Main Changes in the Past Year
On 3 June 2022, the Law to Combat Labour Discrimination against Women During Maternity – number 10211 – was published and enacted.
This law amended Articles 94, 94 bis, 95, 96, 97, and 100 of the Labour Code.
The main changes include the following.
Turning to “Employee Status” Specifically
Costa Rica follows the “indefinite employment doctrine”, whereby upon any person becoming an “employee”, a comprehensive and protectionist set of labour rules will automatically govern the relationship.
Therefore, what really defines the type of relationship (whether of an employment or outsourcing nature) is not the agreement of the parties, but the nature of the services agreed. If the type of services and other elements contained in the contract (ie, remuneration) are customary in an employment relationship, then the contracting party that receives services will be considered and treated as an “employer” for legal, tax, and social security purposes.
Moreover, since Costa Rican employment rules are of public policy, labour courts will likely disregard any waiver of the employee’s rights under local laws. This includes the choice of:
There are no categories, statuses, or categories of employees, meaning that all regulations are applicable once they are catalogued to be employed under an employment relationship.
Costa Rican labour, social security, and tax rules follow the “territoriality principle”, whereby the jurisdiction is established depending on the place where the services are rendered. Regardless of the content and wording of the contracts, or even the nationality of the contractor, the Costa Rican labour, tax, and social security rules will prevail.
The standard employment contract is for an indefinite period, but fixed-term contracts are valid depending on the nature of the services (Articles 26 and 27 of the Labour Code).
Written employment contracts are mandatory in most cases (Articles 23 and 24 of the Labour Code). In the case of absence of a written document, the employer has the burden of proof to demonstrate the employment conditions (Articles 25 and 478 of the Labour Code).
The minimum content of an employment contract is established by law (Article 24 of the Labour Code). It is important to stress that policies, procedures, guidelines and similar documents acknowledged and accepted by the employee become part of the employment contract. Such documents are fully enforceable.
The daily and weekly work shift limits depend on the hours worked (Articles 136 and 138 of the Labour Code).
Overtime must be paid with a 50% increase on the standard rate.
For certain positions (ie, high-level executives), a sales workforce, or employees rendering services out of the company’s facilities, Article 143 of the Labour Code states a daily limit of 12 hours and 72 hours per week, including a rest of 1.5 hours.
Part-time employees or reduced work shifts are valid.
The minimum rest period is half an hour per day, with salary payment. If the leisure period is equal to, or more than, one continuous hour and without restriction to leave the facilities, that rest period is not included within the effective working hours described.
It is common that minimum wage limits are surpassed by employers. Article 163 of the Labour Code establishes that the parties may determine salaries as long as the resulting agreement is at least equal to the minimum salary defined for the job description.
Minimum wages are determined annually and apply from 1 January to 31 December each year. Minimum wages are determined for different categories and job descriptions in an official list issued by the Ministry of Labour and Social Security (“definitions of job descriptions and salary categories”).
Furthermore, the parties may agree on superior salaries and all types of benefits.
If any benefit falls into the scope of salary, it will imply additional costs for the employer. Good structuring and management of compensation is very important to avoid unnecessary costs and to add value to the employer’s operation without affecting the employee’s rights.
Benefits associated with salary and monthly costs are a Christmas bonus (8.33%), paid vacations (4%), severance (5.33%), and social security, including worker’s compensation (approximately 26.67%). In addition, the employer must withhold social security contributions (10.67%) and tax on salaries from the employee’s salary.
Article 153 of the Labour Code establishes the employee’s right to two weeks of paid vacation for every 50 continuous weeks duly worked. Otherwise, the employee will only be entitled to one day of vacation for each month worked. Vacation carryover is the rule if an employee does not take their vacation. Pending vacations must be paid with the average of the last 50 weeks of salary, or the inferior time worked for proportional vacations.
Maternity and Paternity Leave
Maternity leave is given one month before childbirth and for three months thereafter. During this period, the employer pays 50% of the salary and the remaining amount is paid by the Costa Rican Social Security Fund (Caja Costarricense de Seguro Social or CCSS). In the case of multiple births, this period may be extended by one month for each newborn. In adoption cases, the period consists of three months (Article 95 of the Labour Code). Fathers are eligible to leave with payment of two days per week during the first four weeks after the birth of the child.
Mothers are entitled to a nursing licence with payment. Breastfeeding employees may choose one of the following intervals for breastfeeding or extracting breast milk:
This licence is valid as long as the mother keeps nursing the minor, and as long as she provides her employer with a medical certificate (Article 97 of the Labour Code).
Disability Licence (Leave of Absence)
As mentioned, the employer and the employee contribute to the social security fund of the CCSS by means of mandatory monthly deductions and contributions calculated as a percentage of the employee’s gross salary.
The employer serves as a withholding agent for deduction purposes on employees’ salaries, with employees’ contributions being submitted along with the employer’s contributions to the CCSS. If an employer does not deduct (withhold) an employee’s social security contribution (Article 30 of the CCSS Act), the employer releases the employee from all liabilities and the employer will be the only party liable before the CCSS.
In addition, the employer must pay workers’ compensation insurance, which is provided by the National Insurance Institute (Instituto Nacional de Seguros or INS), to cover the employee in the event of work accidents and illnesses.
During the first three days of disability due to illness or an accident not related to work, the employer must pay 50% of the salary as a subsidy (Article 79 of the Labour Code) and from the fourth day, the CCSS will pay a subsidy of 60% of the employee’s salary. In the case of work-related events, the subsidy is paid by the INS from the first day.
Medical Appointment Permit
Permission to go to medical appointments must be granted without payment. The exceptions are permits related to pregnancy tests or certificates necessary for access to maternity leave and children’s medical care.
Leave for the Care of Minors and Terminally Ill Patients
Law No 7756 allows leave paid by the CCSS.
Costa Rica keeps high standards regarding confidentiality regulations.
Confidentiality is a legal obligation. The disclosure of confidential information without consent is a just cause for dismissal and is a crime. The restriction on disclosing confidential information is indefinite.
Nevertheless, it is important to sign non-disclosure agreements or include confidentiality provisions and duties in employment contracts as a confirmation to keep secrecy and to specify the basic information to be included as confidential.
The Costa Rican labour courts have ruled and enforced non-competition provisions, as long as the non-competition provision is reasonable and the restricted period is paid. The term, territory, payment, and activities must be assessed on a case-by-case basis.
Based on recent judgments, it is important to ensure an employee’s agreement with the provision and include the possibility for the employer to disable the non-competition obligation before the employee terminates the relationship. This means that employees are not entitled simply to disregard their obligation if they believe that the agreement is not valid, and the employer may validate if the provision is necessary in accordance with the circumstances when the termination is decided or known.
Non-solicitation provisions are customary and valid. However, there is no case law regarding these provisions.
Costa Rica has high standards on data privacy and data protection. It is advisable to have an employee’s written consent to keep and manage personal data. In addition, the data must be kept internally and must be available to the employee, who must know about the existence and purpose of the database, and have the right to access, update, and/or delete the information. Before personal data can be transferred to, or consulted by, third parties, the employee must provide written consent.
There are no limits regarding the number or nationalities of foreigners that a company may hire. Immigration regulations include work permits, temporary residencies, and stay permits for dependants. For some restricted countries, those citizens will require special categories of entry visas.
It is highly recommended that companies apply for company visa programmes, recording the company in a special registry of authorised companies before the Immigration Ministry. After registration, the company may apply for faster procedures with fewer requirements.
It is important to note that the company/employer must apply for and sponsor the immigration status. Otherwise, the application for a work permit or temporary visa will not be granted.
The application requirements depend on the status requested. Legalised and apostilled certificates – ie, birth certificates and a marriage certificate (for spouse and children) and a police records certificate – must be provided in most proceedings.
For those companies applying for registration status, the requirements will depend on the category under which the status is being requested, with the procedure usually taking one month from filing.
General dispositions including this hypothesis can be found within the Labour Code. Nevertheless, mobile work has not been regulated systematically. For example, special work shifts regulations applicable to workers performing services outside an employer’s facilities, full coverage of social security dispositions for work-related accidents, and occupational safety regulations for work performed from home, are regulations that can be applied to mobile work.
Sabbatical leave is included within the so-called suspension of employment contracts. In this case, the employer and employee can agree any sort of suspension or sabbatical at will, meaning that there are no restrictions applicable as to time and compensation. Additionally, there are no mandatory sabbaticals included in local regulations.
Costa Rica has experienced considerable growth with respect to teleworking and all related systems in which the worker may not be present within the relevant company’s facilities. Teleworking employees receive little direct supervision. Costa Rica’s legal system is very open to such new models of work, meaning that implementation is possible without needing special regulations.
Freedom of association is a fundamental right of employees, who have the right to unionise.
Costa Rica has ratified Conventions 87, 98, and 135, plus recommendation 143 of the International Labour Organisation (ILO), which guarantee the right to unionise and to take part in collective bargaining.
In this jurisdiction, the rate of unionised employees in the private sector is relatively low (approximately 3%).
No information has been provided in this jurisdiction.
The union is the only body legitimised to negotiate a collective agreement, while both unions and permanent workers’ committees may negotiate direct settlements.
The private sector is governed by the freedom to dismiss. An employer may dismiss any worker without cause by providing prior notice and a severance payment.
Any employer who terminates the employment relationship without just cause must pay severance indemnities (Articles 28 and 29 of the Labour Code).
Employees in a special category of protection may only be dismissed for just cause, including:
Discriminatory dismissals based on sexual orientation, age, race, ethnicity, or spiritual belief are not permitted.
Employees are entitled to receive severance termination payment in the following cases (commonly known as “rights” or “indemnities”):
Severance termination benefits are as follows.
However, employees will only receive severance for the last eight years of service.
Regardless of the cause of termination, a proportional Christmas bonus and unused vacation time must be paid.
Articles 81 and 367 of the Labour Code state the due causes for disciplinary terminations, including gross misconduct. In any case, if the dismissal is challenged, the employer must evidence such employee’s misconduct, which must be detailed in the letter of dismissal (Article 35 of the Labour Code).
In general terms, there is no prior formality for dismissal. However, the employer must provide the employee with a written dismissal.
It is feasible to settle with res judicata effect, meaning that the settlement cannot be further challenged. The settlement must be signed before an authorised mediation centre to guarantee the legal content and verify the interest of the parties following the Alternative Resolution Act (Resolucion Alterna de Conflictos or RAC).
It is also feasible to settle before the Ministry of Labour and Social Security, or before a court.
Private settlement agreements are not advisable since these can be challenged.
Protected employees may only be dismissed for just cause and after an authorisation process before the Ministry of Labour and Social Security, where the employer must demonstrate good cause for the dismissal. This category of employee includes:
Note that discriminatory dismissals based on sexual orientation, age, race, ethnicity, or spiritual belief are null and void, therefore affected employees have the right to reinstatement after a quick procedure before the labour courts.
Most employment-related judicial proceedings come from ex-workers who challenge termination and incorrect calculations of termination payments, including prior notice, severance, and adjustments of calculations, plus legal interests, indexation, and legal fees and costs (usually between 15% and 25% of the total estimate of the labour claim).
Discrimination in employment is prohibited, considering facts of “age, ethnicity, sexual orientation, spiritual belief, race, marital status, political opinion, ancestry, culture, affiliation, disability, and economic situation” and also for “any other similar forms of discrimination”. This is a broad scope that may include all kinds of subjective discriminatory acts.
Anyone who claims a discriminatory termination (as in most common cases) must demonstrate facts that are consistent with discrimination. Then, the employer must prove the legal, objective, and reasonable grounds for termination. Otherwise, the victim may be reinstated to their job or may apply for supplementary indemnification.
After COVID-19, Costa Rica’s courts have increased access to digital proceedings and right now almost all employment-related disputes can be processed virtually including recorded virtual hearings.
Costa Rica has specialised labour courts with jurisdiction over individual and collective labour claims and social security matters.
It is mandatory to be legally represented by a lawyer. Workers with low income may ask the state to provide public defence by a lawyer at no cost (Article 454 of the Labour Code).
The statute of limitations is one year after the termination date (Article 413 of the Labour Code).
Labour disputes may be settled by means of alternative dispute resolution. Part of the judicial process is conciliation, being the point at which the parties can reach an agreement that will be approved by the judge and will have the same enforceability as a judgment.
Additionally, in Costa Rica, there are private alternative dispute resolution centres authorised by the Ministry of Labour and Social Security, as well as the Ministry of Justice and Peace, to settle disputes of this nature out of court. The agreements reached at such centres will have the character of a sentence and will generate res judicata. These private centres specialise in arbitration, conciliation, and mediation.
Individual labour disputes may be resolved through arbitration, mediation, or conciliation processes.
Judicial rulings include legal fees and other procedural expense awards to the winning party. Legal fees, when granted, may reach from 15% up to 25% of the amount granted, or the amount initially claimed but not granted.
New Shift Regulations in Costa Rica
Currently, Costa Rica’s Parliament has passed a Bill modifying the Labour Code and allowing the so-called 4x3 or “compressed” shifts. Still, this Bill has not become law since it is under consultation before the Supreme Court and, if it is not found to be unconstitutional, the executive would need to approve it as the last stage of the procedure.
General current regulations
The Constitution and Labour Code include the maximum amount of time that can be included in a shift as follows.
What is a 4x3 shift?
For more than 20 years, factories and other shift-work companies have been using compressed shifts with the following characteristics.
When employers apply correctly the mandatory payment rates, the result is the following.
Although the compressed shift could be labelled as illegal, it has been used for a long time without presenting problems, and the Ministry of Labour does not apply sanctions to companies operating with this method. Moreover, the combination of night rates and overtime plus the free time granted to employees makes the compressed shift very well accepted and wanted by an important segment of workers.
Potential new rules
Recently, the Costa Rican Parliament pre-approved a Bill changing existing regulations of the Labour Code. It would render compressed shifts legal, and overtime rates would be eliminated. Nevertheless, new regulations include a rise in the ordinary minimum wages applicable to relevant job descriptions, equalising employees’ gross income received with overtime rates. The gain for companies would be ensuring being in full compliance while operating with compressed shifts, and avoiding redundant payments when rates superior to minimum wages are used.
The eventual new shifts could not be used by all companies since there are some restrictions relating to the kind of activity or production developed, always including the need to operate continuously with compressed shifts. In addition, an application process needs to be completed before the Ministry of Labour, which would have to determine further requirements and the procedure to receive the special status allowing implementation of the special shifts.
Even if it were agreed that the project as it is right now is poised to harmonise the social acceptance of compressed shifts, there are some obstacles that may end up blocking the Bill, related to the general rules on shifts contained in the Constitution.
The approbation after first debate of the Bill allows dissidents to request a revision of the project by the Constitutional Chamber of the Supreme Court, who is compelled to answer specific arguments brought to their analysis against Article 58 of the Costa Rican Constitution. This provision states before-mentioned limits to ordinary shifts but also authorises parliament to include exemptions in “very qualified” hypotheses.
Mainly dissenting congress-people claimed that the hypotheses are far from being “qualified” or specific, plus the reform is against ILO dispositions that are applicable in Costa Rica. In the firm’s opinion, the arguments should be admitted, and there is an extra matter that makes the project unconstitutional but was not stated to the Supreme Court.
As explained, there is a reserve or restriction to include exceptions for shifts, therefore only parliament can provide authorisation. This project is eliminating the overtime rates applicable in accordance with the Constitution and substituting them with an increase on the minimum rates applicable to the job descriptions authorised by the Ministry of Labour to perform services under this special new shift. The substitution of overtime payments for increases to the minimum wages is not only inconsistent with the system but also has been considered inconvenient from a perspective of validation of extended, hard, and unsafe shifts. This seems like a philosophical analysis of the matter, but it has also been brought to the attention of the Ministry of Labour during the past few years. Recently, and using these same considerations, the Ministry of Labour eliminated an extra rate included within the Minimum Wages Decree applicable to hard and dangerous job descriptions. This took place last year, therefore an extra rate applicable to similar hypotheses was considered inappropriate and illegal since it was validating employment under poor conditions of health and safety by adding an extra rate to the hourly rate. Now the same argument should cause reconsideration of the project and keep overtime rates which discourage the use of extended shifts and indemnify the employee who agrees with this type of work.
The future of these shifts and coming developments
In the coming weeks, Costa Rica’s Supreme Court of Justice will issue its criteria. If the resolution confirms that the provisions are against Article 58 of the Constitution, the project should be withdrawn. If the Supreme Court finds that the project does not violate the Constitution, it will enter the final debate and approval stage. After that, the executive would likely approve it without hesitation.
This matter is without doubt the most important development for Costa Rica during 2023. It is an ongoing topic, and the firm is watching closely, ready to provide timely updates.