The distinction between professional service contracts and employment relationships may appear subtle, but it carries significant legal implications in Panama. It is essential for both companies and professionals to understand these differences in order to avoid labor-related disputes and legal contingencies.
In a professional services contract, the individual works independently, without subordination, and invoices their services—typically as a natural or legal person. In contrast, an employment relationship involves key elements such as subordination, fixed working hours, direct supervision, and a regular salary.
Misclassifying the nature of the relationship may result in penalties from labor and social security authorities, as well as claims for labor benefits such as vacation pay, thirteenth-month bonus, severance, and more. In other words, the risk of labor litigation increases significantly when the true nature of the relationship involves subordination.
Businesses must clearly document the chosen contracting method, define contractual terms with precision, and ensure that the execution of services does not create conditions that could be interpreted as a disguised employment relationship. At FAB Abogados, we advise both companies and independent professionals on how to properly structure their contracts, ensuring legal certainty and preventing future labor disputes that could impact operations and reputations.