Key aspects of severance pay and its regulation in the Dominican Republic

Severance pay (cesantía) is a fundamental labor right in the Dominican Republic, designed to provide financial support to employees whose employment contracts are unjustifiably terminated. This article explores the main aspects of severance pay, as well as the ongoing debate regarding potential Labor Code reforms that could impact this right.

Definition of Severance Pay

Severance pay is a financial compensation that an employer must provide when terminating an indefinite-term employment contract without just cause. Its purpose is to compensate the employee for job loss and help them navigate the financial difficulties that may arise. According to Dominican law, this right remains valid even if the worker immediately secures new employment.

Severance pay is regulated by the Labor Code, specifically Articles 80 and subsequent provisions, which outline the conditions under which a worker is entitled to this benefit, how it is calculated, and the employer’s obligations.

Exclusions from Severance Pay

Employees are not entitled to severance pay in the following cases:

• Dismissal for just cause: If the employer terminates the contract due to a serious offense or violation of labor obligations by the employee.
• Resignation: If the employee voluntarily decides to end the employment relationship.
• Mutual agreement: If both parties agree to terminate the contract. However, in some cases, severance pay may still be negotiated.

Calculation of Severance Pay

In the Dominican Republic, severance pay is calculated based on the employee’s continuous service and the average of ordinary wages earned during the last year or fraction of a year of employment. It does not include overtime, bonuses, or other extraordinary income.

The number of days of salary payable depends on the length of service:

• 3 to 6 months of service → 6 days of ordinary salary
• 6 months to 1 year of service → 13 days of ordinary salary
• More than 1 year and up to 5 years of service → 21 days of salary per full year
• More than 5 years of service → 23 days of salary per full year

Any fraction of a year greater than three months must be compensated according to the first two categories. Additionally, years worked before the Labor Code came into effect must be paid at fifteen days’ salary per year of service.

It is important to note that severance pay cannot be subject to income tax deductions or seizure by creditors. However, employers may deduct any outstanding debts owed by the employee from the severance amount.

Employer Obligations

• Employers must formally notify the employee of the contract termination and pay severance within a maximum period of ten (10) days.
• Failure to comply with this deadline results in penalties for each day of delay.
• If the employer fails to pay, the employee has up to two (2) months from the termination date to initiate legal action.

The ongoing debate on severance pay in labor code reforms

Severance pay remains a key topic in discussions on potential Labor Code reforms in the Dominican Republic.

• Business sector perspective: Employers argue that severance pay represents a significant financial burden, discouraging formal hiring and affecting competitiveness.
• Labor unions’ perspective: Workers’ organizations defend severance pay as an essential protection against unjust dismissals.

Proposals for reform include:

• Setting a maximum limit on severance compensation.
• Establishing a guarantee fund to ease the financial burden on employers without affecting employees’ rights.
• Introducing unemployment insurance or individual savings accounts for periods of unemployment.

While no proposal seeks to eliminate severance pay entirely, the outcome of these negotiations will be crucial for the future of labor rights in the country.

Conclusion

Severance pay is a vital protection for workers facing unjustified dismissal, ensuring financial support during their transition to new employment. Understanding its legal framework, calculation, and payment procedures is essential for both employers and employees.

The ongoing debate on Labor Code reforms presents both challenges and opportunities to strike a balance between workers’ rights and business competitiveness in the Dominican Republic.