In Panama, labor laws dictate specific regulations regarding notice periods in the event of employment termination. These regulations vary depending on whether the termination is with or without cause and the duration of the employee's service.

Termination With Cause

Under Article 213 of the Panama Labor Code, if an employer has a justifiable reason to terminate an employee, no mandatory notice period is required.

Termination Without Cause

For employees with less than two years of service, the employer must either give 30 days' advance notice or pay the employee a sum equivalent to 30 days of their regular wages (Labor Code Article 225). If an employee has more than two years of service, they can only be terminated for just cause as defined in the Labor Code.

Resignation by Employee

Employees are generally required to give at least 15 days' notice when resigning from their position (Labor Code Article 226). However, technical employees must provide at least two months' notice before resigning.

Important Considerations

Notice of termination by either the employee or employer must always be given in writing. Certain categories of employees, such as pregnant workers and union members, have additional protections against unjustified dismissal.

Severance pay in Panama is a right for employees in certain situations of involuntary termination.

When is Severance Pay Required?

In Panama, severance pay is required in two main scenarios:

• Unjustified Termination: When an employer terminates an employee without a justifiable cause, the employee is entitled to severance pay.
• Economic Reasons: If an employee is terminated due to economic reasons, such as company restructuring or closure, they are entitled to severance pay.

Calculating Severance Pay

The calculation of severance pay is based on the employee's length of service and their average salary. There are two primary methods:

For Employees with up to 10 Years of Service

• Severance is equal to 3.4 weeks of salary for each year of service worked.
• Salary used for calculation is either the average monthly salary for the last 6 months or the salary of the last 30 days, whichever amount is higher.

For Employees with More Than 10 Years of Service

• The first 10 years of service follow the calculation above.
• For years of service exceeding 10, the severance pay is equal to one week's salary per year.

Additional Severance-Related Entitlements

• Seniority Premium: Employees are entitled to a seniority premium equivalent to one week's salary for each year of service. This is usually paid along with severance.

Important Notes

• No Severance for Justified Termination: Employees terminated for a justifiable cause are not entitled to severance pay.
• Mutual Agreements: Employers and employees may negotiate alternative severance arrangements through mutual agreement, provided these arrangements do not offer less than the legal minimum.

In Panama, the termination process of employees is regulated by the country's Labor Code and must adhere to certain steps to ensure legality.

Termination with Cause

Justifiable reasons for termination with cause are outlined in Article 213 of the Labor Code. These reasons include serious misconduct, repeated negligence, or dishonesty. In such cases, the employer is not required to give advance notice. However, the employer must provide a written notice of termination stating the specific reason(s) for the dismissal.

Termination Without Cause

If an employee is terminated without cause, employers must provide a 30-day advance notice in writing or pay the equivalent of 30 days' salary if the employee has less than two years of service, as per Labor Code Article 225. The employer is also required to pay severance and seniority premiums (if applicable) according to the calculations outlined in the Labor Code.

Termination Due to Economic Reasons

In cases of termination due to economic reasons, the employer must seek prior authorization from the Ministry of Labor. The employer must also present evidence demonstrating the economic justification for the terminations. Notice periods and severance pay requirements still apply, even with economic justifications.

Employee Resignation

Employees are required to give at least 15 days' written notice (two months for technical employees) when resigning from their position, according to Labor Code Article 226. Employees who resign do not receive severance pay.

General Considerations

All termination notices, whether by the employer or employee, must be provided in writing. Employees who believe they have been wrongfully terminated may file a complaint with the labor courts.