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Forums For Adjudicating Employment Disputes

There are three main special labour jurisdictions in charge of the disputes between the employer and the employees:

  • The Conciliation and Decision Boards: constituted with three representatives, which are the representative of the employer, representative of the employee, and the representative of the Ministry of Labour. The Conciliation and Decision Boards have jurisdiction to hear labour lawsuits for unjustified dismissal, domestic workers lawsuits, and lawsuits where benefits up to the sum of USD $1,500.00 are claimed.
  • Labour Courts: that have jurisdiction to hear labour lawsuits that are not under the jurisdiction of the Conciliation and Decision Boards.
  • Ministry of Labour and Labour Development: has jurisdiction to hear lawsuits to determine the minimum legal wage; lawsuits regarding the interpretation or validity of the clauses of a Collective Bargaining Agreement; and lawsuits regarding the breach of the procedure established by law to execute dismissals due to financial reasons.

There is also the superior Labour Court who has jurisdiction to hear appeals with respect to the decisions made by The Conciliation and Decision Boards and The Labour Courts.

The Main Sources Of Employment Law

The sources of Labour Law of the Republic of Panama are the Constitution, the Law (including the Labour Code, supplementary laws and other rules of law with equal or inferior hierarchy), the international treaties ratified by the Republic of Panama, the applicable collective bargaining agreement (if any), the internal labour regulations, as well as jurisprudence, custom and usage of the company.

National Law And Employees Working For Foreign Companies

Every employer (individual or legal entity) that is established or operate in the territory of the Republic of Panama, including foreign companies that operate in Panama and their local employees are bound to follow the Panamanian labour legislation.

National Law And Employees Of National Companies Working In Another Jurisdiction

Panamanian labour legislation is primarily territorial. If the employee, regardless of his/her residency, renders services for a Panamanian company established in other jurisdiction, Panamanian labour laws shall not be applied.

Every person has a right of access to his/her personal information contained in data banks, public or private registries, and to request its correction and protection, as well as its deletion in accordance with the provisions of the law.

Data privacy

This information may only be collected for specific purposes, subject to the consent of the person in question or by order of a competent authority and under the law.

Legal Requirements As To The Form Of Agreement

The labour contract shall be in writing and shall be signed upon commencement of an employment relationship. In the absence of a written Labour Contract, the facts or circumstances alleged by the employee that should be evidenced in said contract shall be presumed as true (except where there is proof to the contrary).

The following work areas are exempted from the previous requirements:

  • Farming
  • Domestic Service
  • Casual work of work of Short Duration
  • Specific work of low value
  • Work of low value in unpopulated areas.

Mandatory Requirements
  • Trial Period
  • When the rendering of service demands a particular competence or skill, the employer may include in the Labour Contract a trial period of up to three months, where any of the parties may terminate the labour relationship without any liability.

    The Trial Period shall not be valid if it relates to a position that an employee has previously held in the same company.

  • Hours Of Work
  • The Labour Code divides the day into two long working periods: daytime period, that goes from 6:00 a.m. to 6:00 p.m. and night period, that goes from 6:00 p.m. to 6:00 a.m.

    In turn, the Labour Code provides three types of working hours, namely

      1. Day shift: all the work hours are during the daytime period, with a maximum duration of eight hours per day and 48 hours per workweek,
      2. Night shift: a shift that includes more than three working hours during the night period; its maximum duration is seven hours per day and 42 hours per workweek.
      3. Mixed shift: a shift that includes working hours in both periods described above, but no more than three hours at night; its maximum duration is seven hours per day and thirty minutes and 45 hours per workweek.
  • Special Rules For Part-time Work
  • There are not special rules for Part-time Work under the Panamanian Labour Legislation.

  • Earnings
  • The salary shall be paid in legal tender and may be agreed for tasks or pieces (piecework wage) or by time unit (monthly, bimonthly, weekly, daily, and hourly).

    The employer is obliged to guarantee the employee a salary not inferior to the legal minimum wage.

    Currently, the minimum wage in Panama City ranges from USD $2.73 and USD $ 4.67 per hour, depending on the activity of the company.

    The rate of USD $4.67 per hour applies for international cabin crews (nationals).

  • Holidays/Rest Periods
  • The employee is entitled to have thirty days paid annual leave (vacation) for every eleven continuous months of work.

    During a workday, the employee shall have a rest period of a least half an hour and not more than two hours.

    In Panama, the following are national holidays and/or national days of observance: January 1st and 9th, Tuesday of Carnival, Holy Friday, May 1st, November 3rd, 5th, 10th and 28th, and December 8th and 25th. For all the legal effects they are considered paid days of rest.

  • Minimum/Maximum Age
  • There is no maximum age for work in Panama. Minors under 14 years of age are not allowed to work in Panama.

  • Illness/Disability
  • From the beginning of the labour relationship, the employee shall start to accrue a sick leave fund at the ratio of twelve hours for every twenty-six worked days or eighteen days per year.

  • Location Of Work/Mobility
  • The workplace constitutes an essential element in every labour relationship and therefore is the reason why it must be expressly set forth in the Labour Contract. Geographic mobility is only valid with the employee’s consent, and as long as it does not imply the deterioration of his/her work conditions.

  • Pension Plans
  • They constitute benefits that the employer may offer or implement voluntarily in benefit of its employees. Nevertheless, they are not mandatory.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)
  • Pregnant employees are protected against the direct action of dismissal of their employers during the pregnancy, during maternity leave, and for one year starting from the date in which the employee returns to work after childbirth. During these periods, pregnant employees can only be dismissed with justified cause and by means of a prior judicial authorization.

    Male employees are entitled to receive a paternity leave of three (3) days starting from childbirth.

    Paternity leave will only be granted when the wife or cohabitant under conditions of stability and monogamy delivers a child.

    The paternity leave days will be paid by the company.

  • Compulsory Terms
  • The Labour Contract must compulsorily contain the following information: name, nationality, age, sex, marital status and personal identification number of the employee; name of the persons who live with and depend on the employee; job description or services agreed; place where the service shall be rendered; Labour Contract duration; the salary, form, payday and place; work schedule; place and date of execution and the signature of both parties.

  • Non-Compulsory Terms
  • The employer and employee may subscribe all agreements that neither infringe the rules of the Labour Code, nor affect or deteriorate the labour rights and conditions of the employee.

Types Of Agreement

The Labour Contract may be entered into for a definite period, for a specific job or an indefinite period. Likewise, in the Labour Contract, the parties may establish different work hours, provided that the hour limits stipulated in the Labour Code are not exceeded.


The employee is obliged to refrain from disclosing to third parties the technical, administrative, and commercial secrets of the employer, unless prior authorization is given. If the employee does not comply with this obligation, he may be dismissed with justified cause, without the right to receive compensation.

Ownership of Inventions/Other Intellectual Property (IP) Rights

The Labour Code establishes three classes of inventions during the labour relationship, namely; company inventions in which the process, , the equipment, the technology, the elements of computer programming, the facilities, methods, and procedures belong to the employer; such inventions shall be property of the employer.

The inventions of services are those executed by the employees hired specifically for researching, studying and obtaining them; such inventions are property of the employer, but the inventor shall be entitled to have his name recognized as the author of the invention.

Free inventions are those where the force of ingeniousness of the employees dominates; such inventions shall belong to their makers.

Pre-Employment Considerations

In the Panamanian Labour Legislation, once the company extends a job offer letter, it constitutes a formal job promise.

If the company desists from hiring and a work termination occurs prior to the start date of the employment relationship, the company must compensate the employee for the damage suffered. The compensation shall not be less than one (1) month’s salary, except for contracts concluded for a shorter period.

Hiring Non-Nationals

The Labour Code allows the hiring of foreign employees in a proportion that does not exceed 10% of the company personnel and 15% if dealing with technical foreign employees or specialists.

Additionally, the government has implemented new migratory policies that will allow the company to hire foreign workers depending on nationality and his professions.

Hiring Specified Categories Of Individuals

There are some work restrictions for women and minors in unhealthy activities. Minors are also not allowed to work in night-time activities and places where alcoholic beverages are sold.

Outsourcing And/Or Sub-Contracting/Temporary Agency Work

The Labour Code allows the operation of companies engaged in providing their own employees to render services to other companies for temporary periods that do not exceed two months. In these cases, whoever receives the services of these employees shall be jointly responsible with the employer company, for the salaries and other labour benefits of these employees.

Changes To The Contract

The parties may make modifications to the Labour Contract, provided that such changes neither affect nor deteriorate the labour rights and conditions of the employees.

Change In Ownership Of The Business

By express provision of the Labour Code, the employer substitution shall not affect the existing labour relationships in prejudice of the employees. The substitute employer is obliged to respect the seniority and all the other labour conditions that the employees enjoyed while they worked for the employer that was substituted.

Likewise, the employer that was substituted shall be jointly responsible with the new employer for the labour obligations that arise before the substitution date and up to one year term counted from the written formal notification date of the substitution to each one of the employees of the employer that was substituted.

Social Security Contributions

The employer must make monthly contributions to the social security system in a proportion equivalent to 12.25% of the total of the salaries paid to its employees within the month in question. On the other hand, the employees contribute in a proportion equivalent to 9.75% of their corresponding monthly wages.

Accidents At Work

Employers have the legal obligation to protect their employees against eventual labour accidents. For such purposes, the employer must affiliate its employees to the Program of Professional Risks of the Social Security Agency and make monthly contributions to this program. These contributions must be made in a proportion that fluctuates between 3 to 7% of the total of the salaries paid to its employees within a month, depending on the level of risk of the activity that the employer carries out. Likewise, the employer must implement the professional risk prevention measures that are ordered by the competent authorities.

Discipline And Grievance

The employer must impose disciplinary measures upon its employees, which may include reprimands and admonishments (oral or written), up to a three-day suspension from work without pay. Every employer with more than ten employees must have internal labour regulations approved by the Ministry of Labour and Labour Development to impose disciplinary sanctions on their employees.

Sanctions of pecuniary nature are not permitted.

Harassment/Discrimination/Equal pay

The Labour Code establishes as just cause for dismissal the committal of sexual harassment acts. On the other hand, several legal rules have been issued to avoid employment discrimination based on gender, age, religion, and disability.

Likewise, the Labour Code establishes the principle of equal wage for work performed on identical conditions of seniority, efficiency, position, and hours of work.

Compulsory Training Obligations

There are no legal provisions governing this matter.

Offsetting Earnings

The employer is allowed to offset the debts of its employees through monthly discounts to their wages, which may not exceed 15% of gross wages. This arrangement must be previously authorized and in writing.

Payments For Maternity And Disability Leave

Every pregnant employee is entitled to a six-week paid license for antenatal care and eight weeks of maternity leave. This leave, in principle, is paid by the Social Security Agency.

For disability leave, once the employee has exhausted the disability leave fund, the responsibility to pay the absences due to disability of the employees is assumed by the Social Security Agency.

Compulsory Insurance

The employer is obliged to affiliate its employees to the social security system, within six working days following the start of the labour relationship.

Absence For Military Or Public Service Duties

Public service intervening, the employer is obliged to grant a license without pay to its employees for the performance of a public service, for a term of not less than six months nor greater than two years.

Works Councils or Trade Unions

A minimum of forty employees is required to form a union. The Law permits the formation of company unions (all the members work for the same employer), as well as industrial unions (all the members engage in the same economic activity even though they may work for different employers).

Labour legislation establishes that companies with twenty or more employees, must have a functioning Workers’ Committee, comprised by equal number of representatives of the employees and of the employers, who may discuss disciplinary matters, claims from any of the parties, and matters related to the productivity of the company.

Employees’ Right To Strike

The right to strike is provided in the Constitution, but the Labour Code requires that the employer and the union representing its employees exhaust the previous conciliation proceeding established in the Labour Code.

Employees On Strike

Employees on strike may not be dismissed by their employer. Under specific circumstances strictly contemplated in the Labour Code, the employer may be legally obliged to recognize and pay the salaries during the execution of the Labour Contract.

Employers’ Responsibility For Actions Of Their Employees

Employers are responsible for the negligent or intentional acts or omissions of employees during the performance of their labor duties or as a result of them.

Procedures For Terminating the Agreement

The Labour Code contemplates formal requirements and strict procedures for the termination of the Labour Contract.

Instant Dismissal

The employer may dismiss instantly and without cause all employees with less than two years of service, with the only obligation of paying their corresponding compensation, labour benefits, and one month of salary in concept of notice.

Employees with more than two years of service may be dismissed immediately and without cause by the employer, if a severance package is provided. The package must include compensation, labour benefits, three months of accrued wages, and 25% on compensation if the company is not up to date with the unemployment fund.

The company is also entitled to dismiss employees with immediate effect if they incur in the justified causes of dismissal strictly classified in the Labour Code. The dismissal must be notified in writing, clearly describing the conditions of mode, time, and place related to the alleged fault committed by the employee.

Employee's Resignation

The resignation of the employee is valid provided it is in writing and duly confirmed (sealed) before the Ministry of Labour and Labour Development. The employee must provide the employer with a 15-day notice of the decision to leave the job post.

Termination On Notice

For employees with less than two years of continued services, the employer may notify the employee of the decision to dismiss him thirty days in advance, to avoid paying the notice (one month of salary).

Termination By Reason Of The Employee's Age

The Labour Code does not contemplate this possibility. Age per se does not constitute cause for dismissal of the Labour Contract.

Automatic Termination In Cases Of Force Majeure

Where a force majeure event generates as a necessary, forthwith, and direct result the definite suspension of the activities of the employer, the latter may dismiss its employees justifiably.

Collective Dismissals

The Labour Code contemplates mass or collective dismissals, mainly for cases of termination of employment with cause for financial reasons

The collective dismissal will require the authorization of the Ministry of Labour Law.

Termination By Parties’ Agreement

Termination by mutual agreement is valid provided that it is in writing and it does not imply the resignation of rights on the part of the employee.

Directors Or Other Senior Officers

These are governed by the same rules which govern the termination of the labour relationship for the rest of the employees of the company.

Special Rules For Categories Of Employee

For union directors and representatives, pregnant employees, persons with disabilities or their parents or guardians, and employees who are suffering from chronic, involutive or degenerative diseases that cause a partial disability at work, a special requirement is established, which consists in the need to have a prior judicial authorization in order to dismiss this category of employees.

Whistleblower Laws

Whistleblower matters are not regulated under Panamanian Law.

Specific Rules For Companies in Financial Difficulties

Companies that are going through financial difficulties may request an authorization for dismissal before the Ministry of Labour and Labour Development. If the employer manages to prove the financial cause that brought the requested dismissal, he may dismiss their employees, but he shall be obliged to pay full compensation.

Special Rules For Garden Leave

If the employer does not want the employee to stay at the company while the notice period ends, the employer is obliged to pay the employee for the resignation notice period.

Restricting Future Activities

This matter is not regulated by the Labour Code.

Severance Payments

In the event of terminations without a justified cause, the employer must pay the employee its severance pay and its retroactive wage payments, plus its acquired labour benefits. If the termination is with justified cause, the employer is only obliged to pay the employee’s earned employment benefits.

Special Tax Provisions And Severance Payments

The first USD $5,000.00 of compensation is exempt from income tax; thereafter, there is an additional deduction equivalent to 1% per year of service. Neither the compensation nor the seniority premium pays social security.

Allowances Payable To Employees After Termination

There is no obligation for the employers relating to this matter.

Time Limits For Claims Following Termination

The employee has two months to sue the employer for unjustified dismissal, starting from the dismissal date.

Regarding the claim of salaries and other labour benefits, the limitation term s one year starting from the date of termination of the labour relationship.

The claim of overtime expires five years after the date in which the right of payment arose, except when dealing with employees in a position of trust, in whose case the limitation term is three months only.

Specific Matters Which Are Important Or Unique To This Jurisdiction

In the Panamanian labour legislation, it is understood that a labour relationship exists when a personal service is rendered under conditions of legal subordination or of economic dependence. Thus, it is not necessary to have a written labour contract if the underlying facts evidence the existence of a labour relationship based on any of the two aforementioned conditions.

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Javier Jose Vallarino
Icaza, Gonzalez-Ruiz & Aleman

Alexis V Herrera Jr
Icaza, Gonzalez-Ruiz & Aleman


© 2021, Icaza, Gonzalez-Ruiz & Aleman. All rights reserved by Icaza, Gonzalez-Ruiz & Aleman as author and the owner of the copyright in this chapter. Icaza, Gonzalez-Ruiz & Aleman has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021