A Case Study of Employment Law for Procter &
Gamble – United States versus Panama
Jeana O. Rich
ABSTRACT
With a GDP over $50 billion in 2011, Panama serves as an international commercial and
financial center. The country’s service-oriented economy is a dynamic international business
hub for such activities as maritime transport, distribution services, and banking. The country has
a labor force of 1.57 million people; however, the country is experiencing a shortage of skilled
labor and an oversupply of unskilled labor. Employment law is a broad area that consists of the
legal rights of, and restrictions on, employees and the companies for which they work.
Employment laws are generally enacted to protect workers from abusive employment practices.
They cover a range of items such as hiring, wages, hours of work, rest periods, paid time off,
child labor, and health and safety. The information for this case study was collected through
extensive internet research. Information was also obtained by utilizing several government
databases. This case study will compare the employment laws that apply to Procter & Gamble in
both the United States and Panama. Since employment law covers a broad range of topics, this
report will focus specifically on the minimum wage requirements, overtime pay, maximum
working hours, and mandatory paid time off required in each country. The results will show that
only two similarities exist among the topics being compared: 1) both countries have established
a minimum wage rate; and 2) both countries require overtime compensation after a certain
number of hours are worked. Beyond these two items, the countries differ significantly in their
regulations related to working hours and mandatory paid time off. US-based companies
considering expansion into Panama will benefit from this case study because an understanding of
the differences will help them assess the labor costs associated with the additional requirements
in Panama. An understanding of the differences is also imperative because noncompliance can
lead to fines being imposed upon the company.
INTRODUCTION
Employment law is a broad area that consists of the legal rights of, and restrictions on,
employees and the companies for which they work (Labour law, 2012). It deals with both the
employer’s and the employee’s actions, rights and responsibilities, as well as their relationship
with one another. Employment law applies to matters such as hiring, wages, hours of work, rest
periods, vacation, child labor, and health and safety. Employment laws are generally enacted to
protect workers, including children, from abusive employment practices. Employment laws not
only control how an employer treats current employees, but they also control how former
employees and applicants for employment are treated (Clarkson, Miller, Jentz & Cross, 2009).
With a mixed-economy1, the United States is described as being the “largest and most
technologically powerful economy in the world” (United States, 2012). Boasting a GDP over
$15 trillion in 2011, the economy of the United States is the world’s largest national economy.
1
A mixed economy is one that is partially free enterprise and partially under government control.
Its per capita GDP of $48,387 ranks as the sixth highest in the world, making the United States
one of the world’s wealthiest nations. The United States has the fourth largest labor force in the
world at approximately 153.6 million people (United States, 2012).
The United States ranked number 4 on the World Bank’s 2012 “Ease of Doing Business Index”,
as shown in Table 1 (World Bank Group, 2011). A high ranking on this index indicates the
country’s regulatory environment is more conducive to the starting and operating of a local firm.
This ranking is supported by the fact that of the world’s 500 largest companies, 133 are
headquartered in the United States. This is twice the total of any other country (Outline of US
Economy, 2012). According to the 2012 Global Competitiveness Report, the top four
problematic factors for doing business in the United States are as follows: 1) tax rates, 2)
inefficient government bureaucracy, 3) access to financing, and 4) tax regulations.
Table 1. Ease of Doing Business Index for 2011
Source: World Bank
In the United States, employment relationships were traditionally governed primarily by
common law. In the 1930s, the United States Congress enacted several laws regulating the
wages and working hours of employees. These laws were specifically targeted to contractors or
suppliers working on government contracts. In 1938, Congress passed the Fair Labor Standards
Act (FLSA), which extended wage and hour requirements to cover all employers engaged in
interstate commerce or in the production of goods for interstate commerce (Clarkson, Miller,
Jentz & Cross, 2009). Today, the workplace is regulated extensively by employment laws
enacted at both the federal and state levels covering topics ranging from minimum wage
requirements, overtime pay, child labor, discrimination, and worker health and safety. Although
complicated to follow at times, these laws are of great importance because they offer protections
to both the employee and employer.
As a country that connects Central and South America, Panama serves as an international
commercial and financial center. The country provides an open market economy, with very little
government intervention. The country’s GDP for 2011 was $50.25 billion, with a per capita
GDP of $13,600. Its labor force consists of 1.57 million people; however, there is a shortage of
skilled labor and an oversupply of unskilled labor (Panama, 2012). This fact was reflected in the
2012 Global Competitiveness Report as one of the top four problematic factors for doing
business in Panama. The other three factors were corruption, inefficient government
bureaucracy, and restrictive labor regulations (World Economic Forum, 2011).
Panama ranked number 61 on the World Bank’s 2012 “Ease of Doing Business Index” (World
Bank Group, 2012). This ranking reflects a steady increase from its 2009 ranking of 82,
indicating that the country is making the necessary regulatory changes to make it conducive for
businesses to relocate to the area. The country is also taking steps to improve its infrastructure.
Work is currently being done to construct a Metro Transport system in Panama City.
Additionally, expansion of the Panama Canal is underway as seen in Figure 1, which will double
its capacity to handle the increasing demand of worldwide trade. The construction of an
intermodal transportation system consisting of the canal, airports, ports, and railway is in
progress.
Figure 1. Picture of Canal Expansion
The main piece of employment law in Panama is the Labor Code of 1971 (Code). This Code
applies to all employment relationships and establishes the rights and duties of both the employer
and employee. The key concept of the Code is subordination, “whereby any relationship in
which one party is subordinated to another will fall within the terms of the Code, regardless of
whether or not it is described as an employment relationship” (Rich, n.d.). Among other things,
the Code establishes a minimum wage, overtime pay requirements, maximum hours, and
mandatory paid time off.
The focus of this report is to compare certain aspects of employment law that Procter & Gamble
(P&G) must follow in Panama to those it must follow in the United States. More specifically,
this report will compare the minimum wage requirements, overtime pay requirements, working
hours, and mandatory paid time off of the two countries.
DATA COLLECTION APPROACH
Information for this case study was collected through extensive internet research. An on-site
visit and a personal interview with a P&G representative was scheduled so that additional
information could be collected; however, P&G canceled the interview because they were in the
process of relocating their offices. Attempts were also made to conduct the interview via email,
but a response was never received.
Extensive internet research was conducted using the following two search engines:
www.bing.com and www.google.com. The objective of the internet research was to gain an
understanding of the business environment in Panama and to learn about the country’s
employment laws. Although the researcher possessed an understanding of the US economy and
employment laws, research was also conducted in those areas to gain additional insight. Since a
slight variation in the search criteria could result in different outcomes, the specific keywords
used in this project are presented in Table 2.
Table 2. Keywords/Phrases Used for Internet Search
Keywords
Procter & Gamble
Procter & Gamble Panama
US Employment Law
US Business Environment
Panama Business Environment
Fair Labor Standards Act
Panama Employment Law
Panama Labor Code of 1971
Several government websites were also used to obtain data. The World Factbook database on
the CIA’s website was used to obtain information regarding Panama’s and the United States’
economy and employment data. The US Department of Labor’s (DOL) website was utilized to
obtain specific information regarding the employment laws in the United States. In addition to
the employment regulations, the researcher referenced “Fact Sheets” that the DOL provides to
employers to assist them with compliance. Table 3 provides a list of the exact databases that
were utilized.
Table 3. Databases: Name, URL Location and Information Used to Search
Panama’s Ministry of Labor also provides a website with information on their employment laws;
however, this website, http://www.mitradel.gob.pa/, is entirely in Spanish and does not contain
an English translation. Since the researcher is not fluent in Spanish, information pertaining to
Panama’s employment law was obtained from news articles and a report prepared by the United
States Department of Labor detailing the labor rights in Panama.
The main goal of the interview scheduled in Panama was to obtain specific information
regarding the employment laws applicable to P&G’s employees in Panama. Employment law is
defined as “the body of law that governs the employer-employee relationship, including
individual employment contracts, the application of tort and contract doctrines, and a large group
of statutory regulation on issues such as the right to organize and negotiate collective bargaining
agreements, protection from discrimination, wages and hours, and health and safety” (Clarkson,
Miller, Jentz & Cross, 2009). A secondary goal was to obtain additional information regarding
the operations in Panama, since this information is not published in their annual reports or other
mediums. A copy of the interview instrument that was prepared can be found in Figure 2.
Figure 2. Interview Instrument
Since the on-site visit and personal interview with a P&G representative was canceled, the
researcher had to depend solely on internet research.
CASE STUDY
P&G is a multinational company that manufactures and markets over 250 consumer products to
more than five billion customers in over 130 countries (P&G, 2012). The company has been
operating in Latin America since 1948, with the opening of the Mexican subsidiary. In 2007,
P&G relocated its Latin American Regional Headquarters to Panama (see Figure 3 and Figure 4).
With this move, P&G relocated approximately 270 executive employees. P&G states that its
decision to relocate to Panama was driven by the country’s “privilege location with the proximity
to key countries, being a strategic point of connectivity and the fastest growing economy in
Central America” (P&G’s HOLA, 2010).
Figure 3. Map of P&G’s Panama Location
Figure 4. P&G’s Offices in Panama
In addition to the regional headquarters, the site in Panama includes all the regional business
units: House Hold Care, Health & Well Being, Beauty & Grooming, and the Latin America
Distributor Market organization that manages P&G business in Central America, Ecuador and
Bolivia. Today, P&G is one of the largest consumer goods companies in Latin America with
regional sales of $6 billion and employing more than 14,000 people across 14 countries. The
region includes 19 manufacturing sites, 12 distributions centers and a service center. Their
largest markets are in Mexico, Brazil, Venezuela and Argentina (P&G’s HOLA, 2010).
In Panama, P&G must comply with the Labor Code of 1971 (Code) which is the primary
legislation dealing with the rights and duties of employees and employers. The Code is
administered and enforced by the Ministry of Labor. The Code establishes minimum wage rates,
overtime pay, working hours, and mandatory paid time off for all employees in Panama (US
DOL, 2012).
Minimum wage rates effective January 1, 2012 range from $1.22 to $2.36 per hour. Rates paid
to an employee are determined upon the following factors: the company’s zone location2; the
company’s business activity; the company’s size; and the occupation of the employee. The
maximum number of hours an employee is allowed to work is based upon the shift they work
(US DOL, 2012). Table 3 defines each shift and the maximum working hours.
Table 3. Work Shifts in Panama
Shift
Parameters
Day
Maximum of 8 hours per day from 6:00 a.m. to 6:00
p.m. with a maximum of 48 hours per week
Night
Maximum of 7 hours per day from 6:00 p.m. to 6:00
a.m. with a maximum of 42 hours per week
Mixed
Maximum of 7 ½ hours per day with a maximum of
45 hours per week. A mixed shift with more than 3
night shift hours is considered to be a night shift.
Source: U.S. Department of Labor, Republic of Panama Labor Rights Report
The Code mandates that overtime pay is required for any hours worked in excess of the
maximum hours as defined above. Overtime rates vary based upon the shift and day being
worked. Table 4 details the overtime rates.
Table 4. Overtime Rates in Panama
Type
Overtime hours worked during a day shift
Overtime hours worked during a mixed shift and the shift
was initiated during a day shift
Work performed on any day of rest
Overtime hours worked during a night shift
Overtime hours worked during a mixed shift and the shift
was initiated during a night shift
Hours worked on a holiday or day of national mourning
Surcharge
25%
50%
50%
75%
75%
150% plus an additional day
of rest
Source: U.S. Department of Labor, Republic of Panama Labor Rights Report
The Code establishes mandatory paid time off for all employees. On an annual basis, employees
are normally entitled to 30 days of vacation time, 18 days of sick leave, and 11 holidays. Ten of
the holidays are explicitly stated in the Code, and the eleventh holiday is reserved for the day the
president takes his post, which occurs every 5 years. Working on a holiday is not permitted
except in certain listed economic activities, such as hotels, restaurants, and public services;
2
Panama has divided the country into two zones. Zone 1 consists of Panamá, Colón, San Miguelito, David,
Santiago, Chitré, Aguadulce, Penonomé, Bocas del Toro, La Chorrera and Arraiján. Zone 2 consists of the rest of
the country.
employees working on a holiday are required to be paid 150% above their normal hourly rate of
pay (Rich, n.d.).
P&G was founded in the United States in 1837 by William Procter and James Gamble. Its North
American Regional Headquarters and corporate offices are located in Cincinnati, Ohio (see
Figure 5 and Figure 6). In 2011, the company generated $82.6 billion in total sales, with forty
percent being produced in the United States (P&G, 2012). P&G employs 138,000 people
worldwide with approximately 35,000 employees based in the United States.3 The company has
manufacturing plants, innovation centers, and business centers located throughout the country.
Figure 5. Map of P&G’s US Location
Figure 6. P&G’s Corporate Offices in OH
In the United States, P&G is faced with complying with a myriad of employment laws that are
administered and enforced by the Department of Labor (DOL). The purpose of most
employment laws in the United States is to equalize the employment relationship and to ensure
that all individuals have the same opportunity to enter into such a relationship. Although the
DOL is responsible for enforcing over 180 federal laws, the primary employment law regulating
wages, hours, and working conditions is the Fair Labor Standards Act (FLSA).
The FLSA was passed in 1938 and has had some modifications over the years. The FLSA
establishes minimum wage rates, overtime pay, recordkeeping, and youth employment standards
affecting employees in the private sector and in Federal, State, and local governments. The
FLSA applies to employees engaged in interstate commerce or employed by an enterprise
engaged in commerce or in the production of goods for commerce (Clarkson, Miller, Jentz &
Cross, 2009).4
Employees covered by the FLSA are currently required to be paid a minimum wage of not less
than $7.25 per hour (US DOL, 2009). The FLSA mandates that overtime hours must be
compensated at a rate not less than 1.5 times the employee’s regular rate of pay (US DOL, 2008).
Overtime hours are defined as any hours worked in excess of 40 hours in a workweek. The
FLSA does not limit the number of hours that an employee 16 years or older may work in any
workweek, and it does not require overtime pay for work on weekends, holidays, or regular days
of rest, unless the hours worked meet the definition of overtime hours. Additionally, it does not
require payment for time not worked, such as vacations, sick leave or federal or other holidays
(US DOL, 2008). These items are considered matters of agreement between an employer and an
employee.
3
Exact employee numbers by country are not reported by P&G.
Some employees are exempt from the FLSA, depending upon their work responsibilities and level of pay.
Discussion of the exemptions is outside the scope of this paper.
4
RESULTS AND RESULTS IMPACT
This case study compared the employment laws applicable to P&G in Panama to those of the
United States. Because employment law is a broad area covering all aspects of the employeremployee relationship, the following specific items were compared between the two countries:
minimum wage requirements overtime pay requirements, working hours, and mandatory paid
time off.
Of the specific items that were compared, only two similarities exist between the two countries.
Both countries set a minimum wage that must be paid to all employees. Additionally, both
countries establish an overtime wage after a certain number of hours are met. Table 5
summarizes the similarities that exist in the employment laws of the two countries.
Table 5. List of Similarities
Criteria
Panama
Minimum wage required
Yes
Overtime pay required
Yes
US
Yes
Yes
These similarities are important to understand because it emphasizes that the employment laws
between the two countries are significantly different. Because of this, it is imperative that
countries considering a work location in Panama become familiar with the employment laws
before finalizing that decision.
Several differences exist between Panama’s and the United States’ employment laws. The first
area of difference is related to the minimum wage requirements. The United States has
established one minimum wage rate for all employees, whereas, Panama has a range of minimum
wage rates based upon several factors. A second area of difference is how overtime
compensation is calculated. The United States has one overtime rate that is applicable for all
overtime hours. In Panama, the overtime rate varies based upon the time of day the hours are
worked. Panama’s labor code also sets a maximum number of hours per day and per week that
an employee can work. The United States employment law does not restrict the number of hours
that an employee over the age of 16 can work in any day or week. Finally, Panama mandates 11
paid holidays, 30 paid vacation days, and 18 paid sick days per year. No such requirement exists
in the United States. Table 6 details the differences in employment law between the two
countries.
Table 6. List of Differences
This table of differences highlights how significantly more complicated the employment laws are
in Panama than in the United States. Additionally, Panama’s employment laws mandate many
more benefits than in the United States. As Panama continues to grow and become more
attractive for US based multinational companies, it is imperative for the US companies to be
aware of these differences so that unexpected labor costs are not incurred. Additionally,
noncompliance can result in fines or penalties being levied against the company.
SUMMARY
Employment law is a broad area that consists of the legal rights of, and restrictions on,
employees and the companies for which they work. As a multinational company with its
corporate offices located in Cincinnati, Ohio and its Latin American Regional Headquarters
located in Panama City, Panama, P&G is faced with complying with a different set of
employment laws in each country. Information for the case study was collected through
extensive internet research, using www.bing.com and www.google.com as the search engines.
Additionally, data was obtained from researching websites hosted by the CIA and DOL.
Attempts were made to gain additional information from a P&G representative in Panama;
however, the on-site meeting was canceled and email correspondence was not returned.
The case study compared the following areas of employment law: minimum wage requirements,
overtime pay, working hours, and mandatory paid time off. In Panama, employment regulations
are primarily governed by the Labor Code of 1971. In the United States, companies must
comply with the regulations established by the Fair Labor Standards Act. A comparison of the
employment laws shows that only two similarities exist between the two countries: 1) both
countries have established a minimum wage rate; and 2) both countries require overtime
compensation after a certain number of hours are worked. However, Panama’s range of
minimum wage rates are much more complicated than the United States, which establishes one
minimum wage rate for all employees. The overtime pay requirements in Panama are also more
extensive that the single rate established by the United States. The two countries also differ on
their regulations related to working hours and mandatory paid time off. Panama’s Labor Code
establishes a maximum number of hours that an employee can work, and it requires employers to
provide its employees with 30 days of paid vacation, 18 days of paid sick leave, and 11 paid
holidays. The United States employment law does not mandate any of these items.
The results of this case study will quickly benefit a US based company considering expansion
into Panama because it highlights the significant differences in the employment laws of the two
countries. Panama’s employment laws are much more complicated and provide many more
benefits than the US employment laws. Without a clear understanding of these differences, a
company could face unexpected labor costs. An understanding of these regulations is also
imperative because noncompliance can lead to fines being imposed upon the company. This
case study focused on only a few specific areas of employment law. Since employment law is so
broad, this case study could be extended into additional areas. Specifically, additional work
could be done in the following area: 1) comparison of child labor requirements; 2) comparison
of union requirements; 3) comparison of maternity leave requirements; and 4) comparison of
record keeping requirements.
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