Panama Employment Guide

Navigating Employment Termination in Panama: A Guide for International Employers

Terminating employment relationships in Panama requires careful adherence to complex regulations and country-specific requirements. The separation process must always be managed collaboratively between employers and key stakeholders, often involving special considerations and mandatory steps depending on the termination circumstances.

Legal Grounds for Employment Termination

Panamanian labor law presents significant complexities for foreign employers. Beyond probation periods, at-will termination does not exist—every dismissal must be supported by valid justification. Employees who believe they've been unfairly dismissed have up to 60 days to file a lawsuit seeking reinstatement.

Employment agreements may be terminated through several recognized channels:

• Voluntary resignation by the employee
• Mutual agreement between parties
  • Must be documented in writing without waiving employment rights
• Dismissal with just cause
• Contract expiration
• Completion of specific work project
• Employee's death
• Employer's death leading to unavoidable contract termination
• Extended contract suspension at employee's request
• Unilateral termination by employer
  • For indefinite-term contracts, requires written justification

Special circumstances may apply, including situations requiring authorization from labor authorities. For instance, SailGlobal recently assisted a technology firm in obtaining proper approvals for restructuring-related terminations, ensuring full compliance with Panamanian regulations.

Notice Period Requirements

Panama mandates minimum notice periods that vary by termination circumstance:

These periods may be substituted with equivalent wage payments. Special situations might require labor authority endorsement. A manufacturing company working with SailGlobal successfully navigated this by providing payment in lieu of notice when immediate termination was necessary for operational reasons.

Severance Pay Obligations

All employees in Panama qualify for severance payments except in cases of disciplinary dismissal. The calculation methodology is intricate, factoring in termination cause, contract type (fixed-term or indefinite), and employment duration.

For example, an employee with three years of service under an indefinite contract typically receives significantly different compensation than someone completing a fixed-term project. SailGlobal's compliance team recently helped a retail client accurately calculate severance for 50+ employees during a regional restructuring, avoiding potential legal challenges.

Best Practices for International Employers

Establish clear documentation protocols from hiring through separation. Maintain detailed records of performance issues when considering termination for cause. Consider local legal counsel or specialized services like SailGlobal for complex termination scenarios. Proactive compliance not only minimizes legal risks but also protects employer reputation in the Panamanian market.