Labor and Employment Laws in Costa Rica. ☎️ (Overview)
Costa Rica protects workers’ rights through the Constitution and the Labor Code (Código de Trabajo). The country also follows core standards from the International Labour Organization (OIT). The law prohibits discrimination by gender, age, disability, religion, race, or sexual orientation. It also guarantees equal pay for equal work and a dignified workplace.
In practice, authorities supervise compliance. The Ministry of Labor (MTSS) issues policies and conducts inspections. The Costa Rican Social Security Fund (CCSS) manages health and pension contributions. When employers violate rights, courts may order compensation and other remedies. This approach favors prevention and fast correction.
Update note. A 2016 reform of the Labor Code strengthened anti-discrimination rules. It also clarified protections for union affiliation and related categories. As a result, hiring, pay, and workplace conduct must follow clear standards with documented policies.
Principles of Costa Rican Labor Laws (Principios del Derecho Laboral
Costa Rican labor law relies on principles that guide interpretation and compliance: the protective principle (principio protector), non-waiver of rights (irrenunciabilidad), continuity of employment (continuidad), primacy of reality (primacía de la realidad), reasonableness (razonabilidad), and good faith (buena fe). These principles come from doctrine, the Constitution, and the Labor Code. They ensure that doubts are resolved in favor of the worker (in dubio pro operario) and that actual facts prevail over labels (contrato realidad).
What this means for employers and expats. Use written policies. Apply fair pay. Keep records of working hours (jornada laboral), benefits, and leave. Act with good faith in every decision. This reduces disputes and improves compliance.
Understanding the Employment Relationship (Contrato Realidad)
Costa Rican labor law defines the employment relationship based on facts, not form. This concept is known as the Reality Contract (Contrato Realidad). A person is considered an employee as soon as they begin performing services under subordination and for payment (remuneración), even if no written contract exists.
The Reality Override (La Primacía de la Realidad)
The primacía de la realidad principle means that real conditions prevail over formal documents. Courts look at how the work is actually performed, not how the parties label it.
If a worker regularly follows instructions, works set hours (jornada laboral), and depends on the employer’s tools or direction, a labor relationship exists. This ensures protection against misclassification — especially when an employer attempts to label a worker as an “independent contractor” to avoid benefits.
Key Elements of Employment:
According to Article 18 of the Labor Code (Código de Trabajo), three elements define a genuine employment relationship:
Personal Service (Prestación Personal de Servicios): the employee must perform the work personally.
Subordination (Subordinación): the employer directs and supervises the work.
Remuneration (Remuneración): payment is provided as compensation.
When these elements appear together, the law automatically recognizes a contract, regardless of its written form.
Employer Duties and Good Faith (Principio de Buena Fe)
Employers must act in good faith when defining employment conditions. This includes providing clarity on job duties, fair pay, and compliance with labor rights. Acting transparently helps prevent disputes and demonstrates adherence to legal standards.
Practical Guidance for Expats and Employers
To avoid misclassification and legal risk:
Use written agreements that specify job duties, work hours, and supervision.
Maintain payroll records showing consistent payment of salaries and benefits.
Avoid labels that disguise true employment; courts prioritize reality over contract titles.
Communicate clearly with employees about responsibilities and benefits.
By following these steps, employers show compliance with Costa Rican labor law and uphold the principle of fairness that guides the nation’s labor system.
Employment Contracts: Best Practices (Contratos de Trabajo)
Written and Verbal Labor Agreements:
In Costa Rica, written contracts are not always mandatory, yet they are highly recommended. The law recognizes both written and verbal agreements. However, a written employment contract (contrato de trabajo) helps clarify the rights and obligations of both parties.
Written contracts are usually required for ongoing or specialized work, such as long-term housekeeping, property management, or technical and administrative roles. Having the agreement in writing avoids misunderstandings and protects both employer and employee.
Mandatory Labor Contract Details:
Every contract should include:
Full name, nationality, and ID of the employee and employer.
Job position, functions, and work location.
Work hours (jornada laboral), whether full-time or part-time.
Salary amount, payment frequency, and method.
Benefits, allowances, and leave entitlements.
The Labor Code (Código de Trabajo) promotes clarity and transparency in every employment relationship. Acting with buena fe (good faith) ensures that both sides understand their duties and prevents later disputes.
Fixed-Term vs. Indefinite Employment Contracts:
Costa Rican labor law recognizes two main types of employment contracts:
Indefinite Contracts (Contratos por Tiempo Indefinido):
These are the rule, not the exception. The relationship continues until either party ends it following legal procedure. The principle of continuity of employment (continuidad laboral) protects job stability.Fixed-Term Contracts (Contratos a Plazo Fijo):
These are valid only when justified by the temporary nature of the job. If the work continues after the end date, the contract automatically becomes indefinite. This reflects the doctrine of primacía de la realidad, where actual facts override formal terms.
Language and Local Law Considerations:
Contracts with foreign workers should be written in Spanish or be accompanied by an official translation. This ensures that the employee fully understands the terms. Under Article 11 of the Labor Code, any clause that contradicts or limits labor rights is null and void due to the principle of irrenunciabilidad de derechos (non-waiver of rights).
Best Practices for Employers and Expats:
To comply with Costa Rican employment standards:
Use clear, simple language in the contract.
State all benefits explicitly (vacations, aguinaldo, and bonuses).
Register employees with the Caja Costarricense del Seguro Social (CCSS).
Keep copies of contracts and payment records for at least four years.
Following these guidelines ensures full compliance with the Labor Code and aligns with the principles of fairness and transparency central to Costa Rican labor law.
Labor Laws on Wages, Work Hours and Overtime (Salarios, Jornada Laboral y Horas Extra)
Minimum Wage and Payment Structure:
Costa Rica establishes minimum wage rates (salario mínimo) for all job categories. The Ministry of Labor and Social Security (Ministerio de Trabajo y Seguridad Social, MTSS) reviews and updates these rates twice a year, publishing them in the official gazette La Gaceta.
Employers must pay at least the established minimum, depending on the employee’s occupation or qualification level. Wages may be set by the hour, day, week, or month, allowing flexibility in scheduling and payment.
To ensure compliance, employers should regularly verify that all salaries meet or exceed the applicable category. Failure to comply can result in fines and administrative sanctions.
Working Hours (Jornada Laboral)
The Labor Code (Código de Trabajo) divides work schedules into three main shifts (jornadas), each with specific legal limits:
Daytime shift (Jornada Diurna): up to 8 hours per day or 48 hours per week.
Night shift (Jornada Nocturna): up to 6 hours per day or 36 hours per week.
Mixed shift (Jornada Mixta): up to 7 hours per day or 42 hours per week, combining day and night hours.
These limits protect workers from excessive working time and promote occupational health. Any employer requiring longer hours must compensate accordingly.
Overtime Rules (Horas Extra)
Overtime (horas extra) is any time worked beyond the legal limits mentioned above. It must be paid at 150 % (1.5 times) the normal hourly rate. Work performed on official rest days—such as Sundays or national holidays—must be compensated at double pay.
Employers are strongly encouraged to:
Keep written records of working hours, and have the employees sign them.
Monitor overtime carefully.
Obtain prior authorization when possible.
This documentation not only ensures compliance but also helps avoid future disputes.
Labor Wage Transparency and Recordkeeping
Employers should clearly communicate pay rates, deductions, and payment schedules. Each employee must receive a payslip (comprobante de pago) detailing the gross salary, deductions, and net amount. Maintaining accurate payroll records is essential for inspections by the Ministry of Labor or the CCSS.
Proper payment practices build trust and demonstrate good faith (buena fe). They also reflect the constitutional principle of equal pay for equal work (igualdad salarial). Following these standards supports a healthy and transparent work environment.
Mandatory Work Benefits: Vacations, Holidays and Aguinaldo (Prestaciones Laborales Obligatorias).
Paid Vacation (Vacaciones Remuneradas)
Every worker in Costa Rica has the right to paid annual vacation (vacaciones). After 50 weeks of continuous service, the employee earns two weeks of paid leave. For shorter employment, the right is calculated proportionally.
Vacations are not only a benefit but also a legal duty. Courts recognize that rest improves both employee health and productivity. Article 153 of the Labor Code (Código de Trabajo), together with constitutional guarantees, emphasize that vacations safeguard the worker’s well-being and efficiency.
Employers must keep written records of vacation periods and payment. Denying or delaying the enjoyment of this right violates the principle of good faith (buena fe) and the worker’s right to rest.
Public Holidays (Días Feriados)
Costa Rica recognizes 11 national holidays each year. Employees are entitled to double pay when they work on those days. If the holiday falls on a weekend or rest day, employers should provide an equivalent paid day off.
Common holidays include New Year’s Day, Labor Day, Independence Day, and Christmas. The Ministry of Labor periodically issues an updated list confirming official paid holidays.
Christmas Bonus (Aguinaldo)
All employees, regardless of their position or contract type, receive an annual Christmas bonus (aguinaldo). It equals one-twelfth of the total salary earned during the previous year and must be paid between December 1 and 20.
Depositing the amount into the employee’s bank account is accepted proof of payment, as confirmed by Costa Rican labor jurisprudence. The aguinaldo forms part of Costa Rica’s protective social policy, ensuring financial stability at the end of the year. However, a lot of workers feel that having to pay for their car´s “marchamo“, is taxation on their “aguinaldo.”
Labor Termination and Severance (Renuncia o Despido)
If the employee quits without just cause, he loses his right to severance (prestaciones laborales). If he quits the job, the employer must pay him any owed salaries, unpaid vacations, and unpaid aguinaldo. The worker must give notice (preaviso), of one month, to the employer.
Legal Grounds for Work Termination (Causales de Despido)
Article 81 establishes the general causes for dismissal with just cause. These include:
Immoral or violent behavior during work hours, or insults, slander, or physical aggression toward the employer or coworkers.
Serious offenses against company property, such as theft, intentional damage to machinery, tools, or materials.
Revealing trade secrets or confidential information related to the employer’s business.
Inexcusable negligence or recklessness that compromises workplace safety.
Unjustified absences for two consecutive days or more than two alternate days in the same month (abandono del trabajo).
Repeated refusal to follow safety instructions or operational rules established by the employer.
Fraud at hiring, such as presenting false qualifications or references.
Conviction by final criminal sentence.
Any other serious breach of contractual duties, even if not expressly listed, when it seriously affects trust or discipline.
Costa Rican courts interpret these causes restrictively, applying the protective principle (principio protector). Employers must always prove the facts objectively and in writing. The Constitutional Chamber (Resolution No. 563-97) confirmed that while disciplinary power must respect legality, labor infractions need not be described as strictly as criminal offenses, provided they involve a serious breach of duty.
Special Causes of Work Termination
For unionized or protected workers, Article 369 adds specific causes that justify dismissal when actions affect public order or the peace of work. Examples include:
Acts of coercion or violence against persons or property.
Damaging company assets or promoting disorder during strikes.
Inciting or participating in the destruction or obstruction of workplace operations.
Retaining or misusing goods during demonstrations or blocking access (piquetes).
Deliberately reducing performance or efficiency (reducción intencional del rendimiento laboral).
These rules preserve the peaceful character (carácter pacífico) of labor relations and protect both the right to strike and the employer’s property rights.
When applying these causes, documentation and evidence are crucial. Labor judges often side with the worker unless misconduct is proven beyond doubt and with procedural fairness.
Notice Period (Preaviso)
Under Costa Rican labor law, both the employer and the employee must give prior notice before ending an employment relationship. This rule is bilateral —the employer gives notice to allow the worker time to find new employment, and the employee must do the same if they intend to resign.
The length of the notice period depends on the worker’s time of service:
From 3 to 6 months: 1 week’s notice
From 6 months to 1 year: 2 weeks’ notice
More than 1 year: 1 month’s notice
If the employer ends the relationship immediately, they must pay the corresponding notice in cash (preaviso en dinero). During the notice period, the worker has one day per week to seek new employment.
Severance Pay (Auxilio de Cesantía)
If an employee is dismissed without just cause, they are entitled to severance compensation. The amount is based on the employee’s years of continuous service, usually equivalent to one month of salary per year worked, up to a maximum of eight years. The calculation is made using the average salary from the last six months.
Severance protects the worker’s economic stability and reflects the social justice principle recognized by the Costa Rican Constitution.
Immediate Payment of Benefits (Pago Inmediato de las Prestaciones)
When the employment relationship ends, all accrued benefits —including vacation pay, aguinaldo, notice, and severance— must be paid immediately. The Supreme Court has confirmed that employers cannot delay payment; any delay violates the principles of fairness and good faith.
The Dismissal Letter and Due Process (Carta de Despido)
In Costa Rica, any employment termination must respect the worker’s right to due process (debido proceso). The dismissal letter (carta de despido) is a key part of that guarantee. It is not just a formality — it is the official communication that gives validity to the termination and protects the rights of both parties.
Purpose of the Dismissal Letter
The dismissal letter serves two fundamental purposes:
It informs the employee of the specific facts and reasons that justify the termination.
It limits the employer’s defense, since once the reasons are written in the letter, the employer cannot later claim different ones in court.
In practice, this means that the contents of the letter define the legal boundaries of the employer’s argument. If the reasons are not clear, or if no written letter is given, the dismissal will be considered without just cause.
Content and Delivery
To be valid, the dismissal letter must:
Be written and signed by the employer or authorized representative.
Include specific facts that justify the termination, not vague statements like “loss of trust.”
Be delivered directly to the worker, preferably with acknowledgment of receipt.
Be provided immediately or within a reasonable time after the events occurred.
Employers should keep a signed copy as proof of delivery, or record the notification by certified mail or before witnesses. A copy of it, must be filed at the Ministry of Labor. This helps demonstrate transparency and good faith (buena fe) if the case later reaches the Labor Court.
Due Process and Right of Defense
The Costa Rican labor system strongly protects the right of defense (derecho de defensa). If an employee is dismissed without being properly informed of the cause, the courts will consider the termination was without just cause. Even when a worker has clearly committed an infraction, the employer must still respect procedural fairness — meaning that the employee must know why they are being dismissed.
Consequences of Failing to Provide the Dismissal Letter
If no dismissal letter is issued, or if the reason stated is too general or inaccurate, the termination is automatically treated as unjustified dismissal. In that case, the employer will be required to pay all corresponding benefits, including notice (preaviso), severance (cesantía), and any additional damages recognized by the court.
The dismissal letter therefore acts as the cornerstone of lawful termination in Costa Rica. It ensures transparency, procedural fairness, and accountability — essential elements for maintaining trust and compliance in every labor relationship.
Social Security and Workers´ Compensation (Seguridad Social y Riesgos de Trabajo)
The Social Security System (Caja Costarricense del Seguro Social - CCSS)
Costa Rica’s social protection system is built around the Caja Costarricense del Seguro Social (CCSS). Every employer must register each employee with the CCSS from the first day of work. Through this registration, workers gain access to medical care, maternity benefits, disability coverage, and pensions.
Employers contribute approximately 26.67% of the employee’s gross salary to the CCSS, while employees contribute about 10.67%. These combined contributions fund Costa Rica’s universal healthcare and retirement systems, ensuring long-term protection for the workforce.
Failing to register or make payments to the CCSS can lead to severe consequences, including fines, surcharges, and denial of legal certifications necessary for company operations. It can also expose the employer to personal liability for any medical costs or damages resulting from accidents or illnesses.
Worker´s Compensation and Occupational Risks (Riesgos de Trabajo)
In addition to social security coverage, all employers must provide workers’ compensation insurance through the Instituto Nacional de Seguros (INS). This mandatory insurance protects employees against work-related accidents and occupational diseases (enfermedades laborales).
Coverage includes:
Medical treatment and rehabilitation for injuries or occupational illnesses.
Temporary or permanent disability payments, based on the severity of the injury.
Life insurance benefits for the worker’s dependents in the event of death caused by a work accident.
Employers who fail to maintain this insurance are personally responsible for covering all related expenses.
The INS also offers specialized safety training and accident prevention programs, helping companies reduce workplace risks and improve compliance.
Importance of Compliance
Maintaining compliance with both the CCSS and the INS reflects a company’s commitment to lawful and ethical business practices. These institutions form the foundation of Costa Rica’s model, ensuring that all workers —national and foreign alike— have access to healthcare and fair compensation for workplace injuries.
For expatriate employers, understanding and fulfilling these obligations is essential to avoid sanctions and to foster a stable, reputable work environment in Costa Rica.
Data Protection, Background Checks and Medical Exams:
Costa Rica also has laws to protect employee data. Employers must obtain employee consent before gathering or processing personal information and disclose how the data will be used. Additionally, background checks are permitted within specific limits, particularly concerning criminal records related to certain crimes. Medical exams can be required for job roles that pose health risks, although tests for conditions like HIV or pregnancy are prohibited.
The Role of Unions and Worker Representation under Costa Rica´s labor laws:
Costa Rican law allows for freedom of association, giving employees the right to unionize. Trade unions are joint in Costa Rica and are the primary body for negotiating collective agreements with employers. These agreements cover wages, working hours, and workplace conditions. Although non-union representation is not mandated, many companies also recognize workers’ committees, which play a role in labor negotiations and resolving workplace disputes.
Hiring Foreign Workers: Immigration and Work Permits
Costa Rica has specific regulations for hiring foreign workers, which require a work permit or residency status authorizing employment. Temporary residents, including executives or specialized personnel, may be granted work permits under certain conditions. Spouses of foreign workers may also receive work authorization as long as they meet legal criteria. Employers face fines for hiring unauthorized foreign workers, so verifying employees’ work status and securing proper documentation is crucial.
Conclusion: Understanding Labor Law in Costa Rica
Costa Rica’s labor laws reflect the nation’s long-standing commitment to legal certainty, fairness, and respect for individual rights.
They establish a balanced framework that protects workers while giving employers the predictability needed to manage their businesses confidently.
For expatriates, investors, and companies hiring local staff, compliance with these rules is essential to prevent disputes and maintain credibility. Following the legal requirements on contracts, wages, terminations, and employee benefits ensures clarity and transparency in every professional relationship.
Employers who act in good faith (buena fe) and respect the law create workplaces grounded in trust and stability. Conversely, informal dismissals or failing to deliver a proper dismissal letter (carta de despido) can lead to costly litigation.
At CPG Legal, we assist both local and foreign clients in understanding Costa Rica’s labor framework — drafting compliant contracts, handling employee relations, and ensuring that every step follows due process.
Dr. Christopher Pirie Gil.