Countries › Panama › Guide › 15. Exiting › Closing down and employees: closure dismissals, prior authorisation, indemnity and seniority premium

Closing down and employees: closure dismissals, prior authorisation, indemnity and seniority premium

Last verified: 2026-10-29 · Status: Stable

Closure of the business for notorious unprofitability is a justified economic cause for dismissal, but the employer must first prove it before the labour administrative authority; if the authority does not decide within 60 calendar days the dismissal may proceed. Workers dismissed for economic causes receive the art. 225 indemnity (3.4 weeks per year for the first ten years for post 1995 hires) plus a one week per year seniority premium paid on any termination. Dismissals without the authorisation are unjustified by law, opening reinstatement or indemnity claims with back pay.

Panama's currency, the balboa (B/.), is at par with the US dollar, which circulates freely as legal tender; the Superintendencia de Bancos states that the balboa's value is on a par with the US dollar (checked 29 October 2026). USD figures therefore equal the balboa figures.

Key facts

Indemnity for dismissal or economic termination, years one to ten (post 1995 hires)	3.4 weeks per yearCódigo de Trabajo art. 225 C, as of 2026-10-29 · in force
Indemnity per year after ten years (post 1995 hires)	1 weeks per yearCódigo de Trabajo art. 225 C, as of 2026-10-29 · in force
Seniority premium on any termination of an indefinite contract	1 weeks per yearCódigo de Trabajo art. 224, as of 2026-10-29 · in force
Days after which the employer may dismiss if the labour authority has not decided	60 calendar daysCódigo de Trabajo art. 215, as of 2026-10-29 · in force
Maximum back wages for unjustified dismissal (post 1995 hires)	3 monthsCódigo de Trabajo art. 218, as of 2026-10-29 · in force
Exchange rate used for USD conversions	1 PAB per USDBalboa at par with the US dollar (Superintendencia de Bancos), as of 2026-10-29 · in force

The rule

1. Justified economic causes for termination include the insolvency or bankruptcy of the employer and the closure of the business or definitive reduction of work due to notorious and manifest unprofitability or exhaustion of the material of an extractive activity. In economic dismissals the employer starts with the least senior workers in each category, then prefers to keep Panamanians, union members and the most efficient; pregnant workers go last and union protected workers have preference to stay.Código de Trabajo art. 213 section C as amended by Ley 44 de 1995 art. 32, art. 213 C, 1995-08-12 official text · verified 2026-10-29

2. When the dismissal relies on a cause in art. 213 section C, the employer must prove it before the labour administrative authorities; dismissals without that step are unjustified by law. If the authority has not decided within 60 calendar days, the employer may dismiss, the dismissal is justified and the art. 225 indemnity is payable. The authority notifies the workers, gives three days to produce evidence and decides; appeals suspend the decision.
Cost to do it: No filing fee set in these articles; legal costs only.Código de Trabajo arts. 215 (added by Ley 8 de 1981 art. 2) and 216, arts. 215 and 216, 1981-04-30 official text · verified 2026-10-29

3. The employer must notify the worker in writing beforehand of the date and specific causes of the dismissal and cannot later rely on other causes.Código de Trabajo, art. 214, 1971-12-30 official text · verified 2026-10-29

4. For indefinite contracts that began after Ley 44 de 1995 took effect, the indemnity is 3.4 weeks of wages per year worked for the first ten years and one week per year after ten years, pro rata for incomplete years; it is also paid when the relationship ends for a cause in art. 213 section C. Payment in kind is prohibited.
Cost to do it: 3.4 weeks per year for years one to ten, one week per year thereafter.
Example: Weekly wage B/.350, six years: 20.4 weeks, B/.7,140. / US$7,140.Código de Trabajo art. 225 as worded by Ley 44 de 1995 art. 36, art. 225 section C, 1995-08-12 official text · verified 2026-10-29

5. On termination of every indefinite contract, whatever the cause, the worker receives a seniority premium of one week of wages per year worked, pro rata for incomplete years; the wage for this purpose is the average of total remuneration in the last five years.
Example: Average weekly wage B/.350, six years: B/.2,100. / US$2,100.Código de Trabajo art. 224 as worded by Ley 44 de 1995 art. 35; art. 226, arts. 224 and 226, 1995-08-12 official text · verified 2026-10-29

6. Employers with indefinite contracts must keep a severance fund to pay the seniority premium and indemnity, funded by quarterly contributions placed in trust with qualified administrators.Código de Trabajo arts. 229-A and 229-B added by Ley 44 de 1995 art. 37, arts. 229-A and 229-B, 1995-08-12 official text · verified 2026-10-29

7. A worker told of a dismissal may ask for reinstatement or the art. 225 indemnity; if the employer does not prove the justified cause or the prior authorisation, back wages are owed for up to three months for workers hired after Ley 44 de 1995. Claims for reinstatement or unjustified dismissal indemnity lapse in 60 business days from separation; claims only for indemnity and other termination benefits lapse in one year.Código de Trabajo art. 218 as worded by Ley 44 de 1995 art. 33; art. 221 as worded by Ley 8 de 1981 art. 5, arts. 218 and 221, 1995-08-12 official text · verified 2026-10-29

8. On closure of a business or establishment, the collective agreement in force ceases to have effect there and continues only in the other establishments for which it was agreed.Código de Trabajo, art. 414, 1971-12-30 official text · verified 2026-10-29

Years of service	Indemnity (B/.)	Seniority premium (B/.)	Total (B/. = US$)
2	2,380	700	3,080
6	7,140	2,100	9,240
10	11,900	3,500	15,400
15	13,650	5,250	18,900

Closure cost per worker hired after Ley 44 de 1995, weekly wage B/.350 (Código de Trabajo arts. 224 and 225).

Step by step

Document the economic cause (financial statements, closure decision) before any notice.
File the request with the labour administrative authority to prove the art. 213 C cause; workers get three days for evidence.
Wait for the decision or for 60 calendar days to pass.
Give written notice stating date and cause, apply the selection order if the closure is partial.
Pay indemnity, seniority premium and accrued wages, vacation and thirteenth month, using the severance fund.

Common traps

Dismissing for closure before the administrative proof makes every dismissal unjustified by law, exposing the employer to back pay.
The seniority premium is due on any termination of an indefinite contract, even resignation.
Older employees may have service before 1995 or 1972 governed by different scales in art. 225 sections A and B.

Sources

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