hurts for a company to pay it, they have to pay. Therefore, in accounting this payment is saved and anticipated. However, when one goes to the Labor Ministry or the court, one can see many cases where companies simply want to ignore the payment. But in the conciliatory way or in the judicial way, the company will have to pay and the later, the higher the cost.

First, there is a 30% fine on the amount owed when the company does not pay in the first 15 days. Then, there are the lawyer’s expenses of the company for the memorials, investigation, procedures, etc. Even if the lawyer is already paid by the company, he will be investing his time in a conflict instead of devoting his time to the necessary things in the company.

At the beginning of the lawsuit it is very likely that the plaintiff will ask for a guarantee that the company will pay after the lawsuit. This guarantee may be an embargo on a property, freezing of accounts or an amount in cash deposited in custody in a government account. The embargo on a property causes problems with your mortgage and for sure you will have problems with your bank. The freezing of accounts or a deposit in custody means that the company cannot use it to invest while the lawsuit lasts (2 to 3 years) and will not have a return on that money. Let’s say that a company has a 10% annual return, a guarantee say $ 10,000 would make it lose $ 1,000 per year.

At the end of the lawsuit, it is very likely that the company will lose because of the protection of the worker by the State. Then, the amount owed will have a fine of 30% that will be corrected by the UFVs that varies between 4-8% per year. This already pays up to 18% extra! Adding 10% for the payment to the lawyer and 3 to 4% of expenses made by the worker for the trial. If we say the amount originally owed was 10,000 dollars, in a trial of three years that amount becomes $ 16,770. This is 68% more than if all would have been paid immediately.

But this is not all. If the company does not want to pay after the judge’s ruling (3 days), the company will receive a visit from several police officers in their office to arrest the legal representative. The impact and the social cost to the image of the company in front of the clients and employees is difficult to estimate, but it is not good.

Regrettably, legal representatives, owners and sometimes chief financial officers do not have a complete view of the implications of a labor lawsuit. Many companies dare to go ahead, thinking that they will win, and it will be cheaper. “Do not start a war you cannot win”. It is better to avoid the abusive position and pay what corresponds to the worker.

About Arnold Hagens 296 Articles
Arnold Hagens is Economist with strong interest in technology, health and coaching

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