Dismissal in Panama: severance and seniority premium

When an employment relationship ends in Panama, what's paid depends on whether the dismissal was justified or unjustified. Both cases owe benefits; the unjustified one also owes severance.

Justified vs unjustified

A justified dismissal (for just cause, under Art. 213) requires a valid cause and its procedure. An unjustified one happens without just cause or due process, and requires the employer to pay the Art. 225 severance (or reinstate the worker, depending on the case).

The Art. 225 severance

For relationships started under current law, the severance for unjustified dismissal is:

Length of service	Severance
First 10 years	3.4 weeks per year
Each year after year 10	1 week per year

Incomplete years are paid proportionally.

The seniority premium always applies

In indefinite contracts, the seniority premium (one week of salary per year, Art. 224) is paid when the relationship ends regardless of the cause — even in a justified dismissal or resignation. Severance, by contrast, is only paid for unjustified dismissal.

The settlement also adds pro-rated vacation and décimo. A wrong calculation is a common source of labor lawsuits.

Calculate the settlement

Use the liquidation calculator to estimate premium, severance and pro-rated benefits.

Source: Art. 213, 224 and 225 of the Panama Labor Code. Dismissal is sensitive and case-specific; always confirm with a labor lawyer.