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Costa Rica

Published on Friday 1st February 2019

    • Costa Rica

      It is advisable that all companies wanting to hire employees in Costa Rica act through a local subsidiary. Nevertheless, Costa Rica allows the figure of the intermediary, but in that case, the company can be responsible for the intermediary actions or omissions with the employees.

      Secondments are not regulated, but creating contracts between companies is allowed to support some areas. The important thing is that the workers know that they are working as contractors of company A and being seconded to company B. The subordination of the workers can never be transferred to the company that is receiving the service.

      Outsourcing does not have any specific regulation. Case law sets strict parameters for the outsourcing. Any outsourcing that contains the elements of a labour contract, as subordination, personal provision of a service or the payment of a remuneration, can be considered a labour relationship and not an outsourcing contract.

      The permanent establishment of a foreign company is not a requirement of law. Since the possibility of solidary responsibility of the foreign company to the intermediary’s employees remains, as said above, is recommended to establish a local subsidiary.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      No, there is no limit to the number of foreign employees that an employer can hire. The only condition is that the employee must have a permit or proper migratory situation from the immigration authorities, which allows him or her to work in Costa Rica.

      Nevertheless, the Constitution establishes that, if there are equal qualifications between nationals and foreigners, employers must always choose nationals first.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      No. Labour law is a public order law, so according to this consideration, there are some inalienable rights that employees cannot resign, related to cause of termination and severance. All labour contracts must grant and comply with the obligations and rights considered in our laws. All labour contracts are subject to our jurisdiction if the work is done in Costa Rica, if the worker was hired in Costa Rica and if the employment relationship started in our country. 

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Our law accepts verbal agreements, so we can conclude that there are no requirements or formalities for an enforceable agreement. The agreement does not need to be registered to be enforceable. Employees just need to submit the claim in the labour court house and the employer must start his or her defence. The lack of a contract does not eliminate the rights that the law confers upon the worker. The employment contract may be modified if the change does not affect the employee by decreasing or eliminating any rights or benefits. Such a change would be considered an abusive exercise of the ius variandi, which is the employer’s right to change the working conditions unilaterally, even against the will of the employee, by the justified need of the enterprise. The abusive modification of the employment contract could lead to a breach of the contract, generating an employer’s complete responsibility (liability).     

      In terms of formalities, labour agreements are not subject to any kind of taxes, registration processes and fees, or related penalties.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The absence of a contract may [harm] or [damage] the employer in any litigation, especially in terms of employment conditions. The lack of the contract is exclusively imputed to the employer, which reaffirms the presumption of the existence of the employment relationship unless the employer succeeds in proving that this did not exist or the conditions thereof. It is always advisable to have a written contract with each employee. For social security and taxes purposes, are the same consequences, if an employment relationship is proven without the existence of a written agreement, the salary conditions will be imputed against the employer and in base of the salary and the initiation date of the relationship, social security and taxes (if applicable) will be charged together with the correspondent penalties if the social security is not paid.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Regarding social security, the employer has the following obligations:

      • Employer’s contribution to The People’s Bank: 0.25 per cent of gross monthly wages, as per article 5 of the Law of the Creation of The People’s Community Development Bank.
      • Employer’s contribution to Family Allocations: 5 per cent of gross monthly wages, as per article 15 of the Law for Social Development and Family Allocations.
      • Employer’s contribution to the National Learning Institute (INA), 1.5 per cent of gross monthly wages, amended by the Law for Employees’ Protection – only applicable for companies with five or more employees.
      • Employer’s contribution to the Social Assistance Institute: 0.50 per cent of gross monthly wages – article 14 of the Law of Creation of the Social Assistance Institute (IMAS).
      • Employer’s contribution to the Employees’ Capitalisation Fund: 3 per cent of gross monthly wages – article 3 Law for Employee’s Protection.
      • Employer’s contribution to social insurance – CCSS –: 9.25 per cent of gross monthly wages – article 62 of the Regulations for Social Insurance.
      • Employer’s contribution to the Disability, Old Age and Death System – 5.08 per cent of gross monthly salaries – article 33 of the Regulations for Disability, Old Age and Death.
      • Employer’s contribution to the Employees’ Capitalisation Fund for redistribution of social charges: 0.25 per cent used to go to the People’s Bank.
      • 1.5 per cent taken from the Insurance Institute and the Learning Institute goes to the Fund for Supplementary Pensions.

      Total: 26.33 per cent collected monthly from payroll records, by the Social Insurance authority.

      The employee contributes as follows:

      • 1 per cent of gross monthly wages: employee’s contribution to the People’s Bank;
      • 3.84 per cent of gross monthly wages: employee’s contribution to the disability, old age and death programme; and
      • 5.5 per cent of gross monthly wages: employee’s contribution to social insurance.

      Total retentions: 10.34 per cent.

      Payment of the premium for employees’ risk insurance, corresponding to a minimum 1.5 per cent, on average of gross monthly wages. This amount is paid every three months, six months or yearly to the Insurance Institute and it is adjusted per amount of risk at the workplace, and to the observation of occupational health regulations and accident prevention.

      The employee’s salary is also subject to income taxes, per the following brackets:

      • salaries up to 799,000 colones are tax exempt;
      • salaries from 799,000 colones to 1,181,000 colones will pay 10 per cent; and
      • any excess over 1,199,000 will pay 15 per cent; (this is applicable to the 2017–2018 fiscal period, and is subject to change every year).

      There are no forms to reduce costs for payment of social charges and tax incentives of that sort. What must be considered is that the company can use the following operation costs as deductions for income tax purposes: payment of salaries, payment of social charges, payments for employees’ rights and restitutions, payment for employee training, etc (article 8 of the Income Tax Law). 

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The minimum mandatory benefits/rights are:

      • weekly day off;
      • holidays;
      • vacations: two weeks after 50 weeks of continuous work;
      • christmas bonus, also known as the 13th month;
      • severance payment in case of termination without a legal cause;   
      • working hours cannot exceed 48 hours per week;
      • social insurance medical and pension coverage;
      • labour risk or accident insurance;
      • pregnancy and weaning; and
      • protection against sexual harassment. It is mandatory to create a policy against it and establish a local committee to investigate every complaint.

      Any other benefit, such as bonuses, commissions, private medical or life insurance, car allowance, travels, day off, etc, may be considered an acquired right of the employee after being granted.

      Costa Rica has a Solidarity Association, which is an organisation that grants many benefits to the workers. It is not mandatory by law, but is an organisation that companies and workers are happy to implement. It is an organisation created by the employees. For all employees that register with this association, the company will contribute 5.33 per cent of their salary to the employee’s savings fund. The employee will contribute an amount between 3 and 5.33 per cent for personal savings. The contribution of the employer will be deducted for severance in case of termination regardless of the type of termination), which is the most important benefit for the employee granted by the Solidarity Association. The savings of the workers are used for personal loans. One of the practical aspects of this employee-run organisation is that it avoids the creation of labour unions, as employees prefer to invest in their savings and have access to loans.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Based on a constitutional principle, the role and rules will be the same, regardless of whether the employer is from Costa Rica or foreign. In the case of foreign workers, they can be part of the union, but they cannot exercise the leadership or positions of authority in the unions, unless they are Central American or have resided longer than five years in the country.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Our law grants the right to create unions in the private or public sector without any previous notice. The right to create unions is constitutional and considered of public interest. Companies cannot prohibit the creation of a union. To create the union there must be at least 12 workers. No one can be forced to be part of a union; the affiliation needs to be free, without using any pressure or violence.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Owing to a recent change in our labour law, as of July 2017, unions be empowered to defend the economic and social interests of their affiliates. To represent their members on individual rights, a written authorisation will be required.

      Also, they can represent the collective rights of their affiliates without any prior authorisation.

      In general, unions can negotiate common working and salary conditions with the employer through collective agreements. The union and the employer have the obligation to respect freedom of affiliation and disaffiliation. Also, unions can submit complaints to the Labour Inspectorate for actions that are considered unfair practices of the employer.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      According to the mentioned reform of the labour law, which came into effect on July 2017, in the private sector, it is possible for a union to call a strike. Even if there is no union, the workers, via a secret ballot, can decide to convene a strike.

      If a company tries to interfere with the process of the union or the secret vote call, the same can be liable for unfair labour practices. The companies cannot terminate the employees’ contracts or decrease wages until the strike has been declared illegal. If the judicial authority declares the strike illegal, the workers will have 48 hours to return to their job positions without any consequence. 

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      All labour agreements taking place in Costa Rica or with Costa Rican employees are regulated and protected by the Costa Rican law. Also, it is important to mention that in our jurisdiction, more than 50 of the resolutions of the ILO are binding.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The Constitution of Costa Rica has established that all international conventions ratified by the Congress are binding in our jurisdiction. Our country ratified 51 of the conventions from the ILO:

      List by convention number ratified:

      C001, C008, C011, C014, C016, C026, C029, C045, C081, C087, C088, C089, C090, C092, C094, C095, C096, C098, C099, C100, C101, C102, C105, C106, C107, C111, C112, C113, C114, C117, C120, C122, C127, C129, C130, C131, C134, C135, C137, C138, C141, C144, C145, C147, C148, C150, C159, C160, C169, C182 AND C189.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes. Arbitration agreements will be enforceable based on the above-mentioned reform of our labour law. In principle, the arbitration process will be conducted by the judicial system, but parties can agree to choose a department of the Ministry of Labour or even a private ADR centre. The private ADR centre needs to be registered and authorised by the government.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Alternative dispute resolutions methods are available for labour matters in Costa Rica. Mediation, known as arreglo directo (direct settlement) and conciliation are legal and binding in our jurisdiction. For collective disputes, the conciliation process is mandatory before declaring the strike. For individual disputes, the judicial system has the obligation to make room for conciliation as part of the process.

      The mediator can be a designated office from the Ministry of Labour or even a private ADR centre designated mutually by the parties.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      As general rule, the proceedings will be held in the jurisdiction where the services are or have been provided or the address of the worker, who has the right to choose the jurisdiction.

      In Costa Rica, Spanish is the official language. All legal processes must be in Spanish. Any evidence in other language will need to be translated by a certified translator.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      There is no class lawsuit in Costa Rica. Unions have a representation to sue in the name of their affiliates claiming collective legal rights, but limited to their affiliates.

      As regards human rights, the Constitutional Supreme Court has established that all the international conventions regarding human rights are binding in Costa Rica, regardless of it being ratified or not, or if that grants any superior benefits to the worker than our domestic laws.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      No, only attorneys that are authorised by the Costa Rican Bar. Income tax is applicable and enforceable to all services rendered in Costa Rica.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes, but the homologation of the resolution by the judicial system in Costa Rica will be necessary in order to be recognised and enforced. 

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The judge can order, before the initiation of the judicial process or at any stage, the application of some precautionary measures. These may be requested by any of the parties or ordered by the judge and can apply to assets located abroad if one of the parties requests it; and must be executed through the application of exequatur. Such measures could affect any of the litigation parties, even a union.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The principle known as “in dubio pro operario” rules (Pro Worker Principle) rules in our jurisdiction. This principle means that in case of doubt, the judge must decide in favour/protect/benefit the worker. In each judicial process, the worker must show any evidence related to the service provided, and all the remaining evidence will correspond to the employer. If any of the parties propose a witness and follow a standard process for their legal subpoena, in case the witness does not attend the hearing, the judge can order the police to compel the said witness to participate in the hearing.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes, one party can request the application of any precautionary measure, but the judge is not obligated to grant it. In case of a preventive embargo or lien of any of the assets of one of the parties, this can be requested and there is no need to grant it with a deposit, unless the requesting party can show that the assets are at risk of being lost or deteriorating.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The resolutions issued by a labour court may be appealed by either party. Furthermore, the revision of the resolution is a remedy available in our law. This appeal is made behind the same court when one of the parties considers the elements or facts presented at trial were not examined properly or the resolution was obscure, confused or contradictory.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Parties have three days to submit any remedy mentioned above, from the time they are notified of the resolution from the labour court.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      The arbitration commitment can only be enforceable if the same was agreed upon by the parties "a priori” and by mutual consent. If the arbitration agreement is a requirement for the employment relationship, this will not be valid.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes, the law establishes that if an award is issued, the plaintiff is entitled to obtain the interest accrued until the day when the payment is effective. Also, he or she is entitled to the indexation of any award conceded.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      In our jurisdiction, the United Nations New York Convention was approved, which ratifies the possibility of executing a foreign award in the country. In order for the award to be executed in our country, one of the requirements is that it is in force and has not been annulled.            

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes. Our law establishes the possibility of signing agreements for definite periods, limited to the nature of the roles to develop. One of the restrictions is that the contract cannot exceed 12 months, otherwise it would be regarded as an indefinite time contract.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes. The trial period for undetermined time (permanent) contracts is three months minus one day, and cannot exceed this period because the employment relationship becomes consolidated on that day.

      However, during this trial period the employer may terminate the relationship freely without further (termination) liability, except in the case of pregnant employees, who are protected by the law with stability at the workplace, and may only be terminated if they incur in a serious offence, punishable with dismissal. Pregnancy tests as a requirement for hiring, or during employment, are prohibited and considered acts of discrimination.

      If an employment contract is terminated during the trial period, the employee will be entitled to receive a proportional payment of his or her 13th salary bonus, plus compensation for his or her accrued vacation time, as well as the full payment of his or her salary and overtime.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Yes, all employment relationships, regardless their modality, are entitled to all labour benefits granted by our law and social security.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      There is no specific law regarding outsourcing, but case law accepts it as valid with some general restrictions. As we mentioned above, case law sets strict parameters for outsourcing. Any outsourcing that contains the elements of a labour contract, such as subordination, personal provision of a service, and/or the payment of a remuneration, can be considered a labour relationship and not an outsourcing contract.

      Another characteristic of our system is the assumption of labour activity. This indicates that a labour relationship will exist any time the lending of a personal service shows signs that characterise such relationship as labour-related:

      • permanent physical presence at the work site;
      • supervision and assessment of job performance;
      • subjection to a work schedule
      • use of name tags or other identifying marks;
      • exclusiveness;
      • use of tools, equipment and work stations provided by the company manager; and
      • regularity and continuity of the remuneration.

      The presence of the above conditions simultaneously will confirm the existence of a labour contract.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      No, it is not mandatory unless it is a benefit granted freely (and no conditioned) by the company. If it is granted as a benefit, without any particular condition, it can be considered as a mandatory acquired right and should be reported to the social security as part of the salary.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Case law accepts the non-compete covenant. Our courts determined that in the case of existence of non-compete provisions it is mandatory to compensate the worker economically. Otherwise, the clause cannot be enforceable.    

      Non-solicitation covenants can be protected by the labour laws and data privacy laws on the protected commercial information, but the company must prevent the employee from having access to that information, which is protected, and its use is limited and restrictive even after termination. In the case of non-solicitation covenants regarding customers or other employees, is required as said above, a compensation.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Fixed-term contracts

      Employment contracts may be concluded for a fixed-term or for a specific project only when the nature of the service requires or justifies it. This type of contract may not be used for employment that lasts more than one year, except in the case of activities that require special technical preparation, where the contract may extend for up to five years.

      When the nature of the work and the need for services is permanent, if it would benefit the employee, a fixed-term contract will be interpreted as a contract for an indefinite term. The principle of “precedence of reality” means that the agreement between the parties to the employment relationship does not control the real working conditions. Therefore, the employer and worker may not choose a fixed-term merely as a matter of convenience.

      Fixed-term agreements are those that are executed for the provision of services over a specific number of days, months, etc. The most important feature of fixed-term agreements is that the worker is engaged to meet some transitory needs of the company, not permanent needs, thus knowing in advance the exact date of termination or at least an approximate date. If the work for which the worker has been employed corresponds to the permanent need of the employer, making it impossible to fix a termination date, then the agreement cannot be a fixed-term contract, is necessarily an indefinite-term agreement.

      Labour law, through the principle of continuity, seeks the stability or permanence of the employment relationship in order to protect the interests of workers to guarantee them a lasting and permanent livelihood, as well as the employer’s interest in having the services of workers indefinitely. For this reason, the Labour Code tends to give preference to indefinite-term employment relationships. 

      Some employers have a practice of dismissing and signing new agreements with the same workers every year. This arrangement is apparently convenient to them from the point of view of company profitability because, unlike indefinite-term agreements, fixed-term agreements do not require the employer to pay unemployment benefit or compensation in lieu of notice upon termination. However, this practice is not only illegal but risky. As soon as a labour inspector or judge becomes aware of the situation, the employer may be ordered to cover all the labour benefits and compensation that the employer failed to pay to its workers.

      Apprenticeship

      Apprenticeships are regulated by the Apprenticeship Law No. 4903 of 17 November 1971. The Apprenticeship Law is based on the idea that workers should have the opportunity to learn and practise a work activity before finding a permanent position.

      Article 4 of the Apprenticeship Law provides that the age for admission to an apprenticeship may not be below 15 or above 21.

      Case law has determined that, in case the person under an apprenticeship contract exceeds the permited age, the relationship will be considered as a regular labour relationship.

      Internships

      Internships do not have a specific regulation. Accordingly, the terms of an internship will depend on the bylaws created by the educational institution in coordination with the student and the sponsoring company.

      An intern must perform only those tasks established and authorised by the educational institution and accepted by the company. Other restrictions on student internships include the following:

      • The intern is not allowed to receive a salary, but may receive financial help for transportation expenses or meals; it is not necessary to report this financial help to the social security system.
      • The intern receives supervision and guidance, as opposed to orders or mandatory instructions, and has a supervisor, not a boss;
      • The intern only needs to work a determined number of hours, but does not have a working schedule.
      • An intern may not perform any activities that are part of the core business activities of the company and that could result in liability for the intern as a result of a mistake.
      • The intern should not perform tasks beyond his or her physical or intellectual capacity, and only those related to the intern’s academic training and required practice.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

    • Costa Rica

      Labour law in Costa Rica is protective of the worker’s interests or rights. Our best recommendation is to comply with all the labour laws and create or adapt the internal by-laws (policies) according to our system and laws.

      Also, there are many situations that grant some additional benefits, such as food, car allowance, room, mobile telephone, internet, among others, and can be considered as part of the salary in kind, and affect social security payments and severance. Therefore, it is advisable to review all benefits prior to their implementation.

      Furthermore, it is important to note that our legal system contains two general law principles that are applied in all employment relationships, which are:

      • Pro Worker Principle, which states that in case of doubt regarding the facts or the specific law to be applied, the matter will be decided in favour of the worker.
      • Principle of Primacy of Reality, also known as a Reality Contract, by means of which the type of relationship will be determined, in accordance with what is being carried out in practice. In other words, what is occurring in the lending of the service is pre-eminent over the written agreement in the contract.

      Answer contributed by Alvaro Aguilar from Aguilar Castillo Love

      Last verified on Friday 18th January 2019

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