June 03, 2019 Issue: June 2019

COSTA RICA - Labor Procedure Reform

By: Alvaro Aguilar, Partner – Director of L&E Regional Practice, Aguilar Castillo Love

The Labor Procedure Reform is the most important amendment made to the Costa Rican Labor Code since its enactment in 1943. Its purpose is to establish the orality of court proceedings in labor matters; however, it includes significant changes to some specific issues, both procedural and substantive, in terms of rights and obligations of the parties within the framework of labor relations. The reform became effective on July 25th, 2017.

Among the most important changes for private employers are:

1. Discrimination.

The existing discrimination criteria in the Costa Rican legal system was extended. Under the new legislation, the following discrimination in the work place is prohibited:

  • Age
  • Ethnicity
  • Sex
  • Religion
  • Race
  • Sexual orientation
  • Civil status
  • Political opinion
  • National extraction
  • Social origin
  • Affiliation
  • Disability
  • Union membership
  • Economic situation
  • Any other similar form of discrimination

All workers who perform work in the same subjective and objective conditions must enjoy the same rights regarding working hours and payment, and that breach of this provision shall be interpreted as a form of discrimination.

One of the main innovations of this section is related to the possible consequences for the employer found by a court of law to have engaged in a discriminatory dismissal. A worker discriminatorily dismissed is entitled to being reinstatement, as well as payment of the unpaid wages and any damages caused. Also, the management worker who carries out the discriminatory actions can be terminated and he/she may be jointly and severally liable for the damages caused.

2. Terms of Statute of Limitations

The new law maintains the previous statute of limitations, which is one year after the termination of the employment relationship occurs. Similarly, the new law maintains the prescription term that the employer has to impose disciplinary measures, which is one month, with the caveat that if the company must conduct an internal investigation procedure whose outcome may result in a disciplinary sanction, the employer must notify the worker that situation within one month of the alleged misconduct, after which the employer will have one month to issue the resolution and apply the discipline.

The new law creates two substantial changes: a) a worker has up to six months to terminate his employment contract with just cause - which would involve the complete payment of his liquidation- for the employer’s breach the conditions negotiated by contract or labor laws and social security; and b) the prescription period for offenses committed for violations of labor laws or social security is two years.

3. Jurisdictions of Protection (Special Jurisdictions)

The law provides special protection (called “special privileges “) to certain workers. Within the private sector, the special protection applies to:

  • Women who are pregnant or breastfeeding
  • Minors (teenagers)
  • Workers who are union leaders
  • Complainants of sexual harassment
  • Complainants of employment discrimination

For this group of workers, the reform creates a summary procedure in court to protect their rights. Under this special and summary procedure, once the worker submits the judicial claim, the judge, within 24 hours, will confer a period of five days to the employer to respond to the process and provide exculpatory evidence. The judge may even order that discipline (reprimand or dismissal) be suspended and can order the reinstatement and payment of lost wages, as well as any damages caused.

4. Right to Strike in the Private Sector

On the right to strike, the reform introduces developments of relevance to the private sector, which are:

If there is a legally formed union in the company, the right to strike will require only the positive vote of half plus one of the members present in the assembly. If there is no union, a group of workers can hold a secret election. Such a vote shall be legally valid, and again a strike may be ratified with the positive vote of half plus one of the participating workers.

An employer who impedes the voting process, workers' assemblies, or other related activities, may be imposed with a penalty of up to 23 basic wages.

Trade unions or temporary coalitions of workers must attempt conciliation with the employer for their claims, including:

  • Serious breach of the collective agreement,
  • Collective or widespread breach of employment contracts,
  • Breach of a collective or settlement agreement or arbitration award,
  • Refusal to negotiate a collective agreement,
  • Refusal to recognize a union,
  • Violating an order requiring reinstatement of the workers' representatives,
  • Abuse or violence to workers.

An attempt at conciliation is a prerequisite to a strike. A Trade Union or temporary coalition must do notify an employer in writing about a disagreement; the employer then has one month to resolve it. Absent resolution or rectification, workers may strike.

An employer may not terminate employment contracts of those workers on strike that a labor court has not declared this illegal. If the strike is declared illegal, the workers must return to their jobs within 48 hours. In addition, if the strike is not declared illegal, the employer is expressly prohibited from hiring temporary workers to replace strikers.

5. Arbitration

The law recognizes arbitration as one way of resolving conflicts between employers and workers. In principle, the arbitration would be managed by the Judicial System. However, the parties can agree to conduct their arbitration through the Ministry of Labor or a duly authorized Arbitration Center. Predispute arbitration agreements are prohibited, so the parties must agree after the conflict arises.

6. Violations of labor laws

The new law contains a chapter about violations of labor laws, establishing the relevant procedures and applicable sanctions. It imposes liabilities for misconduct or breaches of the laws of employment and social security. Similarly, it establishes fines for an employer who fails to deliver in effect preventive labor climate reports or documents required by the authorities of the labor inspectorate or the Social Security Authorities. Fines may range from 1-23 basic wages (one basic wage today is around US $750.00).

7. Public Defender

Every worker whose pay is less than two minimum salaries ($1,500.00 aprox), shall be entitled to receive free legal assistance from the State, through the Office of Public Defense of the Judicial Branch.

8. Orality of the judicial process

This part of the reform introduces significant changes to the current legislation. However, not only is it a change or transformation of the way the procedure is held in court, but also incorporates some other new elements in the oral proceedings.

It establishes the basic principles that apply to all processes. Judges must follow these procedures in all kinds of labor issues, including:

  • Conciliation
  • Simplicity of actions
  • Officiousness
  • Concentration and immediacy
  • Probation

As part of the reform, the Labor Courts for Small Claims were eliminated and the legal framework for labor matters reorganized as follows:

  • Labor Court
  • Court of Conciliation and Arbitration
  • Courts of Appeal
  • Court of Cassation (Supreme Court)

Regarding the burden of proof, the worker must demonstrate the work s/he has performed. The employer has the obligation to prove all facts invoked in the process, all facts that mention or refer to internal disciplinary proceedings, or dismissal letter, and all other information the employer is required to keep documented, such as payment of wages and benefits, date of admission, employment contract, payment of commissions, allowances, working hours, holidays, Christmas bonus, vacation, social security, etc.

The new law also establishes the possibility to request the imposition of precautionary measures. It is also possible to order the suspension of the effects of a dismissal or to provisionally reinstate the worker.

Finally, the reform includes a section that regulates the indexation and the payment of back pay. Back pay will be indexed according to the consumer price index for the relevant time period. On the other side, for orders requiring reinstatement with back pay, payment of these wages will be limited to 24 times the total monthly wage of the worker at the time of the order, unless otherwise specified; that amount does not support indexing. Also, from the date of the judgment forward, the employers must pay the salary required by the contract, accumulated seniority, vacations, Christmas bonus, etc.. The employer must reimburse to social security any social charges resulting from the improper termination.

9. Termination

The law states that, in case of a termination with cause, the termination letter must provide the specific reasons for the termination. The letter must be delivered with two witnesses in case the worker refuses to receive it. In that case, the employer will have 10 days to submit the termination letter to the Ministry of Labor.