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Panama – Temporary contracts for year-end and year-start activities
Publications || 2018 || Panama – Temporary contracts for year-end and year-start activities

Panama – Temporary contracts for year-end and year-start activities

by charbds, 15 November, 2018

November 15, 2018
Yeris Nielsen / ynielsen@bdsasesores.com
Partner BDS Panama

During the year-end- and year-start season, it is common for companies to witness an increase in their activities and operations, and thus they are required to hire additional staff to meet this increased operational demand. These new hires, however, should not extend in time, as they are intended to meet temporary needs of the company as a result of different circumstances such as mothers’ day, the Christmas or year-end holidays, among others, which lead to an increased flow of people to shopping malls, restaurants and business in general.

In light of this, companies should be clear that there are certain rules to be followed when it comes to hiring temporary staff, which otherwise may force companies to incur in unnecessary costs.

In these cases, the Labor Code provides for the possibility to hire workers on a fixed-term basis.  These contracts must meet the following requirements for them to be valid:

  • They must be executed in writing: otherwise, it is considered that the employee has been hired on an indefinite-term basis.
  • The contract’s term may not exceed one year. As for year-end seasons, these contracts are usually entered on a 3-month term basis, but nothing prevents companies from executing contracts for shorter or longer terms.
  • The contract must provide the reasons for the contract’s temporary nature. For instance, high season due to year-end holidays, school year completion, to cover leaves of absence, vacation time or disability leaves of other employees, for specific projects, etc.

This type of contracts should not be used at the employer’s discretion, meaning that employers are not allowed to resort to them as they may deem fit.  Employers should use this type of contracts only as required by the nature of the work to be performed, and thus they may not be used for permanent jobs.

A job is considered permanent when referring to ordinary or essential activities of the employer. In these cases, the indefinite-term contract should be used; unless there is any reason for entering into such contract on a temporary basis. For instance, a company may hire a secretary on a fixed-term basis to cover for the vacation time or maternity leave of one or several secretaries who work for the company on a permanent basis.

If the employer abides by the rules, upon expiration of the contract’s term, this temporary employee should only be paid for proportional vacation entitlement and the proportional thirteenth month bonus. Otherwise, said employment relationship may be considered a permanent one, in which case in the event of termination the employer would have to pay the exiting employee for proportional vacation entitlement, the proportional thirteenth month bonus, the seniority bonus, payment in lieu of prior notice equivalent to one month of salary, and compensation as if dealing with wrongful termination.

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