Countries › Panama › Guide › 7. Labor and employment › Termination and severance in Panama: just cause, stability after two years, the seniority premium, 3.4 weeks per year indemnity and the cesantía fund

Termination and severance in Panama: just cause, stability after two years, the seniority premium, 3.4 weeks per year indemnity and the cesantía fund

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

Indefinite contracts can be ended by the employer only for a just cause listed in the Código de Trabajo, notified in writing, except for workers with under two years of service and a few other groups, who can be dismissed with 30 days' notice and the legal indemnity. Every indefinite contract, whatever the reason it ends, pays a seniority premium of one week's salary per year, and an unjustified dismissal adds an indemnity of 3.4 weeks per year for the first ten years and one week per year after that. Employers must prefund both through a cesantía fund held in trust, and dismissed workers have 60 working days to sue for reinstatement.

Panama's currency, the balboa (B/.), is at par with the US dollar, which circulates 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

Service after which an indefinite contract can be ended only for just cause	2 yearsCódigo de Trabajo art. 212, as of 2026-10-29 · in force
Notice for dismissal of workers without stability (art. 212 cases)	30 daysCódigo de Trabajo art. 212, as of 2026-10-29 · in force
Seniority premium (prima de antigüedad) on any termination	1 weeks per yearCódigo de Trabajo art. 224, as of 2026-10-29 · in force
Unjustified dismissal indemnity, first ten years (post 1995 hires)	3.4 weeks per yearCódigo de Trabajo art. 225, as of 2026-10-29 · in force
Unjustified dismissal indemnity after ten years	1 weeks per yearCódigo de Trabajo art. 225, as of 2026-10-29 · in force
Maximum back pay for unjustified dismissal (post 1995 hires)	3 monthsCódigo de Trabajo art. 218, as of 2026-10-29 · in force
Deadline to claim reinstatement for unjustified dismissal	60 working daysCódigo de Trabajo art. 221, as of 2026-10-29 · in force
Resignation notice (non technical worker)	15 daysCódigo de Trabajo art. 222, 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. The employment relationship ends by written mutual consent without waiver of rights, expiry of the term, completion of the job, death, dismissal for just cause or resignation, or unilateral decision of the employer within the limits of the Code.Código de Trabajo (Decreto de Gabinete 252 de 1971), art. 210, 1971-12-30 official text · verified 2026-10-29

2. The employer may not end an indefinite relationship without a just cause provided by law. The exceptions are workers with less than two years of continuous service, domestic workers, permanent staff of small farms (10 or fewer workers), agro industries (20 or fewer) and manufacturers (15 or fewer), workers on ships in international service, apprentices, and retail businesses and other companies with five or fewer workers (except financial, insurance and real estate firms). For these, the employer pays the art. 225 indemnity plus 30 days' notice or pay in lieu.Código de Trabajo art. 212 as replaced by Ley 44 de 1995 art. 31, art. 212, 1995-08-12 official text · verified 2026-10-29

3. Just causes for dismissal are disciplinary (for example false credentials, violence, disclosure of secrets, serious dishonesty, intentional damage, safety breaches, disobedience, repeated unexcused absences, sexual harassment, loss of confidence in a confidential employee, or poor performance under an evaluation system approved by MITRADEL or agreed with the union), causes not attributable to the worker (such as manifest inefficiency invoked within six months of hiring, a prison sentence, retirement or disability pension, proven incapacity or force majeure) and economic (insolvency, closure, or proven reduction of activity for serious economic crisis, falling production, technological change, loss of a concession or of orders). Economic dismissals follow an order: least seniority first, then preference to keep Panamanian, unionized and more efficient workers, with pregnant workers dismissed last.Código de Trabajo art. 213 as amended by Ley 44 de 1995 art. 32, art. 213, 1995-08-12 official text · verified 2026-10-29

4. The employer must notify the worker in advance and in writing of the date and the specific cause or causes of dismissal, and cannot later rely on different causes.Código de Trabajo (Decreto de Gabinete 252 de 1971), art. 214, 1971-12-30 official text · verified 2026-10-29

5. Dismissals for economic causes under art. 213 section C must first be proven before the administrative labor authorities; otherwise they are unjustified by law. If the authority has not decided within 60 calendar days, the employer may dismiss and the dismissal is justified, but the art. 225 indemnity is still owed.Código de Trabajo art. 215 as added by Ley 8 de 30 de abril de 1981 art. 2, art. 215, 1981-04-30 official text · verified 2026-10-29

6. On the end of any indefinite contract, whatever the cause, the worker is entitled to a seniority premium (prima de antigüedad) of one week of salary for each year worked from the start of the relationship, with a proportional part for incomplete years. The salary used is the average of total pay in the last five years.Código de Trabajo art. 224 as replaced by Ley 44 de 1995 art. 35; art. 226, arts. 224 and 226, 1995-08-12 official text · verified 2026-10-29

7. For unjustified dismissal, or dismissal without the required prior authorization, of a worker on an indefinite contract who chooses indemnity, relationships that began after Ley 44 de 1995 took effect are indemnified at 3.4 weeks of salary per year for the first ten years and one week per year after that, prorated for incomplete years. Older scales apply to service before 2 April 1972 and to relationships that predate Ley 44. The same indemnity is due for economic dismissals under art. 213 section C. Payment in kind is prohibited.
Cost to do it: For a B/.2,000 monthly salary (about B/.461.54 a week), five years of service give an indemnity of 17 weeks, about B/.7,846.15, plus the seniority premium of 5 weeks, about B/.2,307.69.
Example: Unjustified dismissal after 12 years at B/.2,000 a month: 34 weeks for the first ten years plus 2 weeks for the next two, 36 weeks, about B/.16,615.38, plus a 12 week seniority premium of about B/.5,538.46. / About US$16,615.38 indemnity plus US$5,538.46 seniority premium.Código de Trabajo art. 225 as replaced by Ley 44 de 1995 art. 36, art. 225, 1995-08-12 official text · verified 2026-10-29

8. For indemnities and other benefits, salary is the average for ordinary and overtime hours actually worked in the six months or the thirty days before the right arises, whichever is more favorable to the worker.Código de Trabajo (Decreto de Gabinete 252 de 1971), art. 149, 1971-12-30 official text · verified 2026-10-29

9. A dismissed worker on an indefinite contract may ask the Juntas de Conciliación y Decisión (or the labor courts where there are none) for reinstatement or the art. 225 indemnity. If the employer does not prove the just cause or the prior authorization, back pay runs for up to three months from dismissal for workers hired after Ley 44 de 1995. Where reinstatement is ordered, the employer may instead pay the indemnity with a 25 percent surcharge (for workers hired after Ley 44) if it is not up to date with the cesantía fund, plus back pay, within one month of the final judgment.Código de Trabajo arts. 218 and 219 as replaced by Ley 44 de 1995 arts. 33 and 34, arts. 218 and 219, 1995-08-12 official text · verified 2026-10-29

10. A claim for reinstatement or indemnity with back pay for unjustified dismissal must be filed within 60 working days of separation. A claim only for the indemnity and other end of employment benefits must be filed within one year.Código de Trabajo art. 221 as replaced by Ley 8 de 30 de abril de 1981 art. 5, art. 221, 1981-04-30 official text · verified 2026-10-29

11. A worker may resign without cause by giving 15 days' written notice (two months for technical workers); a worker who fails to give notice owes one week's salary, which may be deducted from the seniority premium. A worker who resigns for one of the employer faults listed in art. 223 (such as unpaid wages, unilateral change of conditions, mistreatment or safety breaches) is entitled to the unjustified dismissal indemnity.Código de Trabajo (Decreto de Gabinete 252 de 1971), arts. 222 and 223, 1971-12-30 official text · verified 2026-10-29

12. An employer who ends a fixed term or specific job contract early without just cause must pay the wages the worker would have earned for the rest of the term.Código de Trabajo (Decreto de Gabinete 252 de 1971), art. 227, 1971-12-30 official text · verified 2026-10-29

13. Employers must build a cesantía fund for indefinite contracts to pay the seniority premium and the indemnity for unjustified dismissal or justified resignation. Each quarter the employer contributes the seniority premium share and 5 percent of the monthly indemnity share, deposited in trust with an authorized private fund manager that is not a subsidiary or affiliate of the employer. Contributions are deductible for income tax and cannot be seized by third parties. Small businesses under art. 212 numerals 3 and 6 and cooperatives are exempt unless they opt in.Código de Trabajo arts. 229-A to 229-N as added by Ley 44 de 1995 art. 37, arts. 229-A, 229-B, 229-C, 229-G and 229-M, 1995-08-12 official text · verified 2026-10-29

14. Pregnant workers and union officials with fuero sindical can only be dismissed with prior authorization; dismissals during vacation, sick leave or maternity leave are void.Código de Trabajo arts. 106, 107 and 381 to 384; art. 60 as replaced by Ley 44 de 1995, arts. 60, 106, 107, 381 to 384, 1995-08-12 official text · verified 2026-10-29

Years of service	Seniority premium (weeks)	Indemnity (weeks)	Total weeks	Approximate total
1	1	3.4	4.4	B/.2,030.77
5	5	17	22	B/.10,153.85
10	10	34	44	B/.20,307.69
15	15	39	54	B/.24,923.08

Exit cost after unjustified dismissal at B/.2,000 (US$2,000) a month, hired after 1995. Weekly salary taken as monthly salary times 12 divided by 52 (B/.461.54); the Code bases both amounts on averages (arts. 149 and 226), so actual figures vary.

Worked example

An employee hired in 2021 at B/.2,000 (US$2,000) a month is dismissed in 2026 after five years with no cause proven.
Seniority premium: 5 weeks, about B/.2,307.69. Indemnity: 3.4 weeks times 5 years, 17 weeks, about B/.7,846.15. Together about B/.10,153.85 (US$10,153.85), plus proportional vacation and thirteenth month.
If the employee sues within 60 working days and wins reinstatement, the employer can still end the relationship by paying the indemnity (with a 25 percent surcharge if it is behind on the cesantía fund) plus up to three months of back pay.
Had the employee been dismissed after 18 months, before gaining stability, the employer could dismiss without cause by paying the indemnity and seniority premium plus 30 days' notice or pay in lieu.

Step by step

Check the worker's length of service and whether an art. 212 exception applies (under two years, small business, domestic worker).
If dismissing for cause, document the cause and deliver a written notice stating the date and every cause relied on.
For economic dismissals, file with MITRADEL first and wait for authorization or the 60 calendar day deadline.
Check for protected status: pregnancy, union fuero, vacation or sick leave.
Pay the final settlement: salary, proportional vacation and thirteenth month, seniority premium, and indemnity if due; use the cesantía fund balance.
Keep cesantía fund contributions current every quarter to avoid the 25 percent reinstatement surcharge.

Common traps

The seniority premium is owed on every termination of an indefinite contract, including resignation and dismissal for cause.
Causes not stated in the dismissal letter cannot be argued later in court.
An economic dismissal without prior MITRADEL authorization is unjustified by law.
Being behind on the cesantía fund adds a 25 percent surcharge where reinstatement is ordered and the employer pays instead.
Workers hired before Ley 44 de 1995 keep older, more generous indemnity scales and longer back pay caps.

Sources

← Vacation and leave in Panama: 30 days per 11 months, 14 weeks of maternity leave, 3 days of paternity leave, sick leave fund and breastfeeding breaksSocial security contributions in Panama: Caja de Seguro Social rates of 13.25 percent for employers rising to 15.25 percent, 9.75 percent for employees, and what is not salary →

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