Costa Rica has been known to attract foreign investment through multinational companies in the manufacturing, knowledge intensive services, life sciences and tourism infrastructure sectors, over the past forty years due to favorable incentives and benefits provided by the Free Zone Regime. The Costa Rica Investment Promotion Agency (CINDE), a private non-profit agency in charge of attracting direct foreign investment to the country, has helped guide over 400 high-tech companies in establishing operations in the country, alongside the Ministry of Foreign Trade
Due to high competition within the different sectors, companies have implemented the practice of subscribing non-compete contractual clauses or covenants with employees, to prevent them to work for competitor companies after the employment relationship ends. Non-compete covenants are those contractual agreements by which an employee undertakes, for a specific period after the termination of the employment relationship, not to perform work for other companies that carry out similar commercial or productive activities as those carried out by the organization for which they previously
Constitutionality of Non-Compete Covenants
However, concerns over the legality and enforceability of such covenants in Costa Rica frequently arise, as the Political Constitution states that employment is an unrelinquishable constitutional right of individuals, and that the State must prevent conditions that in any way undermine the freedom of work and guarantee the right to free choice of
The Labor Code does not expressly regulate non-compete agreements, however, it establishes the employee’s confidentiality obligation towards the employer, which is limited to the duration of the employment relationship. Nonetheless, the
Likewise, it specifies that in the contracts through which specialized technical knowledge, technical assistance, basic engineering or technologies are transmitted, confidentiality clauses may be established to protect the undisclosed information that meet the conditions referred to in the first paragraph of article 2 of said law, which are: a) that it is secret, not generally known or easily accessible to people in circles where this type of information is used; b) that it is legally under the control of a person who has taken reasonable and proportionate measures to keep it secret; and c) has a commercial value due to its secret nature. The undisclosed information refers to the nature, characteristics or purposes of the products and the production methods or processes.
It is important to note that the Labor Code was approved in 1943 and has since suffered minor reforms until 2017 in which the procedural reform came into force, which changed many aspects of the procedures of the labor legislation. However, it still hasn´t endured the necessary reforms to include the modern forms of employment and contracting required by current labor relationships and new forms of service provision and conditions, which are already occurring in practice.