Saturday, March 29, 2014 9:04:08 PM
During the next few weeks PTQ and their employees will have to go thru changes, as a new deal will most likely affect future exploration, and work force realignment is possible. Unions are not going to be happy,but... Here are legal documents, boring but very useful read:
VII. Termination of the Labor Relationship, Part B is the pertinent law under Article 213 of the Labor Code
The Republic of Panama has been a transient country historically, where people of different nationalities have come together forming a multiethnic and multicultural society. Foreigners along with locals have made great contributions to the creation and development of the Panamanian nationality. The expansion of the Panama Canal, the construction of a modern system of public transport, new infrastructure projects like roads, hospitals and government offices, and other developments present an opportunity for great jobs and investments in the coming years. This article provides an overview of Panamanian labor and employment law that will be useful to any national or international business looking to take advantage of the opportunities Panama has to offer by starting or expanding their operations within the Panamanian territory.
I. The General Framework of Panamanian Labor and Employment Law
The Political Constitution of the Republic of Panama (“Political Constitution”) recognizes and protects work as both an individual right and obligation. As such, it states that the State shall promote full employment policies and guaranty to all employees the necessary conditions for a decent life. (Political Constitution, Art. 64). The Political Constitution also grants the following: the right to a minimum salary, and to periodic adjustment thereof; the right to nondiscrimination and to equal jobs; the right to form unions and to strike; the right to limit the daily work shift to a maximum of 8 hours and the weekly work schedule to a maximum of 48 hours; maternity protections for the female worker; and the right not to be dismissed from employment without just cause. The Political Constitution establishes a special Labor Jurisdiction to handle all labor controversies and expressly precludes the waiver of any rights granted in favor of workers. Finally, the Political Constitution declares that the rights and guarantees recognized in the Political Constitution are the minimum ones afforded to workers in Panama. (Political Constitution, Arts. 65, 67-70, 72, 74, 77 & 79).
In addition to the fundamental labor rights set forth in the Political Constitution, Panamanian employment is governed by the Panamanian Labor Code (“Labor Code”) and its amended and complementary laws, the by-laws of public entities, and any international treaties and conventions duly ratified by the Republic of Panama. (Cabinet Decree 249 of 1970; Cabinet Degree 221 of 1971; Law 7 of 1975). The Labor Code regulates labor relations between a private employer and its employees, while public entity labor relations are governed by the by-laws of the public entity. The Labor Code recognizes the principle “in dubio pro operario.” Under this principle, in the event of any conflict between the application of the Labor Code or its amended and complementary laws and any international treaties and conventions the provisions that are most favorable to the employee will prevail.
There are also some special labor regimes established to promote foreign investment such as call centers, logistics (Panama Pacific Agency), export and processing zones. (Law 32 of 211; Executive Decree 8 of 1998). These regimes allow one sole surcharge payment for overtime, the negotiation of time to take paid vacation, several renewals of contracts of specific duration, termination of labor relations for economic reasons without previous authorization from the labor authorities, and the ability to lower salaries for economic reasons.
II. Panamanian Law Regarding the Hiring of Employees
A. Employment Application and Recruitment
Other than the anti-discrimination provisions discussed below, there are no specific rules in the Panamanian Labor Code regarding employment applications. Under Panamanian law, employers may require an employment applicant to submit to background investigations (provided that no other legal provisions are violated in the investigatory process). Employers may also require applicants to provide general health certificates, non-use of illegal drugs certificates, or non-criminal record certificates. An employer may not, however, inquire into certain specified medical conditions, such as pregnancy or AIDS, as such inquiries would be considered discriminatory and subject the employer to penalties.
Advertising for recruitment is permitted as long as it does not include discriminatory references, such as gender, physical appearance, race, religion, citizenship, etc. The law specifically prohibits recruitment advertisments that request applicants of a determinate age.
B. Non-Discrimination Requirements
Article 67 of the Political Constitution grants employees the right to equal salary and to equal work conditions without discrimination based on gender, citizenship, age, race, social class or political or religious ideas. Law 11 of 2005 prohibits discrimination on these same factors in the recruitment and hiring of employees.
C. Employment Contracts
The Republic of Panama does not follow the contractual theory with respect to labor relations. Article 62 of the Labor Code establishes that the existence of a labor relationship will be assumed between whoever renders a service and the beneficiary of those services under the conditions of legal subordination and economic dependency. The existence of one of those two elements will be enough to determine the existence of a labor relationship under Panamanian law.
In the absence of a written labor contract, Panamanian labor authorities will deem the labor contract to be a verbal agreement. And where there is a professional services contract in a labor relationship where the labor authorities find evidence showing the existence of economic dependence or legal subordination among the parties, the professional services contract will be deemed void and a verbal labor relationship agreement will be deemed to exist and govern the relationship between the employer and the employee.
The Labor Code allows verbal labor contracts only in the specific cases mentioned in Article 67, incluidng domestic, agriculture, accidental or occasional work that does not continue for more than three months, specific work that does not have a value of more than B/ 200.00, and services and work contracted in areas with a population of less than fifteen hundred people (unless it is a job with a value of more than B/5,000.00 or there are employers in the area who will require ten or more employees on a permanent basis).
All other employment relationships require written labor contracts. These contracts shall contain the specific information required under Article 68 of the Labor Code, including: personal data (name, nationality, age, sex, civil status, address and ID number); dependents; work/work methods; work place; term of employment (if fixed or indefinate) or statement of specific work to be performed; division of workday; statement of wages (method and place of payment); place and date agreement signed; and signatures. In the absence of such a written contract, the facts and circumstances of the employment relationship alleged by the employee will be presumed to be true. This presumption may be rebutted only by evidence that does not admit a reasonable doubt. (Labor Code, Art. 69). Labor contracts can be written for a specific duration (one year for most employees but up to three years in case of technicians), for an indefinite duration, or for the completion of a limited and specified piece of work. In the construction industry contracts are limited to the duration of the construction project or the particular phase of the project to which the employee is hired.
Specific duration clause must be contained in a written contract. When there is no written contract it is assumed that the labor relation is for indefinite duration. Specific duration contracts may only be used for a non-permanent positions. The renewal of specific duration contracts is allowed only in the circumstances described in Article 77A of the Labor Code, which include continuance of work after expiration of agreement for definitive period of time, and continuance of the same work after complation of specific work. A successive specific duration contract shall not be deemed to exist, however, in the following cases: agreements related to the continuance of employment or positions required in connection with the development of a new activity for the company; agreements relating to hiring during the first year of an employer’s activity or company’s operation; and agreements relating to the methods of work approved by the Ministry of Labor and Social Welfare or agreed to with a union.
In any type of employment contract, the parties can include a written trial period for up to three months, during which either party is allowed to terminate the employment relationship without any liability or responsibility. The trial period must be expressly included in a written labor contract to be valid and enforced.
D. Training
Panamanian labor law has no special rules on the training of new employees. The period of required training is considered part of the formal labor relationship and is governed by the same rules for regular employment established in the Labor Code.
III. Compensation, Work Hours and Leave
A. Minimum Age
The minimum age of employment in Panama is 18 years old. Minors between 12 and 18 years of age can be hired only under certain conditions, as stated in Articles 117-125 of the Labor Code. There are also limits on the length of the time a minor can work each day. The education needs of the minor shall be taking into consideration in establishing the work schedule, and the approval of the minor’s parents or legal representative is required. Minors may not work in bars, perform dangerous activities or work the night shift.
B. Wages
“Wages” are defined in Article 140 of the Labor Code to mean the remuneration which must be paid by the employer to the employee by virtue of the labor relationship, and includes not only what is paid to the employee in cash and in kind, but also the ex-gratia payments, benefits, bonuses, premiums, commissions, shares in the employer´s profits or any other income or benefits that the employee receives on account of his or her work and as a consequence of the same. The Labor Code considers salaries in kind to include any payment to employees for housing, food and clothing.
Wages can be fixed by unit of time (month, fortnight, week, day or hour), task, or by specific job performed. Employees must be paid wages at least twice each month. All sums paid to employees must be registered in the employers payroll records.
Since 1970 every employee working in Panama is entitled to a “thirteenth month” payment, which is a fictional additional month of salary to be paid in three equal parts during the months of April, August and December.
C. Minimum Wage
The Panamanian Labor Code establishes that the Government shall establish through an Executive Decree the minimum wage, which shall be reviewed every two years. In determining the minimum wage, the following will be taken into account: regional differences in the cost of living; the general economic and social policy of the country with respect to the various aspects of full and sustained national development; the policy of employment and income redistribution; the nature of the work and its risks; and the conditions, time and place in which the work is performed. The last revision to the minimum wage was in 2011. For professional jobs in the metropolitan areas, such as those in the financial services industry, the minimum wage has been set at US$2.38 per hour. For the interior of the country, the minimum wage varies, the lowest currently established minimum wage being $1.43 per hour. (Executive Decree 240 of 2011).
D. Overtime Pay/ Workday/Workweek/Work hours
The work day is divided in two twelve hour periods to distinguish daytime and nighttime shifts. The day shift runs from 6 a.m. to 6 p.m. and the night shift from 6 p.m. until 6 a.m. The maximum hours an employee can work are 8 hours per day for the day shift, and 7 hours per day for the night shift. Total hours are limited to 48 hours per week. After that the maximum hours have been reached, each worked hour is considered overtime. If the overtime is worked during the day shift, it must be paid with a 25% surcharge. Overtime worked during the night shift must be paid with a surcharge of 50%. The law specifically addresses “mixed shifts”, which begin in daytime and end at night or vice versa. A day shift that extends three (3) hours into the night shift is by law automatically considered a night shift. A night shift that enters into the day shift is limited to a maximum of 7 1/2 hours, and carries an overtime surcharge of 75%. Total overtime is limited to a maximum of 3 hours per day or 9 hours per week. There is a punitive surcharge of 75% for each additional hour worked after these maximums have been reached. For specific areas or activities ruled by special labor regimens, such as call centers and the Panama Pacific Agency, a single surcharge of 25% applies to overtime work and also there is no limit on the number of overtime hours an employee is permitted to work.
E. Meal and Rest Periods
Article 39 of the Labor Code requires employers to give its employees a normal rest period in accordance with the following rules:
1. The normal work schedule shall include a rest period of not less than a half an hour and not more than two hours. In the case of night or mixed shifts, the employer and employee can agree to distribute the total rest period, without exceeding the limits of the corresponding shift, so that production is not interrupted.
2. The work days and shifts will be such that they will not cause unnecessary variations in the amount of time designated for employee rest, meals and family life.
3. If, because of a rotating shift, or for any other reason stated by law, there is a need for the employee to render services during the day and night shifts consecutively, the employer must make the necessary arrangements so that the employee has at least twelve continuous hours of rest between shifts.
F. Time Off and Leaves of Absence
(i) Paid Vacation
Employees are normally entitled to 30 days of annual paid leave every year. Annual paid leave is accrued at the rate of one day for every eleven days worked. The employee may not trade unused annual paid leave for additional compensation, but annual leave may, by mutual agreement, be accumulated for up to two years. The 30 day period of paid leave can be divided into no more than two equal parts.
(ii) Paid Sick Leave
From the initial date of the labor relationship, the employee will begin to build a sick leave fund, which will accrue at the rate of 12 hours for every 26 shifts worked up to 144 hours per year. Sick leave may used for illness or a non-work related accident, and may be used as a whole or in part while receiving full pay. The sick leave fund may be accumulated over two years and can be used in whole or part during the third year of service.
When the employee does not have a right to receive Social Security benefits and his or her sick leave fund runs out, he or she will have the right to have their leave time extended by having the time deducted from his or her accumulated vacation time. If the Social Security benefits are not recognized due to late payments or other fault of the employer, the employer must pay the employee a corresponding subsidy.
(iii) Maternity/Paternity Leave
All pregnant female employees are entitled to maternity leave, payable at the full salary for six weeks before and eight weeks after childbirth. At no time will the rest period be less than fourteen weeks. But if delivery is delayed beyond the anticipated due date, the employee is entitled to receive, as a paid leave, the full eight weeks following childbirth.
The employer is required to cover any difference between the economic subsidy paid under Social Security for maternity and the regular salary the employee is entitled to receive. When Social Security is not obligated to provide a subsidy for maternity leave, the entire maternity leave benefit must be paid by the employer. Panamanian law does not provide for paternity leave. However, such leave may be provided through the employer´s internal rules or an individual labor contract between the parties.
(iv) Other Paid Time Off
Vacation, sick and maternity leave are the only paid time off benefits legally established by the Labor Code. Additional paid time off benefits (other than disability leave as required under the Law on Equal Opportunities for People with Disabilities) may be established by the parties under the employer’s internal rules or in an individual labor contract.
IV. Workers’ Compensation and Social Security
The professional risk provisions of the Labor Code require that employees injured during or due to work activities be compensated with his or her full salary for a period of two months. If the injuries continue after two months, the Social Security program will compensate the employee at a rate of 50% of his salary during the following ten months. If the incapacity subsists after this time, the employee will be compensated according to the Social Security permanent incapacity pension rules. Article 282 of the Labor Code sets forth regulations designed to protect employees life and health while on the job. Article 291 of the Panama Labor Code regulates standard matters regarding common occupational hazards and accidents on the job. Injuries, social welfare, and compensation in regards to occupational hazards and accidents are covered by Law 51 of 2005.
Panama runs a Social Security program that includes includes a health insurance program (including medication, hospitalization and medical consultation) covering the employee and all of his or her dependents under the age of 18, and also provides for maternity leave benefits, incapacitation/disability benefits, retirement benefits and a widow’s pension. (Labor Code, Arts. 282-392). Registration in the government run Social Security program is mandatory for all employers and employees. Registration must also occur immediately upon employment, and failure to register can result in governmental fines.
Employers and employees contribute to the Social Security program on a monthly basis. Contributions are calculated as a percentage of an employee´s gross pay, including all in-kind benefits. The Employers’ contribution is currently set at 12% of gross wages but will increase to 12.5% of gross wages after January 2013. The Employees’ contribution is withheld by the employer at a current rate of 9% of gross wages, which rate will increase to 9.75% of gross wages after January 2013. (Law 51 of 2005). Any employer that has not paid the required Social Security contribution, for itself or its employees, is required to pay the value of any benefits the employee would have otherwise received under the program.
V. Personnel Administration
A. Required Postings
An employer´s internal regulations shall be posted for 30 days to provide notice to the employees before those regulations are approved by the Panamanian Labor Ministry. Once the regulations are approved, they shall be posted in public area of the employer´s premises. An employer is also required to post in a public area on the employer´s premises the work schedule, the time shifts, week day rest periods and the names of all employees on vacation leave. (Labor Code, Art. 128, No. 10). A copy of any collective agreement shall be handed directly to all employees.
B. Personnel Records
Employers shall keep personnel records on all employees containing the name, age, gender, and citizenship of the employee, the employee’s salary history, the work hours worked by the employee, the overtime worked by the employee, the vacation time accrued by the employee, any written labor contract with the employee, a copy of the internal regulations applicable to the employee, a copy of any collective agreement applicable to the employee, and any disciplinary sanctions.
VI. Employee Privacy
A. Employee Drug Testing
Article 126 number 9 of the Labor Code requires employees to submit to a drug test as requested by the employer during the period of application for employment and also during the labor relationship.
B. Personnel Records and Information
Personnel records must be preserved by the employer for a period of twenty years after the conclusion of the labor relationship. (Law 51 of 2005). Article 42 of the Political Constitution establishes the right of every person to access their employment information.
C. Rules Governing Off-Duty Conduct by Employees
Article 213 numbers 3 and 5 of the Labor Code provide that an employee may be dismissed with just cause for engaging in violent or dishonest acts against an employer’s property which result in direct damages to the employer.
F. Lie Detector Tests on Employees
There are no rules of Panamanian labor law requiring an employee to submit to a lie detector. An employee’s agreement to take a lie detector test is voluntary.
G. Employee Fingerprints
In Panama, fingerprints are not required to be taken or maintained in the workplace. Some companies use fingerprinting as part of their background check and security procedures, but fingerprinting is not regulated in the labor context. The regulation of fingerprinting applies only in criminal matters.
V. Unionization of Employees
As noted above, the freedom of employees to unionize is a Constitutional right in Panama. (Political Constitution, Art. 68). The right to strike is also a constitutional right. (Political Constitution, Art. 69). There are four types of worker unions in Panama. (Labor Code, Art. 343). Each type requires at least 40 members in order to obtain legal representation. (Labor Code, Art. 344). Industrial Unions are those integrated by employees of different occupations who work in different companies within the same economic industry (e.g., construction workers unions). Company Unions are those that only exist in ONE company. These unions require more than 40 members to exist and to have the right to bargain. The other two types of unions are Guild Unions (e.g., for teachers, medical doctors, etc.) and Mixed Unions, which can combine employees in various occupations and industrids, but only in rural areas with very scarce population.
VI. Protection of Employer Intellectual Property Assets
A. Protection of Trade Secrets
Article 126 number 3 of the Labor Code establishes certain employee obligations and includes rules mandating that employees refrain from disclosing to third parties, unless with the express authorization of the employer, any technical, commercial and manufacturing trade secrets relating to products in which they are directly or indirectly concerned, or of which they have knowledge of because of the work they do, as well as any reserved administrative matters whose disclosure may harm the company. This obligation of non-disclosure may be further defined in the employer´s Internal rules or in an individual labor contract.
B. Covenants Not to Compete
There are no specific rules in Panama that govern covenants not to compete and related agreements. Employers may, and often do for high level positions, enter into individual agreements restricting their employees’ ability to compete. But due to the constitutional protection of the freedom of work, such covenants non-compete agreements are generally unenforceable.
C. Non-Solicitation of Employees and Customers
There are no specific rules in the Labor Code or other applicable labor laws relating to the non-solicitation of employees or customers. This is a topic that may be addressed in the employer’s internal regulations or in individualized labor contracts.
VII. Termination of the Labor Relationship
A. Just Cause Termination Required
According to the Panamanian Labor Code, the dismissal of an employee shall be based on one of the just causes specified in Article 213 of the Labor Code, which contains a limited list of causes for dismissal and includes not only disciplinary but also economic causes. In the Republic of Panama, employeers cannot create causes for dismissal and have to strictly apply the ones provided by the law. Dismissal is not allowed for any reason other than the ones stated in Article 213.
With only a few exceptions, such as in the case of domestic employees, it is mandatory to dismiss the employee in writing. If the dismissal is based on just cause, the letter should express the date the event causing termination occurred and provide a summary of the employee’s action or other circumstnace that justified the dismissal.
An employee working under an indefinite duration contract who is dismissed without any justified cause for dismissal may sue the employer. If the employment relationship was created in 1995, the employer may be required to pay the employee severance pay equivalent to 3.4 weeks of the employee’s annual salary per year, plus a surcharge up to 50% and back salaries up to 5 months.1 If the employee was hired after 1995 the employer will not be required to pay more than 3 months of back salaries and the surcharge will be limited to 25%.
Employees that have not completed two years of continuous labor can be dismissed without cause, but the employer must pre-notify (in writing) the employee one month in advance or pay the employee for the extra month. The employer must also pay severance equivalent to 3.4 weeks of the employee’s annual salary or an appropriate proportion thereof.
The termination of the labor relationship can also be voluntary, by resignation or by mutual consent. To be considered a valid voluntary termination by resignation, however, the employee’s resignation letter must be stamped and approved by the Labor Department prior to its delivery to the employer.
The employer must pay the employee for all acquired rights, such as accrued vacation pay, the “Thirteenth Month Benefit” and any applicable seniority payments. These benefits must be paid by the employer upon the termination of the labor relationship, and apply even when the dismissal is for just cause.
Employees working on a definitive duration contract who is dismissed without any justified cause of dismiss, or that resigns with just cause before the termination date or total performance of the work, will be entitled to compensation equivalent to the wages he would have received during the remaining period of the definitive duration contract.
B. Government Approved Layoffs and Reductions in Force
Article 213 of the Panamanian Labor Code allows for layoffs or work force reductions under special circumstances, including: (1) the insolvency or bankruptcy of the employer; (2) the closing of the business or, in the case of a mining operation, a definite reduction of work due to a noticeable and evident lack or profitability in the exploitation or depletion of the raw material object of the extraction activity; and (3) the definite suspension of inherent work in the employee’s contract or an obvious reduction in the employee’s activities due to a serious economic crisis, partial failure to cover the costs of operations due to reduction in production or innovations in the processes and manufacturing equipment or revocation or expiration of the administrative concession, cancellation of orders or purchase orders for sales, or any other similar reason properly established by the competent authority. (Labor Code, Art. 213).
In the cases of dismissal due to economic crisis, however, the following rules will apply: the first employees let go will be those with the least amount of time within the respective categories; once the preceding rule has been applied, preference for continued employment shall be given to the Panamanian employees over foreigners, labor union employees over those who are not, and the most efficient versus the less efficient; pregnant women, even if they are not preferentially covered by the previous rules, shall be dismissed last and only if necessary and after all the legal formalities have been fulfilled; and in equal circumstances, after having applied all of the previous rules, employees protected by the labor union privilege shall have preference over any others in remaining on the job.
Prior to implementing a reduction in force the employer must give prior notice to the employees, in writing, of the date and reason or specific reasons for the dismissal or termination of the employment relationship. The employer will be bound by the reasons stated in the written notice and cannot later allege reasons for termination other than those that are contained in the notice. The administrative labor authority, who must give prior authorization for the termination of the employment contract, or for the dismissal of employees due to economic reasons, shall personally notify the employees of the employer’s application for dismissal approval, giving them a period of three days in which to submit or adduce relevant evidence. The authority will examine the evidence within a reasonable period of time and will immediately render judgment granting or refusing the authorization requested. The decision of the administrative labor authority may be appealed.
If after the expiration of the term of 60 calendar days the administrative authorities have not resolved the request, the employer can proceed with the dismissal, which will be deemed completely justified. The employer will then be obligated to pay the compensation established in Article 225 of the Labor Code.
C. Post-Termination Employment References
Upon termination of the labor relationship, employers are only obligated to give the former employee a certification of work identifying the duration of the labor relationship and the salary earned by the employee. There is no obligation for the employer to give the former employee any type of reference letter.
VIII. Unemployment
There is no provision for unemployment subsidies in Panama. However, all employers must have a fund sufficient to pay, at the end of the labor relationship, all required seniority and severance payments due to employees hired under definitive duration contracts. This fund shall be deposited in a trust account managed by private entities authorized specifically for that pourpose. (Labor Code, Arts. 224-225 & 229).
* Mercedes Arauz de Grimaldo has been a partner in the Panamanian law firm Morgan & Morgan since 1980. She is the head of the real estate practice. She also has a leading role in the firm’s business & corporate law and labor & immigration practices, specialties in which Ms. Arauz de Grimaldo is a well-respected lawyer locally and internationally. Ms. Arauz de Grimaldo has not only enjoyed an exceptional career in the private sector, but has also served the country several times in various capacities, including First Deputy of the Nation’s General Attorney (1994-2004); President of the National Bar Association (2005-2007); and President of the Inter-American Bar Association (2004-2005). She has been the Latvian Honorary Consul in Panama since 2006. Ms. Arauz de Grimaldo is an active member of the National Bar Association of Panama, the Employment Law Alliance, the Inter-American Bar Association, the Panamanian Association of the Industrial Property and the Inter-American Association of Intellectual Property. She may be reached at mercedes.grimaldo@morimor.com.
1 Article 225 of the Labor Code imposes a specialized scale for employees hired prior to 1995.
VII. Termination of the Labor Relationship, Part B is the pertinent law under Article 213 of the Labor Code
The Republic of Panama has been a transient country historically, where people of different nationalities have come together forming a multiethnic and multicultural society. Foreigners along with locals have made great contributions to the creation and development of the Panamanian nationality. The expansion of the Panama Canal, the construction of a modern system of public transport, new infrastructure projects like roads, hospitals and government offices, and other developments present an opportunity for great jobs and investments in the coming years. This article provides an overview of Panamanian labor and employment law that will be useful to any national or international business looking to take advantage of the opportunities Panama has to offer by starting or expanding their operations within the Panamanian territory.
I. The General Framework of Panamanian Labor and Employment Law
The Political Constitution of the Republic of Panama (“Political Constitution”) recognizes and protects work as both an individual right and obligation. As such, it states that the State shall promote full employment policies and guaranty to all employees the necessary conditions for a decent life. (Political Constitution, Art. 64). The Political Constitution also grants the following: the right to a minimum salary, and to periodic adjustment thereof; the right to nondiscrimination and to equal jobs; the right to form unions and to strike; the right to limit the daily work shift to a maximum of 8 hours and the weekly work schedule to a maximum of 48 hours; maternity protections for the female worker; and the right not to be dismissed from employment without just cause. The Political Constitution establishes a special Labor Jurisdiction to handle all labor controversies and expressly precludes the waiver of any rights granted in favor of workers. Finally, the Political Constitution declares that the rights and guarantees recognized in the Political Constitution are the minimum ones afforded to workers in Panama. (Political Constitution, Arts. 65, 67-70, 72, 74, 77 & 79).
In addition to the fundamental labor rights set forth in the Political Constitution, Panamanian employment is governed by the Panamanian Labor Code (“Labor Code”) and its amended and complementary laws, the by-laws of public entities, and any international treaties and conventions duly ratified by the Republic of Panama. (Cabinet Decree 249 of 1970; Cabinet Degree 221 of 1971; Law 7 of 1975). The Labor Code regulates labor relations between a private employer and its employees, while public entity labor relations are governed by the by-laws of the public entity. The Labor Code recognizes the principle “in dubio pro operario.” Under this principle, in the event of any conflict between the application of the Labor Code or its amended and complementary laws and any international treaties and conventions the provisions that are most favorable to the employee will prevail.
There are also some special labor regimes established to promote foreign investment such as call centers, logistics (Panama Pacific Agency), export and processing zones. (Law 32 of 211; Executive Decree 8 of 1998). These regimes allow one sole surcharge payment for overtime, the negotiation of time to take paid vacation, several renewals of contracts of specific duration, termination of labor relations for economic reasons without previous authorization from the labor authorities, and the ability to lower salaries for economic reasons.
II. Panamanian Law Regarding the Hiring of Employees
A. Employment Application and Recruitment
Other than the anti-discrimination provisions discussed below, there are no specific rules in the Panamanian Labor Code regarding employment applications. Under Panamanian law, employers may require an employment applicant to submit to background investigations (provided that no other legal provisions are violated in the investigatory process). Employers may also require applicants to provide general health certificates, non-use of illegal drugs certificates, or non-criminal record certificates. An employer may not, however, inquire into certain specified medical conditions, such as pregnancy or AIDS, as such inquiries would be considered discriminatory and subject the employer to penalties.
Advertising for recruitment is permitted as long as it does not include discriminatory references, such as gender, physical appearance, race, religion, citizenship, etc. The law specifically prohibits recruitment advertisments that request applicants of a determinate age.
B. Non-Discrimination Requirements
Article 67 of the Political Constitution grants employees the right to equal salary and to equal work conditions without discrimination based on gender, citizenship, age, race, social class or political or religious ideas. Law 11 of 2005 prohibits discrimination on these same factors in the recruitment and hiring of employees.
C. Employment Contracts
The Republic of Panama does not follow the contractual theory with respect to labor relations. Article 62 of the Labor Code establishes that the existence of a labor relationship will be assumed between whoever renders a service and the beneficiary of those services under the conditions of legal subordination and economic dependency. The existence of one of those two elements will be enough to determine the existence of a labor relationship under Panamanian law.
In the absence of a written labor contract, Panamanian labor authorities will deem the labor contract to be a verbal agreement. And where there is a professional services contract in a labor relationship where the labor authorities find evidence showing the existence of economic dependence or legal subordination among the parties, the professional services contract will be deemed void and a verbal labor relationship agreement will be deemed to exist and govern the relationship between the employer and the employee.
The Labor Code allows verbal labor contracts only in the specific cases mentioned in Article 67, incluidng domestic, agriculture, accidental or occasional work that does not continue for more than three months, specific work that does not have a value of more than B/ 200.00, and services and work contracted in areas with a population of less than fifteen hundred people (unless it is a job with a value of more than B/5,000.00 or there are employers in the area who will require ten or more employees on a permanent basis).
All other employment relationships require written labor contracts. These contracts shall contain the specific information required under Article 68 of the Labor Code, including: personal data (name, nationality, age, sex, civil status, address and ID number); dependents; work/work methods; work place; term of employment (if fixed or indefinate) or statement of specific work to be performed; division of workday; statement of wages (method and place of payment); place and date agreement signed; and signatures. In the absence of such a written contract, the facts and circumstances of the employment relationship alleged by the employee will be presumed to be true. This presumption may be rebutted only by evidence that does not admit a reasonable doubt. (Labor Code, Art. 69). Labor contracts can be written for a specific duration (one year for most employees but up to three years in case of technicians), for an indefinite duration, or for the completion of a limited and specified piece of work. In the construction industry contracts are limited to the duration of the construction project or the particular phase of the project to which the employee is hired.
Specific duration clause must be contained in a written contract. When there is no written contract it is assumed that the labor relation is for indefinite duration. Specific duration contracts may only be used for a non-permanent positions. The renewal of specific duration contracts is allowed only in the circumstances described in Article 77A of the Labor Code, which include continuance of work after expiration of agreement for definitive period of time, and continuance of the same work after complation of specific work. A successive specific duration contract shall not be deemed to exist, however, in the following cases: agreements related to the continuance of employment or positions required in connection with the development of a new activity for the company; agreements relating to hiring during the first year of an employer’s activity or company’s operation; and agreements relating to the methods of work approved by the Ministry of Labor and Social Welfare or agreed to with a union.
In any type of employment contract, the parties can include a written trial period for up to three months, during which either party is allowed to terminate the employment relationship without any liability or responsibility. The trial period must be expressly included in a written labor contract to be valid and enforced.
D. Training
Panamanian labor law has no special rules on the training of new employees. The period of required training is considered part of the formal labor relationship and is governed by the same rules for regular employment established in the Labor Code.
III. Compensation, Work Hours and Leave
A. Minimum Age
The minimum age of employment in Panama is 18 years old. Minors between 12 and 18 years of age can be hired only under certain conditions, as stated in Articles 117-125 of the Labor Code. There are also limits on the length of the time a minor can work each day. The education needs of the minor shall be taking into consideration in establishing the work schedule, and the approval of the minor’s parents or legal representative is required. Minors may not work in bars, perform dangerous activities or work the night shift.
B. Wages
“Wages” are defined in Article 140 of the Labor Code to mean the remuneration which must be paid by the employer to the employee by virtue of the labor relationship, and includes not only what is paid to the employee in cash and in kind, but also the ex-gratia payments, benefits, bonuses, premiums, commissions, shares in the employer´s profits or any other income or benefits that the employee receives on account of his or her work and as a consequence of the same. The Labor Code considers salaries in kind to include any payment to employees for housing, food and clothing.
Wages can be fixed by unit of time (month, fortnight, week, day or hour), task, or by specific job performed. Employees must be paid wages at least twice each month. All sums paid to employees must be registered in the employers payroll records.
Since 1970 every employee working in Panama is entitled to a “thirteenth month” payment, which is a fictional additional month of salary to be paid in three equal parts during the months of April, August and December.
C. Minimum Wage
The Panamanian Labor Code establishes that the Government shall establish through an Executive Decree the minimum wage, which shall be reviewed every two years. In determining the minimum wage, the following will be taken into account: regional differences in the cost of living; the general economic and social policy of the country with respect to the various aspects of full and sustained national development; the policy of employment and income redistribution; the nature of the work and its risks; and the conditions, time and place in which the work is performed. The last revision to the minimum wage was in 2011. For professional jobs in the metropolitan areas, such as those in the financial services industry, the minimum wage has been set at US$2.38 per hour. For the interior of the country, the minimum wage varies, the lowest currently established minimum wage being $1.43 per hour. (Executive Decree 240 of 2011).
D. Overtime Pay/ Workday/Workweek/Work hours
The work day is divided in two twelve hour periods to distinguish daytime and nighttime shifts. The day shift runs from 6 a.m. to 6 p.m. and the night shift from 6 p.m. until 6 a.m. The maximum hours an employee can work are 8 hours per day for the day shift, and 7 hours per day for the night shift. Total hours are limited to 48 hours per week. After that the maximum hours have been reached, each worked hour is considered overtime. If the overtime is worked during the day shift, it must be paid with a 25% surcharge. Overtime worked during the night shift must be paid with a surcharge of 50%. The law specifically addresses “mixed shifts”, which begin in daytime and end at night or vice versa. A day shift that extends three (3) hours into the night shift is by law automatically considered a night shift. A night shift that enters into the day shift is limited to a maximum of 7 1/2 hours, and carries an overtime surcharge of 75%. Total overtime is limited to a maximum of 3 hours per day or 9 hours per week. There is a punitive surcharge of 75% for each additional hour worked after these maximums have been reached. For specific areas or activities ruled by special labor regimens, such as call centers and the Panama Pacific Agency, a single surcharge of 25% applies to overtime work and also there is no limit on the number of overtime hours an employee is permitted to work.
E. Meal and Rest Periods
Article 39 of the Labor Code requires employers to give its employees a normal rest period in accordance with the following rules:
1. The normal work schedule shall include a rest period of not less than a half an hour and not more than two hours. In the case of night or mixed shifts, the employer and employee can agree to distribute the total rest period, without exceeding the limits of the corresponding shift, so that production is not interrupted.
2. The work days and shifts will be such that they will not cause unnecessary variations in the amount of time designated for employee rest, meals and family life.
3. If, because of a rotating shift, or for any other reason stated by law, there is a need for the employee to render services during the day and night shifts consecutively, the employer must make the necessary arrangements so that the employee has at least twelve continuous hours of rest between shifts.
F. Time Off and Leaves of Absence
(i) Paid Vacation
Employees are normally entitled to 30 days of annual paid leave every year. Annual paid leave is accrued at the rate of one day for every eleven days worked. The employee may not trade unused annual paid leave for additional compensation, but annual leave may, by mutual agreement, be accumulated for up to two years. The 30 day period of paid leave can be divided into no more than two equal parts.
(ii) Paid Sick Leave
From the initial date of the labor relationship, the employee will begin to build a sick leave fund, which will accrue at the rate of 12 hours for every 26 shifts worked up to 144 hours per year. Sick leave may used for illness or a non-work related accident, and may be used as a whole or in part while receiving full pay. The sick leave fund may be accumulated over two years and can be used in whole or part during the third year of service.
When the employee does not have a right to receive Social Security benefits and his or her sick leave fund runs out, he or she will have the right to have their leave time extended by having the time deducted from his or her accumulated vacation time. If the Social Security benefits are not recognized due to late payments or other fault of the employer, the employer must pay the employee a corresponding subsidy.
(iii) Maternity/Paternity Leave
All pregnant female employees are entitled to maternity leave, payable at the full salary for six weeks before and eight weeks after childbirth. At no time will the rest period be less than fourteen weeks. But if delivery is delayed beyond the anticipated due date, the employee is entitled to receive, as a paid leave, the full eight weeks following childbirth.
The employer is required to cover any difference between the economic subsidy paid under Social Security for maternity and the regular salary the employee is entitled to receive. When Social Security is not obligated to provide a subsidy for maternity leave, the entire maternity leave benefit must be paid by the employer. Panamanian law does not provide for paternity leave. However, such leave may be provided through the employer´s internal rules or an individual labor contract between the parties.
(iv) Other Paid Time Off
Vacation, sick and maternity leave are the only paid time off benefits legally established by the Labor Code. Additional paid time off benefits (other than disability leave as required under the Law on Equal Opportunities for People with Disabilities) may be established by the parties under the employer’s internal rules or in an individual labor contract.
IV. Workers’ Compensation and Social Security
The professional risk provisions of the Labor Code require that employees injured during or due to work activities be compensated with his or her full salary for a period of two months. If the injuries continue after two months, the Social Security program will compensate the employee at a rate of 50% of his salary during the following ten months. If the incapacity subsists after this time, the employee will be compensated according to the Social Security permanent incapacity pension rules. Article 282 of the Labor Code sets forth regulations designed to protect employees life and health while on the job. Article 291 of the Panama Labor Code regulates standard matters regarding common occupational hazards and accidents on the job. Injuries, social welfare, and compensation in regards to occupational hazards and accidents are covered by Law 51 of 2005.
Panama runs a Social Security program that includes includes a health insurance program (including medication, hospitalization and medical consultation) covering the employee and all of his or her dependents under the age of 18, and also provides for maternity leave benefits, incapacitation/disability benefits, retirement benefits and a widow’s pension. (Labor Code, Arts. 282-392). Registration in the government run Social Security program is mandatory for all employers and employees. Registration must also occur immediately upon employment, and failure to register can result in governmental fines.
Employers and employees contribute to the Social Security program on a monthly basis. Contributions are calculated as a percentage of an employee´s gross pay, including all in-kind benefits. The Employers’ contribution is currently set at 12% of gross wages but will increase to 12.5% of gross wages after January 2013. The Employees’ contribution is withheld by the employer at a current rate of 9% of gross wages, which rate will increase to 9.75% of gross wages after January 2013. (Law 51 of 2005). Any employer that has not paid the required Social Security contribution, for itself or its employees, is required to pay the value of any benefits the employee would have otherwise received under the program.
V. Personnel Administration
A. Required Postings
An employer´s internal regulations shall be posted for 30 days to provide notice to the employees before those regulations are approved by the Panamanian Labor Ministry. Once the regulations are approved, they shall be posted in public area of the employer´s premises. An employer is also required to post in a public area on the employer´s premises the work schedule, the time shifts, week day rest periods and the names of all employees on vacation leave. (Labor Code, Art. 128, No. 10). A copy of any collective agreement shall be handed directly to all employees.
B. Personnel Records
Employers shall keep personnel records on all employees containing the name, age, gender, and citizenship of the employee, the employee’s salary history, the work hours worked by the employee, the overtime worked by the employee, the vacation time accrued by the employee, any written labor contract with the employee, a copy of the internal regulations applicable to the employee, a copy of any collective agreement applicable to the employee, and any disciplinary sanctions.
VI. Employee Privacy
A. Employee Drug Testing
Article 126 number 9 of the Labor Code requires employees to submit to a drug test as requested by the employer during the period of application for employment and also during the labor relationship.
B. Personnel Records and Information
Personnel records must be preserved by the employer for a period of twenty years after the conclusion of the labor relationship. (Law 51 of 2005). Article 42 of the Political Constitution establishes the right of every person to access their employment information.
C. Rules Governing Off-Duty Conduct by Employees
Article 213 numbers 3 and 5 of the Labor Code provide that an employee may be dismissed with just cause for engaging in violent or dishonest acts against an employer’s property which result in direct damages to the employer.
F. Lie Detector Tests on Employees
There are no rules of Panamanian labor law requiring an employee to submit to a lie detector. An employee’s agreement to take a lie detector test is voluntary.
G. Employee Fingerprints
In Panama, fingerprints are not required to be taken or maintained in the workplace. Some companies use fingerprinting as part of their background check and security procedures, but fingerprinting is not regulated in the labor context. The regulation of fingerprinting applies only in criminal matters.
V. Unionization of Employees
As noted above, the freedom of employees to unionize is a Constitutional right in Panama. (Political Constitution, Art. 68). The right to strike is also a constitutional right. (Political Constitution, Art. 69). There are four types of worker unions in Panama. (Labor Code, Art. 343). Each type requires at least 40 members in order to obtain legal representation. (Labor Code, Art. 344). Industrial Unions are those integrated by employees of different occupations who work in different companies within the same economic industry (e.g., construction workers unions). Company Unions are those that only exist in ONE company. These unions require more than 40 members to exist and to have the right to bargain. The other two types of unions are Guild Unions (e.g., for teachers, medical doctors, etc.) and Mixed Unions, which can combine employees in various occupations and industrids, but only in rural areas with very scarce population.
VI. Protection of Employer Intellectual Property Assets
A. Protection of Trade Secrets
Article 126 number 3 of the Labor Code establishes certain employee obligations and includes rules mandating that employees refrain from disclosing to third parties, unless with the express authorization of the employer, any technical, commercial and manufacturing trade secrets relating to products in which they are directly or indirectly concerned, or of which they have knowledge of because of the work they do, as well as any reserved administrative matters whose disclosure may harm the company. This obligation of non-disclosure may be further defined in the employer´s Internal rules or in an individual labor contract.
B. Covenants Not to Compete
There are no specific rules in Panama that govern covenants not to compete and related agreements. Employers may, and often do for high level positions, enter into individual agreements restricting their employees’ ability to compete. But due to the constitutional protection of the freedom of work, such covenants non-compete agreements are generally unenforceable.
C. Non-Solicitation of Employees and Customers
There are no specific rules in the Labor Code or other applicable labor laws relating to the non-solicitation of employees or customers. This is a topic that may be addressed in the employer’s internal regulations or in individualized labor contracts.
VII. Termination of the Labor Relationship
A. Just Cause Termination Required
According to the Panamanian Labor Code, the dismissal of an employee shall be based on one of the just causes specified in Article 213 of the Labor Code, which contains a limited list of causes for dismissal and includes not only disciplinary but also economic causes. In the Republic of Panama, employeers cannot create causes for dismissal and have to strictly apply the ones provided by the law. Dismissal is not allowed for any reason other than the ones stated in Article 213.
With only a few exceptions, such as in the case of domestic employees, it is mandatory to dismiss the employee in writing. If the dismissal is based on just cause, the letter should express the date the event causing termination occurred and provide a summary of the employee’s action or other circumstnace that justified the dismissal.
An employee working under an indefinite duration contract who is dismissed without any justified cause for dismissal may sue the employer. If the employment relationship was created in 1995, the employer may be required to pay the employee severance pay equivalent to 3.4 weeks of the employee’s annual salary per year, plus a surcharge up to 50% and back salaries up to 5 months.1 If the employee was hired after 1995 the employer will not be required to pay more than 3 months of back salaries and the surcharge will be limited to 25%.
Employees that have not completed two years of continuous labor can be dismissed without cause, but the employer must pre-notify (in writing) the employee one month in advance or pay the employee for the extra month. The employer must also pay severance equivalent to 3.4 weeks of the employee’s annual salary or an appropriate proportion thereof.
The termination of the labor relationship can also be voluntary, by resignation or by mutual consent. To be considered a valid voluntary termination by resignation, however, the employee’s resignation letter must be stamped and approved by the Labor Department prior to its delivery to the employer.
The employer must pay the employee for all acquired rights, such as accrued vacation pay, the “Thirteenth Month Benefit” and any applicable seniority payments. These benefits must be paid by the employer upon the termination of the labor relationship, and apply even when the dismissal is for just cause.
Employees working on a definitive duration contract who is dismissed without any justified cause of dismiss, or that resigns with just cause before the termination date or total performance of the work, will be entitled to compensation equivalent to the wages he would have received during the remaining period of the definitive duration contract.
B. Government Approved Layoffs and Reductions in Force
Article 213 of the Panamanian Labor Code allows for layoffs or work force reductions under special circumstances, including: (1) the insolvency or bankruptcy of the employer; (2) the closing of the business or, in the case of a mining operation, a definite reduction of work due to a noticeable and evident lack or profitability in the exploitation or depletion of the raw material object of the extraction activity; and (3) the definite suspension of inherent work in the employee’s contract or an obvious reduction in the employee’s activities due to a serious economic crisis, partial failure to cover the costs of operations due to reduction in production or innovations in the processes and manufacturing equipment or revocation or expiration of the administrative concession, cancellation of orders or purchase orders for sales, or any other similar reason properly established by the competent authority. (Labor Code, Art. 213).
In the cases of dismissal due to economic crisis, however, the following rules will apply: the first employees let go will be those with the least amount of time within the respective categories; once the preceding rule has been applied, preference for continued employment shall be given to the Panamanian employees over foreigners, labor union employees over those who are not, and the most efficient versus the less efficient; pregnant women, even if they are not preferentially covered by the previous rules, shall be dismissed last and only if necessary and after all the legal formalities have been fulfilled; and in equal circumstances, after having applied all of the previous rules, employees protected by the labor union privilege shall have preference over any others in remaining on the job.
Prior to implementing a reduction in force the employer must give prior notice to the employees, in writing, of the date and reason or specific reasons for the dismissal or termination of the employment relationship. The employer will be bound by the reasons stated in the written notice and cannot later allege reasons for termination other than those that are contained in the notice. The administrative labor authority, who must give prior authorization for the termination of the employment contract, or for the dismissal of employees due to economic reasons, shall personally notify the employees of the employer’s application for dismissal approval, giving them a period of three days in which to submit or adduce relevant evidence. The authority will examine the evidence within a reasonable period of time and will immediately render judgment granting or refusing the authorization requested. The decision of the administrative labor authority may be appealed.
If after the expiration of the term of 60 calendar days the administrative authorities have not resolved the request, the employer can proceed with the dismissal, which will be deemed completely justified. The employer will then be obligated to pay the compensation established in Article 225 of the Labor Code.
C. Post-Termination Employment References
Upon termination of the labor relationship, employers are only obligated to give the former employee a certification of work identifying the duration of the labor relationship and the salary earned by the employee. There is no obligation for the employer to give the former employee any type of reference letter.
VIII. Unemployment
There is no provision for unemployment subsidies in Panama. However, all employers must have a fund sufficient to pay, at the end of the labor relationship, all required seniority and severance payments due to employees hired under definitive duration contracts. This fund shall be deposited in a trust account managed by private entities authorized specifically for that pourpose. (Labor Code, Arts. 224-225 & 229).
* Mercedes Arauz de Grimaldo has been a partner in the Panamanian law firm Morgan & Morgan since 1980. She is the head of the real estate practice. She also has a leading role in the firm’s business & corporate law and labor & immigration practices, specialties in which Ms. Arauz de Grimaldo is a well-respected lawyer locally and internationally. Ms. Arauz de Grimaldo has not only enjoyed an exceptional career in the private sector, but has also served the country several times in various capacities, including First Deputy of the Nation’s General Attorney (1994-2004); President of the National Bar Association (2005-2007); and President of the Inter-American Bar Association (2004-2005). She has been the Latvian Honorary Consul in Panama since 2006. Ms. Arauz de Grimaldo is an active member of the National Bar Association of Panama, the Employment Law Alliance, the Inter-American Bar Association, the Panamanian Association of the Industrial Property and the Inter-American Association of Intellectual Property. She may be reached at mercedes.grimaldo@morimor.com.
1 Article 225 of the Labor Code imposes a specialized scale for employees hired prior to 1995.
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