Employment Contract Termination: Legal Framework

Posted on Sep 26, 2025 in Law & Jurisprudence

This document outlines the general provisions and specific articles of the Labor Code concerning the termination of employment contracts.

General Provisions for Contract Termination

  • The employment contract can only be terminated according to Labor Code Articles 159, 160, and 161.
  • Termination may occur immediately ipso facto under certain conditions.
  • The employer is obligated to pay compensation for years of service when applicable.
  • The employer must always report the termination of the contract.
  • A medical license does not grant immunity from dismissal.
  • To dismiss an employee with immunity, prior judicial authorization is required.

Labor Code Article 159: Mutual Agreement and External Factors

Article 159 addresses contract termination based on the will of the parties or external circumstances:

  1. Mutual agreement between the parties.
  2. Resignation of the employee, provided at least 30 days’ advance notice is given to the employer.
  3. Death of the employee.
  4. Expiration of the deadline agreed upon in the contract.
  5. Conclusion of the specific work or service that gave rise to the contract.
  6. Accident or force majeure (e.g., earthquake, fire, decision by authority).

Labor Code Article 160: Employee Misconduct

Article 160 details reasons for contract termination due to improper conduct by the employee:

  1. Misconduct:
    • Lack of probity by the employee in the performance of their duties.
    • Sexual harassment behaviors.
    • Acts of violence (vías de hecho) exercised by the employee against the employer or any worker performing in the same company.
    • Insults proffered by the employee against the employer.
    • Immoral conduct of the employee that affects the company where they serve.
  2. Negotiations conducted by the employee in the line of business that were explicitly banned in the respective written contract by the employer.
  3. Unjustified Non-Attendance: Unjustified non-attendance of the employee to duty during:
    • Two consecutive days.
    • Two Mondays in a month.
    • Three days in a month.
    • Unexcused absence or absence without notice from an employee in charge of an activity, or the abandonment or paralyzation of machinery, causing serious disruption in the workplace.
  4. Walkout: Understood as:
    • Untimely and unwarranted departure from the workplace during working hours without permission from an employer representative.
    • Refusal to work without good cause on the project agreed upon in the contract.
  5. Acts, omissions, or negligence that affect the safety, activity, or health of other workers.
  6. Intentionally caused material injury on the premises, machinery, tools, work equipment, products, or merchandise.
  7. Breach of the obligations imposed by the contract.

Labor Code Article 161: Employer Necessity

Article 161 outlines reasons for contract termination based on employer necessity, requiring compensation for years worked:

  1. Rationalization or modernization of the company.
  2. Low productivity.
  3. Changes in market conditions or the economy.

Formalities for Employment Relationship Termination

Specific procedures must be followed when terminating an employment relationship:

  1. The release form, waiver, and consent must be in writing.
  2. An instrument of termination not signed by the party and the union president or staff representative, or not ratified by the worker before the labor inspector, cannot be invoked by the employer.
  3. For these effects, the following can also act as ministers of faith: a local notary public, the official registrar of the respective municipality or commune, or a city clerk.
  4. A settlement ratified by the worker before any of the officials listed above, as well as copies made pursuant to executive merit, shall be respected regarding any unliquidated obligations contained therein.