Force Majeure After the Earthquake: What Happens to Your Contracts, Leases and Employees in Panama

Civil, Labor & Contract Law

The October 9 earthquake caused damage and, for many companies, an immediate question: can I stop performing a contract, or suspend my staff, because of an earthquake? The Civil Code expressly names the earthquake as a fortuitous event, but neither the quake nor the state of emergency releases anyone on its own. You must prove that the event prevented performance and act in time, because in labor matters the deadlines are measured in days.

1. What the State declared, and what it did not

The Cabinet Council, in an extraordinary session chaired by President José Raúl Mulino, declared a national state of emergency through Cabinet Resolution No. 108, published in Official Gazette No. 30631 of October 10, 2026. According to the press reports we consulted, the resolution authorizes up to US$100 million for works, goods and services, to be handled through a trust at Banco Nacional de Panamá. It authorizes a special procurement procedure, without public tender, through December 31, 2026, with purchases made “at duly justified market prices.” It also empowers the Ministry of Economy and Finance to ask the National Assembly for a temporary waiver of the fiscal deficit limits in Article 11 of Law 34 of 2008. The Minister of the Presidency, Juan Carlos Orillac, said the declaration refers only to the earthquake.

In other words, the resolution regulates State spending and procurement. In the reports we reviewed, no rule appears that suspends contractual or labor deadlines between private parties, or any tax measures. We have not yet read the full Gazette text, so the prudent step is to confirm it there. If you supply goods or works to the State during this emergency, the special procedure and the justified market-price requirement are the first things to review. For your contracts with other private parties, the ordinary rules apply.

2. Fortuitous event and force majeure in the Civil Code

Article 34-D of the Civil Code, as amended by Law 7 of 1961, distinguishes two concepts. Force majeure is a situation produced by human acts that could not be resisted, such as acts of authority by public officials or capture by enemies. A fortuitous event (caso fortuito) comes from natural events that could not have been foreseen, “such as a shipwreck, an earthquake, a conflagration and others of a similar nature” (unofficial translation).

The practical consequence is in Article 990: except in cases expressly mentioned in the law, and those the obligation itself declares, no one answers for events that could not have been foreseen or that, though foreseen, were unavoidable. Articles 986 and 992 complete the picture: whoever fails to perform through fraud, negligence or delay must pay damages, and a debtor in good faith answers for the damages foreseen or foreseeable when the obligation was created.

Three questions before invoking it

• Is there a real causal link? The quake must be what prevents performance, not just the backdrop. Performance that has become slower or costlier is a different discussion, the excessive burden rule covered below.
• What does the contract say? Article 990 itself leaves room for what the obligation declares. Some contracts allocate the risk to the debtor, and others include a force majeure clause with its list of events, notice periods and form of notification. If the clause requires notice within a set period, late notice can cost you the defense.
• Can you prove it? Photographs, technical inspection reports, communications with suppliers, evacuation or closure orders and damage records are the basis of the proof.

3. Which tool applies to which situation

4. When performance is possible, but ruinous

Not every effect of the quake makes performance impossible. A supplier may run out of materials, a contractor may see labor costs double, or a tenant may lose its premises without the obligation to pay rent necessarily becoming impossible. For those cases the Code has another tool: termination for excessive burden, added by Law 18 of 1992 (Official Gazette 22,094 of August 6, 1992) as Articles 1161-A, 1161-B and 1161-C.

• Art. 1161-A: in bilateral contracts of continuous, periodic or deferred performance, if one party’s performance becomes excessively burdensome because of extraordinary and unforeseeable events, that party may request termination. It does not apply if the burden falls within the “normal area” of the contract, and the other party can avoid termination by offering to fairly modify the terms.
• Art. 1161-B: in unilateral acts, the obligor may request a reduction of the performance or a change in its terms, enough to bring it back to fairness.
• Art. 1161-C: these rules do not apply to aleatory contracts, by nature or by agreement of the parties.

Two nuances. First, Article 1161-A is not an automatic route: it requires an extraordinary and unforeseeable event and excludes the ordinary risk of the business. How much of a post-quake cost increase falls within each contract’s “normal area” is an open question the courts will have to answer over time. Second, the natural outcome is usually negotiated: the rule itself rewards the party that offers a fair modification.

And if the other party is the one failing to perform, Article 1009 recognizes the power to rescind reciprocal obligations for non-performance, or to demand performance, with damages and interest, and allows rescission even after choosing performance when performance becomes impossible.

5. Damaged buildings and third parties

The Code addresses a specific scenario: the building in poor condition. Under Article 614, if, after a complaint is served, the building falls because of its poor condition, the neighbors are compensated for all damage. But if it falls by fortuitous event, such as a flood, lightning or an earthquake, no compensation is due, unless it is proven that the fortuitous event would not have brought it down without the building’s poor condition.

The practical lesson for owners and managers: the prior condition of the structure, its maintenance and technical reports from before the quake can weigh as much as the quake itself.

6. Employees: suspension for fortuitous event or force majeure

The Labor Code allows employment contracts to be temporarily suspended, without liability for employee or employer, for force majeure or a fortuitous event, but with precise requirements. According to the consolidated text we consulted, the steps are:

• Prerequisite (art. 199, item 8): the event must have as a necessary, immediate and direct consequence the temporary stoppage of the activities of the company, establishment or worksite for a minimum of one week. A one- or two-day closure for inspections does not fit. The suspension takes effect from the date of the event, unless the work remains necessary for care, maintenance or to avoid serious economic harm.
• Proof (art. 201): the employer must prove the event before the Labor Directorate within three days after the suspension. The Directorate, after hearing the union or the workers’ representatives, rules within the following three days.
• If not proven (art. 202): the Directorate orders the immediate reinstatement of the workers and payment of wages for the days of suspension.
• Duration (art. 203): if the ground is justified, the Directorate sets the suspension between one week and one month. It may be extended in successive thirty-day periods, proving that the conditions persist, up to a maximum of four months.
• Effects (arts. 198, 204 and 205): suspension does not end the contract or extinguish the other rights and obligations. If operations cannot resume when the maximum period expires, workers may terminate their contracts. When the period ends, they must return to work the next day.

One caveat on scope: the Labor Code text we verified is the consolidated edition incorporating reforms through Law 44 of August 1995. Before acting, confirm that no later reform has changed these articles. The Code also lists force majeure among the non-attributable grounds for termination (art. 213), with its own formalities; that is a decision that should not be taken without prior analysis.

7. Insurance

The policy is another front. Check whether it covers earthquake, since in many policies the coverage is agreed separately or has its own limits and deductibles, and what the deadline is to report a claim. Report in writing, preserve the damage for the adjuster’s inspection and document the condition of the asset before and after. As of this note, we have not seen a statement from the Superintendency of Insurance and Reinsurance on claims for this event.

8. What to do this week

• Review each key contract: force majeure clause, list of events, notice deadlines and form of notice.
• Document the event and its effect on your specific obligation: photos, technical reports, communications, closure orders.
• Notify the counterparty and the insurer in writing, within the agreed deadlines.
• Do not unilaterally suspend payments, deliveries or employment contracts without reviewing the rule and the contract.
• If the establishment stops for at least a week, prepare the filing with the Labor Directorate right away: the deadline to prove the event is three days from the suspension.
• Whenever possible, prefer a written amendment that renegotiates deadlines or prices to a later dispute.