Costa Rica Employment Guide

Navigating Employment Termination in Costa Rica: A Guide for International Employers

Terminating employment in Costa Rica requires careful adherence to complex legal frameworks and national labor regulations. The separation process must be managed collaboratively between employers and key stakeholders, often involving specific procedures and potential financial obligations depending on the termination circumstances.

Valid Grounds for Employment Termination

Unlike many jurisdictions with at-will employment, Costa Rican law mandates that employers must have justified cause for termination beyond the probationary period. Legally compliant termination scenarios include:

• Conditions specified within the employment agreement
• Reaching retirement age
• Employee resignation
• Employer-initiated dismissal with cause
• Mutual separation agreement
• Serious breach of employee obligations

For example, a technology company expanding to San José learned that dismissing an underperforming employee required documented performance improvement plans and multiple warnings to establish valid cause.

Mandatory Notice Periods

Costa Rican labor law establishes minimum notice periods that increase with employee tenure:

• Less than 3 months employment or during probation: No notice required
• 3 to 6 months employment: 1 week notice
• 6 to 12 months employment: 2 weeks notice
• Over 12 months employment: 1 month notice

These notice periods allow employees sufficient time to transition while enabling employers to maintain operational continuity.

Severance Payment Calculations

Employees terminated without justified cause or who resign with valid reason are entitled to severance payments. These calculations are based on length of service and average earnings from the previous 6-12 months.

Additionally, employers must compensate for all accrued unused vacation time and earned bonuses upon separation.

Mitigating Termination Risks

International companies often face unexpected financial exposure when terminating employees in Costa Rica. SailGlobal addresses this challenge through proactive severance accrual strategies integrated into all employment agreements. With extensive experience managing global litigation risks, SailGlobal's calculations incorporate current legal standards and local best practices. Should employees resign or become ineligible for severance, unused accruals are returned to the employer.

A manufacturing firm utilizing SailGlobal's services avoided significant unexpected costs when restructuring their Costa Rican operations, as proper severance accruals had been maintained throughout employment periods.