What You Should Know About Severance Pay in Costa Rica

The calculation of severance pay (liquidación) in case of dismissal in Costa Rica is carried out in accordance with the Labor Code, the law that governs relations between workers and employers.

According to this law, the termination of an employment relationship can be done in two ways: with employer responsibility or without employer responsibility. If termination happens with employer responsibility, the worker is entitled to all the benefits and guarantees, namely: unemployment notice, compensation for unused vacation time, and Christmas bonus. If the dismissal takes place without employer responsibility the reasons must be justified according to article 81 of the Labor Code and the employee will only have the right to receive the Christmas bonus and compensation for unused vacation time.

Although the guidelines of the Labor Code provide the tools necessary to calculate and justify a dismissal, it is important that companies also get their internal regulations approved by the Ministry of Labor so as to be able to justify any dismissal caused by a breach of the general guidelines provided by the company. You can review the requirements for the approval of internal labor regulations here.

The creation of a contract is essential when starting a new employment relationship regardless of whether the contract is for a definite or indefinite period. The contract will dictate a way forward when and if termination happens.

Per the above-mentioned resources, take the following steps when processing a layoff:

• First, define whether the termination of the employment relationship will be with or without employer responsibility. If the latter, identify the reasons based on the Labor Code, internal regulations, and the employment contract.
• Then, communicate the decision to the worker through a letter that includes the agreed upon reason. If the worker refuses to receive the letter, the employer must deliver it to the Ministry of Labor no later than ten calendar days following the dismissal. This will strengthen the employer’s case should there be a subsequent legal proceeding.

In the event of termination of the employment relationship with employer responsibility, the employer must meet the following obligations:

1. Compensation for unused vacation time (if pending).
2. Christmas bonus (if pending).
3. Notice, the length of which should be determined by what is outlined in the law and the total amount of time worked. If the employer decides that the worker should not work during this period, the employer must still pay for it.

During the notice the employer is required to grant one day a week for the worker to seek employment, known as the day off and established in article 28 of the Labor Code.

The notice must be established in writing in the dismissal letter. If the contract is verbal, the notice can also be established verbally before two witnesses.

4. Grant one paid day per week for the worker to seek employment.

5. Severance pay, which will be calculated according to the total time worked and the total wages          received.

Should the employer decide to terminate the employment relationship without employer responsibility based on the reasons detailed in article 81 of the Labor Code, the organization must cover the following:

1. Compensation for unused vacation time (if pending).

2. Christmas bonus (if pending).

3. Notice, which must either be carried out according to the law or paid for.

The reasons detailed in article 81 of the Labor Code that allow an employer to terminate an employment contract without employer responsibility are the following:

a. When the worker behaves in an openly immoral way at work, or resorts to insults or slanders their employer;

b. When the worker commits any of the acts listed in the preceding paragraph against a colleague during work hours, provided that as a consequence discipline is seriously affected and work is interrupted;

c. When the worker, outside the workplace and during non-working hours, resorts to insult or slanders the employer or the employer’s representatives, provided that said acts have not been provoked and that as a consequence coexistence and harmony at work becomes impossible;

d. When the worker commits a crime or misdemeanor to the direct detriment of the employer or when the worker intentionally causes material damage to machines, tools, raw materials, products and other objects immediately and undoubtedly related to the job;

e. When the worker reveals the secrets referred to in subsection g) of article 71;

f. When the worker compromises, through recklessness or absolutely inexcusable carelessness, the security of the place where the work is carried out or that of the people who are there;

g. When the worker stops attending work without the employer’s permission and without just cause, either for two consecutive days or for more than two alternate days within the same calendar month.

You can calculate the amount to be paid in both cases with this tool provided by the Ministry of Labor through its website.

The Labor Code also specifies that it is forbidden to dismiss personnel for discriminatory reasons or when they are pregnant or breastfeeding, unless the cause is serious misconduct in relation to the job functions outlined in the legislation and employment contract.

Take into account that labor rights are inalienable and that in the case of potentially complicated cases, negotiation and mediation between both parties can help you reach a mutually satisfying agreement following the termination of the employment relationship.

Contact us if you have any question or comment about severance payments, you can also leave your comment below or in our social media accounts.