Terminating an employment contract

Starting point: what governs termination

Termination of an employment contract in Colombia is governed by the Colombian Labour Code (CST), particularly articles 61 to 66, and by case law from the Supreme Court of Justice and the Constitutional Court. That combination matters: the statute sets out the grounds, and the case law defines how they must be proven.

For a company, the critical question is almost never whether it can terminate the contract, but whether it can support why and how it did so. The decision is made in a day; the defence is built with documents that should have existed beforehand.

Types of termination

The CST recognises several ways to end the relationship, each with different economic consequences for the employer:

• Mutual agreement between the parties, usually formalised in a termination memorandum.
• Expiry of the agreed term in a fixed-term contract, with timely prior notice when applicable.
• Completion of the contracted work or task.
• Employee resignation, which must be voluntary and documented.
• Termination with statutory cause by the employer or the employee.
• Termination without statutory cause by the employer, which triggers severance.

Termination with statutory cause: what is often overlooked

Statutory grounds for termination are listed in article 62 of the CST. Relying on one of them requires three things that many companies leave until the last minute: a specific fact (not a general performance assessment), evidence of that fact, and a procedure that gave the employee the chance to be heard.

A formal hearing is not a literal requirement under every ground, but constitutional case law has consolidated it as a due-process guarantee. In practice, terminating without holding one weakens the employer's position even when the underlying fact did occur.

Another frequent issue: the termination letter must state the facts on which the termination is based. The company cannot later, in court, support the decision with reasons other than those it originally invoked.

What must be settled upon termination

Regardless of the cause, upon termination the employer must settle all accrued and unpaid labour entitlements:

• Outstanding wages up to the last day worked.
• Severance fund contributions and their interest, prorated for the time worked in the year.
• Prorated service bonus (prima de servicios).
• Accrued and untaken vacation, paid in cash.
• Transportation allowance where the employee is entitled to it.
• Severance pay where termination was without statutory cause, according to the type of contract and the employee's salary (article 64 of the CST).

The risk of the late-payment penalty

Article 65 of the CST imposes a penalty on employers who fail to pay wages and benefits owed upon termination. It is one of the costliest awards in labour litigation, because it is calculated based on how long the payment remains outstanding.

Case law has accepted that an employer's good faith may excuse it, but proving good faith requires objective reasons — a genuine dispute over whether the debt exists, for example — not merely claiming there was no intent to cause harm. Timely depositing the amounts that are not in dispute is a decision that reduces this risk.

Employees with special protection

There are situations in which termination requires prior authorisation or heightened scrutiny, and where a dismissal can be declared ineffective through a constitutional protection action (tutela). The most frequent are:

• Employees who are pregnant or breastfeeding (maternity protection).
• Employees with health conditions that limit their performance (reinforced job stability).
• Employees protected due to union membership or activity.
• Employees close to retirement, under the criteria set by constitutional case law.

Common mistakes that end up in a claim

• Terminating for poor performance with no documented evaluations or prior warnings.
• Drafting a generic termination letter that does not state specific facts.
• Failing to give prior notice on fixed-term contracts and letting them renew by default without addressing it.
• Signing settlement agreements that waive non-waivable rights, which renders them ineffective.
• Terminating an employee with special protection without the corresponding prior analysis.
• Leaving the final settlement pending for weeks after departure, triggering the late-payment penalty risk.

Checklist before terminating a contract

• Is the ground provided for by law, and is there a specific fact supporting it?
• Is there documentary or testimonial evidence of that fact?
• Was the formal hearing held, and was it recorded?
• Is the employee in a situation of special protection?
• Does the termination letter state the facts invoked?
• Has the final settlement been calculated and is it ready to be paid on departure?
• Have the company's assets, access credentials and documentation been recovered?