#Panama 🇵🇦 #BDS_Article: Retirement and Its Impact on the Continuity of the Employment Relationship

When we hear the word "retirement," we immediately associate it with someone that stops working for good. However, retiring does not necessarily mean ceasing employment—at least not in Panama.

Article 174 of the Organic Law of the Social Security Administration currently in force and enacted in 2005, established that the insured had to prove that their employment relationship with their employer had ended in order to qualify for the old-age pension, in addition to meeting the age and contribution density requirements. This requirement led workers to submit resignation letters or execute agreements with their employers to terminate their employment relationship and thus process their old-age pension.

In 2007, the Supreme Court of Justice declared the requirement to cease employment with the employer in order to access the old-age pension unconstitutional. The Court's decision was based on the fact that such a requirement (termination of employment) was in violation of Article 60 of the National Constitution, which enshrines the right to work for all individuals.

Despite the elimination of the employment termination requirement over fifteen years ago, employers and employees still have doubts about what to do when a person retires.

Below are the most frequently asked questions and their answers regarding this matter:

• Can a worker apply for an old-age pension and continue working for their employer?
  Yes, precisely because the requirement to cease employment in order to retire was declared unconstitutional based on the fundamental right to work. Therefore, a person can currently receive an old-age pension and continue working simultaneously.

• Must a retired employee who is still subject to an employment contract keep paying contributions to the Social Security Administration?

Regarding the deduction of worker-employer contributions, there is no distinction between a retired and a non-retired worker. Regardless of the fact that social security contributions are deducted from the old-age pension, the employer is still required to deduct the worker-employer contribution from the employee’s salary, just as they would for any other worker.

• If a retired employee continues paying worker-employer contributions from their salary, can their old-age pension increase?

The worker-employer contribution paid by a retired employee does not affect their pension amount; in other words, it does not contribute to an increase in the old-age pension. However, paying the worker-employer contribution—for existing employment relationships—is not optional; it is a legal obligation.

• Can the employer terminate the employment relationship due to the employee's retirement?
  
  Although the requirement to cease employment in order to retire has been declared unconstitutional, Article 213, section B, of the Labor Code states that retirement is a fair cause for employment relationship termination. In other words, retirement constitutes fair cause for dismissal, meaning that the company is not required to pay severance for termination, provided that the dismissal is carried out in compliance with legal formalities.

It is crucial for companies considering a retirement-related dismissal to seek prior advice from an expert in this field to avoid an unfair dismissal.

Retirement-related dismissals must be carried out within a specific timeframe. Additionally, we recommend taking into consideration other conditions that may protect the employee from a direct dismissal, such as chronic, degenerative, and involutional diseases that may lead to disabilities.

Yeris Nielsen

Partner at BDS Asesores