LEGALINK CROSS-BORDER LAYOFFS QUESTIONNAIRE
A COUNTRY BY COUNTRY SUMMARY OF APPLICABLE EMPLOYMENT LAWS
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PANAMAWith respect to the following, “layoff” is understood to be the involuntary termination of an employment agreement not strictly related to personal performance, but due to other factors such as economic cycles or reduction in force. The Labor Code of Panama allows the termination of an employment agreement due to economic causes such as permanent suspension of the tasks related to the labor agreement, business slow down, or interruption in work. The Labor Code of Panama requires the employer to prove the “economic cause” of the layoff before the administrative labor authorities who have to authorize the termination of the employment before it occurs. Employers must give the affected employee written notice of such termination and pay the affected employee with an indemnity that depends on the employee’s length of employment.
There are no further formal requirements other than the already mentioned prior authorization from the administrative labor authorities and the written notice to the affected employee.
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Under the Panama Labor Code, employees must be notified of the request for authorization filed by the employer before the administrative labor authorities. They also have the right to present evidence in support their position. An affected employee may claim “wrongful termination” if the employer fails to provide the required notification of the termination. The employee can also seek to be reintegrated to the workplace as a remedy for this termination.
Should termination of the labor agreement be considered by the labor courts to be “wrongful termination”, the employer shall pay the employee’s salary up to a five month period, in addition to the indemnity and a surcharge stated by law.
The two most common mistakes made by employers are their failure to provide the affected employee the written notice and the failure to obtain authorization from the administrative labor authorities.
When terminations due to “economic causes”, the Panama Labor Code stipulates employees should be terminated in the following order: most recent employees; foreign employees; non-union employees; unskilled employees; and pregnant women.
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