Every employment relationship eventually comes to an end — and Costa Rica has clear rules that shape how this can happen. The framework covers everything from notice periods and severance pay to justified and unjustified dismissals. Employers and employees alike need to follow specific procedures depending on how the contract ends, whether through resignation, termination with or without cause, mutual agreement, or the expiry of a fixed-term contract.
In this section, we’ll guide you through the key aspects of the end of employment in Costa Rica, including statutory notice periods, severance pay entitlements, termination procedures, collective dismissals, and the enforceability of post-termination restraints. We will also look at what happens when a business changes hands and how employee rights are protected in transfers of undertakings.
Employers in Costa Rica must usually give notice to employees if they want to terminate their employment agreement. In some circumstances, they may also be liable for severance pay. Read on to learn what you need to know as an employer.
The statutory notice period in Costa Rica depends on the length of time the employee has been employed. Those who have been engaged for less than three months are generally not entitled to notice. After this point, the minimum notice periods are:
Employers who want to dismiss an employee in Costa Rica must provide them with the correct amount of notice according to their length of service or provide payment in lieu of notice.
Employees in Costa Rica are entitled to severance pay in certain situations. Specifically, severance pay is due:
The right to severance pay begins after three months of employment, and the exact entitlement varies according to the employee’s length of service. Employees are entitled to seven days of severance pay after three months of employment, and 14 days of severance pay if they have been employed for 6–12 months.
After this, employees are entitled to the following severance pay per year of service:
These entitlements are cumulative, meaning that an employee who has been engaged for three years would be entitled to a total of 60 days’ pay (19.5 days + 20 days + 20.5 days). However, severance pay calculations only take into account the last eight years of employment.
Employees in Costa Rica are not entitled to notice or severance pay for the first three months of employment. This period is effectively treated as a de facto probationary period during which either party can easily terminate the agreement.
Temporary employment contracts in Costa Rica typically end automatically at the end of the term. If the employer chooses to terminate the contract early without just cause, they may need to pay damages to the employee.
Termination of employment in Costa Rica can happen in a number of different circumstances, which are laid out in the Costa Rican Labour Code. There are strict processes that must be followed and rules that employers must be aware of — read on for what you need to know.
Employment contracts in Costa Rica can be terminated by mutual agreement between the employer and the employee. This can occur at any time, provided both parties consent.
Employers in Costa Rica may dismiss employees to terminate the employment relationship, either with or without cause. Dismissal with just cause is possible when the employee commits a serious breach of their contract or legal obligations, such as:
Employers that terminate an employment contract without just cause must pay severance to the employee at a set rate based on their length of service.
Employee resignation is another form of termination of employment in Costa Rica. Employees may resign at any time and do not need a justification. However, they must usually give notice according to the statutory requirements based on their length of service.
Unlike many other countries, Costa Rica does not have specific regulations for collective dismissals. However, there are certain circumstances that may require an employer to terminate all employment agreements. These may include force majeure (e.g. natural disasters, war), insolvency, bankruptcy, or the death of the employer. Because collective dismissals are not explicitly regulated by the Costa Rican Labour Code, they must be treated as individual dismissals. Employers are required to give notice and pay severance in line with the usual requirements.
Post-termination restraints are restrictions that employers can impose on employees after their employment relationship is over. They are legally enforceable in Costa Rica as long as they meet certain requirements. Read on to learn all you need to know about post-termination restraints in Costa Rica as an employer.
Here are some of the types of post-termination restraints you may be able to impose on employees in Costa Rica:
Post-termination restraints in Costa Rica are subject to certain restrictions. Most importantly, any contractual clause that limits the freedom of employees to work and engage in any profession or industry of their choice must be both reasonable and justified. While these clauses can be upheld if they are deemed necessary to protect the interests of the employer, this must always be balanced against the employee’s rights.
Non-compete clauses in particular are subject to certain requirements in Costa Rica. First, the employee must receive financial compensation during the restriction period, which may not extend more than two years after the termination of the employment contract. Restrictions should also have a justifiable reason and be limited to a reasonable geographical area.
In many countries, employees can waive certain employment rights in the context of a settlement agreement. Usually, this is offered in exchange for payment. Waivers are generally enforceable in Costa Rica. However, employees can typically only waive acquired rights, not future rights or minimum statutory protections.
As in many countries, employees in Costa Rica have certain rights when the company they work for is acquired or otherwise transferred to another entity. Read on to learn what you need to know before entering into a transfer of undertakings in Costa Rica.
A transfer of undertakings is when a business is wholly or partially acquired by another company, for example, as part of a sale or merger. This generally involves the transfer of all employees from the former company to the new employer.
Transfers of undertakings in Costa Rica are regulated by Article 37 of the Labour Code, which states that the substitution of the employer must not affect workers’ rights. It also stipulates that the new employer is jointly liable with the former employer for any labour obligations arising from employment contracts or the law, for up to six months following the transfer. After six months, the new employer assumes full responsibility.
Employers do not need to seek consent from employees or consult with them before proceeding with a transfer of undertakings in Costa Rica. However, informing employees of any upcoming transfer is considered best practice. Any change in working conditions that reduces employee rights or increases obligations due to the substitution can be considered a breach of contract.
There are many different ways an employment contract can come to an end. But whatever the situation, you need to understand the rules that cover the end of employment in Costa Rica — or you could end up facing legal issues.
Our solutions ensure your business is protected from risk when a relationship with a worker comes to an end — whatever the reason. We can also help you to avoid missed opportunities by re-deploying talent where possible.
With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.
DISCLAIMER: The information contained on this website is provided for general informational purposes only and should not be construed as legal, tax, or other professional advice on any subject matter. While we endeavor to ensure that the content is accurate and up to date, we make no warranties or representations of any kind regarding the completeness, accuracy, reliability, suitability, or availability of the information contained herein. The content on this site is not intended to be a substitute for professional advice. Users should not act or refrain from acting based on any information on this website without seeking the appropriate legal, tax, or other professional advice tailored to their specific circumstances from qualified professionals. We expressly disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this website. Use of the information on this site does not create an attorney-client, tax advisor-client, or any other professional-client relationship between the user and the website or its authors.
