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Hiring of EmployeesFrom the perspective of the employer, and especially of a foreign investor looking to establish a facility in Costa Rica, the hiring of employees is a basic matter that should be considered in advance.Conditions and RestrictionsAll employment relationships are regulated by the Labor Code, as amended. Its regulations are the basis for all relationships between the worker and the employer and, except in some special cases, this relationship is guided by the principle that the rights of the workers may not be waived in any form.
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An employee is defined as any person who performs services pursuant to an express or implied work contract, either written or oral, individual or collective, in return for a wage. An employer is defined as any entity, either private or public, that employs the services of others and pays wages pursuant to an express or implied work contract, either oral or written, individual or collective.As these definitions indicate, the labor relationship between an employer and an employee is contractual in nature, but, unlike a civil or commercial contract, an employment contracts terms and conditions are restricted by the basic principles established by the Labor Code. An employment contract under Costa Rican law binds the worker only insofar as it does not violate any of the principles of the Labor Code.The employment contract obligates the employer to abide by its specific terms, not just those contemplated by the Labor Code. If an employment contract grants an employee rights, or benefits, beyond those mandated by the Labor Code, those extra rights or benefits will be enforceable against the employer. Consequently, special care should be taken in executing labor contracts with terms and conditions beyond those required by the Labor Code (e.g., labor contracts with executives and high-ranking employees), since these obligations will be enforceable against the employer, but not necessarily against the employee.There are three essential conditions that must be met to establish an employment relationship (a) one person must obligate himself to perform duties or services for another, (b) under direct supervision of another, (c) for the payment of a salary or some type of compensation. If any one of these conditions is not met, there is no employer-employee relationship, and the relationship is not regulated by the Labor Code.Individual Labor ContractThe employment contract may be written or oral. The Labor Code specifically requires the employer to sign a written contract with the employee, but if this is not done, the law will presume the existence of an oral contract to protect the rights of the worker.The Labor Code assumes that an employment relationship is governed by the conduct between the worker and the employer. Therefore, the terms and conditions of a labor contract will always be based upon the situation that actually exists between the parties, and not necessarily what is written in the contract. From a litigation perspective, if a party can demonstrate that the actual conditions of the employment relationship were different from those established in the written contract, the actual conditions will prevail, and a judge would be required to base his decision on the actual conditions rather than those stated in the contract. For this reason, employers should take care to avoid changing labor conditions from those established in a written contract.Recently, because of Costa Ricas presence in international markets, it has become common to include in high-ranking employees contracts confidentiality, nondisclosure, and noncompetition provisions. Because these specific provisions are not necessarily consistent with the principles of the Labor Code, their enforceability is questionable. Nevertheless, they have become an increasingly popular means of discouraging disclosure of sensitive information and competition from former employees.Special Legislation for Minors and Pregnant WomenThe Labor Code specifically prohibits women and minors (children under the age of eighteen) from working in jobs that are physically or mentally unhealthy or dangerous. It also prohibits minors from working at night or in clubs, bars, or any other establishment that sells liquor.In situations in which the employment of minors is not barred by the Labor Code, a minor may be allowed to work upon obtaining a special permit from the Patronato Nacional de la Infancia, an institution created to protect and defend the rights of minors. If the minor is between fifteen and eighteen years old, however, he may not work more than seven hours a day or forty-two hours a week. If the minor is between twelve and fifteen years old, he may work only five hours a day or thirty hours a week, and the work may not interfere in any way with school.It is unusual to find minors working in industrial factories, because the specialized work required in these factories typically is not suitable for them. In the case of agricultural operations, however, children are often utilized, most often at harvest time in the coffee industry.The work of pregnant women is also heavily regulated by special provisions of the Labor Code. These special provisions can be divided into two areas (i) benefits given to pregnant women, and (ii) compensation provided to pregnant women if they are terminated because of their condition.Pregnancy and Maternity LeaveThe law provides pregnant women with a paid maternity leave that starts one month before the expected delivery date and ends three months following the birth. It also gives pregnant women the right to breast feed their children at work for fifteen minutes every three hours or, if they prefer, half an hour two times a day.The Labor Code generally prohibits an employer from firing a woman who is pregnant. If an employer wants to discharge a pregnant woman for cause, however, there is a special, formal procedure through the Ministry of Labor to obtain authorization for the dismissal. This procedure usually takes longer than the pregnancy, and until the procedure is completed the employer must still pay the woman her salary. There is, therefore, little financial incentive to discharge a pregnant worker pursuant to this procedure. If an employer discharges a pregnant worker without following the procedure, the worker unlawfully discharged will have the right to file a claim for damages. Damages, as set out in the law, equal the salary of the worker for the time remaining in her pregnancy, plus four additional months pay and interest up to the date of payment.This special protection was enacted to prevent employers from firing pregnant women to avoid the payment of the four-month leave and the other special concessions required by law. With the increasing participation of women in the Costa Rican work force during the last three decades, it is not an uncommon practice for an employer and a pregnant employee to agree on certain terms to accommodate the needs of both the new mother and the company. These agreements are generally limited to executives and are not regulated by law.Wages and Other CompensationIndexing the Minimum WageTo maintain control of inflation and the devaluation of local currency, the Costa Rican government has established what are known as mini devaluations, which are very small decreases (approximately one-tenth of a Colon per day) in the value of the currency with respect to the U.S. dollar. These mini devaluations are done on a daily basis by the Central Bank of Costa Rica. This procedure, as well as internal inflation, which ranges from ten to fifteen percent annually, diminishes the buying power of salaries every day, resulting in an overall reduction in the workers income.The government publishes semi-annually a presidential decree establishing the minimum wages for various sectors of the economy, designed to offset inflation. The presidential decree states a minimum wage for labor categories on an hourly, daily, and monthly basis.BonificationsAn employer may grant the employee additional benefits based on the net profits of the company or any other measure of performance. These benefits are called bonifications and are not considered to be salary, but rather are an incentive for the employees to increase their efficiency.To maintain the bonifications as nonsalary payments, the employer must pay them on a temporary basis, subject to the will of the employer. If the benefits are paid on a periodic basis, subject to objective conditions that, if met, automatically entitle the employee to the benefit, these payments will be considered to be part of the salary of the worker for the purposes of social security, income tax, and severance benefits.Most benefits normally given to employees can be structured in a manner that will qualify them as a bonification. It is necessary, however, for employers to do this well in advance of payment so that the benefits might qualify.School SalaryIn 15, a special law was enacted to try to ensure that at the beginning of the school year parents would have sufficient money available to pay for school materials. This extra amount is known as school salary. School salary compensates parents for the extra expenses associated with the beginning of school--expenses that have a particular impact on those workers earning minimum wage. The calculation procedure for the school salary is established by law and is regulated by the Ministry of Labor. The law states that any employee who earns minimum wage will receive an additional two percent raise in his salary each year, and the total amount will be paid to the employee at the beginning of February.Vacation and HolidaysModifications to the Labor Contract (Ius Variandi)One of the fundamental principles of Costa Rican labor law, known as Ius Variandi, states that an employer may not, under any circumstances, change the basic conditions of the employment contract to the detriment of an employee without the express consent of that employee.The law defines basic conditions as salary, shifts, place of work, and form of salary payment. If the employer changes any of these basic conditions without the express consent of the employee, the employee has the right to terminate the contract with full payment of severance benefits.Other provisions of the contract that are not considered to be basic conditions may be modified by the employer without the consent of the employee, provided those changes will not directly or indirectly modify the basic conditions of the agreement. Usually, the modification powers of an employer will vary from one economic activity to another, since the essential conditions of a contract are closely related to the type of job the employee is performing.Yearly VacationsRest for the employee is a well-protected right under the Costa Rican Labor Code. Social, health and efficiency considerations all support the rationale behind the right of the employee to obtain appropriate rest after a certain number of working days.Employees have the right to two weeks of paid vacation for every fifty-two weeks of continuous work for the same employer. An employee may not take vacations in segments smaller than a week. Also, an employee may not accumulate vacation time over a period of more than two years. The salary of an employee during a week of vacation is the average weekly salary (ordinary and overtime) that the employee has received during the previous fifty-two weeks.The Labor Code allows a day of rest after six consecutive days of work, normally on Sunday, although this day of rest is not considered to be vacation. Most blue collar workers also do not work on Saturdays, this being an additional rest day. In rural areas and agricultural facilities, however, workers typically perform their normal duties on Saturday and have only Sunday as a rest day.Social SecurityEmployers are considered to be registration and retention agents for the social security system, and are required to register their workers with the Caja Costarricense de Seguro Social (Social Security Agency)1 immediately after the workers are hired. Failure to do so will result in the employer having to pay any and all medical bills that the employee incurs during the time the employee was not registered, together with interest and fines attributable to unpaid social security contributions from the date of the employees hiring.Employers must pay an amount equal to twenty-two percent of the salary of each employee to the Caja Costarricense de Seguro Social and must withhold from employees wages nine percent of the salary, which is forwarded to the Caja Costarricense de Seguro Social on a monthly basis. Failure of the employer to pay money due results in interest payments and penalties, but failure to turn over the money retained constitutes a criminal offense punishable by a jail sentence.Termination of Labor ContractsTermination without Just CauseAn employer has the right to fire any worker at any time for whatever reason, but in the absence of statutorily defined just cause for termination, the employer must give the employee being discharged advance notice of termination and severance pay.The amount of advance notice that an employer must give before terminating an employee depends on the employees length of service. During the first three months of employment, the employee is entitled to no advance notice. Thereafter, the amount of notice that is required is determined as follows - after continuous work for more than three months but less than six months, a minimum of one weeks notice;- after continuous work for more than six months but less than a year, a minimum of fifteen days notice; - after continuous work for more than one year, a minimum of one months notice.The employer must give the discharged employee severance pay in accordance with the following schedule - after continuous work for more than three months but less than six months, the employer must pay the equivalent of ten days of salary; - after continuous work for more than six months but less than a year, the employer must pay the equivalent of twenty days of salary; - after continuous work for more than one year, the employer must pay the equivalent of one month of salary for every year worked.Severance pay may never be more than the equivalent of eight months salary unless previously agreed upon by the parties.Termination with Just CauseThe Costa Rican Labor Code lists the reasons for which an employer may terminate the contract of an employee with just cause, thereby eliminating the right of the employee to receive advance notice of termination and severance pay. Each of the following situations constitutes just cause for termination; when the employee- during working hours, conducts himself in an immoral manner or defames, insults, or assaults his employer; - during working hours, defames, insults, or assaults his co-workers; - outside of working hours, defames, insults, or assaults his employers or any representative thereof; - commits any crime or act against the property of the employer, or when he intentionally causes material damage to machinery, tools, raw materials, products, or any other object directly related to the work;- reveals technical, commercial, or industrial secrets of the employer; - compromises the security of the workplace and of other employees by his gross negligence; - without just cause, does not report to work for two consecutive work days or three or more days in the same month;- refuses to follow security measures established for the safety of the workplace and the work force, or when the employee refuses to follow the rules established by the employer to achieve better efficiency and performance;- has been reprimanded by the employer once and continues to commit the same offense; - falsifies his qualifications; - is incarcerated; and - does anything else that is considered to be a grievous violation of the employment contract.Bankruptcy of EmployerIn the event of an employers bankruptcy or insolvency, the employees contract is automatically terminated, and the employer must give pay in lieu of notice, severance pay, unpaid vacations, and the thirteenth month salary. To guarantee these payments, all assets of the employer are attached to pay a pro rata share of each employees compensation.Ministry of Labor and Labor CourtsMinistry of Labor ProceduresThe Ministry of Labor has set up a conciliatory program for employees who have been fired without just cause or who have not been paid by their employer. Both parties are summoned to meet with a representative of the Ministry to try to resolve their differences. This procedure is not mandatory, and if no conciliation is achieved, the employee must go to court to obtain any amount owed to him.Labor Court ProceduresThe procedures for labor lawsuits are basically the same as those in any other type of civil litigation. Depending on the region, population, and amount being requested, a lawsuit can last anywhere from six months to five years.ConciliationBefore the trial of a lawsuit begins, another conciliation process, which is mandatory for both parties, is initiated by the judge. If a conciliation agreement is achieved, the judge, through a final resolution, accepts the agreement and ends the trial. If, however, the conciliation process is not successful, the judge will move immediately to hear witnesses in the case and will thereafter render a decision. If the employee is granted pay in lieu of notice and severance pay by the judge, the employee may attach the assets of the employer to receive the awarded pay.Although the Costa Rican Labor Code does not provide for the award of punitive damages to an unjustly fired employee, some recent court decisions have granted this payment, limited to a maximum of six months salary.
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