As a result of the pandemic caused by COVID 19, the government of Panama declared the State of Nacional Emergency through Cabinet Decree No. 11 of March 13, 2020. As a result of said declaration, Executive Decree No. 500 of March 19, 2020 was issued, which ordered the closure of business and offices for a period of 30 days as of March 21, 2020, with certain exceptions, which period may be extended.
The above gave rise to the application of Article 199 Section 8 of the Labor Code which allows for the suspension of the effect of employment contracts, which means that the employee has no obligation to provide services and the employer has no obligation to pay salaries. Notwithstanding, the Ministry of Labor’s authorization is required for the suspension to take effect.
The Ministry of Labor has regulated Article 199 Section 8 mentioned above and has established the process that must be followed in order to obtain the required authorization for the suspension of the contract to come into effect.
The following information must be sent electronically to the Ministry of Labor:
- Written request explaining the justification for the suspension of the effects of the contracts and requesting the suspension of the contracts for a period of 30 days, which period may be extended, signed by the Legal Representative or an authorized attorney in fact;
- Copy of the Notice of Operation (Aviso de Operación) of the employer;
- Copy of the last payroll form submitted before the Social Security Office immediately prior to the closing of operations;
- Suitable proof of the economic loss suffered by the employer;
- List of the employees whose contracts are requested to be suspended, specifying each employee’s name, identification number, social security number, home address, occupation, gender, age, phone number and email address.
The Ministry of Labor will have three business days to respond to the suspension request. If the Ministry does not respond during this period, then the suspension will be understood to have been granted for all legal effects. In that sense, Executive Decree No. 95 of April 21, 2020 has clarified that the suspension of the contracts will be effective as of the fourth business days following the filing of the authorization request.
For those businesses, whose closure was ordered by means of Executive Decree No. 500 of March 19, 2020, the extension of the suspension will be automatic.
For those businesses, whose closure was not ordered, but who because of economic loses requested the suspension of employment contracts, the extension of the suspension will have to be requested at least five business days prior to the expiration of the initial suspension, and must provide justification for the extension and indicate the period for which it is requested.
Through Law 157 of August 3, 2020 the extension of the suspension of employment contracts was approved until December 31, 2020. Companies must request the approval of the extension of the suspension every month.
The gradual reinstatement of employees, whose contracts have been suspended, cannot be used as a means of retaliation or discrimination measures for reasons of sex, race, religion, or disability, among other causes. Employers that discriminate or retaliate against employees while reactivating the suspended contracts once activities resume, will be fined between US$500 and US$1,000 for each employee subject to discrimination.