What You Need to Know Before Hiring in Costa Rica: A Guide to Terminations

When you’re setting up your company and making your first Costa Rican hire, termination probably isn’t at the forefront of your mind. However, it’s crucial to know the basics of terminating an employee in Costa Rica, because if you make a mistake, you’ll find yourself in legal hot water.

The Costa Rican Labor Code protects employees against being unjustly or hastily terminated from their jobs, which is similar to the employment laws in many other countries around the world. However, unlike, say, Europe, employers in Costa Rica can fire employees without being held responsible for paying severance.

As you can see, it’s crucial to know the law and understand both your and your employees’ rights. Read on to learn everything you need to know before hiring Costa Rican employees—and how hiring through an Employer of Record (EOR) can spare you from bungling any local dismissal requirements.

5 essential things to know before hiring in Costa Rica

• Employment laws and attitudes are catching up with Europe. In Europe, recent discussions have reflected an attitude of rehabilitation rather than termination for employees. Courts look to employers who dismiss their team members to prove they did everything they could to help that person remain employed before dismissing them. Costa Rican courts have started to adopt a similar attitude and have begun requesting evidence in wrongful dismissal cases.
• You can either provide just cause or pay severance—your choice. In Costa Rica, if you don’t want to pay an employee severance, you’ll need to prove you’re dismissing them for a just cause. If you’d rather not provide a cause or have been noticing intangible signs the employment relationship simply isn’t working out, you can pay the employee severance instead.
• If you get tied up in court, you could be there for years. Even though Costa Rica updated its labor laws in 2017 and took significant steps to reduce the nation’s backlog of wrongful dismissal cases, things are still slow. If you get into a legal battle with a terminated employee, you could find yourself fighting with them in court for two years or longer.
• Regardless of who’s leaving, the notice periods are the same. Whether your employee has decided to voluntarily vacate their post or you’ve chosen to dismiss them, the notice periods are the same. Employees who have been with the company between three and six months get one week of notice, two weeks if they’ve worked with you between six months and a year, and a month if they’ve been employed by you for over 12 months.
• Don’t forget the aguinaldo. The aguinaldo is a sort of Christmas/thirteenth-month bonus employees are entitled to receive after they’ve been with the company for 12 months. If you terminate an employee without cause, you’ll need to pay them part of this amount in their severance package.

Termination rules in Costa Rica: What are acceptable grounds for firing an employee?

Costa Rican employees can voluntarily leave their jobs for any reason as long as they give their employer the minimum advance notice required by law and by their employment contract.

Employers looking for just cause to terminate an employment relationship should refer to Article 81 of the Costa Rican Labor Code. It details a list of acceptable reasons a person can be fired in Costa Rica, including:

• Getting into legal trouble, including receiving a prison sentence and committing slander
• Deliberately misleading an employer, including lying about professional qualifications and falsifying resume data
• Breaking confidentiality agreements and other clauses as set forth by the employment contract
• Working while drunk or using drugs
• Excessive absenteeism, including not working during work hours without a valid reason from the company and disappearing from work without replying to company inquiries or checking in with a manager for more than 48 consecutive hours
• Serious misconduct, including harming other employees or the company in any way

This is in no way an exhaustive list of acceptable grounds for terminating an employee. Additionally, as mentioned before, Costa Rican courts are starting to frown on employers who simply fire team members without a just cause.

Even though you can dismiss an employee without a just cause, if they take you to court, the Costa Rican legal system may still ask you to prove you had some understandable reason for terminating the employment contract.

Costa Rica’s termination requirements might differ from those in other countries where you hire, and it’s crucial to keep your global hiring compliant with local laws.

What are the mandatory notice periods and termination pay for Costa Rican employees?

The Costa Rican Labor Code is pretty simple in terms of mandatory notice periods.

If you decide to unilaterally terminate the employment contract and let that employee go without just cause, they’re entitled to the following:

• Compensation for unused vacation and personal days
• Any remaining salary they’re owed
• A lump-sum payment that equates to around 20 days of pay for each year of service
• A portion of their aguinaldo, or thirteenth-month bonus

The easiest way to comply with Costa Rican termination requirements

If you employ a global workforce, keeping track of termination requirements gets complicated. Without any assistance, employers need to master conflicting just-cause considerations, probationary and notice periods, and severance pay laws that vary both within and among countries.

An alternative is to hire through an EOR, which can monitor termination requirements for you.

Frequently asked questions about terminating employees in Costa Rica

Do you need a reason to terminate an employee in Costa Rica?

No. Even though Costa Rica is not an at-will state, you can terminate an employee without giving a reason as long as you’re willing to pay them severance.

What is considered just cause for terminating an employee in Costa Rica?

Article 81 of the Costa Rican Labor Code provides a list of acceptable reasons for terminating an employee in Costa Rica. These include:

• Getting into legal trouble, including receiving a prison sentence and committing slander
• Deliberately misleading an employer, including lying about professional qualifications and falsifying resume data
• Breaking confidentiality agreements and other clauses as set forth by the employment contract
• Working while drunk or using drugs
• Excessive absenteeism, including not working during work hours without a valid reason from the company and disappearing from work without replying to company inquiries or checking in with a manager for more than 48 consecutive hours
• Serious misconduct, including harming other employees or the company in any way

Costa Rican courts have changed their views on termination recently and are now looking more favorably on employers who give their employees chances to correct any issues before dismissing them.

What qualifies as wrongful dismissal in Costa Rica?

Unlike in some other countries, there are very few open-and-shut cases of “wrongful dismissal” in Costa Rica. There is a list of acceptable grounds for terminating an employee in Article 81 of the Labor Code, and employers are permitted to dismiss employees without giving a reason at all as long as they’re willing to pay severance.

In other words? Unless it’s a clear-cut case of discrimination, it’s unlikely a dismissal will be categorically wrongful or righteous.

What is the law for dismissing a contractor in Costa Rica?

The termination process for independent contractors in Costa Rica depends on the terms of the contract.

Typically, either party may terminate by providing notice as specified in the contract. If the contract does not specify a notice period, the reasonable notice period will depend on the length of the contract and the nature of the work performed.

If an independent contractor is found to be misclassified, they may be entitled to employment standards legislation protections and notice or termination pay in lieu of notice.

Manage the entire lifecycle of your international employees with Rippling

Global termination requirements can be a tangled web, but Rippling handles all of them, right out of the box—and so much more.

If you’re a foreign company hiring employees and contractors overseas, then Rippling will help you manage your entire employee lifecycle—from onboarding to offboarding your workers. See Rippling today.

Rippling and its affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.