Ending a LatAm Engagement: Notice & Severance Rules

September 18, 2026

Last reviewed: September 2026. This guide is general information for U.S. employers, not legal or tax advice. Employment and tax rules change often, so confirm specifics with qualified local counsel or a tax professional before acting.

Ending a LatAm engagement well is as much a compliance question as a people one. Notice requirements, severance formulas, and what counts as "just cause" for a cheaper, faster termination all vary meaningfully by country, and getting it wrong can mean owing significantly more than expected, or facing a labor claim. Here's what the rules generally require in four of the most common nearshore hiring countries, and how to offboard cleanly regardless of jurisdiction.

A Critical Starting Distinction: Employee vs. Contractor

Everything below applies to a formal employment relationship, whether direct or through an Employer of Record. A genuine independent contractor relationship, governed by a services agreement under local civil or commercial law rather than labor law, generally isn't subject to these same severance and notice rules. But a contractor relationship that looks like employment in practice (fixed hours, exclusive engagement, ongoing subordination) can be recharacterized as employment by a local labor authority regardless of what the contract says, which is exactly the same classification risk covered in our 1099 vs. W-2 for Remote LatAm Hires guide. If there's any ambiguity about which category your engagement actually falls into, resolve that first, before an offboarding situation forces the question.

Mexico

Under Mexico's Ley Federal del Trabajo (Federal Labor Law), a worker dismissed without a legally justified cause is generally entitled, under Article 48, to either reinstatement or a severance payment equal to three months' salary, plus back wages accrued from the date of dismissal (capped at 12 months), with 2% monthly compound interest on 15 months' salary if the proceeding runs longer. For employees on indefinite-term contracts, Article 50 provides for 20 days' salary for each year of service in the cases it covers, such as when the employer declines reinstatement. Article 47 requires the employer to give written notice specifying the conduct that justifies the dismissal, delivered to the worker personally or through the labor court; the absence of that written notice creates a legal presumption that the dismissal was unjustified, which materially increases exposure. Because a defective notice alone can flip a case from justified to unjustified, this is a step to get right procedurally, not just substantively, ideally with local counsel reviewing the notice before it's delivered.

Colombia

Colombia's Código Sustantivo del Trabajo, Article 64 (as amended by Ley 789 de 2002), sets a severance formula that depends on the worker's salary level and tenure. For workers earning less than 10 times the legal monthly minimum wage (SMLMV): 30 days' salary for the first year of service, plus 20 additional days for each subsequent year. For workers earning 10 or more SMLMV: 20 days' salary for the first year, plus 15 additional days for each subsequent year. These tiers apply to termination without just cause on an indefinite-term contract; for a fixed-term contract, the indemnity is generally the salary for the time remaining on the contract. The 2025 labor reform (Ley 2466 de 2025) left these severance formulas unchanged. Termination with a legally recognized just cause generally does not trigger this severance obligation, which makes documenting the cause, and confirming it meets the legal bar, especially important before ending an engagement for performance or conduct reasons.

Argentina

Argentina's Ley de Contrato de Trabajo, Article 245, as reworded by the Ley de Modernización Laboral (Ley 27.802) published in March 2026, sets severance at one month's salary for each year of service or fraction greater than three months, calculated on the employee's best normal and habitual monthly remuneration over the preceding year. Non-monthly items such as the annual bonus (SAC) and vacation pay are excluded from that base, which is capped at three times the average monthly wage under the applicable collective bargaining agreement, and the cap can never reduce the base below 67% of the employee's actual monthly remuneration. Separately, Article 231 requires advance notice of termination: one month for an employee with up to five years of tenure, two months for an employee with more than five years. No notice obligation applies during the statutory trial period. The 2026 reform also creates a Fondo de Asistencia Laboral, an employer-funded account intended to help cover future severance payments, so ask your payroll provider or EOR how those contributions are being handled. Because the salary base and any applicable collective bargaining cap are specific to the role and industry, get a precise calculation from local counsel or a payroll provider rather than relying on a generic formula for an actual termination.

Brazil

Under Brazil's CLT (Consolidação das Leis do Trabalho), Article 487 sets a base notice period (aviso prévio) requirement, and Lei 12.506/2011 made that notice proportional to tenure: 30 days for an employee with up to one year of service, plus 3 additional days for each further year of service, up to a maximum of 90 days total. Separately, an employee dismissed without just cause is generally entitled to a severance payment equal to 40% of the total balance in their FGTS account (Fundo de Garantia do Tempo de Serviço, a mandatory employer-funded severance fund each employer contributes to monthly throughout employment). Employers deposit 8% of the employee's monthly salary into that account each month, as the CMS guide to dismissals in Brazil summarizes. Because the FGTS fine is calculated on an account balance that's been accruing since the employment relationship began, the total cost of an unjustified dismissal in Brazil scales with tenure in a way that's easy to underestimate for a longer-tenured hire.

A Compliant Offboarding Checklist

Confirm the legal basis for termination (with or without cause) before initiating anything, and confirm what the local law requires to support that basis.
Calculate severance and notice obligations precisely for the specific country, salary, and tenure, using local counsel or a payroll/EOR provider's calculation rather than a generic formula.
Prepare and deliver any required written notice in the form and timeframe local law requires, procedural defects (as in Mexico) can independently create liability regardless of the underlying reason for termination.
Revoke access to systems, accounts, and company property on a timeline coordinated with the legal termination date, not before it's legally effective and not so long after that security risk accumulates.
Process final pay and any statutory severance/fund obligations (like Brazil's FGTS fine) within the locally required timeframe, late payment can itself trigger additional penalties in some jurisdictions.
Document the entire process, the stated reason, the notice delivered, the calculation used, in case the termination is later disputed.

If You're Using an EOR

An Employer of Record generally manages the calculation and delivery of statutory notice and severance on your behalf as the legal employer of record, which is one of the more significant risk-reduction benefits of that structure, see How to Choose an Employer of Record for how to evaluate a provider's termination-handling process specifically before you need it.

FAQ

Can I avoid severance obligations by classifying a LatAm hire as a contractor instead of an employee?
Not reliably. If the actual working relationship has the characteristics of employment, regardless of the contract's label, a local labor authority can recharacterize it as employment and apply the severance and notice rules described above retroactively, along with other penalties.

Do these severance rules apply during a probationary period?
Often reduced or waived, this varies significantly by country and is one of the details worth confirming directly with local counsel before relying on it, rather than assuming probationary status eliminates severance exposure entirely.

What's the single most common mistake companies make when ending a LatAm engagement?
Treating the termination like a U.S. at-will dismissal, informal notice, no documented cause, no calculated severance, when most LatAm jurisdictions require specific written procedures and impose real financial consequences for skipping them.

Ending a LatAm Engagement: Notice, Severance, and Offboarding