Labor Law in Costa Rica

BASIC INFORMATION ON COSTA RICAN LABOR LAW

1. LABOR LEGISLATION

A) Labor Code

The Labor Code of Costa Rica (LC) was enacted in 1943, and its provisions are binding for all employers.

Section 11 of the Code declares null and void any statement by the workers in which they waive the rights conferred to them by labor law.

B) Work Contract

Section 18 LC establishes the assumption of the existence of a contract -written or oral- between the employer and the worker. The sole initiation of the working relationship is sufficient for the assumption of the existence of the contract and such contract compels the two parties to obey the obligations and rights established in the law.

Everything that is agreed upon the parties of the labor relationship, being agreed in writing or not, but being part of the current conditions of the work relationship, becomes part of it.  This corresponds to a basic principle of local labor law (principle of “Contrato Realidad” – Reality Contract in English) which establishes that no matter what has been agreed in writing as the contractual relationship employer/employee or no matter what the prior contractual relationship contents were, what rules is the current and real contents of the employment relationship, even though they are different from the agreement, all in favor of the employee (i.e. real work schedules vs. contractually agreed work schedules; actually paid salaries and compensations vs. contractually agreed compensation; etc.).

C) The International Labor Organization

Costa Rica is a member of the United Nations' International Labor Organization and has incorporated locally the recommendations and rulings of such organization.

2. WORK HOURS:

A) Shifts

There are three kinds of shifts contemplated in LC:

According to Section 136 LC, the ordinary day shift cannot exceed eight hours; the night shift six hours; and the mixed shift seven hours.

A mixed shift that exceeds three hours thirty minutes in night shift, is considered night shift for all legal effects.

The same Section additionally establishes that, weekly, ordinary work time cannot exceed forty eight hours for day shifts, forty two hours for mixed shifts and thirty six hours for night shifts.

B) Extra compensation

Effective time executed over the stated limitations for each kind of shift shall be considered extraordinary, and must be paid with an additional 50% of the regular salary.

In addition, 6 hours of night shift should be paid in an amount equivalent to 8 hours of day shift.

C) Limitations

Ordinary and extraordinary work cannot exceed twelve hours per day (with the exception of force majeure cases).

Managerial positions, discontinuous or intermittent tasks, and work that by its nature cannot be performed at regular hours (like the cases of work performed by agents and of work by commission), are excluded from the maximum hour limitations. However, no individual  can be required to work for more than twelve hours per day against his will, unless special circumstances occur.

D) Holidays

There are eleven legal holidays. However, other days are also usually given by the companies (for example, the day of the city’s patron), although they are not required by the law. A holiday falling on a Sunday is not moved to the next work day.

If by agreement, a person works on a legal holiday or on the seventh day of the week -Sunday-, such person must be paid double the wages due for regular work.

3. SALARY:

A) Composition

Salary is composed, not only by a fixed lump sum payment, but also by other amounts received by the employee, in cash or in kind, which imply consideration for services, bonuses, value of extra work, sales commissions, participation in profits, etc.

In order to calculate the payments to be made upon termination (according to sections 3.- D, 3.-E,  4.- D, 4.- E, 6.- D and 6.- E below) all payments other than the regular salary must be considered and/or reviewed, for example: salary in specie –i.e. gas, car, cellular telephone allowances-; stock options; incentives on targets achieved; etc.

It is not a general rule that all payments mentioned in the previous paragraph will be considered as part of the salary thus affecting the calculation, since the structure of each one of such items shall be individually reviewed in order to determine if by local regulations and case law it will (for example: allowances on car, telephone or gas expenses will be considered as part of the salary if they consist of a fixed amount per period of time but will not be considered as part of it if they are reimbursed each time against the presentation by the employee of a report for the actual amount spent on such period).

Salary is freely agreed between the employer and the worker, but cannot be less than the one established for the specific duties by the Minimum Wages Decree, which is periodically adjusted by the government.

B) Method of Payment

Remuneration can be agreed either by unit of time (month, week, day or hours), by unit or work or even by participation in profits, in sales or in collections.

Irrespectively of the method, salary cannot be less than the minimum established by law. Payment of wages should be in legal tender, at the place of work. This is done generally by company checks or wire transfer.

C) Frequency of Payment

The frequency of payment is freely established, but cannot be more than fifteen days for blue collar workers, or one month for white collar or household aide.

D) Minimum Wage

Section 177 LC provides for minimum wages to be established periodically for the private sector. There is a National Wage Council composed by representatives of the Government, the employers and the employees.

The Council recommends percentages of adjustment trying to match cost of living increases. The recommendation is not binding but is usually followed by the Government when enacting the corresponding decree.

The suspension of contracts is not allowed in most of the cases (only in rare, well justified situations in which the company may be dealing with force majeure cases).

4. SOCIAL SECURITY AND OTHER BENEFITS

A) Social security

Costa Rica has a Social Security system financed by contributions from the Government, the employers and the employees.

B) Services

Costa Rica's Social Security provides medical assistance, maternity assistance and pensions, and runs most of the hospitals and other health and care centers of the country.

There are private entities also rendering such services. The health and care system of Costa Rica is considered among the best in Latin America.

C) Sick Leave

The employer must pay to an employee who is on sick leave at least 50% of its salary for the first three days. From the fourth day on, the Social Security Administration (CCSS), pays 60% of the salary, provided that the employee has a medical certificate issued by a CCSS doctor. The employer is not required to pay salary after the third day, except for maternity leave (in this case, he pays half the salary for three months and CCSS pays the other half).

D) Vacation

Besides holidays and Sundays, each worker is entitled to two weeks of paid vacation for each fifty weeks worked or, in cases of contracts that terminate before such 50 weeks, a day for each month worked. Vacations can be divided, but only in two segments.

Upon termination of the contract, unused vacation should be paid using as a base the average of salaries earned during the last six months.

E) Christmas Bonus

Companies pay a bonus of one month’s salary after a year of work (“aguinaldo”), or an amount proportionate to the time worked, if it is less than a year.

5. WORK INJURIES

Besides the usual safety requirements in working conditions, LC establishes a system of insurance to protect the worker from accidents during working hours.

The insurance is given by the Instituto Nacional de Seguros (National Institute of Insurance). There is a detailed schedule containing the percentages of disability as a result from accidents. The Code establishes a temporary disability and a permanent disability.

6. TERMINATION

A) Right to terminate

The right to terminate the working relationship is given by Costa Rican law to both parties. The Labor Code establishes the events that will enable the employer or the employee to terminate the contract without responsibility.

B) Employer's rights to terminate a worker

The employer may terminate the working relationship without responsibility at his entire will in the first three months of work, or then after if serious faults are committed by the worker, some of which are:

(a) Acts of the worker against morality, or if he attacks the employer during working hours, physically or by word.

(b) Same acts against any other worker, if such acts result in a serious interruption of the work or in disorder.

(c) Same acts against the employer or their representatives outside working hours, which make impossible the continuation of the working relationship.

(d) Criminal acts, acts against the property of the employer, or intentional damages to machinery, equipment, raw materials, or any other goods related to the operations of the company.

(e) Release of confidential information from the company.

(f) Acts endangering security and working conditions.

(g) Unjustified absence for two consecutive days, or for three or more non consecutive days within the same calendar month.

(h) Manifested rebellion to instructions or orders.

C) Workers right to terminate the contract

The worker also has the right to terminate the contract without incurring in responsibility if serious faults are committed by the employer, some of which are:

(a) Lack of payment of salary as agreed.

(b) Immoral acts of the employer, and physical attacks or attacks by word against the worker during working hours.

(c) Same acts committed by the employer's representatives or persons directly related to him.

(d) Damages to the tools of the worker committed by the employer or by his relatives or dependents.

(e) Same acts as (b) above, during non-working hours, that will make impossible the continuation of the working relationship.

(f) Contagious diseases on the part of the employer or relatives or dependents in the place of work.

(g) Dangers for the health or safety of the worker or his family in reason of working conditions.

D) Right of notice of termination

Section 28 of the Labor Code states that any of the parties in the labor contract can terminate it, without just cause, by making a prior notice (in Spanish “preaviso”) to the other party. After three months of employment, an employee has the right to receive notice of termination of employment, if notice is not given, he must be paid one month's salary, or a fraction if he has been employed for less than one year. This month or fraction can thus be given as time or, as a valid alternative, as an indemnification in money.

If the prior notice is to be given as time, it must always be made in writing, and during this term the employer is obliged to grant one day off to the employee, per week, in order for such worker to find a new job.

If the option of the indemnification in money is to be chosen instead, the amount to be paid shall be calculated taking as a basis the average of salaries received by the employee during the last six months of the work relationship (last six months of existence of the contract).  For the calculation of the average salaries, the parameters stated in Section 3 above must be taken into account.

In all cases, the employee being terminated has the right to receive a written document indicating the termination and the reasons for such.

An employee must also give notice.  If he does not, a deduction may be made from his settlement payment. Nevertheless, the above right is rarely exercised by companies.

E) Severance payment

If the worker is fired without justification after at least three months of service, the employer has to pay a severance payment whose amount increases in accordance with the time served and could be up to twenty two days per year worked, with a maximum calculated on the basis of eight years, all according to a specific calculation table indicated by the Labor Code.

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