The National Court of Justice establishes a new binding jurisprudential precedent on employer retirement compensation

On October 8, 2025, the National Court of Justice issued Resolution No. 16-2025, by which it declared a binding jurisprudential precedent regarding the application of Article 216 of the Labor Code, related to employer retirement compensation. This resolution consolidates the uniform criterion sustained by the Specialized Labor Chamber in several rulings and has general and binding effects as of its publication in the Official Gazette on November 7, 2025.

This precedent arises from the Court’s repeated analysis of cases discussing the employer’s right to deduct certain amounts from the employer retirement fund. According to the Court’s interpretation, the employer may only deduct amounts corresponding to reserve funds, whether deposited in the Ecuadorian Social Security Institute (IESS) or directly paid to the employee. On the other hand, employer contributions to the IESS are not part of the employee’s individual retirement fund, as they constitute obligations of a different legal nature.

This distinction is based in Rule 1 of Article 216 of the Labor Code, which establishes that the individual fund used to calculate employer retirement compensation consists of two components: the reserve fund and an amount equivalent to five percent of the average annual remuneration received during the last five years, multiplied by the years of service. Based on this framework, the Court emphasizes that the deduction of reserve funds is the only one permitted, in observance of the principle of favorability provided in Article 326(3) of the Constitution, which establishes that the most favorable interpretation to the worker must always prevail.

The resolution strengthens the system of binding precedents in Ecuador, ensuring consistency in the application of labor law and reinforcing legal security, pursuant to Article 82 of the Constitution. From now, all courts and judges are required to observe this criterion when resolving disputes concerning employer retirement compensation, thereby guaranteeing equitable and predictable treatment in similar cases.

At Quevedo & Ponce, where Dr. Marcos Ponce—Specialist and Professor of Labor Law—has recently joined our team, to provide specialized advisory services to employers and employees, ensuring compliance with current regulations and proper management of employer obligations.