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Labor and employment law challenges in business transformations

Costa Rica

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Art. 85 of the Costa Rican Labor Code (CLC) governs termination of employees for reasons unrelated to their behavior or performance.

However, workforce restructurings, also referred to as collective redundancies, are not specifically regulated by Costa Rican legislation.

In the absence of specific rules governing collective redundancies, such a process must comply with the rules set forth for individual termination.

Collective bargaining agreement can modify the rules.

Required legal justification

Under Art. 85 of the Costa Rican Labor Code (CLC), an employee can be terminated for the following reasons:

  • Death of the employer
  • Force majeure
  • Bankruptcy legally recognized
  • Employee’s retirement
  • The employer’s will

Therefore, according to Art. 85 of the CLC, workforce restructuring can be implemented without any specific justification based on the employer’s will.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

There is no such legal obligation in Costa Rica when implementing a workforce restructuring unless the collective bargaining agreement applicable provides so.

Consultation requirements with other employee representatives

There is no such legal obligation in Costa Rica when implementing a workforce restructuring unless the collective bargaining agreement provides so.

Consultation requirements with employees

There is no legal requirement to consult with employees in Costa Rica when implementing a workforce restructuring unless the collective bargaining agreement provides so.

In case of termination for reasons unrelated to the employees’ behavior or performance (for more information, see “Applicable legislation”), the employer must only provide the impacted employees with a termination notice and pay all termination indemnities.

However, the impacted employees can always request from the employer a written document including the reason for the termination.

Approval/notification of the labor authorities or other government authorities

There is no legal requirement to notify or obtain approval of the labor authorities or other government authorities to implement collective redundancies.

Employee selection criteria

There is no specific employee selection criteria. Employers are free to choose the employees to be made redundant provided that such choice is not discriminatory. However, certain employees are afforded special protection, particularly the employees on maternity leave or sick leave, where the prior authorization of the labor authorities is required.

Actions required to limit the negative impact and social plan

Employers in Costa Rica are not required to take any mandatory actions to limit the negative impact of collective redundancy and/or to implement a social plan.

Internal alternative employment/redeployment
Employers are not obligated to find an alternative employment or redeployment of the impacted employees.

Other measures
Employers are not required to implement any other measure to limit the negative impact of the collective redundancies.

Estimated timeline

As the Costa Rican legislation do not specifically regulate collective redundancies, the timeline depends solely on the nature of the contemplated workforce restructuring and the negotiation process within the company.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Christmas bonus: Calculated proportionally if the labor relationship is ended before date of payment of the Christmas bonus.
  • Severance: Calculated based on the impacted employee’s years of service and taking into consideration the average of the last six months’ salaries.
  • Notice payment in lieu of: The notice period varies based on the impacted employee’s years of service.
  • Unused vacation time: If the employee has unused days off their vacation time established by law, these days must be paid.

Customary additional costs

There are no customary additional costs to employers in Costa Rica, when implementing collective redundancy.

Hiring restrictions post-redundancy

There are no hiring restrictions post-redundancy in Costa Rica.

Litigation risk

Interested parties

Litigation between the employer and the employee in a context of a termination based on Art. 85 of the Costa Rican Labor Code (CLC) (for more information, see “Applicable legislation”), where no specific justification is required (in exchange for payment of specific amounts), is very limited. Such litigation may arise notably in case of discrimination or if labor rights were incorrectly paid.

Depending on the type of claim, in Costa Rica, employees have the right to file a claim before the Social Security Institute, Ministry of Labor or labor courts.

Litigation do not stop the collective redundancy process and labor law establishes a one-year statute of limitation for claiming the payment of legal labor rights.

It must also be noted that eventual litigation may also be extended to the economic interest group of the employer company. Therefore, it is crucial to carry out a well-documented and law-abiding termination procedures (i.e., providing proper termination notice and payment of corresponding indemnity).

Damages and other remedies

If the labor authorities rule against the employer, it can lead to different types of remedies (i.e., fines, claims for damages and litigation costs).

In case of claims of the impacted employees, it is a leading practice to opt for a settlement agreement outside of court.

Furthermore, the leading practice is to coordinate with a mediator all the negotiations with the employees in a context of workforce restructuring. This limits the risk of an eventual trial.

Damages for unfair dismissal
Unfair dismissal claim would not arise in a context of a termination based on Art. 85 of the CLC. However, damages can be granted to employees in case of discrimination.

Only if the employee successfully claims that the termination was discriminatory (based on age, race, gender, etc.), the administrative authority or the court may order the reinstatement of the impacted employee.

Under such circumstances, labor courts will order the payment of backdated salary and all types of compensations granted to the employee before the dismissal.

Failure for the employer to reinstate the employee can lead to criminal sanctions for the employer for disobedience to authority.

Criminal sanctions
Criminal sanctions for the employer for disobedience to authority include fines and/or up to three years of imprisonment for the individuals in charge of the company.

Country-specific issues

There are no other issues specific to Costa Rica.


Primary Contact for Costa Rica Labor and Employment Law

Ana L Hernández Meléndez
Integra Legal, S.A
+506 2208 9800

Global Labor and Employment Law Guide
Workforce restructuring
Costa Rica