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Costa Rica

Termination and Severance Policies

Learn about the legal processes for employee termination and severance in Costa Rica

Notice period

In Costa Rica, labor law stipulates specific notice periods that employers must adhere to when terminating an employee's contract. These periods are determined by the employee's length of service with the company, as outlined in Article 28 of the Labor Code.

Notice Period Based on Length of Service

For employees who have been with the company between three and six months, the minimum notice period is one week. If the employment relationship lasted between six months and one year, the required notice period increases to two weeks. Employees who have been employed for more than a year are entitled to one month's notice before termination. However, there's no statutory minimum notice period for employees who haven't completed three months of service.

Employer Options During Notice Period

The employer can choose to have the employee work the designated notice period. During this time, the employee retains all their rights and obligations under the employment contract. Alternatively, the employer can opt to pay the employee a lump sum equivalent to their wages for the notice period instead of requiring them to work it.

Employee Options During Notice Period

The employee can choose to fulfill the notice period and continue working as usual. They also have the right to resign with notice by providing written notification within the designated period. In this case, they are still entitled to receive their full wages and any accrued benefits up to their last working day.

Unfair Dismissal and Notice Period

If an employer terminates an employee without a just cause and fails to provide the legally mandated notice period, the employee may be eligible for compensation. Courts may require the employer to pay the employee's wages for the unprovided notice period. Understanding and adhering to these notice period requirements is crucial for employers in Costa Rica to ensure compliance with labor laws and avoid potential legal disputes.

Severance pay

In Costa Rica, the right to severance pay for employees terminated without just cause is established within the Costa Rican Labor Code (C贸digo de Trabajo).

Entitlement to Severance Pay

Severance pay applies to employees hired under permanent or indefinite employment contracts. However, it is only triggered if the employer terminates the contract without a demonstrable, legally valid cause such as serious misconduct or proven incapacity of the employee.

Calculation of Severance Pay

Severance pay is calculated based on an employee's average salary during the last six months of employment and their length of service as per Article 82 of the C贸digo de Trabajo. The formula is as follows:

  • For a length of service between 3 months to 6 months, the severance pay is 7 days' salary.
  • For a length of service between 6 months to 1 year, the severance pay is 14 days' salary.
  • For each year thereafter, the severance pay is approximately 20 days' salary. This can vary slightly depending on the specific dates of employment.

Additional Considerations

Along with severance pay, employees are entitled to any unpaid vacation time accrued and unused sick days. Employers must also pay out any outstanding wages owed up to the termination date. Terminated employees are entitled to a proportional amount of their "aguinaldo" (13th-month bonus) based on the time they worked during the calendar year as per Article 81 of the C贸digo de Trabajo.

Situations Where Severance is Not Required

Employees on fixed-term contracts that expire naturally are not entitled to severance pay, although other legal requirements regarding completion payments might apply. Employees who resign from their position are not eligible for severance pay. If termination is due to a valid cause outlined in the Labor Code such as serious misconduct, the employee does not receive severance.

Termination process

Employment termination can occur in several ways.

Resignation

An employee can voluntarily terminate their employment relationship by providing written notice as per Article 28 of the Labor Code.

Mutual Agreement

The employer and employee can mutually agree to end the employment contract as per Article 80 of the Labor Code.

Termination with Employer Liability

The employer can terminate the employee for any reason, but must provide severance pay, accrued vacation time, and a proportional Christmas bonus as per Article 82 of the Labor Code.

Termination without Employer Liability

The employer can terminate the employee for specific reasons outlined in the Labor Code (Article 81), without severance pay. The employee is only entitled to accrued vacation time and a proportional Christmas bonus.

Termination with Employer Liability Procedure

This is the most common form of termination. The procedure is as follows:

  1. The employer must provide a written termination letter stating the reasons for dismissal as per Article 35 of the Labor Code.
  2. Severance Pay is calculated according to years of service as per Article 82 of the Labor Code.
  3. Other Payments include accrued vacation time and a proportional Christmas bonus.

Termination without Employer Liability Procedure

The employer can only dismiss an employee for cause based on the specific "just causes" listed in Article 81 of the Labor Code. Examples include serious misconduct or negligence, repeated absences or tardiness, and dishonesty or breach of trust. The procedure is as follows:

  1. The employer must provide written notice detailing the specific grounds for termination as per Article 85 of the Labor Code.
  2. The employee may opt for an internal due process hearing before termination becomes final.

Important Considerations

Employers must carefully document any warnings, performance issues, or disciplinary actions that precede a termination, especially when seeking dismissal without liability.

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