Justified Dismissal in Panama: Grounds and Severance

The Panamanian Labour Code strongly protects job security: after two years of service, an employee may only be dismissed for proven just cause, or with payment of the corresponding severance. Understanding that line matters as much to the party doing the dismissing as to the one being dismissed.

When it is justified

The grounds are listed exhaustively in article 213 of the Labour Code: serious misconduct, abandonment of post, breach of obligations, among others of an economic nature. Alleging them is not enough — the employer must be able to prove them, and for grounds of an economic nature must obtain prior authorisation from the Conciliation and Decision Boards.

Procedure weighs as much as cause

A dismissal can have a genuine cause and still be declared unjustified because of procedural errors: notifying out of time, failing to state the ground in writing, or invoking it incorrectly. The dismissal letter is the central piece of the file, and whatever is not written in it can hardly be argued later before a court.

“The dismissal letter defines the case: the ground you did not invoke there cannot be argued afterwards.”

What is payable in each case

• Always, whatever the cause: accrued and pro-rata holiday pay, and pro-rata thirteenth-month bonus
• Resignation or justified dismissal: seniority premium (one week's salary per year worked)
• Unjustified dismissal: all of the above plus the severance under article 225 — and, in certain cases, back pay

Resignation, mutual agreement and expiry are not the same

Not every departure is a dismissal. Resignation is the employee's decision; mutual agreement is signed by both and should be well documented; and the expiry of a fixed-term contract has its own rules. Each carries different payments and opens —or closes— the door to later claims. Mislabelling a termination, for instance passing off a dismissal as a 'resignation', is one of the mistakes most often overturned in court.

The weight of the two-year mark

The strongest protection against dismissal arrives with two years of service. Below that threshold the rules are more flexible, which is why the moment a termination is decided matters as much as the cause. Knowing where the employment relationship sits on that line changes the calculation entirely, both for the employer weighing it up and for the employee negotiating.

Protected employees cannot be dismissed freely

Certain employees enjoy special protection and cannot be dismissed without prior judicial authorisation, even where cause exists: this includes maternity protection and union protection, among others. Dismissing a protected person without following the procedure usually ends in reinstatement and payment of back wages. Before serving notice, the first step is to check whether the employee is protected.

Before signing the settlement

For the employer, documenting in good time (written warnings, appraisals, the employee's response) is worth more than any argument made afterwards. For the employee, signing a settlement without reviewing it can mean giving up significant sums without knowing. Checking the calculation of accrued benefits before signing —not after— is what avoids most claims.

Many employment disputes are settled in conciliation before reaching a ruling, and arriving at that table with clear figures and orderly documents changes the outcome entirely. Both employer and employee negotiate better when they know exactly what the law entitles them to and what is genuinely in dispute — improvising there is what proves expensive.