Can I freely agree the labor conditions with my employees?
Yes. You can freely agree the labor conditions with your employees in a way you deem convenient provided, however, that the minimum limits provided for in the Constitution, the Laws, the By-Laws, in collective bargaining agreements or in the internal labor by-laws of the company, are properly met. The employee's or the collective bargaining agreement's consent is required to amend the previously agreed upon labor conditions as long as no legal rights are waived. 
When am I required to document, in writing, the labor agreements? Are verbal labor agreements legally valid?
The requirement for you to document, in writing, a labor agreement is of a general nature; the only exceptions are the agricultural and cattle-raising activities; domestic services; occasional or accidental works not exceeding three months; specific works not exceeding an amount of two hundred balboas; and services and works in places not exceeding 1.500 inhabitants, except if it is an activity whose value exceeds five thousand balboas or in the case of employers that permanently require over ten employees. In all other cases, a written labor agreement must be executed by means of three duplicate copies, one for each of the parties and one to be delivered to the Ministry of Labor and Labor Development.
It is important that, as an employer, you be aware that in the absence of a written labor agreement, the facts and circumstances alleged by your employee with regards to those mandatory provisions that had to be expressed in the labor agreement, are presumed. However, you will certainly have the possibility to file proof whereby you demonstrate that the employee's allegations are not true. Nevertheless, it is not always easy for the employer to produce such proof in which case those allegations submitted by the employee shall be deemed as true against your interests.
What should I be aware of when hiring a foreign individual?
To hire a foreign employee you require a work permit issued by the Ministry of Labor and Labor Development. 90% of the ordinary workers must be Panamanian citizens or a foreign individual married to a Panamanian, or foreign individuals that have resided in the country for ten or more years. The employer may hire technical or specialized staff not exceeding 15% of all the company's employees. The Ministry of Labor and Labor Development, upon a previous recommendation by the relevant Ministry, may authorize a higher proportion of technical and specialized foreign labor. Those companies with less than ten employees are allowed, at least one foreign employee. The percentages abovementioned do not include employees that perform positions of responsibility in those companies whose corporate purpose is solely to handle and manage, from Panama, transactions that will perfect, complete or yield their legal effects abroad, with the prior authorization of the Ministry.
Can I amend the labor conditions of my employees without their consent?
You cannot amend the labor agreement without the consent of the employee. In some given cases of functional mobility the employer may introduce amendments to the duties of the employee (per the company's organizational needs, or the work itself or the company's production; for variations in the marketplace or because of technical innovations; also, in the cases so provided for in the collective bargaining agreement; or in those cases so agreed upon with the labor union). These amendments are subject to limitations:
1) they must be compatible with the position held, the categories, the strengths, aptitudes, training and expertise of the employee;
2) they must not reduce the amount of salary or remuneration;
3) they must not affect the dignity or self-respect of employee;
4) no relevant harm or higher risks in the performance of the duties may be caused to employee;
5) must not interfere with the performance of any position, within the labor union, of the employee; and
6) cannot affect the rights of the female employee under maternity privileges.
Can I extend a fixed-term labor agreement?
You cannot extend a fixed-term agreement not even with your employee's consent because, otherwise, it would switch to an indefinite-term labor agreement. When the duties require a special technical training by the employee and the employer bears the costs, total or partial, thereof, the fixed-term labor agreement may be subject to up to two extensions. Similarly, continuing fixed-term labor agreements, in general, are not possible. There are exceptions for the execution of continuing fixed-term agreements without causing them to switch into indefinite-term agreements, and said exceptions apply to the special system for the Export Processing Zones during the first three years of the labor relationship; also to construction business; in the case of hiring for permanent positions required to developing a new activity (up to two years); or when the hiring process occurs during the first year of activities of the employer, the company or the business (up to two years).
What are the differences between a labor agreement and a professional services agreement? Do my employer's rights and obligations vary from one case to the other? Can I freely choose which option suits me best?
The difference between a professional services agreement and a labor agreement is that in the latter the individual provides personal services under legal subordination to another individual or to a company. Such services are rendered by becoming part of and being under the authority of a company in a manner that the employer is entitled to exercise authority and direction powers. The employee must meet a daily schedule and perform the services at a given location. Employee may be subject to sanctions by the employer in the event employee does not duly comply with the assigned duties. On the contrary, regarding professional services agreements, such services are rendered independently with no submission to the direction and authority of the company. The individual providing services within a labor relationship is better protected than the individual hired for professional services since, in this case, it all depends on what was agreed upon in the professional services agreement, and labor law benefits do not apply nor those benefits of the Social Security system. You cannot freely choose what option suits you best since if you wish to hire an employee under your direction and authority the execution of a labor agreement becomes mandatory.
CAN I DEMAND FROM MY EMPLOYEES TO WORK OVERTIME?
Can I demand from my employees to work overtime? Which is the allowed maximum for overtime work? and, can I compensate overtime with time-off?
You cannot force your employees to work overtime, except in the following events:
- Small Concerns.
- Companies that export their full production.
- Domestic help during holidays and national mourning.
- In the event of fire or imminent risk that poses a danger to the lives of the individuals, the existence of the company or workplace or the work being performed.
- In those events provided for in the collective bargaining agreement as long as the employee also commits to the individual hiring.
- In the work performed in the Special Economic Area Panama-Pacific, the law number 41 of the year 2004, demands overtime when the employee's replacement has not been made.
It is not possible to compensate overtime with time-off except in the case of fishing craft and coastal navigation.
Up to three hours of overtime may be worked per day and a maximum of nine hours per week.
ALL YOU NEED TO KNOW ABOUT THE WEEKLY TIME-OFF
As the employer, can I define what day during the week are my employees entitled to their day-off?
Both, you and your employee can freely agree on the weekly rest day, either as a fixed, pre-determined day of the week or in a rotating fashion. However, the law provides that the weekly rest day should preferably be on Sundays, except in the following activities: public services centers; agricultural and cattle-raising concerns; drugstores, hotels, restaurants, soft drink places; public amusement businesses, grocery stores; commercial facilities in places or small towns that given their location act as service centers to agricultural areas; and those that, given their nature, interruption of the work during those days may cause serious harm to the interests of public health or to the national economy, which shall be previously authorized by the General or Regional Labor Direction; export processing zones. Other than in the aforementioned cases, the weekly rest must be granted on Sundays. This week's rest day does not affect the departments or sections that given their technical, security, guard-keeping or maintenance nature, must necessarily operate.
VARIOUS ASPECTS ON HOLIDAYS AND NATIONAL MOURNING
Am I required, as an employer, to grant my employee an additional rest day when a holiday or a national mourning falls upon the employee's rest day?
If a holiday or a national mourning previously provided for in the law falls upon a Sunday, the following Monday is qualified as a mandatory weekly and paid rest day for all those employees that enjoy their rest day on Sundays. If it falls upon other day than Sunday that happens to be the employee's rest day, then employee is entitled to an additional rest day during any day of the corresponding week, as compensation.
What is the difference between a national holiday and a regular holiday? Is my employee, if requested by me, required to work on a national or mourning holiday?
The difference between a holiday or national mourning and a regular holiday, is that in the former all public and private concerns must close down while in the latter only public offices are required to proceed accordingly.
During national holidays or national mourning you may require your employees to come to work but only under the occurrence of some of the following premises - that are likewise applicable to mandatory overtime:
- Small business concerns.
- Companies that export their full production.
- Domestic help during national holidays and mourning.
- In the event of fire or imminent risk that could endanger the lives of persons, the existence of the company or workplaces or the work for which employees were hired.
- In the cases provided for in the collective bargaining agreement as long as the employee commits to the individual hiring.
- In the work regarding the Special Economic Area Panama-Pacific, law number 41 of the year 2004, requires extraordinary work when the replacement of the employee has not been made.
In addition to the aforementioned circumstances, you may demand from your employees to work during national and mourning days provided employees have been particularly hired to work during those days under ordinary terms or when they work on a rotating schedule.
CONSIDERATIONS AROUND THE RIGHT TO VACATION
If my employee accepts, can I compensate, by means of cash payment, the vacation time to which employee is entitled in order to avoid suspension of the employee's duties in my company?
No. Even if your employee accepted, you cannot compensate employee's vacation time with cash money; vacation must be enjoyed in a timely fashion since what the law seeks is guaranteeing the employee's rest and recovery of employee's physical and mental energy.
Can I fraction my employee's vacation time?
You may fraction vacation time to your employee into two equal periods of time, subject to a previous arrangement thereof with the employee, in each occasion, and as long as the collective bargaining agreement so authorizes. In the Export Processing Zones, employer may always fraction vacation time into two equal periods of time.
ABOUT THE SALARY
I pay my employee the gasoline and the mobile telephone, are these benefits considered as salary in-kind?
The in-kind salary is solely comprised of what is delivered to the employee or employee's family as board and lodging and clothing for their immediate and personal use and enjoyment. For said reason, if the gasoline is considered as extraordinary transportation expenses, then it is not deemed as salary. Similarly, the access to a mobile or cellular telephone used as a work instrument does not qualify as salary.
What currency should I use to pay the salary to my employees? Can I pay them in foreign currency?
You may pay salaries in cash money or part thereof in cash money and part in in-kind payments; however, in the latter case the minimum salary must be fully honored in cash money. The part of the salary paid in cash must be in Panamanian legal tender which means payment in balboas (if it is by means of coins) or in United States Dollars. You cannot pay salaries in a foreign currency other than the United States Dollar.
BASIS FOR THE SUSPENSION OF LABOR AGREEMENTS AND LEGAL DUTIES OF EMPLOYER
My employee got sick and exhausted employee's sickness leave fund, what am I supposed to recognize employee?
In this case, you are not required to pay employee's salary or recognize employee any amount thereof.
LABOR BENEFITS PAYABLE IN THE EVENT OF THE TERMINATION OF THE LABOR AGREEMENT
If I end the labor relationship without just cause, what am I to pay the employee?
You can put an end to an indefinite-term labor relationship upon the following events:
- In the case of employees under two years of continuous services.
- Domestic help.
- Permanent or plant employees of small business concerns such as agricultural, cattle-raising, agro-industrial or manufacturing outfits. The following are considered as such: agricultural or cattle-raising businesses comprised of ten or less employees; agro-industrial activities with twenty or less employees and manufacturing outfits with fifteen or less employees.
- Employees in vessels providing international services.
- Employees working for retail stores and companies with five or less employees, exception made of financial, insurance and real estate concerns.
In the cases of the aforementioned business concerns, in addition to paying employees with the indemnification provided for in article 225 (indemnification for dismissal), employer must notify employee of the dismissal with a thirty-day prior notice or pay employee the corresponding amount for such pre-notice period. The pre-notice term will come into effect as of the date of the following payment period from the notice thereof. In addition, employer must honor the full or proportional payment for vacation, year-end bonus and seniority bonus.
Regarding the other indefinite-term labor relationships, the Labor Code prevents dismissals for unjustified causes and, if it happens anyway, the employee will be entitled to reinstatement or to the indemnification for dismissal as provided for by article 225 of the Labor Code. If you do not wish to reinstate employee, you will have to pay employee the corresponding amount for three months of lapsed salaries or five months (if this latter case deals with an employee hired as of August 14, 2005); and pay the indemnification for dismissal increased by 50% if the employee was hired before August 14, 1995 and an increase of 25% if employee was hired as of August 14, 1995 or after that date), if you are not current with the dismissal fund. In addition, you must pay employee in full or proportionally, the corresponding amount for vacations, the year-end bonus and the seniority bonus.
Regarding domestic help, seaman workers, navigable routes workers and apprentices, special indemnification charts exist. For first-time workers no indemnification payment is required in the event of dismissal.
RISKS AND ILLNESS AT THE WORKPLACE AND THEIR INSURANCE
From what point in time during the labor relationship must I provide professional risks insurance to my employee?
You must provide professional risks insurance to your employee since day one of the labor relationship.
Can I protect myself, as the employer, against professional risks through a different insurance policy other than the one established by the Social Security Agency?
The insurance cover for professional risks is centralized within the Social Security Agency and you cannot substitute it with a different insurance. However, this does not prevent you from buying complementary insurance with other entities.
What happens if my employee suffers a work accident just immediately after employee starts working and when I have not registered employee in the Social Security System?
In such event, the Social Security System may hold you responsible for the consequences of the professional risk and therefore making you responsible as well for the costs of the medical attention provided to your employee.
What type of risks or illnesses my employees could experience that would not be covered by the insurance against professional risks? In such case, what would be my responsibility?
The following are not considered as professional risks:
- Injuries intentionally caused by the employee.
- The risk induced by way of serious faults by the employee which consist in the proven disobedience of specific orders, the gross or evident breach of the manual of the Professional Risks by-laws, Security and Industrial Hygiene or the voluntary drunkenness except that in this event the employer or its representative allowed employee to carry out employee's functions; or any other form of intoxications.
In said cases, employee will be held responsible for the consequences of the professional risk and you, the employer, will not be responsible therein.
ABOUT WORK BY UNDERAGE INDIVIDUALS AND WOMEN
As an employer, to what sanctions would I be subject to if I hired underage persons who do not meet hiring requirements?
If violation of the rules for hiring underage individuals occurred, you are subject to fines ranging from fifty to seven hundred balboas imposed by the administrative or jurisdictional labor authorities.
What would my responsibilities be by hiring a pregnant employee?
If you hire a pregnant employee then you are responsible for granting her the maternity leave (fourteen weeks). Likewise, if the Social Security Agency does not pay for the maternity leave because the payments thereto are not current, you must assume all costs thereof.
ABOUT THE FREEDOM IN BECOMING A MEMBER OF A LABOR UNION
Is it my obligation to allow interference of the labor unions in the labor relationships with my employees?
While you must respect and accept labor unions' activities, you are not legally required to allow interference in the execution of the corresponding work tasks without affecting the legal rules and/or the applicable collective bargaining agreements regarding labor union's permits.
Do I have to allow labor union meetings within the work schedule? In what way does a labor union help my company?
You are not required to allow labor union meetings within your company's work schedule. Exception made, however, for labor union meetings as provided for in the collective bargaining agreements and the permits authorized by sub-paragraph 26 of article 128 of the Labor Code towards holding a special labor union committee.
Your company is favored by the existence of a labor union in that it provides for a specific dialoguing representative to handle labor issues and labor relationships and to adopt resolutions that require the union's participation, i.e. fractioning vacation time, functional mobility, commitment to overtime work, payment by way of bank checks, extending the concept of employees with high responsibilities, adoption, prevention and rehabilitation rules in cases of alcoholism and use of prohibited drugs.
ASPECTS YOU SHOULD BE AWARE OF REGARDING COLLECTIVE BARGAINING AGREEMENTS
My company is about to acquire another company, hence I will soon become the employer of the employees of this other company - Must I continue applying the collective bargaining agreement that was approved some months back?
That is correct. If your company acquires another company that executed a collective bargaining agreement with its employees, then your company becomes part of said collective agreement and therefore assumes all obligations therein.
WHAT SHOULD I DO IF SOME EMPLOYEES IN MY COMPANY GO ON A STRIKE
What should I do if some employees in my company go on a strike? What if they do not constitute a majority group?
If employees declare a strike in you company, you must close it down immediately after you receive notice thereto from the Ministry of Labor and Labor Development. If those employees do not constitute a majority group, you may request from the Ministry, within a term of 24 hours as of the reception of the notice, to carry out a provisional count so as to avoid closing it down, and within a term of three days as of the start of the strike, you may file a petition before a Sectional Labor Court asking to declare the strike as illegal.
As an employer, can I resort to a private arbitration proceeding regarding collective labor conflicts?
You, as the employer, cannot resort to a private arbitration proceeding regarding collective labor conflicts. You may agree with the labor union in submitting the conflict to arbitration proceedings via the procedure followed before the Ministry of Labor and Labor Development.
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