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Termination and Severance Policies

Learn about the legal processes for employee termination and severance in Ecuador

Notice period

In Ecuador, the labor law does not mandate a statutory notice period for most employment terminations. This means that employers are not legally required to provide a set amount of notice before terminating an employee, except in specific situations. However, the legal framework does influence notice periods in a couple of ways.

Exceptions Requiring Notice

According to Article 193 of the Ecuadorian Labor Code, a mandatory 30-day notice period is required for terminations due to business closure. This provides employees with time to find new employment during a company shutdown.

Additionally, fixed-term contracts with a maximum duration of two years require 30 days' notice for termination by either party (employer or employee). If this notice isn't provided, the contract automatically converts into an indefinite-term contract.

Notice Period in Practice

While there's no legal minimum notice period for most terminations, Article 14 of the Labor Code protects employees with at least one year of service from dismissal. This, in essence, implies a "notice period" because employers cannot terminate such employees without justification.

In practice, many employers in Ecuador choose to provide a 30-day notice period as a standard courtesy, even when not legally required. This aligns with common practices in other countries and fosters a smoother termination process.

Even though there's no mandatory notice period, Article 184 of the Labor Code dictates a "desahucio" bonus payment of 25% of an employee's monthly salary for each year of service in cases of unfair dismissal. The lack of proper notice can strengthen an employee's case for unfair dismissal.

Severance pay

In Ecuador, labor law mandates several types of severance pay based on the circumstances surrounding an employee's termination.

Unjustified Dismissal Severance ("Despido Intempestivo")

This occurs when an employer terminates an employment contract without a legally valid reason. The severance pay in this scenario is calculated as one month's salary for each year of service, with a minimum compensation of three months' salary and a maximum of 25 months' salary.

Business Closure Severance

When an employer permanently closes the business and terminates all employment contracts, employees are entitled to the standard severance pay calculation for unjustified dismissal ("despido intempestivo").

Desahucio Bonus

Separate from severance pay, the "desahucio" bonus applies to both cases of unjustified dismissal and fixed-term contract terminations. The calculation is 25% of the employee's monthly salary for each year of service.

Additional Severance Circumstances

When an employee provides at least 15 days’ notice, they're entitled to the "desahucio" bonus. Employees who retire and meet eligibility requirements receive a lump sum severance payment, along with their regular pension benefits.


Certain circumstances may exempt an employer from paying severance. These can include termination during the probationary period, termination due to a serious breach of contract by the employee, and employee resignation without providing sufficient notice.

Important Notes

Severance payments are generally calculated based on the employee's most recent salary. Employers must pay severance to the employee directly, not into any social security or pension fund. Employees have the right to challenge the grounds of their termination and potentially claim additional compensation if the dismissal is deemed unfair.

Termination process

Ecuadorian labor law allows for termination of employment by both employers and employees. Here's a breakdown of the general process, along with essential legal considerations:

Termination by Employer

There are two primary ways an employer can terminate an employment contract in Ecuador:

  • Unjustified Dismissal: The employer terminates the contract without a valid reason outlined in the Labor Code.
  • Justified Dismissal: The employer has a legally valid reason for termination, such as repeated misconduct or negligence by the employee, as outlined in the Labor Code. To initiate this process, the employer must:
    • Submit a written request to the labor inspector detailing the justification for termination and providing supporting evidence.
    • Notify the employee of this request.
    • The employee has two days to respond to the allegations.
    • The labor inspector investigates and issues a decision on whether to grant the dismissal request.

Termination by Employee

Employees in Ecuador have the right to resign from their positions. Here's how the process looks:

  • Resignation with Notice:
    • The employee must provide written notice of resignation in line with their contract or at least 15 days in advance if no notice period is specified in the contract.
    • If sufficient notice is given, the employee is entitled to the "desahucio" bonus payment.
  • Resignation without Sufficient Notice: If an employee fails to provide adequate notice as agreed in their contract, they may forfeit their right to the "desahucio" bonus.

Termination due to Business Closure

In the case of permanent business closure, the employer is required to follow these steps:

  • Provide Notice: Give employees 30 days' written notice of closure according to the Labor Code.
  • Pay Severance: Calculate and pay severance packages as per "despido intempestivo" guidelines.

General Procedural Requirements

  • Termination Letter: For all termination types, the employer should ideally provide a formal termination letter clearly outlining the reason for termination and any severance entitlements.
  • Ministry of Labor Notification: Employers must notify the Ministry of Labor within a reasonable timeframe after the termination has taken place.

The termination process can become more complex in cases involving employee misconduct, workplace conflicts, or claims of unfair dismissal.

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