Navigating Employee Termination in Ecuador: A Comprehensive Legal Guide for Businesses

As a business owner operating in Ecuador, understanding the legal framework surrounding employee termination is not just a matter of good practice—it is a critical risk-management function. The Ecuadorian Labor Code (Código del Trabajo), a decidedly pro-employee piece of legislation, establishes a rigorous set of regulations designed to protect employee rights. Misinterpreting these rules can lead to significant financial penalties, protracted litigation, and reputational damage.

This guide, crafted from hands-on experience advising businesses in Ecuador, demystifies the process. We will dissect the legal grounds for termination, the mandatory financial settlements, and the procedural pitfalls that foreign and local employers alike frequently encounter.

Understanding the Grounds for Termination

Ecuadorian law permits termination under two distinct legal frameworks: termination at the employer's discretion and termination for a legally justified cause.

Termination Without Cause (Despido Intempestivo): This is the most common form of termination. It occurs when an employer unilaterally ends the employment relationship without the employee having committed a fault specified in the Labor Code. While legal, this path triggers a mandatory and often substantial severance payment.
Termination With Cause (Visto Bueno): This is a disciplinary termination for serious employee misconduct. It is not a unilateral decision. The employer must first solicit and receive authorization from a Ministry of Labor Inspector (Inspector del Trabajo) before the termination is legally valid. This process is evidentiary, adversarial, and requires strict adherence to procedure.

Termination Without Cause: The Liquidación and Severance Obligations

When an employer terminates an employee via despido intempestivo, they are legally obligated to pay a full settlement, known as the liquidación or finiquito. This settlement is composed of two parts: earned benefits and a punitive severance payment.

Key Components of the Final Settlement:

Earned Benefits (Rights Acquired): These are always due, regardless of the reason for termination.
- Proportional Vacation Pay (Vacaciones): Payment for any accrued but unused vacation days. The calculation is the total annual remuneration divided by 24.
- Proportional Thirteenth Salary (Décimo Tercer Sueldo): Known as the "Christmas bonus," this is accrued from December 1st to November 30th. The employee receives the proportional amount earned in the current cycle.
- Proportional Fourteenth Salary (Décimo Cuarto Sueldo): A bonus equivalent to one basic unified salary (Salario Básico Unificado - $460 for 2024). It accrues from March 1st to the last day of February for the Sierra/Amazon regions, and from August 1st to July 31st for the Costa/Galápagos regions.
- Accrued Salary: Any unpaid salary for the final days or weeks of work.
Severance for Unjustified Dismissal (Indemnización por Despido Intempestivo): This is the penalty paid by the employer for a no-cause termination. Its calculation is strictly defined by Artículo 188 of the Código del Trabajo:
- For employees with up to three years of service: The payment is equivalent to three months' of the employee's last complete monthly remuneration.
- For employees with more than three years of service: The payment is equivalent to one month's remuneration for each year of service. The fraction of a year is considered a full year. There is a maximum cap of 25 months' remuneration.
Expert Insight: A common error is miscalculating the basis for remuneration. It is not just the base salary; it includes commissions, overtime, and other regular payments, averaged over the last few months. An incorrect base calculation will invalidate the entire settlement.

The Mandatory Legal Process:

Written Notification (Carta de Despido): The employer must provide a formal, written termination letter. It should clearly state the last day of employment and confirm that the termination is unilateral and without cause.
Calculate the Liquidación: Meticulously calculate all components of the settlement. Use an attorney or accountant to verify the figures, as even minor errors can lead to legal claims.
Prepare the Settlement Agreement (Acta de Finiquito): This is a formal legal document detailing every component of the final payment. It must be prepared on the official Ministry of Labor template.
Register the Acta de Finiquito: The employer is legally required to register the signed Acta de Finiquito on the Ministry of Labor's online platform, the SUT (Sistema Único de Trabajo), within 30 days of the termination date. Failure to meet this deadline results in automatic fines. The employee must also sign the document, typically at a notary or directly at the Ministry office to confirm receipt of payment.

Hyper-Specific Detail: The registration process on the SUT platform is not intuitive. You must first upload the employee's termination notice (aviso de salida) in the system before you can generate and upload the Acta de Finiquito. Many new employers miss this first step, causing delays and potential fines.

Termination With Cause: The Visto Bueno Gauntlet

Terminating an employee for cause is a high-stakes process. The burden of proof rests entirely on the employer. The "Visto Bueno" is not a simple notification; it is a formal request to the Ministry of Labor for permission to terminate.

Justifiable Grounds for a Visto Bueno Request:

Artículo 172 of the Código del Trabajo provides an exhaustive list of causes, including:

Repeated and unjustified absences (at least three consecutive days or two instances of two-day absences in a month).
Serious lack of integrity or immoral conduct.
Grave insults directed at the employer, their family, or coworkers.
Manifest incompetence.
Serious breach of company regulations (reglamento interno) that have been legally approved by the Ministry of Labor.

The Visto Bueno Process in Practice:

Build an Ironclad Case: Before filing, compile overwhelming, objective evidence. For absenteeism, this means attendance records and formal written warnings. For breach of regulations, you need copies of the signed regulations and proof of the infraction. Vague accusations will fail.
File the Request (Solicitud de Visto Bueno): Submit a formal, detailed request to the Ministry of Labor, attaching all evidence. The request must be filed within one month of discovering the infraction.
Notification and Employee Defense: The Labor Inspector will officially notify the employee, who has two days to present a written defense.
Investigative Hearing (Audiencia de Investigación): The Inspector will summon both parties for a hearing. This is a formal proceeding where evidence is presented and witnesses may be questioned.

Experience-Based Detail: Do not suspend the employee from work while the Visto Bueno is pending. Doing so can be interpreted as an illegal lockout or a premature dismissal (despido intempestivo), which will void your case and trigger full severance payments, even if your cause was legitimate.
Resolution: The Inspector issues a resolution.
- Granted: You receive authorization to terminate. The employee is not entitled to the severance penalty (indemnización por despido intempestivo), but you must still pay their earned benefits (proportional bonuses, vacation, etc.) and register the Acta de Finiquito in the SUT system.
- Denied: The request is rejected. The employment relationship must continue. If you proceed with termination anyway, it becomes a despido intempestivo and you are liable for the full severance package.
Expert Insight: Labor Inspectors are notoriously strict with employers. The slightest procedural error or weak piece of evidence will likely result in a denial. A "he said, she said" situation is almost never sufficient. The success rate for employers is low without meticulous preparation and legal guidance.

⚠️ Legal Alert: Protected Employee Statuses

You must stop and consult an attorney before considering the termination of any employee with a protected status. Terminating these individuals, even with cause, is legally complex and can result in aggravated penalties, including automatic reinstatement and higher severance payments.

Protected categories include:

Pregnant employees and those on maternity leave (protection extends for up to one year post-childbirth).
Employees with disabilities or those responsible for the care of a person with a severe disability.
Union leaders (dirigentes sindicales).
Employees with catastrophic illnesses registered with the Ministry of Public Health.

Conclusion: Proactive Compliance is Your Best Defense

Employee termination in Ecuador is a legal minefield governed by precise rules. An employer’s best strategy is not reactive damage control, but proactive compliance. This means having clear, written employment contracts, a legally approved reglamento interno, maintaining meticulous documentation, and understanding that the law is structured to protect the employee.

Never treat termination as a simple administrative task. The cost of a procedural error far exceeds the cost of expert legal advice sought at the outset.

This information is a guide, not a substitute for legal counsel. The complexities of your specific situation require tailored advice.